UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2003
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 0-29583
Loudeye Corp.
| Delaware | 91-1908833 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) |
1130 Rainier Avenue South, Seattle, WA 98144
(Address of principal executive offices) (Zip Code)
206-832-4000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Common | 56,137,166 | |||
| (Class) | (Outstanding at November 10, 2003) |
Loudeye Corp.
Form 10-Q Quarterly Report
For the Quarter Ended September 30, 2003
TABLE OF CONTENTS
| Page | |||||||||||||
PART |
I. | Financial Information (unaudited) | |||||||||||
Item |
1 | Financial Statements | |||||||||||
| Consolidated Balance Sheets | 3 | ||||||||||||
| Consolidated Statements of Operations | 4 | ||||||||||||
| Consolidated Statement of Stockholders’ Equity | 5 | ||||||||||||
| Consolidated Statements of Cash Flows | 6 | ||||||||||||
| Notes to Consolidated Financial Statements | 7 | ||||||||||||
Item |
2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 | ||||||||||
Item |
3 | Quantitative and Qualitative Disclosures About Market Risk | 36 | ||||||||||
Item |
4 | Disclosure Controls and Procedures | 36 | ||||||||||
PART |
II. | Other Information | |||||||||||
Item |
1 | Legal Proceedings | 36 | ||||||||||
Item |
2 | Changes in Securities and Use of Proceeds | 37 | ||||||||||
Item |
3 | Defaults Upon Senior Securities | 37 | ||||||||||
Item |
4 | Submission of Matters to a Vote of Security Holders | 37 | ||||||||||
Item |
5 | Other Information | 38 | ||||||||||
Item |
6 | Exhibits and Reports on Form 8-K | 38 | ||||||||||
2
PART I – FINANCIAL INFORMATION
ITEM I FINANCIAL STATEMENTS
LOUDEYE CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
| September 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
Cash and cash equivalents |
$ | 7,898 | $ | 1,780 | ||||||
Restricted cash |
413 | — | ||||||||
Short-term investments |
11,507 | 9,978 | ||||||||
Accounts receivable, net of allowances of $227 and $290 |
2,155 | 2,107 | ||||||||
Notes receivable from related parties |
— | 1,187 | ||||||||
Prepaid expenses and other |
488 | 736 | ||||||||
Media
restoration assets held for sale |
1,040 | 2,074 | ||||||||
Total current assets |
23,501 | 17,862 | ||||||||
Restricted investments |
556 | 1,500 | ||||||||
Property and equipment, net |
1,430 | 2,281 | ||||||||
Goodwill |
— | 5,307 | ||||||||
Intangible assets, net |
215 | 1,758 | ||||||||
Other assets |
408 | 821 | ||||||||
Total assets |
$ | 26,110 | $ | 29,529 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Accounts payable |
$ | 1,201 | $ | 1,193 | ||||||
Line of credit |
1,227 | — | ||||||||
Accrued compensation and benefits |
856 | 904 | ||||||||
Other accrued expenses |
1,201 | 1,424 | ||||||||
Accrued special charges |
1,483 | 2,903 | ||||||||
Accrued acquisition consideration |
1,059 | 1,059 | ||||||||
Deposits and deferred revenues |
1,054 | 305 | ||||||||
Current portion of long-term debt |
442 | 773 | ||||||||
Media
restoration liabilities held for sale |
83 | 25 | ||||||||
Total current liabilities |
8,606 | 8,586 | ||||||||
Deposits and deferred revenue |
186 | — | ||||||||
Common stock warrants |
1,678 | — | ||||||||
Long-term debt, net of current portion |
280 | 591 | ||||||||
Total liabilities |
10,750 | 9,177 | ||||||||
Commitments and contingencies |
||||||||||
STOCKHOLDERS’ EQUITY |
||||||||||
Preferred stock, $0.001 par value, 5,000 shares
authorized, none outstanding |
— | — | ||||||||
Common
stock, treasury stock, additional paid-in capital and warrants for
common stock,
$0.001 par value, 100,000 shares authorized; issued
September 30, 2003 - 55,954 shares and December 31, 2002 -
53,871 shares; outstanding September 30, 2003 - 55,954 shares and
December 31, 2002 - 47,176 shares |
206,772 | 194,195 | ||||||||
Deferred stock compensation |
(239 | ) | (130 | ) | ||||||
Accumulated deficit |
(191,173 | ) | (173,713 | ) | ||||||
Total stockholders’ equity |
15,360 | 20,352 | ||||||||
Total liabilities and stockholders’ equity |
$ | 26,110 | $ | 29,529 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
LOUDEYE CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
REVENUES |
$ | 2,811 | $ | 3,626 | $ | 9,024 | $ | 10,103 | ||||||||||
COST OF REVENUES |
1,524 | 3,513 | 5,744 | 10,390 | ||||||||||||||
Gross profit (loss) |
1,287 | 113 | 3,280 | (287 | ) | |||||||||||||
OPERATING EXPENSES |
||||||||||||||||||
Research and development |
399 | 425 | 1,368 | 2,689 | ||||||||||||||
Sales and marketing |
485 | 1,370 | 2,867 | 5,831 | ||||||||||||||
General and administrative |
1,615 | 2,366 | 6,106 | 8,603 | ||||||||||||||
Amortization of intangible and other assets |
157 | 810 | 943 | 2,219 | ||||||||||||||
Stock-based compensation |
761 | 91 | 998 | (463 | ) | |||||||||||||
| 3,417 | 5,062 | 12,282 | 18,879 | |||||||||||||||
Special charges |
— | — | 8,437 | 1,890 | ||||||||||||||
OPERATING LOSS |
(2,130 | ) | (4,949 | ) | (17,439 | ) | (21,056 | ) | ||||||||||
OTHER INCOME (EXPENSE), net |
||||||||||||||||||
Interest income |
76 | 218 | 262 | 860 | ||||||||||||||
Interest expense |
(83 | ) | (138 | ) | (180 | ) | (590 | ) | ||||||||||
Increase in fair value of common stock
warrants |
(222 | ) | — | (222 | ) | — | ||||||||||||
Other |
19 | 781 | 119 | 781 | ||||||||||||||
Total other income (expense) |
(210 | ) | 861 | (21 | ) | 1,051 | ||||||||||||
Net Loss |
$ | (2,340 | ) | $ | (4,088 | ) | $ | (17,460 | ) | $ | (20,005 | ) | ||||||
Basic and diluted net loss per share |
$ | (0.05 | ) | $ | (0.10 | ) | $ | (0.37 | ) | $ | (0.49 | ) | ||||||
Weighted average shares outstanding
— basic and diluted |
50,401 | 40,664 | 47,659 | 40,442 | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
LOUDEYE CORP.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands)
| Common Stock, Treasury | ||||||||||||||||||||
| Stock, Additional Paid-in | ||||||||||||||||||||
| Capital, and Warrants | Total | |||||||||||||||||||
| Deferred Stock | Accumulated | Stockholders' | ||||||||||||||||||
| Shares | Amount | Compensation | Deficit | Equity | ||||||||||||||||
BALANCES, DECEMBER 31, 2002 |
47,176 | $ | 194,195 | $ | (130 | ) | $ | (173,713 | ) | $ | 20,352 | |||||||||
Repurchase of shares |
(1,469 | ) | (426 | ) | — | — | (426 | ) | ||||||||||||
Stock option and warrant exercises |
1,700 | 1,838 | — | — | 1,838 | |||||||||||||||
Shares issued in private placement |
7,839 | 10,005 | — | — | 10,005 | |||||||||||||||
Shares issued for prior
acquisitions and accrued bonus |
629 | 25 | — | — | 25 | |||||||||||||||
Deferred stock compensation |
— | 334 | (334 | ) | — | — | ||||||||||||||
Stock-based compensation |
79 | 773 | 225 | — | 998 | |||||||||||||||
Issuance of common stock warrant |
— | 28 | — | — | 28 | |||||||||||||||
Net loss |
— | — | — | (17,460 | ) | (17,460 | ) | |||||||||||||
BALANCES, SEPTEMBER 30, 2003 |
55,954 | $ | 206,772 | $ | (239 | ) | $ | (191,173 | ) | $ | 15,360 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
LOUDEYE CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2003 | 2002 | ||||||||||
Operating Activities |
|||||||||||
Net loss |
$ | (17,460 | ) | $ | (20,005 | ) | |||||
Adjustments to reconcile net loss to net cash used in
operating activities: |
|||||||||||
Depreciation and amortization |
2,023 | 5,381 | |||||||||
Special
charges and other non-cash items |
6,568 | 25 | |||||||||
Other income from final settlement of acquisition terms |
— | (700 | ) | ||||||||
Stock-based compensation |
998 | (463 | ) | ||||||||
Increase in fair value of common stock warrants |
222 | — | |||||||||
Changes in operating assets and liabilities, net of
amounts acquired in purchase of business: |
|||||||||||
Accounts receivable |
(48 | ) | (577 | ) | |||||||
Prepaid expenses and other assets |
1,073 | 691 | |||||||||
Accounts payable |
8 | 479 | |||||||||
Accrued compensation, benefits and other expenses |
(266 | ) | (1,261 | ) | |||||||
Accrued special charges |
(1,420 | ) | (1,008 | ) | |||||||
Deposits and deferred revenues |
935 | (575 | ) | ||||||||
Media
restoration assets and liabilities held for sale |
341 | — | |||||||||
Net cash used in operating activities |
(7,026 | ) | (18,013 | ) | |||||||
Investing Activities |
|||||||||||
Purchases of property and equipment |
(53 | ) | (1,586 | ) | |||||||
Proceeds from sales of property and equipment |
183 | — | |||||||||
Cash paid for acquisition of business and technology, net |
(82 | ) | (266 | ) | |||||||
Loans made to related party and related interest |
— | (788 | ) | ||||||||
Payments received on loans made to related party and
related interest |
1,187 | — | |||||||||
Purchases of short-term investments |
(7,850 | ) | (11,104 | ) | |||||||
Sales of short-term investments |
6,321 | 21,240 | |||||||||
Net cash (used in) provided by investing activities |
(294 | ) | 7,496 | ||||||||
Financing Activities |
|||||||||||
Proceeds
from sale of stock and exercise of stock options and warrants |
1,838 | 40 | |||||||||
Proceeds from private equity placement financing, net |
11,568 | — | |||||||||
Proceeds from line of credit |
3,727 | — | |||||||||
Principal payments on line of credit, long-term debt and
capital lease obligations |
(3,269 | ) | (20,128 | ) | |||||||
Repurchase of common stock |
(426 | ) | (216 | ) | |||||||
Net cash provided by (used in) financing activities |
13,438 | (20,304 | ) | ||||||||
Net increase (decrease) in cash and cash equivalents |
6,118 | (30,821 | ) | ||||||||
Cash and cash equivalents, beginning of period |
1,780< | ||||||||||