SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2002 |
OR
| o |
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 000-30063
ARTISTDIRECT, INC.
| Delaware (State or other jurisdiction of incorporation or organization) |
95-4760230 (I.R.S. Employer Identification No.) |
|
| 5670 Wilshire Boulevard, Suite 200 Los Angeles, California (Address of principal executive office) |
90036 (Zip Code) |
(323) 634-4000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Number of shares of Common Stock, par value $0.01 per share, outstanding as of September 30, 2002: 3,461,130 shares.
INDEX
| Page | |||||
PART I: FINANCIAL INFORMATION |
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ITEM 1. FINANCIAL STATEMENTS |
|||||
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30,
2002 (UNAUDITED) AND DECEMBER 31, 2001 |
1 | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) AND 2001 (UNAUDITED) |
2 | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) AND 2001 (UNAUDITED) |
3 | ||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
4 | ||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
15 | ||||
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK |
49 | ||||
ITEM 4. CONTROLS AND PROCEDURES |
49 | ||||
PART II: OTHER INFORMATION |
|||||
ITEM 1. LEGAL PROCEEDINGS |
50 | ||||
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS |
50 | ||||
ITEM 3. DEFAULTS UPON SENIOR SECURITIES |
51 | ||||
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
51 | ||||
ITEM 5. OTHER INFORMATION |
51 | ||||
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K |
51 | ||||
A. EXHIBITS |
51 | ||||
B. REPORTS ON FORM 8-K |
52 | ||||
SIGNATURES |
53 | ||||
CERTIFICATIONS |
54 | ||||
In this Report, the words “ARTISTdirect,” the “Company,” “we,” “us” and “our” collectively refer to ARTISTdirect, Inc.
i
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ARTISTdirect, Inc. and Subsidiaries
Consolidated Balance Sheets
(amounts in thousands)
| September 30, | December 31, | ||||||||||
| 2002 | 2001 | ||||||||||
| (Unaudited) | |||||||||||
Assets |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 6,606 | $ | 25,766 | |||||||
Restricted cash |
2,157 | 2,258 | |||||||||
Short term investments |
9,741 | 18,518 | |||||||||
Accounts receivable, net |
500 | 346 | |||||||||
Prepaid stock based compensation |
388 | 4,645 | |||||||||
Other prepaid expenses and current assets |
1,807 | 1,390 | |||||||||
Total current assets |
21,199 | 52,923 | |||||||||
Property and equipment, net |
4,131 | 6,077 | |||||||||
Investments in affiliated companies |
74 | 80 | |||||||||
Goodwill and intangibles, net |
— | 788 | |||||||||
Other assets, net |
6 | 5 | |||||||||
| $ | 25,410 | $ | 59,873 | ||||||||
Liabilities and Stockholders’ Equity |
|||||||||||
Current liabilities: |
|||||||||||
Accounts payable |
$ | 275 | $ | 251 | |||||||
Accrued expenses |
2,595 | 4,018 | |||||||||
Loans and notes payable |
— | 254 | |||||||||
Deferred revenue |
20 | 36 | |||||||||
Total current liabilities |
2,890 | 4,559 | |||||||||
Investment in ARTISTdirect Records (record label joint venture) |
8,340 | 3,027 | |||||||||
Long term liabilities |
913 | 903 | |||||||||
Total liabilities |
12,143 | 8,489 | |||||||||
Stockholders’ equity: |
|||||||||||
Common stock, $.01 par value. Authorized 15,000,000 shares;
issued 3,784,032 shares in 2002 and 3,783,510 shares in
2001; outstanding 3,461,130 shares in 2002 and 3,460,608 in
2001 |
379 | 379 | |||||||||
Treasury stock, 322,902 shares in 2002 and 2001 |
(3,442 | ) | (3,442 | ) | |||||||
Additional paid-in-capital |
207,865 | 207,832 | |||||||||
Unearned compensation |
(484 | ) | (745 | ) | |||||||
Accumulated deficit |
(191,154 | ) | (152,786 | ) | |||||||
Unrealized gain on available for sale investments |
103 | 146 | |||||||||
Total stockholders’ equity |
13,267 | 51,384 | |||||||||
| $ | 25,410 | $ | 59,873 | ||||||||
See accompanying notes to consolidated financial statements.
1
ARTISTdirect, Inc. and Subsidiaries
Consolidated Statements of Operations
(amounts in thousands, except for share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
Net revenue: |
||||||||||||||||||||
E-Commerce |
$ | 986 | $ | 1,569 | $ | 3,354 | $ | 5,651 | ||||||||||||
Media |
314 | 420 | 718 | 2,205 | ||||||||||||||||
iMusic record label |
458 | — | 458 | — | ||||||||||||||||
Total net revenue |
1,758 | 1,989 | 4,530 | 7,856 | ||||||||||||||||
Cost of revenue: |
||||||||||||||||||||
Direct cost of product sales |
1,000 | 1,279 | 2,825 | 4,698 | ||||||||||||||||
Other cost of revenue |
828 | 1,224 | 2,631 | 4,282 | ||||||||||||||||
Stock-based compensation |
792 | 1,549 | 2,696 | 4,648 | ||||||||||||||||
Total cost of revenue |
2,620 | 4,052 | 8,152 | 13,628 | ||||||||||||||||
Gross loss |
(862 | ) | (2,063 | ) | (3,622 | ) | (5,772 | ) | ||||||||||||
Operating expenses: |
||||||||||||||||||||
Website development |
21 | 456 | 41 | 3,269 | ||||||||||||||||
Sales and marketing |
525 | 1,145 | 1,621 | 5,053 | ||||||||||||||||
General and administrative |
2,029 | 3,021 | 5,424 | 10,703 | ||||||||||||||||
Stock-based compensation |
399 | 1,569 | 1,853 | 4,859 | ||||||||||||||||
Depreciation and amortization |
691 | 1,786 | 2,187 | 5,406 | ||||||||||||||||
Loss from impairment of goodwill |
— | 6,986 | 788 | 11,444 | ||||||||||||||||
Loss from operations |
(4,527 | ) | (17,026 | ) | (15,536 | ) | (46,506 | ) | ||||||||||||
Loss from equity investments |
(5,622 | ) | (3,331 | ) | (23,632 | ) | (4,054 | ) | ||||||||||||
Interest income, net |
158 | 858 | 653 | 3,057 | ||||||||||||||||
Loss from continuing operations before taxes |
(9,991 | ) | (19,499 | ) | (38,515 | ) | (47,503 | ) | ||||||||||||
Income taxes |
— | — | — | — | ||||||||||||||||
Loss from continuing operations |
$ | (9,991 | ) | $ | (19,499 | ) | $ | (38,515 | ) | $ | (47,503 | ) | ||||||||
Income from discontinued operations |
— | 138 | 147 | 110 | ||||||||||||||||
Net loss |
$ | (9,991 | ) | $ | (19,361 | ) | $ | (38,368 | ) | $ | (47,393 | ) | ||||||||
Interest on rescission offer |
— | 196 | — | 533 | ||||||||||||||||
Net loss attributable to common shareholders |
$ | (9,991 | ) | $ | (19,557 | ) | $ | (38,368 | ) | $ | (47,926 | ) | ||||||||
Basic and diluted loss per share from
continuing operations |
$ | (2.89 | ) | $ | (5.52 | ) | $ | (11.13 | ) | $ | (13.14 | ) | ||||||||
Basic and diluted income per share from
discontinued operations |
— | 0.04 | 0.04 | 0.03 | ||||||||||||||||
Basic and diluted loss per share |
$ | (2.89 | ) | $ | (5.48 | ) | $ | (11.09 | ) | $ | (13.11 | ) | ||||||||
Weighted average common shares outstanding |
3,461,466 | 3,568,577 | 3,460,891 | 3,656,333 | ||||||||||||||||
2
ARTISTdirect, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(amounts in thousands)
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
| (Unaudited) | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (38,368 | ) | $ | (47,393 | ) | ||||||
Income from discontinued operations |
147 | 110 | ||||||||||
Loss from continuing operations |
(38,515 | ) | (47,503 | ) | ||||||||
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
2,187 | 5,429 | ||||||||||
Loss from equity investments |
23,632 | 4,054 | ||||||||||
Loss on sale of equipment |
— | 34 | ||||||||||
Loss from impairment of goodwill |
788 | 11,444 | ||||||||||
Allowance for doubtful accounts and sales returns |
72 | (322 | ) | |||||||||
Stock based compensation |
4,549 | 9,507 | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
(226 | ) | 882 | |||||||||
Prepaid expenses and other current assets |
(417 | ) | (923 | ) | ||||||||
Other assets |
(1 | ) | 241 | |||||||||
Accounts payable, accrued expenses and other liabilities |
(1,465 | ) | (2,338 | ) | ||||||||
Deferred revenue |
(16 | ) | (34 | ) | ||||||||
Net cash used in continuing operations |
(9,412 | ) | (19,529 | ) | ||||||||
Net cash provided by discontinued operations |
147 | 110 | ||||||||||
Net cash used in operating activities |
(9,265 | ) | (19,419 | ) | ||||||||
Cash flows from investing activities: |
||||||||||||
Purchases of property and equipment |
(256 | ) | (839 | ) | ||||||||
Proceeds from the sale of equipment |
15 | 60 | ||||||||||
Sale/maturity (purchase) of short-term investments, net |
8,734 | 16,426 | ||||||||||
Investment in ARTISTdirect Records, LLC, net |
(18,500 | ) | (4,000 | ) | ||||||||
Distribution from (investment in) other equity investments |
6 | (375 | ) | |||||||||
Net cash provided by (used in) investing activities |
(10,001 | ) | 11,272 | |||||||||
Cash flows from financing activities: |
||||||||||||
Repurchase of common stock |
— | (2,663 | ) | |||||||||
Change in restricted cash |
101 | — | ||||||||||
Proceeds from employee stock purchase plan |
5 | 11 | ||||||||||
| & | ||||||||||||