SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2003
OR
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________ to ________
Commission file number 1-13469
MediaBay, Inc.
(Exact name of Registrant as Specified in its Charter)
Florida 65-0429858
(State or other jurisdiction of (I.R.S. Employment
incorporation or organization) Identification No.)
2 Ridgedale Avenue, Cedar Knolls, New Jersey 07927
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 539-9528
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirement for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer as defined
in Rule 12b-2 of the Securities Exchange Act of 1934. Yes | | No |X|
The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of June 28, 2002 (the last business day of the Registrant's
most recently completed second quarter) was approximately $45,504,807.
As of May 15, 2003, there were 14,341,376 shares of the Issuer's Common Stock
outstanding.
1
MEDIABAY, INC.
Quarter ended March 31, 2003
Form 10-Q
Index
Page
----
PART I: Financial Information
Item 1: Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at March 31, 2003 and
December 31, 2002, (unaudited) 3
Condensed Consolidated Statements of Operations for the
three months ended March 31, 2003 and 2002 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2003 and 2002 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3: Quantitative and Qualitative Disclosures of Market Risk 18
Item 4: Controls and Procedures 19
PART II: Other Information
Item 2: Changes in Securities and Use of Proceeds 19
Item 6: Exhibits and Reports on Form 8-K 19
Signatures 20
Certification of Principal Executive Officer 21
Certification of Principal Financial Officer 22
2
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
MEDIABAY, INC.
Condensed Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
March 31, 2003 December 31, 2002
-------------- -----------------
Assets
Current assets:
Cash and cash equivalents $ 10 $ 397
Accounts receivable, net of allowances for sales returns and
doubtful accounts of $4,753 and $5,325 at March 31, 2003
and December 31, 2002, respectively 6,154 7,460
Inventory 5,211 5,244
Prepaid expenses and other current assets 842 503
Royalty advances 1,076 1,044
-------- --------
Total current assets 13,293 14,648
Fixed assets, net of accumulated depreciation of $704 and $665 at
March 31, 2003 and December 31, 2002, respectively 329 358
Deferred member acquisition costs 6,985 7,396
Deferred income taxes 16,224 16,224
Other intangibles, net 170 122
Goodwill 9,658 9,871
-------- --------
$ 46,659 $ 48,619
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 16,467 $ 16,616
Current portion - long-term debt 2,385 2,368
-------- --------
Total current liabilities 18,852 18,984
-------- --------
Long-term debt, net of original issue discount of $460 and $567 at
March 31, 2003 and December 31, 2002, respectively 14,372 14,680
-------- --------
Common stock subject to contingent put rights 4,550 4,550
-------- --------
Preferred stock, no par value, authorized 5,000,000 shares;
25,000 shares issued and outstanding at March 31, 2003 and
December 31, 2002, respectively 2,500 2,500
Common stock; no par value, authorized 150,000,000 shares; issued and
outstanding 14,341,376 at March 31, 2003 and December 31, 2002 94,794 94,800
Contributed capital 8,274 8,251
Accumulated deficit (96,683) (95,146)
-------- --------
Total stockholders' equity 8,885 10,405
-------- --------
$ 46,659 $ 48,619
======== ========
See accompanying notes to consolidated financial statements.
3
MEDIABAY, INC.
Condensed Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
Three months ended
March 31,
-------------------------
2003 2002
-------- --------
Sales, net of returns, discounts and allowances of
$4,378 and $2,131 for the three months ended
March 31, 2003 and 2002, respectively $ 10,697 $ 9,480
Cost of sales 5,234 4,289
-------- --------
Gross profit 5,463 5,191
Expenses:
Advertising and promotion 2,847 2,188
General and administrative 3,475 2,487
Depreciation and amortization 99 498
-------- --------
Operating (loss) profit (958) 18
Interest expense 523 732
-------- --------
Loss before income taxes (1,481) (714)
Income taxes -- --
-------- --------
Net loss (1,481) (714)
Dividends on preferred stock 56 45
-------- --------
Net loss applicable to common shares $ (1,537) $ (759)
======== ========
Basic and diluted loss per common share:
Basic loss per common share $ (.11) $ (.05)
======== ========
Diluted loss per common share $ (.11) $ (.05)
======== ========
See accompanying notes to consolidated financial statements.
4
MEDIABAY, INC.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three months ended
March 31,
-----------------------
2003 2002
------- -------
Cash flows from operating activities:
Net loss applicable to common shares $(1,537) $ (759)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 99 498
Amortization of deferred member acquisition costs 1,575 1,264
Amortization of deferred financing costs and original issue discount 119 377
Non-current accrued interest and dividends payable 261 --
Changes in asset and liability accounts, net of asset acquisition:
Decrease in accounts receivable, net 1,305 567
Decrease in inventory 33 23
(Increase) decrease in prepaid expenses (353) 293
(Increase) decrease in royalty advances (31) 14
Increase in deferred member acquisition costs (1,163) (2,617)
Increase in accounts payable and accrued expenses 74 555
------- -------
Net cash provided by operating activities 382 215
------- -------
Cash flows from investing activities:
Acquisition of fixed assets (11) (77)
Intangible assets acquired (243) (379)
------- -------
Net cash used in investing activities (254) (456)
------- -------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 500
Payment of long-term debt (510) (300)
Increase in deferred financing costs (5) --
------- -------
Net cash (used in) provided by financing activities (515) 200
------- -------
Net decrease in cash and cash equivalents (387) (41)
Cash and cash equivalents at beginning of period 397 64
------- -------
Cash and cash equivalents at end of period $ 10 $ 23
======= =======
See accompanying notes to consolidated financial statements.
5
MEDIABAY, INC.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share data)
(Unaudited)
(1) Organization
MediaBay, Inc. (the "Company"), a Florida corporation, was formed on
August 16, 1993. MediaBay, Inc. is a marketer of spoken audio products,
including audiobooks and old-time radio shows, through direct response, retail
and Internet channels. The Company markets audiobooks primarily through its
Audio Book Club. Its old-time radio programs are marketed through direct-mail
catalogs, over the Internet at RadioSpirits.com and, on a wholesale basis, to
major retailers.
(2) Significant Accounting Policies
Basis of Presentation
The interim unaudited condensed consolidated financial statements should
be read in conjunction with the Company's audited consolidated financial
statements contained in its Annual Report on Form 10-K. The preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates. On an
ongoing basis management reviews its estimates based on current available
information. Changes in facts and circumstances may result in revised estimates.
In the opinion of management, the interim unaudited financial statements include
all material adjustments, all of which are of a normal recurring nature,
necessary to present fairly the Company's financial position, results of
operations and cash flows for the periods presented. The results for any interim
period are not necessarily indicative of results for the entire year or any
other interim period.
Revenue Recognition
The Company derives its principal revenue through sales of audiobooks,
classic radio shows and other spoken word audio products directly to consumers
principally through direct mail. The Company also sells classic radio shows to
retailers either directly or through distributors. The Company derives
additional revenue through rental of its proprietary database of names and
addresses to non-competing third parties through list rental brokers. The
Company also derives a small amount of revenue from advertisers included in its
nationally syndicated classic radio shows. The Company recognizes sales to
consumers, retailers and distributors upon shipment of merchandise. List rental
revenue is recognized on notification by the list brokers of rental by a third
party when the lists are rented. The Company recognizes advertising revenue upon
notification of the airing of the advertisement by the media buying company
representing the Company. Allowances for future returns are based upon
historical experience and evaluation of current trends.
Shipping and Handling Revenue and Costs
Amounts paid to the Company for shipping and handling by customers is
included in sales. Amounts the Company incurs for shipping and handling costs
are included in cost of sales. The Company recognizes shipping and handling
revenue upon shipment of merchandise. Shipping and handling expenses are
recognized on a monthly basis from invoices from the third party fulfillment
houses, which provide the services.
Cost of Sales
Cost of sales includes the following:
o Product costs (including free audiobooks in the initial
enrollment offer to prospective members)
o Royalties to publishers and rightsholders
o Fulfillment costs, including shipping and handling
6
o Customer service
o Direct response billing, collection and accounts receivable
management.
Cooperative Advertising and Related Selling Expenses
The Company classifies the cost of certain credits, allowances,
adjustments and payments given to customers for the services or benefits
provided as a reduction of net sales.
Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock
Issued to Employees." In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") was issued. SFAS 123, which prescribes the
recognition of compensation expense based on the fair value of options on the
grant date, allows companies to continue applying APB 25 if certain pro forma
disclosures are made assuming a hypothetical fair value method application. Had
compensation expense for the Company's stock options been recognized on the fair
value on the grant date under SFAS 123, the Company's net loss and net loss per
share for the three months ended March 31, 2003 and 2002 would have been as
follows:
Three Months Ended March 31,
----------------------------
2003 2002
------- -------
Net loss applicable to common shares, as reported $(1,537) $ (759)
Add: Stock-based employee compensation expense included
in reported net loss applicable to common
shares, net of related tax effects -- --
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (36) (147)
------- -------
Pro forma net loss applicable to common shares $(1,573) $ (906)
======= =======
Net loss per share
Basic and diluted - as reported $ (.11) $ (.05)
======= =======
Basic and diluted - pro forma $ (.11) $ (.07)
======= =======
No dividend yield and the following assumptions were used in the pro forma
calculation of compensation expense:
No. of Exercise Assumed Risk-free Fair Value
Date Shares Price Volatility Interest Rate per Share
---- ------- ----- ---------- ------------- ---------
First Quarter 2002 140,500 $1.88 165% 4.49% $1.05
First Quarter 2003 40,000 $1.50 165% 4.85% $ .98
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. A valuation allowance is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period that includes the enactment date.
7
Deferred Member Acquisition Costs
Promotional costs directed at current members are expensed on the date the
promotional materials are mailed. The cost of any premiums, gifts or the
discounted audiobooks in the promotional offer to new members is expensed as
incurred. The Company accounts for direct response advertising for the
acquisition of new members in accordance with AICPA Statement of Position 93-7,
"Reporting on Advertising Costs" ("SOP 93-7"). SOP 93-7 states that the cost of
direct response advertising (a) whose primary purpose is to elicit sales to
customers who could be shown to have responded specifically to the advertising
and (b) that results in probable future benefits should be reported as assets
net of accumulated amortization. Accordingly, the Company has capitalized direct
response advertising costs and amortizes these costs over the period of future
benefit, which has been determined to be generally 30 months. The costs are
being amortized on accelerated basis consistent with the recognition of related
revenue.
Royalties
The Company is liable for royalties to licensors based upon revenue earned
from the respective licensed product. The Company pays certain of its publishers
and other rightsholders advances for rights to products. Royalties earned on the
sale of the products are payable only in excess of the amount of the advance.
Advances, which have not been recovered through earned royalties, are recorded
as an asset. Advances not expected to be recovered through royalties on sales
are charged to royalty expense.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(3) Goodwill and Other Intangibles
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). The Company adopted SFAS 142 on January 1,
2002. SFAS 142 changed the accounting for goodwill and indefinite-lived
intangible assets from an amortization method to an impairment-only approach.
Goodwill and indefinite-lived intangible assets are tested for impairment
annually or when certain triggering events require such tests and are written
down, with a resulting charge to operations, only in the period in which the
recorded value of goodwill and indefinite-lived intangible assets is more than
their fair value.
The Company amortizes other intangible assets over their estimated useful
lives over periods from three to seven years. Other intangible assets primarily
relate to mailing and non-compete agreements, customer lists, and license
agreements associated with the Company's Audio Book Club and Radio Spirits
divisions. Amortization expense for other intangible assets was $59 and $436 for
the three months ended March 31, 2003 and 2002, respectively. The Company
estimates intangible amortization expenses of the following:
9 months ended December 31, 2003 $117
2004 23
2005 8
2006 8
2007 8
2008 1
----
Total $165
====
8
The following table presents details of Other Intangibles at March 31,
2003 and December 31, 2002:
March 31, 2003 December 31, 2002
-------------------------------- -----------------------------
Accumulated Accumulated
Cost Amortization Net Cost Amortization Net
------- ------------- ----- ------ ------------- ----
Mailing Agreements $ 592 $ 561 $ 31 $ 592 $ 524 $ 68
Customer Lists 4,380 4,380 -- 4,380 4,380 --
Non-Compete Agreements 307 173 134 200 151 49
Other 5 -- 5 5 -- 5
------- ------- ----- ------ ------ ----
Total Other Intangibles $ 5,285 $ 5,102 $ 170 $5,177 $5,055 $122
======= ======= ===== ====== ====== ====
Goodwill of $9,658 and $9,871 as of March 31, 2003 and December 31, 2002
respectively is attributable to the Company's Radio Spirits business. The change
of $213 is related to the finalization of the acquisition of Great American
Audio, which occurred in March 2002.
(4) Long-term Debt
Bank Debt
As of May 15, 2003, the Company had $3,850 of indebtedness outstanding
under the Amended and Restated Credit Agreement dated as of October 3, 2002, as
amended, by and among the Company and Radio Spirits, Inc. and Audio Book Club,
Inc., wholly-owned subsidiaries of the Company, as co-borrowers, and ING (U.S.)
Capital LLC, as administrative agent, and the other lenders named therein (the
"Credit Agreement"). The maturity date of the Credit Agreement is April 30,
2004; provided however, that the Company is required to make monthly payments of
principal of $180 in April through June 2003, $190 in July through September
2003, $200 in October through December 2003 and $225 in January through March
2004. The Company is not permitted to make any additional borrowings under the
Credit Agreement. The interest rate on the credit facility is equal to the prime
rate plus 2 1/2%. The Company granted the lenders under the Credit Agreement a
security interest in substantially all of the Company's assets and the assets of
its subsidiaries and pledged the stock of its subsidiaries.
The Company is required to maintain Minimum EBITDA, as defined below, of
the following:
o $3,000,000 for the period beginning on January 1, 2001 and
ending prior to March 31, 2003;
o $4,000,000 for the period beginning on January 1, 2001 and
ending prior to June 30, 2003;
o $5,000,000 for the period beginning on January 1, 2001 and
ending prior to September 30, 2003;
o $6,000,000 for the period beginning on January 1, 2001 and
ending prior to December 31, 2003.
o $7,000,000 for the period beginning on January 1, 2001 and
ending prior to March 31, 2004
Under the Credit Agreement, "EBITDA" means, for any period, the sum
of (i) net income, (ii) interest expense, (iii) income tax expense,
(iv) depreciation expense, (v) extraordinary and nonrecurring losses
and (vi) amortization expense, less extraordinary and nonrecurring
gains (in each case, determined in accordance with generally
accepted accounting principles) plus adjustments for (x) the pro
forma effect of any Permitted Acquisition (as defined in the Credit
Agreement) and (y) non-cash stock compensation; provided that EBITDA
shall be adjusted for the effect of treating the Company's
advertising expense and new member acquisition costs as expensed as
incurred.
The Company was in compliance with this covenant at March 31, 2003.
In addition to limiting the Company's ability to incur additional
indebtedness, the Credit Agreement prohibits the Company from, among other
things:
o merging into or consolidating with another entity;
o selling all or substantially all of its assets;
o declaring or paying cash dividends; and
o materially changing the nature of its business.
9
We anticipate making the principal payments from cash flow generated from
operations.
The balance of our bank debt, after making the above payments, of $1.6
million is due April 30, 2004. We are currently seeking to refinance or extend
this debt. Historically we have been able to extend the maturity of this debt.
(5) Stockholders' Equity and Stock Options and Warrants
Stock Options and Warrants
From January 1, 2003 to March 31, 2003, the Company issued options to
purchase 85,000 shares of its common stock to certain directors, employees and
consultants to the Company under its 2000 Stock Option plan. The Company also
cancelled options to purchase 5,000 shares of its common stock. The Company also
issued non-plan warrants to purchase 90,000 shares of its common stock to a
former employee and consultant at prices ranging from $1.50 to $3.00 per share
as part of non-competition agreements.
(6) Net Loss Per Share of Common Stock
Basic loss per share was computed using the weighted average number of
common shares outstanding for the three months ended March 31, 2003 and 2002 of
14,341,376 and 13,865,834, respectively.
For the three months ended March 31, 2003, common equivalent shares, which
were not included in the computation of diluted loss per share because they
would have been anti-dilutive were 986,894 common equivalent shares, as
calculated under the treasury stock method and 16,634,000 common equivalent
shares relating to convertible subordinated debt and preferred stock calculated
under the "if-converted method". Interest expense on the convertible
subordinated debt added back to net loss would have been $278 and preferred
dividends added back to net loss applicable to common shares would have been $56
for the three months ended March 31, 2003.
For the three months ended March 31, 2002, common equivalent shares, which
were not included in the computation of diluted loss per share because they
would have been anti-dilutive were 2,095,945 common equivalent shares, as
calculated under the treasury stock method and 15,966,000 common equivalent
shares relating to convertible subordinated debt and preferred stock calculated
under the "if-converted method". Interest expense on the convertible
subordinated debt added back to net loss would have been $237 and preferred
dividends added back to net loss applicable to common shares would have been $45
for the three months ended March 31, 2002.
(7) Supplemental Cash Flow Information
Cash paid for interest expense was $147 and $162 for the three months
ended March 31, 2003 and 2002, respectively.
(8) Segment Reporting
For 2003 and 2002, the Company has divided its operations into four
reportable segments: Corporate; Audio Book Club ("ABC") a membership-based club
selling audiobooks via direct mail and on the Internet; Radio Spirits ("RSI")
which produces, sells, licenses and syndicates old-time radio programs and
MediaBay.com a media portal offering spoken word audio content in secure digital
download formats. Segment operating income is total segment revenue reduced by
operating expenses identifiable with that business segment. Corporate includes
general corporate administrative costs, professional fees, interest expenses and
amortization of acquisition related costs. The Company evaluates performance and
allocates resources among its three operating segments based on operating income
and opportunities for growth. The Company did not expend any funds or receive
any income in the three months ended March 31, 2003 and 2002 from its newest
subsidiary RadioClassics. Inter-segment sales are recorded at prevailing sales
prices.
10
Segment Reporting
Three Months Ended March 31, 2003 Inter-
Corporate ABC RSI Mbay.com segment Total
--------- ------- ------- -------- ------- -------
Sales, net of returns, discounts
and allowances $ -- $ 8,106 $ 2,600 17 (26) $ 10,697
Operating profit (loss) (1,225) 334 85 (157) 5 (958)
Depreciation and amortization -- 74 25 -- -- 99
Interest expense 519 -- 4 -- -- 523
Dividends on Preferred Stock 56 -- -- -- -- 56
Net (loss) income applicable to
common shares (1,800) 334 81 (157) 5 (1,537)
Total assets -- 30,170 16,549 -- (60) 46,659
Acquisition of fixed assets -- 10 1 -- -- 11
Segment Reporting
Three Months Ended March 31, 2002 Inter-
Corporate ABC RSI Mbay.com segment Total
--------- ------- ------- -------- ------- -------
Sales, net of returns, discounts
and allowances $ -- $ 7,921 $ 1,532 $ 50 ($23) $ 9,480
Operating profit (loss) (1,013) 1,052 95 (116) -- 18
Depreciation and amortization -- 468 30 -- -- 498
Interest expense 724 -- 8 -- -- 732
Dividends on Preferred Stock 45 -- -- -- -- 45
Net (loss) income applicable to
common shares (1,782) 1,052 87 (116) -- (759)
Total assets -- 31,661 14,169 1 (76) 45,755
Acquisition of fixed assets -- 70 7 -- -- 77
(9) Recent Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities"("SFAS 149"). SFAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement 133. With certain
exceptions, SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30,
2003. Management does not believe adoption of this standard will have a material
impact on the Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This interpretation defines when a business
enterprise must consolidate a variable interest entity. This interpretation
applies immediately to variable interest entities created after January 31,
2003. It applies in the first fiscal year or interim period beginning after June
15, 2003, to entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The adoption of this statement is not expected
to have a material effect on the Company's financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure" ("SFAS 148") which amends
SFAS No. 123. This statement provides alternative methods of transition for a
voluntary change to the fair value-based method of accounting for stock-based
employee compensation and amends the disclosure requirements of SFAS No. 123.
The transition guidance and disclosure requirements are effective for fiscal
years ending after December 15, 2002. The Company has included the required
interim disclosure in Note 2 to these Financial Statements. The adoption of this
statement did not have a material effect on the Company's financial position or
results of operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". This interpretation requires a guarantor
to recognize, at the inception of the guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. It also enhances
guarantor's disclosure requirements to be made in its interim and annual
financial statements about its obligations under certain guarantees it has
issued. The initial recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. In the normal course of business, the Company does not issue guarantees to
third parties; accordingly, this interpretation will not have an effect on the
Company's financial position or results of operations.
11
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections", was approved
by the FASB. This statement is effective January 1, 2003. Among other things,
this statement requires that gains or losses on the extinguishment of debt will
generally be required to be reported as a component of income from continuing
operations and will no longer be classified as an extraordinary item. Therefore,
beginning in 2003, the Company's prior financial statements will need to be
reclassified to include those gains and losses previously recorded as an
extraordinary item as a component of income from continuing operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities" (SFAS 146 "). SFAS 146 requires the recognition of a
liability for costs associated with an exit plan or disposal activity when
incurred and nullifies Emerging Issues Task Force (EITF) Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)", which allowed
recognition at the date of an entity's commitment to an exit plan. The
provisions of this statement are effective for exit or disposal activities that
are initiated by the Company after December 31, 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for fiscal years beginning after June 15,
2002. This statement addresses the diverse accounting practices for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The adoption of this statement did not have a material
effect on the Company's financial position or results of operations.
(10) Subsequent Events
On April 28, 2003, the Company cancelled five-year options to purchase
150,000 shares of its common stock at prices ranging from $1.00 to $5.00 with a
plan to issue new options with similar terms on November 1, 2003.
On April 9, 2003 the maturity date of the principal amount of the senior
credit facility of $4,030, as of April 9, 2003, was extended to April 30, 2004
with certain conditions. In addition to its scheduled principal payments through
2003, the Company is required to make payments of $225 per month for the months
of January, February and March 2004. The interest rate for the revolving credit
facility is the prime rate plus 2.5%.
On April 18, 2003, the Company signed a sixty-six month extension of its
lease on its office space in Cedar Knolls, New Jersey. Minimum annual lease
commitments including capital improvement payments under all non-cancelable
operating leases are as follows:
Year ending December 31,
2003..................................... $ 156
2004..................................... 168
2005..................................... 192
2006..................................... 198
2007..................................... 204
Thereafter............................... 310
------
Total lease commitments.................. $1,228
======
On May 1, 2003, the Company entered into a two-year consulting agreement
with XNH Consulting Services, Inc. ("XNH"), a company wholly-owned by Norton
Herrick, the Company's former Chairman. The agreement provides, among other
things that XNH will provide consulting and advisory services to MediaBay and
that XNH will be under the direct supervision of the Company's Board of
Directors. For its services, the Company has agreed to pay XNH a fee of $8 per
month and to provide Mr. Herrick with health insurance and other benefits
applicable to the Company's officers to the extent such benefits may be provided
under the Company's benefit plans. The consulting agreement provides that the
indemnification agreement with Mr. Herrick entered into on November 15, 2002
pursuant to which, the Company agreed to indemnify Mr. Herrick to the maximum
extent permitted by the corporate laws of the State of Florida or, if more
favorable, the Company's Articles of Incorporation and By-Laws in effect at the
time the agreement
12
was executed, against all claims (as defined in the agreement) arising from or
out of or related to Mr. Herrick's services as an officer, director, employee,
consultant or agent of the Company or any subsidiary or in any other capacity
shall remain in full force and effect and to also indemnify XNH on the same
basis. Mr. Herrick resigned as Chairman of MediaBay, Inc. effective May 1, 2003
and the Company and Mr. Herrick terminated the employment agreement effective
November 2, 2002 on May 1, 2003.
On May 7, 2003, the Company sold 3,350 shares of a newly created Series B
Convertible Preferred Stock (the "Series B Stock") with a liquidation preference
of $100 per share for $335. Of the total sold, 1,400 shares ($140) were
purchased by Carl Wolf, Chairman and a director of the Company, and 200 shares
($20) were purchased by John Levy, Executive Vice President and Chief Financial
Officer of the Company. The holders of shares of Series B Convertible Preferred
Stock will receive dividends at the rate of $9.00 per share, payable quarterly,
in arrears, in cash on each March 31, June 30, September 30 and December 31;
provided that payment will accrue until the Company is permitted to make such
payment in cash under its Agreement with its senior lender.
The Series B Stock is convertible into shares of Common Stock into
MediaBay Common Stock at a conversion rate equal to a fraction, (i) the
numerator of which is equal to the number of Series B Stock times $100 plus
accrued and unpaid dividends though the date of conversion and (ii) the
denominator is $0.77, the average price of the Company's stock on May 6, 2003.
In the event of a liquidation, dissolution or winding up of the Company,
the holders of Series B Stock shall be entitled to receive out of the assets of
the Company, a sum in cash equal to $100.00 per share before any amounts are
paid to the holders of the Company common stock and on a pari passu with the
holders of the Series A Convertible Preferred Stock. The holders of Series B
Stock shall have no voting rights, except as required by law and except that the
vote or consent of the holders of a majority of the outstanding shares of Series
B Stock, voting separately as a class, will be required for any amendment,
alteration or repeal of the terms of the Series B Stock that adversely effects
the rights, preferences or privileges of the Series B Stock.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in thousands, except per share data)
Forward-looking Statements
Certain statements in this Form 10-Q constitute "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995. All statements other than statements of historical facts included in this
Report, including, without limitation, statements regarding the Company's future
financial position, business strategy, budgets, projected costs and plans and
objectives of our management for future operations are forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"intend," "estimate," "anticipate," "believe," or "continue" or the negative
thereof or variations thereon or similar terminology. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, we cannot assure you that such expectations will prove to be
correct. These forward looking statements involve certain known and unknown
risks, uncertainties and other factors which may cause the Company's actual
results, performance or achievements to be materially different from any
results, performances or achievements express or implied by such forward-looking
statements. Important factors that could cause actual results to differ
materially from our expectations, without limitation, the Company's history of
losses, its ability to meet stock repurchase obligations, anticipate and respond
to changing customer preferences, license and produce desirable content, protect
its databases and other intellectual property from unauthorized access, pay
trade creditors and collect receivables, dependence on third-party providers,
suppliers and distribution channels; competition; the costs and success of its
marketing strategies, product returns and member attrition. Undue reference
should not be placed on these forward-looking statements, which speak only as of
the date hereof. The Company undertakes no obligation to update any
forward-looking statements.
Introduction
The Company is a marketer of spoken audio products, including audiobooks
and old-time radio shows, through direct response, retail and Internet channels.
The Company's content and products are sold in multiple formats, including
physical (cassette and compact disc) and secure digital download formats.
The Company reports financial results on the basis of four business
segments; Corporate, Audio Book Club ("ABC"), Radio Spirits ("Radio Spirits" or
"RSI") and MediaBay.com. A fifth division, Radio Classics, is aggregated with
Radio Spirits for financial reporting purposes. Except for corporate, each
segment serves a unique market segment within the spoken word audio industry.
Results of Operations
Three Months Ended March 31, 2003 Compared to Three Months Ended March 31,
2002
Sales, net of returns, discounts and allowances for the three months ended
March 31, 2003 were $10,697, an increase of $1,217 or 12.8%, as compared to
$9,480 for the three months ended March 31, 2002. The increase in sales was
primarily attributable to a $1,068 increase in sales at the Company's Radio
Spirits business. This increase is due to $648 of sales, in the three months
ended March 31, 2003, of The World's Greatest Old-Time Radio continuity program,
a program introduced in the third quarter of 2002, which is similar to Audio
Book Club and offers old-time radio products, a $249 increase in Radio Spirits
direct mail catalog sales in the first quarter of 2003 as compared to the first
quarter of 2002, due principally to a radio advertising campaign, an increase of
$144 in wholesale sales and an increase of $27 in advertising sold on our
syndicated radio shows.
Cost of sales for the three months ended March 31, 2003 increased $945 to
$5,234 from $4,289 in the prior comparable period. Cost of sales as a percentage
of net sales increased to 48.9% for the three months ended March 31, 2003
compared to 45.2% in the three months ended March 31, 2002. The increase in cost
of goods sold as a percentage of net sales is principally due to a higher
percentage of wholesale sales at Radio Spirits with correspondingly higher cost
of goods sold, an increase in new members in The World's
14
Greatest Old-Time Radio continuity, whose initial purchases are at substantially
reduced prices, discounting at both Audio Book Club and Radio Spirits direct
mail business, which resulted in lower average selling prices and an increase in
returns at Audio Book Club due to a higher percentage of members receiving
automatic shipments, with correspondingly higher return rates, which increased
fulfillment costs. As a result of higher net sales, partially offset by higher
cost of sales, gross profit increased $273 to $5,463 from $5,191 for the three
months ended March 31, 2002.
Advertising and promotion expenses increased $659 to $2,847 for the three
months ended March 31, 2003 as compared to $2,188 in the prior comparable
period. The increase is principally due to increased advertising expenditures
during the year ended December 31, 2002, which resulted in increased
amortization of deferred member costs in the three months ended March 31, 2003.
General and administrative expenses for the three months ended March 31,
2003 increased $988 to $3,475 from $2,487 for the three months ended March 31,
2002. The increase in general and administrative expenses relate to an increase
in bad debt expenses of $513, due to higher net sales and more sales to Audio
Book Club members obtained through the Internet who have higher non-pay rates,
and an increase in professional fees of $562 of which approximately $420
represented legal and other costs incurred in connection with legal proceedings
in which the Company is the plaintiff.
Depreciation and amortization expenses for the three months ended March
31, 2003 were $99, a decrease of $399, as compared to $498 for the prior
comparable period. The decrease is principally attributable to reductions in the
amortization of intangibles, which had been fully amortized or written off
during the year ended December 31, 2002.
Net interest expense for the three months ended March 31, 2003 was $523 as
compared to $732 for the three months ended March 31, 2002. The decrease in
interest expenses is principally due to the inclusion in the three months ended
March 31, 2002 of $377 for amortization of debt discount and deferred financing
fees as compared to $119 for the three months ended March 31, 2003, partially
offset by increased borrowings in the fourth quarter of 2002, which resulted in
increased interest expense in the three months ended March 31, 2003.
Primarily due to increased advertising expenses, increased bad debt
expense and legal and other costs relating to legal proceedings in which the
Company is the plaintiff, we had a net loss of $1,537, or $.11 per common share
for the three months ended March 31, 2003, as compared to a net loss of $759, or
$.05 per common share, for the three months ended March 31, 2002.
Liquidity and Capital Resources
Historically, the Company has funded its cash requirements through sales
of equity and debt securities and borrowings from financial institutions and the
Company's principal shareholders.
At March 31, 2003, the Company owed approximately $12,119 to trade and
other creditors. Approximately $5,243 of these accounts payable were more than
60 days past due. If the Company does not make satisfactory payments to its
vendors they may refuse to continue to provide it products or services on
credit, which could interrupt the Company's supply of products or services.
The Company has implemented a series of initiatives to increase cash flow.
There can be no assurance that the Company will not in the future require
additional capital to pay its creditors, fund the expansion of operations, make
acquisitions or for working capital. Management believes that additional sources
of capital are available if required.
For the three months ended March 31, 2003, cash decreased by $387, as the
Company had net cash provided by operating activities of $382 and used net cash
of $254 and $515 for investing and financing activities, respectively. Net cash
provided by operating activities principally consisted of depreciation and
amortization expenses of $99, amortization of deferred financing costs and
original issue discount of $119, non-current accrued interest and dividends
payable of $261, decreases in accounts receivable and inventory of $1,305 and
$33, respectively, increases in accounts payable and accrued expenses of $74 and
a net
15
decrease in deferred member acquisition costs of $412, partially offset by the
net loss of $1,537 and increases in prepaid expenses and royalty advances of
$353 and $31, respectively.
The decrease in accounts receivable was primarily attributable to the
collection of retail receivables from the holiday selling season from our radio
programs and increases in the reserves for returns and bad debts. The
significant growth in new Audio Book Club members during 2002 resulted in
increases in bad debts and returns as the performance of new members is
generally weaker as compared to long-standing members. We also believe that poor
general economic conditions resulted in increases in the required level of
reserves. The decrease in deferred member acquisition cost is due to the timing
of direct-response advertising campaigns and a decrease in the size of the
marketing campaigns. The increase in prepaid expenses is principally due to the
timing of marketing activities.
Net cash used in investing activities consists of acquisition of fixed
assets of $11, principally computer equipment and the acquisition of intangible
assets and goodwill, including legal fees and other costs incurred in obtaining
covenants not to compete from a former employee and a former consultant of $85,
and the acquisition of certain old-time radio assets of $158.
In accordance with the terms of its senior credit facility, the Company
repaid $510 of principal on its senior credit facility in the three months ended
March 31, 2003.
On April 9, 2003, the maturity date of the principal amount of the senior
credit facility of $4,030, as of April 9, 2003, was extended to April 30, 2004
with certain conditions. In addition to its scheduled monthly principal payments
of $180 in May and June 2003; $190 in July through September 2003 and $200 in
October through December 2003; the Company is required to make payments of $225
per month for the months of January, February and March 2004. The interest rate
for the revolving credit facility is the prime rate plus 2.5%.
On April 18, 2003 the Company signed a sixty-six month extension of its
lease on its office space in Cedar Knolls, New Jersey. Minimum annual lease
commitments including capital improvement payments under all non-cancelable
operating leases are as follows:
Year ending December 31,
2003..................................... $ 156
2004..................................... 168
2005..................................... 192
2006..................................... 198
2007..................................... 204
Thereafter............................... 310
------
Total lease commitments.................. $1,228
======
On May 1, 2003, the Company entered into a two-year consulting agreement
with XNH Consulting Services, Inc. ("XNH"), a company wholly-owned by Norton
Herrick, the Company's former Chairman. The agreement provides, among other
things that XNH will provide consulting and advisory services to MediaBay and
that XNH will be under the direct supervision of the Company's Board of
Directors. For its services, the Company has agreed to pay XNH a fee of $8 per
month and to provide Mr. Herrick with health insurance and other benefits
applicable to the Company's officers to the extent such benefits may be provided
under the Company's benefit plans. The consulting agreement provides that the
indemnification agreement with Mr. Herrick entered into on November 15, 2002
pursuant to which, the Company agreed to indemnify Mr. Herrick to the maximum
extent permitted by the corporate laws of the State of Florida or, if more
favorable, the Company's Articles of Incorporation and By-Laws in effect at the
time the agreement was executed, against all claims (as defined in the
agreement) arising from or out of or related to Mr. Herrick's services as an
officer, director, employee, consultant or agent of the Company or any
subsidiary or in any other capacity shall remain in full force and effect and to
also indemnify XNH on the same basis. Mr. Herrick resigned as Chairman of
MediaBay, Inc. effective May 1, 2003 and the Company and Mr. Herrick terminated
the employment agreement effective November 2, 2002 on May 1, 2003.
16
On May 7, 2003, the Company sold 3,350 shares of a newly created Series B
Convertible Preferred Stock (the "Series B Stock") with a liquidation preference
of $100 per share for $335. Of the total sold, 1,400 shares ($140) were
purchased by Carl Wolf, Chairman and a director of the Company, and 200 shares
($20) were purchased by John Levy, Executive Vice President and Chief Financial
Officer of the Company. The holders of shares of Series B Convertible Preferred
Stock will receive dividends at the rate of $9.00 per share, payable quarterly,
in arrears, in cash on each March 31, June 30, September 30 and December 31;
provided that payment will accrue until the Company is permitted to make such
payment in cash under its Agreement with its senior lender.
The Series B Stock is convertible into shares of Common Stock into
MediaBay Common Stock at a conversion rate equal to a fraction, (i) the
numerator of which is equal to the number of Series B Stock times $100 plus
accrued and unpaid dividends though the date of conversion and (ii) the
denominator is the $0.77, the closing sale price of the Company's stock on May
6, 2003.
In the event of a liquidation, dissolution or winding up of MediaBay, the
holders of Series B Stock shall be entitled to receive out of the assets of
MediaBay, a sum in cash equal to $100.00 per share before any amounts are paid
to the holders of MediaBay common stock and on a pari passu with the holders of
the Series A Convertible Preferred Stock. The holders of Series B Stock shall
have no voting rights, except as required by law and except that the vote or
consent of the holders of a majority of the outstanding shares of Series B
Stock, voting separately as a class, will be required for any amendment,
alteration or repeal of the terms of the Series B Stock that adversely effects
the rights, preferences or privileges of the Series B Stock.
Recent Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" ("SFAS 149"). SFAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under Statement 133. With certain
exceptions, SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30,
2003. Management does not believe adoption of this standard will have a material
impact on the Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." This interpretation defines when a business
enterprise must consolidate a variable interest entity. This interpretation
applies immediately to variable interest entities created after January 31,
2003. It applies in the first fiscal year or interim period beginning after June
15, 2003, to entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. The adoption of this statement is not expected
to have a material effect on the Company's financial position or results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment of FASB
Statement 123" which amends SFAS No. 123. This statement provides alternative
methods of transition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation and amends the disclosure
requirements of SFAS No. 123. The transition guidance and annual disclosure
provisions are effective for fiscal years ending after December 15, 2002. The
Company has included the required interim disclosure in Note 2 to the Financial
Statements presented elsewhere in this report. The adoption of this statement
did not have a material effect on the Company's financial position or results of
operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". This interpretation requires a guarantor
to recognize, at the inception of the guarantee, a liability for the fair value
of the obligation undertaken in issuing the guarantee. It also enhances
guarantor's disclosure requirements to be made in its interim and annual
financial statements about its obligations under certain guarantees it has
issued. The initial recognition and initial measurement provisions of this
interpretation are applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The disclosure requirements are
17
effective for financial statements of interim or annual periods ending after
December 15, 2002. In the normal course of business, the Company does not issue
guarantees to third parties; accordingly, this interpretation will not have an
effect on the Company's financial position or results of operations.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections", was approved
by the FASB. This statement is effective January 1, 2003. Among other things,
this statement requires that gains or losses on the extinguishment of debt will
generally be required to be reported as a component of income from continuing
operations and will no longer be classified as an extraordinary item. Therefore,
beginning in 2003, our prior financial statements will need to be reclassified
to include those gains and losses previously recorded as an extraordinary item
as a component of income from continuing operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities" ("SFAS 146"). SFAS 146 requires the recognition of a
liability for costs associated with an exit plan or disposal activity when
incurred and nullifies Emerging Issues Task Force (EITF) Issue 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)", which allowed
recognition at the date of an entity's commitment to an exit plan. The
provisions of this statement are effective for exit or disposal activities that
are initiated by the Company after December 31, 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for fiscal years beginning after June 15,
2002. This statement addresses the diverse accounting practices for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The adoption of this statement did not have a material
effect on the Company's financial position or results of operations.
Quarterly Fluctuations
The Company's operating results vary from period to period as a result of
purchasing patterns of members, the timing, costs, magnitude and success of
direct mail campaigns and Internet initiatives and other new member recruitment
advertising, member attrition, the timing and popularity of new audiobook
releases and product returns.
The timing of new member enrollment varies depending on the timing,
magnitude and success of new member advertising, particularly Internet
advertising and direct mail campaigns. The Company believes that a significant
portion of our sales of old-time radio and classic video programs are gift
purchases by consumers. Therefore, we tend to experience increased sales of
these products in the fourth quarter in anticipation of the holiday season and
the second quarter in anticipation of Fathers' Day.
Item 3: Quantitative and Qualitative Disclosures of Market Risk
The Company is exposed to market risk for the impact of interest rate
changes. As a matter of policy the Company does not enter into derivative
transactions for hedging, trading or speculative purposes.
The Company's exposure to market risk for changes in interest rates
relates to its variable rate debt. The Company has total debt outstanding as of
March 31, 2003, net of original issue discount of $460, of $16,757 of which
interest on $5,530 principal amount of this debt is payable at the prime rate
plus 2.5%. If the prime rate were to increase the Company's interest expense
would increase, however a hypothetical 10% change in interest rates would not
have had a material impact on its fair values, cash flows, or earnings for the
three months ended March 31, 2003. All of the Company's other debt is at fixed
rates of interest.
18
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Subsequent to the date of
their evaluation, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect the internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Part II - Other Information
Item 2: Changes in Securities and Use of Proceeds (Dollars in thousands,
except per share date)
In the first quarter of 2003, the Company issued plan options to purchase
85,000 shares of its common stock to officers, employees and Board members. The
options have exercise prices ranging from $1.25 to $1.50, vest at various times
and have a five-year exercise period. The Company also cancelled five-year plan
options to purchase a total of 5,000 shares of common stock. We also issued
non-plan warrants to purchase 90,000 shares of its common stock to a former
employee and consultant at prices ranging from $1.50 to $3.00 per share
The foregoing securities were issued in private transactions pursuant to
an exemption from the registration requirement offered by Section 4(2) of the
Securities Act of 1933.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
3.5 Articles of Amendment to Articles of Incorporation
10.1 Amendment No. 4 to the Credit Agreement dated April 28,
2003
10.2 Consulting and Termination Agreement dated as of May 1,
2003 between XNH Consulting Services, Inc. (the
"Consultant") and the Registrant
99.1 Certification of Hakan Lindskog, Chief Executive Officer
of MediaBay, Inc., Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 Certification of John Levy, Executive Vice President and
Chief Financial Officer of MediaBay, Inc., Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
19
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, MediaBay, Inc. has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MediaBay, Inc.
Dated: May 15, 2003 By: /s/ Hakan Lindskog
--------------------------------------------
Hakan Lindskog
Chief Executive Officer and President
Dated May 15, 2003 By: /s/ John F. Levy
--------------------------------------------
John F. Levy
Chief Financial Officer
(principal accounting and financial officer)
20
MediaBay, Inc.
Certification of Chief Executive Officer
I, Hakan Lindskog, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of MediaBay, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 15, 2003
/s/ Hakan Lindskog
-----------------------
Hakan Lindskog
Chief Executive Officer
21
MediaBay, Inc.
Certification of Chief Financial Officer
I, John F. Levy, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of MediaBay, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 15, 2003
/s/ John F. Levy
------------------------
John F. Levy
Chief Financial Officer
22