Florida
(State
or other
jurisdiction
of
incorporation
or
organization)
|
5961
(Primary
Standard Industrial
Classification
Code Number)
|
65-0429858
(IRS
employer
Identification
number)
|
_______________
|
||
2
Ridgedale Avenue - Suite 300
Cedar
Knolls, New Jersey 07927
(973)
539-9528
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
|
||
________________
|
||
Jeffrey
Dittus
Chief
Executive Officer
MediaBay,
Inc.
2
Ridgedale Avenue - Suite 300
Cedar
Knolls, New Jersey 07927
(973)
539-9528
|
||
(Name,
address, including zip code, and telephone number, including area
code, of
agent for service)
|
||
_________________
Copy
to:
Robert
J. Mittman, Esq.
Brad
L. Shiffman, Esq.
Blank
Rome LLP
405
Lexington Avenue
New
York, New York 10174
Telephone:
(212) 885-5000
Facsimile:
(212) 885-5001
|
||
·
|
plan
for product offerings;
|
·
|
introduce
new titles;
|
·
|
anticipate
order lead time;
|
·
|
accurately
assess inventory requirements; and
|
·
|
develop
new product delivery methods.
|
·
|
secure
transmission of customer credit card numbers and other confidential
information;
|
·
|
reliability
and availability of Internet service providers;
|
·
|
cost
of access to the Internet;
|
·
|
availability
of sufficient network capacity; and
|
·
|
ability
to download audio content consistent with computer security measures
employed by businesses.
|
High
|
Low
|
||||||
Fiscal
year ended December 31, 2004
|
|||||||
First
Quarter
|
$
|
9.54
|
$
|
3.12
|
|||
Second
Quarter
|
$
|
4.32
|
$
|
2.16
|
|||
Third
Quarter
|
$
|
2.94
|
$
|
1.50
|
|||
Fourth
Quarter
|
$
|
11.46
|
$
|
1.98
|
|||
Fiscal
year ended December 31, 2005
|
|||||||
First
Quarter
|
$
|
9.54
|
$
|
3.06
|
|||
Second
Quarter
|
$
|
4.14
|
$
|
2.34
|
|||
Third
Quarter
|
$
|
4.20
|
$
|
1.44
|
|||
Fourth
Quarter
|
$
|
2.31
|
$
|
1.20
|
Statement
of operations data:
|
(In
thousands, except per share data)
|
|||||||||||||||
|
Years
ended December 31,
|
|||||||||||||||
|
2001
|
2002
|
2003
|
2004
|
2005
|
|||||||||||
Net
sales
|
$
|
41,805
|
$
|
45,744
|
$
|
36,617
|
$
|
18,831
|
$
|
8,955
|
||||||
Cost
of sales
|
22,044
|
20,651
|
17,764
|
12,547
|
5,920
|
|||||||||||
Advertising
and promotion
|
15,893
|
10,156
|
10,452
|
5,546
|
2,091
|
|||||||||||
Bad
debt expense
|
2,833
|
2,821
|
3,940
|
829
|
51
|
|||||||||||
General
and administrative
|
15,694
|
8,347
|
6,816
|
6,043
|
6,895
|
|||||||||||
Severance
and other termination costs
|
--
|
-
|
544
|
-
|
697
|
|||||||||||
Depreciation
and amortization
|
5,156
|
1,314
|
328
|
144
|
154
|
|||||||||||
Non-cash
write-down of intangibles
|
--
|
1,224
|
-
|
-
|
-
|
|||||||||||
Non-cash
write-down of goodwill
|
--
|
-
|
-
|
-
|
3,502
|
|||||||||||
Operating
(loss) income
|
(19,815
|
)
|
1,231
|
(3,227
|
)
|
(6,278
|
)
|
(10,355
|
)
|
|||||||
Interest
income (expense), net
|
(2,790
|
)
|
(2,974
|
)
|
(1,925
|
)
|
(9,082
|
)
|
(510
|
)
|
||||||
Loss
on early extinguishment of debt
|
--
|
--
|
--
|
--
|
(579
|
)
|
||||||||||
Loss
before income tax benefit (expense)
|
(22,605
|
)
|
(1,743
|
)
|
(5,152
|
)
|
(15,360
|
)
|
(11,444
|
)
|
||||||
Income
tax benefit (expense)
|
17,200
|
(550
|
)
|
(1,471
|
)
|
(14,753
|
)
|
--
|
||||||||
Net
loss
|
(5,405
|
)
|
(2,293
|
)
|
(6,623
|
)
|
(30,113
|
)
|
(11,444
|
)
|
||||||
Dividends
on preferred stock
|
--
|
217
|
246
|
574
|
1,446
|
|||||||||||
Deemed
dividend on beneficial conversion of Series D preferred
stock
|
--
|
--
|
--
|
--
|
17,423
|
|||||||||||
Net
loss applicable to common shares
|
$
|
(5,405
|
)
|
$
|
(2,510
|
)
|
$
|
(6,869
|
)
|
$
|
(30,687
|
)
|
$
|
(30,313
|
)
|
|
Basic
and diluted loss applicable to common shares
|
$
|
(2.34
|
)
|
$
|
(1.08
|
)
|
$
|
(2.92
|
)
|
$
|
(10.24
|
)
|
$
|
(4.08
|
)
|
|
Basic
and diluted weighted average number of shares outstanding
|
2,310
|
2,348
|
2,350
|
2,996
|
7,430
|
Balance
sheet data:
|
||||||||||||||||
(In
thousands, except per share data)
|
||||||||||||||||
As
of December 31,
|
||||||||||||||||
2001
|
2002
|
2003
|
2004
|
2005
|
||||||||||||
|
|
|
|
|
||||||||||||
Working
capital (deficit)
|
$
|
(4,167
|
)
|
$
|
(4,336
|
)
|
$
|
(20,165
|
)
|
$
|
720
|
$
|
5,364
|
|||
Total
assets
|
44,452
|
48,619
|
36,893
|
16,576
|
18,667
|
|||||||||||
Current
liabilities
|
15,491
|
18,984
|
29,194
|
5,905
|
5,320
|
|||||||||||
Long-term
debt (less current portion)
|
15,849
|
14,680
|
--
|
16,852
|
608
|
|||||||||||
Common
stock subject to contingent put rights
|
758
|
758
|
125
|
--
|
--
|
|||||||||||
Total
common stockholders' equity (deficit)
|
$
|
8,562
|
$
|
10,405
|
$
|
6,949
|
$
|
(6,181
|
)
|
$
|
12,739
|
Year
ended December 31,
|
||||||||||
|
2003
|
|
2004
|
|
2005
|
|||||
Net
sales
|
100
|
%
|
100
|
%
|
100
|
%
|
||||
Cost
of sales
|
49
|
67
|
66
|
|||||||
Advertising
and promotion
|
29
|
29
|
23
|
|||||||
Bad
debt expense
|
11
|
4
|
1
|
|||||||
General
and administrative expense
|
18
|
32
|
77
|
|||||||
Severance
and other termination costs
|
1
|
--
|
8
|
|||||||
Depreciation
and amortization expense
|
1
|
1
|
2
|
|||||||
Charge
for impairment of goodwill
|
--
|
--
|
39
|
|||||||
Interest
expense, net
|
5
|
48
|
6
|
|||||||
Loss
on early extinguishment of debt
|
--
|
--
|
6
|
|||||||
Income
tax expense (benefit)
|
4
|
78
|
--
|
|||||||
Net
(loss)
|
(18
|
)
|
(160
|
)
|
(128
|
)
|
||||
Dividends
on preferred stock
|
1
|
3
|
16
|
|||||||
Deemed
dividends on beneficial conversion of
Series D preferred stock
|
--
|
--
|
195
|
|||||||
Net
(loss) applicable to common shares
|
(19
|
)%
|
(163
|
)%
|
(339
|
)%
|
Year
ended December 31,
|
|||||||||||||
$(000’s)
|
2004
|
2005
|
Change
from
2004
to 2005
|
||||||||||
Audio
Book Club
|
$
|
12,304
|
$
|
4,648
|
$
|
(7,656
|
)
|
(62.2
|
)%
|
||||
Radio
Spirits:
|
|||||||||||||
Catalog
|
3,248
|
2,591
|
(657
|
)
|
(20.2
|
)%
|
|||||||
Wholesale
|
1,671
|
1,009
|
(662
|
)
|
(39.6
|
)%
|
|||||||
Continuity
|
1,403
|
534
|
(869
|
)
|
(61.9
|
)%
|
|||||||
Total
Radio Spirits
|
6,322
|
4,134
|
(2,188
|
)
|
(34.6
|
)%
|
|||||||
MediaBay.com
|
205
|
173
|
(32
|
)
|
(15.6
|
)%
|
|||||||
Total
|
$
|
18,831
|
$
|
8,955
|
$
|
(9,876
|
)
|
(52.4
|
)%
|
$(000’s)
|
Year
ended December 31,
|
||||||||||||||||||
2004
|
2005
|
Change
from 2004
to 2005
|
|||||||||||||||||
$
amount
|
As
a % of
Net
sales
|
$
amount
|
As
a % of
net
sales
|
$
change
|
%
change
|
||||||||||||||
Audio
Book Club
|
$
|
8,469
|
68.8
|
%
|
$
|
3,488
|
75.0
|
%
|
$
|
4,981
|
58.8
|
%
|
|||||||
Radio
Spirits:
|
|||||||||||||||||||
Catalog
|
1,476
|
45.5
|
%
|
1,261
|
48.7
|
%
|
215
|
14.6
|
%
|
||||||||||
Wholesale
|
1,346
|
80.6
|
%
|
934
|
92.6
|
%
|
412
|
30.6
|
%
|
||||||||||
Continuity
|
495
|
35.3
|
%
|
237
|
44.4
|
%
|
258
|
52.1
|
%
|
||||||||||
Other
|
760
|
12.0
|
%
|
--
|
--
|
760
|
100.0
|
%
|
|||||||||||
Total
Radio Spirits
|
4,077
|
64.5
|
%
|
2,432
|
58.8
|
%
|
1,645
|
40.3
|
%
|
||||||||||
MediaBay.com
|
1
|
0.3
|
%
|
--
|
0.0
|
%
|
1
|
100.0
|
%
|
||||||||||
Total
|
$
|
12,547
|
66.6
|
%
|
$
|
5,920
|
66.1
|
%
|
$
|
6,627
|
52.8
|
%
|
$(000’s)
|
Year
ended December 31,
|
Change
from 2004 to 2005
|
|||||||||||
2004
|
2005
|
$
change
|
%
change
|
||||||||||
Audio
Book Club:
|
|||||||||||||
New
member
|
$
|
414
|
$
|
--
|
$
|
414
|
100.0
|
%
|
|||||
Current
member
|
994
|
448
|
546
|
54.9
|
%
|
||||||||
Total
Audio Book Club
|
1,408
|
448
|
960
|
68.2
|
%
|
||||||||
Radio
Spirits:
|
|||||||||||||
Catalog
|
787
|
760
|
27
|
3.4
|
%
|
||||||||
Wholesale
|
57
|
43
|
14
|
24.6
|
%
|
||||||||
Continuity
|
6
|
0
|
6
|
100.0
|
%
|
||||||||
Total
Radio Spirits
|
850
|
803
|
47
|
5.5
|
%
|
||||||||
New
projects
|
164
|
824
|
(660
|
)
|
(402.4
|
)%
|
|||||||
Total
spending
|
2,422
|
2,075
|
347
|
14.3
|
%
|
||||||||
Amount
capitalized
|
(354
|
)
|
--
|
(354
|
)
|
100.0
|
%
|
||||||
Amount
amortized
|
3,478
|
16
|
3,462
|
99.5
|
%
|
||||||||
Total
advertising and promotion expense
|
$
|
5,546
|
$
|
2,091
|
$
|
3,455
|
62.3
|
%
|
$(000’s)
|
Year
ended December 31,
|
Change
from
|
|||||||||||||||||
2004
|
2005
|
2004
to 2005
|
|||||||||||||||||
$
amount
|
As
a % of
net
sales
|
$
amount
|
As
a % of
net
sales
|
$
change
|
%
change
|
||||||||||||||
Audio
Book Club
|
$
|
744
|
6.0
|
%
|
$
|
8
|
0.2
|
%
|
$
|
736
|
98.9
|
%
|
|||||||
Radio
Spirits:
|
|||||||||||||||||||
Catalog
|
--
|
0.0
|
%
|
--
|
0.0
|
%
|
--
|
0.0
|
%
|
||||||||||
Wholesale
|
15
|
0.9
|
%
|
15
|
1.5
|
%
|
--
|
0.0
|
%
|
||||||||||
Continuity
|
70
|
5.0
|
%
|
28
|
5.3
|
%
|
42
|
59.8
|
%
|
||||||||||
Total
Radio Spirits
|
85
|
1.3
|
%
|
43
|
1.0
|
%
|
42
|
49.3
|
%
|
||||||||||
MediaBay.com
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
Total
|
$
|
829
|
4.4
|
%
|
$
|
51
|
0.6
|
%
|
$
|
778
|
93.9
|
%
|
$(000’s)
|
Year
ended December 31,
|
Change
from
|
|||||||||||||||||
2004
|
2005
|
2004
to 2005
|
|||||||||||||||||
$
amount
|
As
a % of
net
sales
|
$
amount
|
As
a % of
net
sales
|
$
change
|
%
change
|
||||||||||||||
Audio
Book Club
|
$
|
2,379
|
19.3
|
%
|
$
|
1,452
|
31.2
|
%
|
$
|
927
|
39.0
|
%
|
|||||||
Radio
Spirits
|
959
|
15.2
|
%
|
858
|
20.8
|
%
|
101
|
10.5
|
%
|
||||||||||
MediaBay.com
|
621
|
302.7
|
%
|
561
|
325.1
|
%
|
60
|
9.6
|
%
|
||||||||||
Corporate
|
2,084
|
--
|
4,024
|
0.0
|
%
|
(1,940
|
)
|
(93.1
|
%)
|
||||||||||
Total
|
$
|
6,043
|
32.1
|
%
|
$
|
6,895
|
77.0
|
%
|
$
|
(851
|
)
|
(14.1
|
%)
|
Year
ended December 31,
|
|||||||
$(000’s)
|
2004
|
2005
|
|||||
Termination
costs
|
$
|
--
|
$
|
697
|
Year
ended
December
31,
|
|||||||
$(000’s)
|
2004
|
2005
|
|||||
Depreciation:
|
|||||||
Audio
Book Club
|
$
|
83
|
$
|
126
|
|||
Radio
Spirits
|
37
|
20
|
|||||
Total
depreciation
|
$
|
120
|
146
|
||||
Amortization:
|
|||||||
Corporate
|
24
|
8
|
|||||
Total
depreciation and amortization
|
$
|
144
|
$
|
154
|
Year
ended December 31,
|
|||||||
$(000’s)
|
2004
|
2005
|
|||||
Charge
on impairment of goodwill
|
$
|
--
|
$
|
3,502
|
Year
ended December 31,
|
Change
from 2004 to 2005
|
||||||||||||
$(000’s)
|
2004
|
2005
|
$
change
|
%
change
|
|||||||||
Total
interest paid
|
$
|
1,045
|
$
|
677
|
$
|
(368
|
)
|
(35.2
|
%)
|
||||
Interest
accrued
|
25
|
--
|
(25
|
)
|
(100.0
|
%)
|
|||||||
Interest
included in principal amount of debt (1)
|
521
|
--
|
(521
|
)
|
(100.0
|
%)
|
|||||||
Amortization
of deferred financing costs and
original
issue discount
|
1,341
|
90
|
(1,251
|
)
|
(93.3
|
%)
|
|||||||
Loss
from early extinguishment of debt
|
1,532
|
579
|
(953
|
)
|
(62.2
|
%)
|
|||||||
Beneficial
conversion of debt
|
3,991
|
--
|
(3,991
|
)
|
(100.0
|
%)
|
|||||||
Inducement
to convert
|
391
|
--
|
(391
|
)
|
(100.0
|
%)
|
|||||||
Interest
converted into shares of preferred stock
|
254
|
--
|
(254
|
)
|
(100.0
|
%)
|
|||||||
Total
interest expense
|
$
|
9,100
|
$
|
1,346
|
(7,754
|
)
|
(85.2
|
%)
|
|||||
Interest
income
|
(18
|
)
|
(257
|
)
|
239
|
(1327.8
|
%)
|
||||||
Net
interest expense
|
$
|
9,082
|
$
|
1,089
|
$
|
(7,993
|
)
|
(88.0
|
%)
|
Year
ended December 31,
|
|||||||
$(000’s)
|
2004
|
2005
|
|||||
Income
tax expense
|
$
|
14,753
|
$
|
--
|
Year
ended December 31,
|
|||||||
$(000’s)
|
2004
|
2005
|
|||||
Dividends
accrued on Series A preferred stock
|
$
|
228
|
$
|
50
|
|||
Dividends
accrued on Series B preferred stock
|
28
|
2
|
|||||
Dividends
accrued on Series C preferred stock
|
318
|
100
|
|||||
Dividends
accrued on Series D preferred stock
|
--
|
1,294
|
|||||
Total
dividends accrued on preferred stock
|
574
|
1,446
|
|||||
Deemed
dividend on beneficial conversion of Series D preferred
stock
|
--
|
17,423
|
|||||
Total
|
$
|
574
|
$
|
18,869
|
Year
ended December 31,
|
From
2004 to 2005
|
||||||||||||
$(000’s)
|
2004
|
2005
|
$
change
|
%
change
|
|||||||||
Loss
applicable to common stockholders
|
$
|
(30,687
|
)
|
$
|
(30,313
|
)
|
$
|
374
|
1.2
|
%
|
|
Year
ended December 31,
|
||||||||||||||||||
$(000’s)
|
2003
|
2004
|
Change
from
2003
to 2004
|
||||||||||||||||
$
amount
|
As
a % of
net
sales
|
$
amount
|
As
a % of
net
sales
|
$
change
|
%
change
|
||||||||||||||
Audio
Book Club
|
$
|
26,380
|
72.0
|
%
|
$
|
12,303
|
65.3
|
%
|
$
|
(14,076
|
)
|
(53.4
|
)%
|
||||||
Radio
Spirits:
|
|||||||||||||||||||
Catalog
|
4,210
|
11.5
|
%
|
3,248
|
17.2
|
%
|
(962
|
)
|
(22.8
|
)%
|
|||||||||
Wholesale
|
3,048
|
8.3
|
%
|
1,671
|
8.9
|
%
|
(1,377
|
)
|
(45.2
|
)%
|
|||||||||
Continuity
|
2,841
|
7.8
|
%
|
1,403
|
7.5
|
%
|
(1,438
|
)
|
(50.6
|
)%
|
|||||||||
Total
Radio Spirits
|
10,099
|
27.6
|
%
|
6,322
|
33.6
|
%
|
(3,777
|
)
|
(37.4
|
)%
|
|||||||||
MediaBay.com
|
138
|
0.4
|
%
|
205
|
1.1
|
%
|
67
|
48.7
|
%
|
||||||||||
Total
|
$
|
36,617
|
100.0
|
%
|
$
|
18,831
|
100.0
|
%
|
$
|
(17,786
|
)
|
(48.6
|
)%
|
Year
ended December 31,
|
|||||||||||||||||||
$(000’s)
|
2003
|
2004
|
Change
from
2003
to 2004
|
||||||||||||||||
$
amount
|
As
a % of
net
sales
|
$
amount
|
As
a % of
net
sales
|
$
change
|
%
change
|
||||||||||||||
Audio
Book Club
|
$
|
12,392
|
47.0
|
%
|
$
|
8,469
|
68.8
|
%
|
$
|
(3,923
|
)
|
(31.7
|
)%
|
||||||
Radio
Spirits:
|
|||||||||||||||||||
Catalog
|
2,015
|
47.9
|
%
|
1,476
|
45.5
|
%
|
(539
|
)
|
(26.7
|
)%
|
|||||||||
Wholesale
|
2,057
|
67.5
|
%
|
1,346
|
80.6
|
%
|
(711
|
)
|
(34.6
|
)%
|
|||||||||
Continuity
|
1,295
|
45.6
|
%
|
495
|
35.3
|
%
|
(800
|
)
|
(61.8
|
)%
|
|||||||||
Other
|
--
|
--
|
760
|
12.0
|
%
|
760
|
100.0
|
%
|
|||||||||||
Total
Radio Spirits
|
5,367
|
53.1
|
%
|
4,077
|
64.5
|
%
|
(1,290
|
)
|
(24.0
|
)%
|
|||||||||
MediaBay.com
|
5
|
--
|
1
|
0.3
|
%
|
(4
|
)
|
(80.0
|
)%
|
||||||||||
Total
|
$
|
17,764
|
48.5
|
%
|
$
|
12,547
|
66.7
|
%
|
$
|
(5,217
|
)
|
(29.4
|
)%
|
Year
ended December 31,
|
Change
from 2003 to 2004
|
||||||||||||
$(000’s)
|
2003
|
2004
|
$
change
|
%
change
|
|||||||||
Audio
Book Club:
|
|||||||||||||
New
member
|
$
|
2,092
|
$
|
414
|
$
|
(1,678
|
)
|
(80.2
|
)%
|
||||
Current
member
|
1,993
|
994
|
(999
|
)
|
(50.1
|
)%
|
|||||||
Total
Audio Book Club
|
4,085
|
1,408
|
(2,677
|
)
|
(65.5
|
)%
|
|||||||
Radio
Spirits:
|
|||||||||||||
Catalog
|
964
|
787
|
(177
|
)
|
(18.4
|
)%
|
|||||||
Wholesale
|
74
|
57
|
(17
|
)
|
(22.3
|
)%
|
|||||||
Continuity
|
775
|
6
|
(769
|
)
|
(99.2
|
)%
|
|||||||
Total
Radio Spirits
|
1,813
|
850
|
(963
|
)
|
(53.1
|
)%
|
|||||||
New
projects
|
339
|
164
|
(175
|
)
|
(51.6
|
)%
|
|||||||
Total
spending
|
6,237
|
2,422
|
3,815
|
61.2
|
%
|
||||||||
Amount
capitalized
|
(2,410
|
)
|
(354
|
)
|
(2,056
|
)
|
(85.3
|
)%
|
|||||
Amount
amortized
|
6,625
|
3,478
|
3,147
|
47.5
|
%
|
||||||||
Total
advertising and promotion expense
|
$
|
10,452
|
$
|
5,546
|
$
|
(4,906
|
)
|
(46.9
|
)%
|
Year
ended December 31,
|
|||||||||||||||||||
$(000’s)
|
2003
|
2004
|
Change
from
2003
to 2004
|
||||||||||||||||
$
amount
|
As
a % of
net
sales
|
$
amount
|
As
a % of
net
sales
|
$
change
|
%
change
|
||||||||||||||
Audio
Book Club
|
$
|
3,404
|
12.9
|
%
|
$
|
744
|
6.0
|
%
|
$
|
(2,660
|
)
|
(78.1
|
)%
|
||||||
Radio
Spirits:
|
|||||||||||||||||||
Catalog
|
--
|
--
|
--
|
--
|
--
|
--
|
%
|
||||||||||||
Wholesale
|
15
|
0.5
|
15
|
0.8
|
--
|
-
|
%
|
||||||||||||
Continuity
|
521
|
18.3
|
70
|
5.2
|
(451
|
)
|
(86.5
|
)%
|
|||||||||||
Total
Radio Spirits
|
536
|
5.3
|
85
|
1.3
|
(451
|
)
|
(84.1
|
)%
|
|||||||||||
MediaBay.com
|
--
|
--
|
--
|
--
|
--
|
--
|
%
|
||||||||||||
Total
|
$
|
3,940
|
10.8
|
%
|
$
|
829
|
4.4
|
%
|
$
|
3,111
|
(79.0
|
)%
|
Year
ended December 31,
|
Change
from
|
||||||||||||||||||
$(000’s)
|
2003
|
2004
|
2003
to 2004
|
||||||||||||||||
$
amount
|
As
a % of
net
sales
|
$
amount
|
As
a % of
net
sales
|
$
change
|
%
change
|
||||||||||||||
Audio
Book Club
|
$
|
2,626
|
10.0
|
%
|
$
|
2,379
|
19.3
|
%
|
$
|
(247
|
)
|
(9.4
|
)%
|
||||||
Radio
Spirits
|
1,163
|
11.5
|
%
|
959
|
15.2
|
%
|
(204
|
)
|
(17.5
|
)%
|
|||||||||
MediaBay.com
|
614
|
621
|
7
|
1.1
|
%
|
||||||||||||||
Corporate
|
2,413
|
2,084
|
(329
|
)
|
(13.6
|
)%
|
|||||||||||||
Total
|
$
|
6,816
|
18.6
|
%
|
$
|
6,043
|
32.1
|
%
|
$
|
(773
|
)
|
(11.3
|
)%
|
Year
ended December 31,
|
|||||||
$(000’s)
|
2003
|
2004
|
|||||
Termination
costs
|
$
|
544
|
$
|
--
|
Year
ended December 31,
|
Change
from
|
||||||||||||||||||
$(000’s)
|
2003
|
2004
|
2003
to 2004
|
||||||||||||||||
$
amount
|
As
a % of
net
sales
|
$
amount
|
As
a % of
net
sales
|
$
change
|
%
change
|
||||||||||||||
Depreciation:
|
|||||||||||||||||||
Audio
Book Club
|
$
|
104
|
0.4
|
%
|
$
|
83
|
0.7
|
%
|
$
|
(21
|
)
|
(19.9
|
)%
|
||||||
Radio
Spirits
|
42
|
0.4
|
%
|
37
|
0.6
|
%
|
(5
|
)
|
(11.9
|
)%
|
|||||||||
Total
depreciation
|
146
|
120
|
(26
|
)
|
|||||||||||||||
Amortization:
|
|||||||||||||||||||
Corporate
|
182
|
--
|
24
|
--
|
(158
|
)
|
(87.0
|
)%
|
|||||||||||
Total
depreciation and amortization
|
$
|
328
|
0.9
|
%
|
$
|
144
|
0.8
|
%
|
$
|
(184
|
)
|
(75.0
|
)%
|
Year
ended December 31,
|
Change
from 2003 to 2004
|
||||||||||||
$(000’s)
|
2003
|
2004
|
$
Change
|
%
Change
|
|||||||||
Interest
paid
|
$
|
384
|
$
|
1,045
|
$
|
661
|
159.1
|
%
|
|||||
Interest
accrued
|
74
|
25
|
(49
|
)
|
(66.2
|
)%
|
|||||||
Accrued
interest included in principal amount
of debt outstanding
|
907
|
521
|
(386
|
)
|
(42.6
|
)%
|
|||||||
Amortization
of deferred financing costs and
original issue discount
|
560
|
1,341
|
(781
|
)
|
(139.5
|
)%
|
|||||||
Loss
on early extinguishment of debt
|
--
|
1,532
|
1,532
|
--
|
|||||||||
Beneficial
conversion expense
|
--
|
3,991
|
3,991
|
--
|
|||||||||
Inducement
to convert
|
--
|
391
|
391
|
--
|
|||||||||
Interest
converted to preferred stock
|
--
|
254
|
254
|
--
|
|||||||||
Less:
Interest income
|
--
|
(18
|
)
|
(18
|
)
|
--
|
|||||||
Total
interest expense
|
$
|
1,925
|
$
|
9,082
|
$
|
7,157
|
371.8
|
%
|
Year
ended December 31,
|
Change
from 2003 to 2004
|
||||||||||||
$
(000's)
|
2003
|
2004
|
$
change
|
%
change
|
|||||||||
Income
tax expense
|
$
|
1,471
|
$
|
14,753
|
$
|
(13,282
|
)
|
902.9
|
%
|
Year
ended December 31,
|
Change
from 2003 to 2004
|
||||||||||||
$
(000's)
|
2003
|
2004
|
$
Change
|
%
Change
|
|||||||||
Series
A preferred stock dividends
|
$
|
228
|
$
|
228
|
$
|
--
|
--
|
%
|
|||||
Series
B preferred stock dividends
|
18
|
28
|
10
|
55.6
|
%
|
||||||||
Series
C preferred stock dividends
|
--
|
318
|
318
|
--
|
%
|
||||||||
Total
dividends accrued on preferred stock
|
$
|
246
|
$
|
574
|
328
|
133.3
|
%
|
Year
ended December 31,
|
Change
from
|
|||||||||
$(000’s)
|
2003
|
2004
|
2003
to 2004
|
|||||||
Loss
applicable to common stockholders
|
$
|
6,869
|
$
|
30,687
|
$
|
23,818
|
·
|
all
$5.784 million principal amount of our convertible notes owned by
the
Herrick Entities, referred to as the Herrick Notes, and 10,684 of
their
shares of our Series A preferred stock were converted into an aggregate
of
approximately 2.03 million shares of our common stock, referred to
as the
Herrick Shares, at their stated conversion rate of $3.36 per share;
|
·
|
we
also agreed to redeem the remaining 14,316 shares of Series A preferred
stock held by the Herrick Entities and all 43,527 of their shares
of our
Series C Convertible preferred stock for $5.8 million, the aggregate
stated capital of such shares, on the earlier of the effective date
of the
Shareholder Consent and September 1, 2005, and both the shares to
be
redeemed and the redemption price were placed into escrow pending
such
date;
|
·
|
the
Herrick Entities waived certain of their registration rights and
we agreed
to include the Herrick Shares for resale in a registration statement
as
long as they were owned by the Herrick Entities and not otherwise
transferred, except as contemplated in the Herrick
Agreement;
|
·
|
the
Herrick Entities consented to the terms of the March 2005 financing
and
the agreements entered into in connection with such financing, as
we were
required to obtain such consents pursuant to the terms of the Herrick
Notes, the Series A preferred stock and the Series C preferred stock;
and
|
·
|
Herrick
and Huntingdon also entered into a voting agreement and proxy with
us
pursuant to which they agreed not to take any action to contradict
or
negate the Shareholder Consent.
|
$(000’s)
|
Payments
Due by Period
|
|||||||||||||||
Contractual
Obligations
|
Total
|
Less
than
1
Year
|
1-3
Years
|
3-5
Years
|
More
Than
5
Years
|
|||||||||||
Debt
obligations
|
$
|
803
|
$
|
77
|
$
|
416
|
$
|
310
|
$
|
--
|
||||||
Capital
lease obligations
|
5
|
5
|
--
|
--
|
--
|
|||||||||||
Operating
lease obligations
|
606
|
210
|
396
|
--
|
--
|
|||||||||||
Purchase
obligations
|
943
|
453
|
490
|
--
|
--
|
|||||||||||
Interest
payments on debt
|
--
|
--
|
--
|
--
|
--
|
|||||||||||
Dividend
payments on preferred stock
|
6,330
|
1,266
|
2,532
|
2,532
|
--
|
|||||||||||
Total
|
$
|
8,687
|
$
|
2,011
|
$
|
3,834
|
$
|
2,842
|
*
|
Year
ending December 31,
|
||||
2006
|
210
|
|||
2007
|
198
|
|||
2008
|
198
|
|||
Thereafter
|
--
|
|||
Total
lease commitments
|
$
|
606
|
Year
ending December 31,
|
||||
2006
|
$
|
5
|
||
Total
capital lease commitments
|
$
|
5
|
Year
ended December 31,
|
||||
2006
|
$
|
453
|
||
2007
|
235
|
|||
2008
|
148
|
|||
Total
|
$
|
836
|
Name
|
Age
|
Position
|
||
Joseph
R. Rosetti
|
72
|
Chairman
and Director
|
||
Jeffrey
Dittus
|
39
|
Chief
Executive Officer and Director
|
||
Robert
Toro
|
41
|
Chief
Financial Officer and Senior Vice President of Finance
|
||
Daniel
J. Altobello
|
65
|
Director
|
||
Richard
J. Berman
|
63
|
Director
|
||
Robert
B. Montgomery
|
44
|
Director
|
||
Marshall
C. Phelps
|
61
|
Director
|
||
Carl
U.J. Rossetti
|
57
|
Director
|
Long-Term
compensation awards
securities
underlying
|
||||||||||||||||
Annual
compensation
|
||||||||||||||||
Name
and principal position
|
Year
|
Salary
|
Bonus
|
Options/SAR’s
(#)
|
All
other compensation
|
|||||||||||
Joseph
Rosetti
Chairman
(1)
|
2005
2004
|
107,500
33,750
|
—
—
|
50,000
95,833
|
—
—
|
|||||||||||
Jeffrey
Dittus
Chief
Executive Officer (2)
|
2005
2004
|
267,333
222,172
|
175,000
—
|
366,667
375,000
|
—
—
|
|||||||||||
Robert
Toro
|
2005
|
196,567
|
25,000
|
158,334
|
||||||||||||
Senior
Vice President Finance
|
2004
|
185,048
|
—
|
—
|
—
|
|||||||||||
2003
|
185,000
|
5,223
|
36,024
|
—
|
||||||||||||
Patricia
Campbell
|
2005
|
150,991
|
50,000
|
301,667
|
—
|
|||||||||||
Chief
Operating Officer (3)
|
(2)
|
Joseph
Rosetti was appointed Chairman of our Board of Directors on August
12,
2004.
|
(3)
|
Jeffrey
Dittus became our Chief Executive Officer on January 29,
2004.
|
(4)
|
Patricia
Campbell became our Chief Operating Officer on April 4, 2005 and
resigned
on January 31, 2006.
|
Potential
realizable
value
at
assumed annual rates of stock price
appreciation
for
option term
|
|||||||||||||||||||
Name
|
Number
of shares underlying options granted
|
%
of total options granted to employees in fiscal
year
|
Exercise
price ($/share)
|
Expiration
date
|
5%
($) |
10%
($) |
|||||||||||||
Joseph
Rosetti
|
50,000
|
3.6
|
%
|
$
|
3.54
|
04/04/2015
|
$
|
111,295
|
$
|
282,033
|
|||||||||
Jeffrey
Dittus
|
200,000
|
14.5
|
%
|
$
|
1.35
|
12/31/2015
|
$
|
169,772
|
$
|
430,219
|
|||||||||
166,667
|
12.1
|
%
|
$
|
3.54
|
04/04/2015
|
$
|
370,984
|
$
|
940,110
|
||||||||||
Robert
Toro
|
100,000
|
7.2
|
%
|
$
|
1.35
|
12/31/2015
|
$
|
84,886
|
$
|
215,110
|
|||||||||
16,667
|
1.2
|
%
|
$
|
3.54
|
06/06/2015
|
$
|
37,099
|
$
|
94,013
|
||||||||||
41,667
|
3.0
|
%
|
$
|
3.54
|
04/04/2015
|
$
|
92,746
|
$
|
235,029
|
||||||||||
Patricia
Campbell (1)
|
150,000
|
10.9
|
%
|
$
|
1.35
|
12/31/2015
|
$
|
127,329
|
$
|
322,664
|
|||||||||
141,667
|
10.3
|
%
|
$
|
3.54
|
04/04/2015
|
$
|
315,337
|
$
|
799,092
|
||||||||||
10,000
|
0.7
|
%
|
$
|
2.16
|
06/06/2015
|
$
|
23,579
|
$
|
35,408
|
Name
|
Number
of securities underlying unexercised options at December
31, 2005
|
Value
of unexercised in-the-money options at December 31,
2005
|
|||||||||||
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
||||||||||
Joseph
Rosetti
|
130,834
|
30,000
|
—
|
—
|
|||||||||
Jeffrey
Dittus
|
329,167
|
412,502
|
—
|
—
|
|||||||||
Robert
Toro
|
63,524
|
145,002
|
—
|
—
|
|||||||||
Patricia
Campbell
|
126,666
|
175,001
|
—
|
—
|
Options
to purchase:
|
Exercise
price
|
Vesting
date
|
|||||
41,667
shares
|
$
|
5.94
|
04/30/2004
|
||||
41,667
shares
|
$
|
5.94
|
07/30/2004
|
||||
41,667
shares
|
$
|
9.30
|
01/30/2005
|
||||
41,667
shares
|
$
|
9.30
|
07/30/2005
|
||||
41,667
shares
|
$
|
11.16
|
01/30/2006
|
||||
41,667
shares
|
$
|
11.16
|
04/30/2006
|
Name
and address of beneficial owner (1)(2)
|
Number
of shares
beneficially
owned
|
Percentage
of shares
beneficially
owned
|
|||||
Jeffrey
Dittus
|
528,667(3
|
)
|
4.8
|
%
|
|||
Joseph
Rosetti
|
151,667(4
|
)
|
1.4
|
||||
Robert
Toro
|
113,524(5
|
)
|
1.1
|
||||
Richard
J. Berman
|
66,666(6
|
)
|
*
|
||||
Daniel
J. Altobello
|
25,000(7
|
)
|
*
|
||||
Robert
B. Montgomery
|
16,667(7
|
)
|
*
|
||||
Marshall
C. Phelps
|
16,667(7
|
)
|
*
|
||||
Carl
U. J. Rossetti
|
16,667(7
|
)
|
|||||
Coghill
Capital Management L.L.C. (8)
|
1,036,783
|
9.9
|
|||||
Radcliffe
SPC, Ltd. (9)
|
989,958
|
9.4
|
|||||
Satellite
Strategic Finance, LLC (10)
|
989,958
|
9.4
|
|||||
Wood
River Partners, L.P. (11)
|
613,100
|
5.8
|
|||||
All
directors and executive officers as a group (8 persons)
|
935,525
|
8.2
|
(1)
|
Unless
otherwise indicated the address of each beneficial owner is c/o MediaBay,
Inc., 2 Ridgedale Avenue, Cedar Knolls, New Jersey 07927. Unless
otherwise
indicated, we believe that all persons named in the following table
have
sole voting and investment power with respect to all shares of common
stock that they beneficially own.
|
(2)
|
For
purposes of this table, a person is deemed to be the beneficial owner
of
the securities if that person has the right to acquire such securities
within 60 days of May 4, 2006 upon the exercise of options, warrants
or
other convertible securities. In determining the percentage ownership
of
the persons in the table below, we assumed in each case that the
person
exercised and converted all options, warrants or convertible securities
which are currently held by that person and which are currently
exercisable, but that options, warrants or other convertible securities
held by all other persons were not exercised or converted. Pursuant
to the
Certificate of Designation of the Series D preferred stock and the
terms
of the March 2005 warrants, the selling security holder is not permitted
to convert or exercise the foregoing securities to the extent any
such
conversion or exercise would result in its beneficial ownership of
more
than 4.99% of our outstanding common stock after giving effect to
such
conversion or exercise.
|
(3)
|
Represents
(i) 2,833 shares of common stock, and (ii) 525,834 shares issuable
upon
exercise of options. Does not include 215,834 shares issuable upon
exercise of options.
|
(4)
|
Represents
(i) 10,833 shares of common stock and (ii) 140,834 shares issuable
upon
exercise of options. Does not include 20,000 shares issuable upon
exercise
of options.
|
(5)
|
Represents
shares issuable upon exercise of options. Does not include 93,335
shares
issuable upon exercise of options.
|
(6)
|
Represents
shares issuable upon exercise of options. Does not include 4,167
shares
issuable upon exercise of options.
|
(7)
|
Represents
shares issuable upon exercise of options.
|
(8)
|
The
following information is based upon a Schedule 13G/A filed with the
SEC on
February 14, 2006. Represent shares of our common stock held by CCM
Master
Qualified Fund Ltd. (“CCM”). Clint D. Coghill is the managing member of
Coghill Capital Management, L.L.C. an entity which serves as the
investment manager of CCM.
|
(9)
|
The
following information is based upon a Schedule 13G filed with the
SEC on
August 16, 2005. Represents shares of our common stock held by Radcliffe
SPC, Ltd., for and on behalf of the Class A Convertible Crossover
Segregated Portfolio. Does not include 212,424 shares of common stock
issuable upon conversion of 701 shares of Series D preferred stock
and
606,060 shares of common stock issuable upon exercise of warrants.
Pursuant to an investment management agreement, RG Capital Management,
L.P. (“RG Capital”) serves as the investment manager of Radcliffe SPC,
Ltd.’s Class A Convertible Crossover Segregated Portfolio. RGC Management
Company, LLC (“RGC Management”) is the general partner of RG Capital.
Steve Katznelson and Gerald Stahlecker serve as the managing members
of
RGC Management. Each of RG Capital, RGC Management and Messrs. Katznelson
and Stahlecker disclaims beneficial ownership of the securities owned
by
Radcliffe SPC, Ltd. for and on behalf of the Class A Convertible
Crossover
Segregated Portfolio. The address of Radcliffe SPC, Ltd. is c/o SEI
Investments Global Fund Services, Ltd., Styne House, Upper Hatch
Street,
Dublin 2 Ireland.
|
(10)
|
The
following information is based upon a Schedule 13G/A filed February
15,
2006. Represents 389,257 shares of our common stock held by Satellite
Strategic Finance Associates, L.L.C. and 600,023 shares of our common
stock held by Satellite Strategic Finance Partners, Ltd. (collectively,
the “Satellite Finance Funds”). Does not include 1,396,667 shares of
common stock issuable upon conversion of 4,609 shares of Series D
preferred stock and 893,939 shares of common stock issuable upon
exercise
of warrants held by Satellite Strategic Finance Associates, L.L.C.
and
2,154,545 shares of commons stock issuable upon conversion of 7,110
shares
of Series D preferred stock and 1,378,787 shares of common stock
issuable
upon exercise of
warrants held by Satellite Strategic Finance Partners, Ltd. Satellite
Asset Management is the investment manager to each of the Satellite
Finance Funds and exercises investment discretion over each of the
Satellite Finance Funds’ portfolios. The general partner of Satellite
Asset Management, L.P. is Satellite Fund Management LLC. Satellite
Fund
Management LLC has four members that make investment decisions on
behalf
of the Satellite Finance Funds, and investment decisions made by
such
members, when necessary, are made through the approval of a majority
of
such members. The address of the Satellite Finance Funds is 623 Fifth
Avenue, 20th
Floor, New York, New York 10022.
|
(11)
|
The
following information is based on a Schedule 13G/A No. 2 filed with
the
SEC on February 13, 2006. According to such Schedule 13G/A, Wood
River
Associates, L.L.C. and Arthur Steinberg have shared voting power
and sole
dispositive power over the shares and Wood River Partners, L.P. has
sole
voting power and sole dispositive power over the shares. Mr. Steinberg
has
been appointed as the receiver of these entities pursuant to an order
of
the United States District Court of the Southern District of New
York. The
address for these entities is c/o Kaye Scholer LLP, 425 Park Avenue,
New
York, New York 10022.
|
·
|
all
$5.784 million principal amount of our convertible notes owned by
the
Herrick entities (the “Herrick Notes”) and 10,684 of their shares of
Series A preferred stock were converted into an aggregate of approximately
2,033,333 shares of our common stock, referred to as the Herrick
Shares,
at their stated conversion rate of $3.36 per share;
|
·
|
we
also agreed to redeem the remaining 14,316 shares of Series A preferred
stock held by the Herrick entities and all 43,527 of their shares
of
Series C preferred stock for $5.8 million, the aggregate stated capital
of
such shares, on the earlier of the effective date of the Shareholder
Consent and June 1, 2005, and both the securities to be redeemed,
referred
to as the redemption securities, and the redemption price were placed
into
escrow pending such date;
|
·
|
the
Herrick entities waived certain of their registration rights and
we agreed
to include the Herrick Shares for resale in the registration statement
filed on behalf of the investors in the March 2005 financing, so
long as
such Herrick Shares were owned by the Herrick entities and not otherwise
transferred, including, but not limited to, in the Herrick Financing
described below;
|
·
|
the
Herrick entities consented to the terms of the March 2005 financing
and
the agreements entered into in connection with such financing, as
we were
required to obtain such consents pursuant to the terms of the Herrick
Notes, the Series A preferred stock and the Series C preferred stock;
and
|
·
|
the
Herrick entities also entered into a voting agreement and proxy with
us
pursuant to which they agreed not to take any action to contradict
or
negate the Shareholder Consent and gave us a proxy to vote their
shares,
at the direction of our Board of Directors, until the effective date
of
such consent.
|
Common
stock beneficially
owned
after
the
offering
|
|||||||||||||
Name
of selling securityholder |
Number
of shares
of common stock
beneficially owned
prior to the
offering
|
Number
of shares
registered
for resale pursuant to this prospectus
|
Number
of
shares
|
Percentage
of
outstanding
shares
|
|||||||||
Goldman,
Sachs & Co.(1)
|
548,279(2
|
)
|
2,130,682(3
|
)
|
8(4
|
)
|
*
|
(1)
|
The
selling securityholder was an investor in our March 2005 financing
in
which it acquired shares of our Series D preferred stock and March
2005
warrants. The selling securityholder has no other material relationship
with us.
|
(2)
|
The
selling security holder owns 8 shares of our common stock, 3,000
shares of
our Series D preferred stock, convertible into 909,091 shares of
our
common stock, 454,545 March 2005 warrants exercisable for 454,545
shares
of our common stock. Pursuant to the Certificate of Designation of
the
Series D preferred stock and the terms of the March 2005 warrants,
the
selling security holder is not permitted to convert or exercise the
foregoing securities to the extent any such conversion or exercise
would
result in its beneficial ownership of more than 4.99% of our outstanding
common stock after giving effect to such conversion or exercise.
Accordingly, an aggregate of 1,156,275 of the registered shares issuable
upon conversion and/or exercise of the foregoing securities are not
included in the selling securityholder’s beneficial ownership prior to the
offering.
|
(3)
|
Represents
(i) 909,091 conversion shares, (ii) 454,545 warrant shares, and (iii)
767,046 potential additional shares.
|
(4)
|
Represents
shares acquired by the selling shareholder in the open
market.
|
·
|
ordinary
brokerage transactions and transactions in which the broker/dealer
solicits purchasers;
|
·
|
block
trades in which the broker/dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker/dealer as principal and resale by the broker/dealer for
its
account;
|
·
|
an
exchange distribution in accordance with the Rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
settlement
of short sales;
|
·
|
broker/dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per share;
|
·
|
a
combination of any such methods of sale; and
|
·
|
any
other method permitted pursuant to applicable
law.
|
·
|
1%
of the number of shares of common stock then outstanding (1% is currently
105,164 shares); and
|
·
|
the
average recently trading volume of the common stock during the four
calendar weeks preceding the filing of a notice on Rule 144 with
respect
to the sale.
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets as of December 31, 2005 and 2004
|
F-3
|
Consolidated
Statements of Operations for the years ended December 31, 2005,
2004 and 2003
|
F-4
|
Consolidated
Statements of Stockholders’ Equity for the years ended December 31,
2005, 2004 and 2003
|
F-5
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2005,
2004 and 2003
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7
|
Schedule
II Valuation and Qualifying Accounts and Reserves
|
S-1
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Assets
|
|||||||
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
8,243
|
$
|
3,122
|
|||
Accounts
receivable, net of allowances for sales returns and doubtful
accounts of
$1,533 and $2,708 at December 31, 2005 and 2004,
respectively
|
691
|
1,285
|
|||||
Inventory
|
763
|
1,530
|
|||||
Prepaid
expenses and other current assets
|
464
|
199
|
|||||
Royalty
advances
|
523
|
489
|
|||||
Total
current assets
|
10,684
|
6,625
|
|||||
Fixed
assets, net
|
1,785
|
243
|
|||||
Other
intangibles, net
|
42
|
50
|
|||||
Goodwill
|
6,156
|
9,658
|
|||||
$
|
18,667
|
$
|
16,576
|
||||
Liabilities
and Stockholders’ Equity (Deficit)
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
4,969
|
$
|
5,361
|
|||
Accounts
payable, related party
|
—
|
315
|
|||||
Current
portion of long-term debt
|
—
|
200
|
|||||
Short-term
debt, net of original issue discount of $52 and $54 at December
31, 2005
and 2004, respectively
|
32
|
29
|
|||||
Preferred
dividend payable
|
319
|
—
|
|||||
Total
current liabilities
|
5,320
|
5,905
|
|||||
Long-term
debt, net of original issue discount of $111 and $908 at
December 31, 2005 and 2004, respectively
|
608
|
9,102
|
|||||
Related
party long-term debt including accrued interest
|
—
|
7,750
|
|||||
Total
liabilities
|
5,928
|
22,757
|
|||||
Commitments
and Contingencies
|
—
|
—
|
|||||
Preferred
stock, no par value, authorized 5,000,000 shares; no shares of
Series A
outstanding at December 31, 2005 and 25,000 shares of Series
A outstanding
at December 31, 2004; 200 shares of Series B issued and outstanding
at
December 31, 2005 and December 31, 2004; no shares of Series
C issued and
outstanding at December 31, 2005 and 43,527 shares of Series
C issued and
outstanding at December 31, 2004; and 21,063 shares of Series
D issued and
outstanding at December 31, 2005 and no shares of Series D issued
and
outstanding at December 31, 2004
|
11,436
|
6,873
|
|||||
Common
stock; no par value, authorized 150,000,000 shares; issued and
outstanding
10,516,414 and 4,140,663 at December 31, 2005 and 2004,
respectively
|
121,681
|
101,966
|
|||||
Contributed
capital
|
42,637
|
17,682
|
|||||
Accumulated
deficit
|
(163,015
|
)
|
(132,702
|
)
|
|||
Total
common stockholders’ equity (deficit)
|
12,739
|
(6,181
|
)
|
||||
$
|
18,667
|
$
|
16,576
|
Years
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Sales,
net of returns, discounts and allowances of $1,825, $5,363 and $16,960
for
the years ended December 31, 2005, 2004 and 2003,
respectively
|
$
|
8,955
|
$
|
18,831
|
$
|
36,617
|
||||
Cost
of sales
|
5,920
|
12,547
|
17,764
|
|||||||
Advertising
and promotion expense
|
2,091
|
5,546
|
10,452
|
|||||||
Bad
debt expense
|
51
|
829
|
3,940
|
|||||||
General
and administrative
|
6,895
|
6,043
|
6,816
|
|||||||
Severance
and other termination costs
|
697
|
—
|
544
|
|||||||
Depreciation
and amortization
|
154
|
144
|
328
|
|||||||
Charge
for impairment of goodwill
|
3,502
|
—
|
—
|
|||||||
Operating
(loss) income
|
(10,355
|
)
|
(6,278
|
)
|
(3,227
|
)
|
||||
Interest
(expense)
|
(767
|
)
|
(9,082
|
)
|
(1,925
|
)
|
||||
Interest
income
|
257
|
—
|
—
|
|||||||
Loss
on early extinguishment of debt
|
(579
|
)
|
—
|
—
|
||||||
Loss
before income tax expense
|
(11,444
|
)
|
(15,360
|
)
|
(5,152
|
)
|
||||
Income
tax expense
|
—
|
14,753
|
1,471
|
|||||||
Net
loss
|
(11,444
|
)
|
(30,113
|
)
|
(6,623
|
)
|
||||
Dividends
on preferred stock.
|
1,446
|
574
|
246
|
|||||||
Deemed
dividend on beneficial conversion of Series
D Preferred Stock
|
17,423
|
—
|
—
|
|||||||
Net
loss applicable to common shares
|
$
|
(30,313
|
)
|
$
|
(30,687
|
)
|
$
|
(6,869
|
)
|
|
Basic
and diluted loss per share:
|
||||||||||
Basic
and diluted loss per share
|
$
|
(4.08
|
)
|
$
|
(10.24
|
)
|
$
|
(2.92
|
)
|
Series
A
|
|
|
|
Series
B
|
|
|
|
Series
C
|
|
|
|
Series
D
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Preferred
|
|
Series
A
|
|
Preferred
|
|
Series
B
|
|
Preferred
|
|
Series
C
|
|
Preferred
|
|
Series
D
|
|
Common
|
|
|
|
|
|
|
|
||||||||||||
|
|
stock
-
|
|
Preferred
|
|
stock
-
|
|
Preferred
|
|
stock
-
|
|
Preferred
|
|
stock
-
|
|
Preferred
|
|
stock
|
|
Common
|
|
|
|
|
|
||||||||||||
|
|
number
of
|
|
stock
no
|
|
number
of
|
|
stock
no
|
|
number
of
|
|
stock
no
|
|
number
of
|
|
stock
no
|
|
number
of
|
|
stock
no
|
|
Contributed
|
|
Accumulated
|
|||||||||||||
shares
|
par
value
|
shares
|
par
value
|
shares
|
par
value
|
shares
|
par
value
|
shares
|
par
value
|
capital
|
deficit
|
||||||||||||||||||||||||||
Balance
at January 1, 2003
|
25,000
|
$
|
2,500
|
-
|
$
|
-
|
-
|
$
|
-
|
-
|
$
|
-
|
2,390
|
$
|
94,800
|
$
|
8,251
|
$
|
(95,146
|
)
|
|||||||||||||||||
Issuance
of Series B Preferred Stock
|
-
|
-
|
3,350
|
328
|
-
|
-
|
-
|
-
|
-
|
-
|
- |
-
|
|||||||||||||||||||||||||
Warrants
granted in consideration for non-compete agreements
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
23 |
-
|
|||||||||||||||||||||||||
Exercise
of options
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
18
|
-
|
- |
-
|
|||||||||||||||||||||||||
Stock
issued to consultants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
5
|
14
|
- |
-
|
|||||||||||||||||||||||||
Options
issued to consultants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
26 |
-
|
|||||||||||||||||||||||||
Columbia
House settlement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(54
|
)
|
(247
|
)
|
3,020 |
-
|
|||||||||||||||||||||||
Stock
tendered as payment of settlement
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(183
|
)
|
-
|
- |
-
|
||||||||||||||||||||||||
Warrants
issued in connection with financing
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
176 |
-
|
|||||||||||||||||||||||||
Options
issued to Directors
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
73 |
-
|
|||||||||||||||||||||||||
Loss
applicable to common shares
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- |
(6,869
|
)
|
||||||||||||||||||||||||
Balance
at December 31, 2003
|
25,000
|
2,500
|
3,350
|
328
|
-
|
-
|
-
|
-
|
2,176
|
94,567
|
11,569 |
(102,015
|
)
|
||||||||||||||||||||||||
Conversion
of Series B Preferred Stock, net of fees
|
-
|
-
|
(3,150
|
)
|
(308
|
)
|
-
|
-
|
-
|
-
|
78
|
365
|
- |
-
|
|||||||||||||||||||||||
Issuance
of Series C Preferred Stock
|
-
|
-
|
-
|
-
|
43,527
|
4,353
|
-
|
-
|
-
|
-
|
- |
-
|
|||||||||||||||||||||||||
Conversion
of subordinated debt
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,433
|
5,554
|
- |
-
|
|||||||||||||||||||||||||
Sales
of common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
300
|
900
|
- |
-
|
|||||||||||||||||||||||||
Exercise
of options and warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
150
|
562
|
- |
-
|
|||||||||||||||||||||||||
Stock
issued to consultants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
4
|
18
|
- |
-
|
|||||||||||||||||||||||||
Beneficial
conversion feature of debt issued
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,991 |
-
|
|||||||||||||||||||||||||
Warrants
issued in connection with financing
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
1,164 |
-
|
|||||||||||||||||||||||||
Inducement
to convert
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
391 |
-
|
|||||||||||||||||||||||||
Settlement
of put obligation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
259 |
-
|
|||||||||||||||||||||||||
Options
issued to Directors
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
219 |
-
|
||||||||||||||||||||||||||
Options
issued to consultants
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
89 |
-
|
|||||||||||||||||||||||||
Loss
applicable to common shares
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- |
(30,687
|
)
|
||||||||||||||||||||||||
Balance
at December 31, 2004
|
25,000
|
2,500
|
200
|
20
|
43,527
|
4,353
|
-
|
-
|
4,141
|
101,966
|
17,682 |
(132,702
|
)
|
||||||||||||||||||||||||
Conversion
of common stock to preferred
|
-
|
-
|
-
|
-
|
-
|
-
|
909
|
(300
|
)
|
(909
|
)
|
- |
-
|
||||||||||||||||||||||||
Conversion
of debt to common stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,039
|
5,784
|
- |
-
|
||||||||||||||||||||||||||
Issuance
ot common stock for extension of registration rights
agreement
|
19
|
-
|
|||||||||||||||||||||||||||||||||||
Exercise
of options
|
17
|
40
|
|||||||||||||||||||||||||||||||||||
Conversion
of preferred stock to common
|
(25,000
|
)
|
(2,500
|
) |
-
|
-
|
(43,527
|
)
|
(4,353
|
)
|
(14,837
|
)
|
(9,085
|
) |
4,497
|
15,938
|
- |
-
|
|||||||||||||||||||
Warrants
issued in connection with sale of Series D
|
|||||||||||||||||||||||||||||||||||||
Preferred
Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
12,838 |
-
|
|||||||||||||||||||||||||
Beneficial
conversion on Series D Preferred Stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
17,423 |
-
|
|||||||||||||||||||||||||
Preferred
dividends paid in stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
26
|
47
|
- |
-
|
|||||||||||||||||||||||||
Accretion
of original issue discount and beneficial conversion
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
6,741
|
-
|
(1,435
|
)
|
(5,306
|
)
|
-
|
|||||||||||||||||||||||
Common
stock issued to vendor
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
77
|
250
|
- |
-
|
|||||||||||||||||||||||||
Sale
of Series D Preferred Stock, net of costs and beneficial
conversion
|
-
|
-
|
-
|
-
|
-
|
-
|
35,900
|
12,851
|
-
|
-
|
- |
-
|
|||||||||||||||||||||||||
Loss
for the year ended December 31, 2005
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
- |
(30,313
|
)
|
||||||||||||||||||||||||||
|
- |
$
|
-
|
200
|
20
|
-
|
$
|
-
|
21,063
|
11,416
|
10,516
|
$
|
121,681
|
$ | 42,637 |
$
|
(163,015
|
)
|
Years
ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Cash
flows from operating activities:
|
||||||||||
Net
loss
|
$
|
(11,444
|
)
|
$
|
(30,113
|
)
|
$
|
(6,623
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||
Charge
for impairment of goodwill
|
3,502
|
--
|
--
|
|||||||
Inventory
obsolescence included in cost of goods sold
|
--
|
2,530
|
285
|
|||||||
Write-off
of non-recoupable royalty advances
|
--
|
1,215
|
--
|
|||||||
Income
tax expense
|
--
|
14,753
|
1,471
|
|||||||
Non-cash
beneficial conversion
|
4,382
|
—
|
||||||||
Amortization
of deferred member acquisition costs
|
17
|
3,509
|
6,625
|
|||||||
Loss
on extinguishment of debt
|
579
|
1,532
|
—
|
|||||||
Non-current
accrued interest
|
155
|
898
|
909
|
|||||||
Amortization
of deferred financing costs and original issue discount
|
240
|
1,329
|
561
|
|||||||
Depreciation
and amortization
|
154
|
144
|
328
|
|||||||
Non-cash
compensation expense
|
328
|
118
|
||||||||
Changes
in asset and liability accounts, net of acquisitions and asset
write-downs:
|
||||||||||
Decrease
in accounts receivable, net
|
816
|
1,979
|
4,195
|
|||||||
Decrease
in inventory
|
767
|
103
|
896
|
|||||||
(Increase)
decrease in prepaid expenses and
other current assets
|
(319
|
)
|
(48
|
)
|
300
|
|||||
(Increase)
decrease in royalty advances
|
(34
|
)
|
(1,000
|
)
|
240
|
|||||
Increase
in deferred member acquisition costs
|
--
|
(356
|
)
|
(2,410
|
)
|
|||||
(Decrease)
increase in accounts payable and accrued expenses
|
(643
|
)
|
(5,406
|
)
|
(5,346
|
)
|
||||
Net
cash (used in) provided by operating activities
|
(6,210
|
)
|
(4,221
|
)
|
1,549
|
|||||
Cash
flows from investing activities:
|
||||||||||
Purchase
of fixed assets
|
(1,687
|
)
|
(136
|
)
|
(16
|
)
|
||||
Additions
to intangible assets
|
--
|
(20
|
)
|
(102
|
)
|
|||||
Cash
paid in acquisitions
|
--
|
—
|
(148
|
)
|
||||||
Net
cash used in investing activities
|
(1,687
|
)
|
(156
|
)
|
(266
|
)
|
||||
Cash
flows from financing activities:
|
||||||||||
Proceeds
from issuance of debt
|
--
|
13,500
|
1,065
|
|||||||
Redemption
of Series A and C Preferred Stock
|
(5,789
|
)
|
||||||||
Proceeds
from sale of common stock
|
--
|
900
|
—
|
|||||||
Proceeds
from exercise of stock options
|
40
|
563
|
—
|
|||||||
Proceeds
from sale of preferred stock and warrants, net of costs
|
31,421
|
—
|
328
|
|||||||
Repayment
of long-term debt
|
(11,763
|
)
|
(6,008
|
)
|
(1,615
|
)
|
||||
Payment
of dividends
|
(891
|
)
|
—
|
—
|
||||||
Increase
in deferred financing costs
|
—
|
(2,139
|
)
|
(99
|
)
|
|||||
Payments
made in connection with litigation settlement recorded in contributed
capital, net of cash received
|
—
|
—
|
(676
|
)
|
||||||
Net
cash provided by (used in) financing activities
|
13,018
|
6,816
|
(997
|
)
|
||||||
Net
increase in cash and cash equivalents
|
5,121
|
2,439
|
286
|
|||||||
Cash
and cash equivalents at beginning of year
|
3,122
|
683
|
397
|
|||||||
Cash
and cash equivalents at end of year
|
$
|
8,243
|
$
|
3,122
|
$
|
683
|
·
|
Product
costs (including free audiobooks in the initial enrollment offer
to
prospective customers as well as the cost to digitize content for
download)
|
·
|
Royalties
to publishers and rightsholders
|
·
|
Fulfillment
costs, including shipping and handling
|
·
|
Customer
service
|
·
|
Direct
response billing, collection and accounts receivable
management
|
·
|
Bad
debt expense
|
·
|
Payroll
and related items
|
·
|
Commissions
|
·
|
Insurance
|
·
|
Office
expenses
|
·
|
Telephone
and postage
|
·
|
Public
and investor relations
|
·
|
Dues
and subscriptions
|
·
|
Rent
and utilities
|
·
|
Travel
and entertainment
|
·
|
Bank
charges
|
·
|
Professional
fees, principally legal and auditing fees
|
·
|
Consulting
|
Year
Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Net
loss applicable to common shares, as reported
|
$
|
(30,313
|
)
|
$
|
(30,687
|
)
|
$
|
(6,869
|
)
|
|
Add:
Stock-based employee compensation expense included in reported net
income
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
|
(2,765
|
)
|
(2,092
|
)
|
(1,486
|
)
|
||||
Pro
forma net loss applicable to common shares
|
$
|
(33,078
|
)
|
$
|
(32,779
|
)
|
$
|
(8,355
|
)
|
|
Net
loss per share:
|
||||||||||
Basic
and diluted-as reported
|
$
|
(4.08
|
)
|
$
|
(10.24
|
)
|
$
|
(2.92
|
)
|
|
Basic
and diluted-pro forma
|
$
|
(4.45
|
)
|
$
|
(10.94
|
)
|
$
|
(3.56
|
)
|
2005
|
2004
|
||||||
Capital
leases, equipment and related software
|
$
|
1,170
|
$
|
959
|
|||
Furniture
and fixtures
|
84
|
84
|
|||||
Leasehold
improvements
|
74
|
74
|
|||||
Web
site development costs
|
1,532
|
57
|
|||||
Total
|
2,860
|
1,174
|
|||||
Accumulated
depreciation
|
(1,076
|
)
|
(931
|
)
|
|||
$
|
1,784
|
$
|
243
|
2005
|
2004
|
||||||
Balance
at January 1,
|
$
|
9,658
|
$
|
9,658
|
|||
Charge
for impairment of goodwill
|
(3,502
|
)
|
--
|
||||
Ending
balance
|
$
|
6,156
|
$
|
9,658
|
December
31, 2005
|
December
31, 2004
|
||||||||||||||||||
Cost
|
Accumulated
Amortization
|
Net
|
Cost
|
Accumulated
Amortization
|
Net
|
||||||||||||||
Mailing
agreements
|
$
|
592
|
$
|
592
|
$
|
--
|
$
|
592
|
$
|
592
|
$
|
--
|
|||||||
Customer
lists
|
4,380
|
4,380
|
--
|
4,380
|
4,380
|
--
|
|||||||||||||
Non-compete
agreements
|
313
|
296
|
17
|
313
|
288
|
25
|
|||||||||||||
Other
|
25
|
--
|
25
|
25
|
--
|
25
|
|||||||||||||
Total
other intangibles
|
$
|
5,310
|
$
|
5,268
|
$
|
42
|
$
|
5,310
|
$
|
5,260
|
$
|
50
|
As
of December 31,
|
|||||||
2005
|
2004
|
||||||
Credit
agreement, senior secured debt, net
of original issue discount
|
$
|
--
|
$
|
8,661
|
|||
Premier
debt, net of original issue discount
|
640
|
670
|
|||||
Related
party notes and related accrued interest, net
of original issue discount
|
--
|
7,750
|
|||||
Total
debt
|
640
|
17,081
|
|||||
Less:
current portion
|
(32
|
)
|
(229
|
)
|
|||
Long-term
debt
|
608
|
$
|
16,852
|
2006
|
$
|
77
|
||
2007
|
183
|
|||
2008
|
233
|
|||
2009
|
233
|
|||
Beyond
|
77
|
|||
Total
maturities, including debt discount of $164
|
$
|
803
|
2006
|
$
|
210
|
||
2007
|
198
|
|||
2008
|
198
|
|||
Thereafter
|
--
|
|||
Total
lease commitments
|
$
|
606
|
2006
|
$
|
5
|
||
Total
capital lease commitments
|
$
|
5
|
2006
|
$
|
453
|
||
2007
|
235
|
|||
2008
|
148
|
|||
Total
|
$
|
836
|
Shares
|
Weighted
average exercise price
|
||||||
Outstanding
at January 1, 2003:
|
1,049,100
|
$
|
26.34
|
||||
Granted
|
598,964
|
6.30
|
|||||
Exercised
|
(50,000
|
)
|
3.00
|
||||
Canceled
and expired
|
(296,250
|
)
|
28.38
|
||||
Outstanding
at December 31. 2003:
|
1,301,814
|
17.52
|
|||||
Granted
|
1,006,250
|
5.16
|
|||||
Exercised
|
(131,338
|
)
|
3.72
|
||||
Canceled
and expired
|
(418,548
|
)
|
16.74
|
||||
Outstanding
at December 31. 2004:
|
1,758,178
|
11.70
|
|||||
Granted
|
1,254,164
|
2.52
|
|||||
Exercised
|
(17,710
|
)
|
2.08
|
||||
Canceled
and expired
|
(109,335
|
)
|
26.26
|
||||
Outstanding
at December 31. 2005
|
2,885,297
|
$
|
7.41
|
Date
|
Number
of shares
|
Exercise
price
|
Assumed
volatility
|
Risk-free
interest rate
|
Fair
value per share
|
|||||||||||
2003
Grants:
|
||||||||||||||||
First
Quarter
|
6,667
|
$
|
9.00
|
165
|
%
|
4.85
|
%
|
$
|
5.40
|
|||||||
Second
Quarter
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Third
Quarter
|
362,309
|
5.82
|
165
|
%
|
4.85
|
%
|
1.74
|
|||||||||
Fourth
Quarter
|
229,988
|
7.02
|
97
|
%
|
4.00
|
%
|
4.02
|
|||||||||
Total
|
598,964
|
|||||||||||||||
2004
Grants:
|
||||||||||||||||
First
Quarter
|
275,833
|
$
|
8.52
|
100
|
%
|
3.50
|
%
|
$
|
3.66
|
|||||||
Second
Quarter
|
350,000
|
3.18
|
75
|
%
|
3.45
|
%
|
1.74
|
|||||||||
Third
Quarter
|
151,250
|
2.58
|
75
|
%
|
3.44
|
%
|
1.08
|
|||||||||
Fourth
Quarter
|
229,167
|
5.76
|
200
|
%
|
3.46
|
%
|
4.98
|
|||||||||
Total
|
1,006,250
|
2005
Grants:
|
||||||||||||||||
First
Quarter
|
16,667
|
$
|
5.22
|
125
|
%
|
3.35
|
%
|
$
|
2.13
|
|||||||
Second
Quarter
|
784,977
|
3.54
|
115
|
%
|
3.35
|
%
|
3.10
|
|||||||||
Third
Quarter
|
--
|
--
|
--
|
--
|
--
|
|||||||||||
Fourth
Quarter
|
452,500
|
$
|
1.35
|
130
|
%
|
4.38
|
%
|
$
|
1.24
|
|||||||
Total
|
1,254,164
|
Options
exercisable
|
||||||||||||||||
Range
of prices
|
Number
|
Options
outstanding weighted average remaining life in
years
|
Weighted
average exercise price
|
Number
|
Weighted
average exercise price
|
|||||||||||
$1.99-3.00
|
741,253
|
4.28
|
$
|
1.65
|
193,812
|
$
|
2.26
|
|||||||||
3.18-6.00
|
1,492,139
|
5.42
|
$
|
3.94
|
769,374
|
$
|
4.17
|
|||||||||
6.12-10.50
|
375,987
|
3.72
|
$
|
7.80
|
293,902
|
$
|
7.94
|
|||||||||
10.74-42.00
|
275,018
|
3.57
|
$
|
22.52
|
275,018
|
$
|
24.52
|
|||||||||
2,885,297
|
4.73
|
$
|
7.41
|
1,515,439
|
$
|
8.30
|
Options
exercisable
|
||||||||||||||||
Range
of prices
|
Number
|
Options
outstanding weighted average remaining life in
years
|
Weighted
average exercise price
|
Number
|
Weighted
average exercise price
|
|||||||||||
$3.18-$4.14
|
8,534,446
|
5.24
|
$
|
3.43
|
8,534,446
|
$
|
3.43
|
|||||||||
$4.80-$7.50
|
120,419
|
3.31
|
$
|
5.50
|
120,419
|
5.50
|
||||||||||
$7.68-18.00
|
587,724
|
3.36
|
$
|
8.21
|
587,724
|
8.21
|
||||||||||
9,242,589
|
5.10
|
$
|
3.76
|
9,242,589
|
$
|
3.76
|
Termination
of contingent put rights
|
$
|
3,450
|
||
Return
for cancellation of 54,167 shares of common stock
|
247
|
|||
Cash
received
|
350
|
|||
Total
received in settlement of litigation
|
4,047
|
|||
Legal
and other costs incurred in connection with the litigation
|
1,027
|
|||
Settlement
of litigation recorded in Contributed Capital
|
$
|
3,020
|
As
of
|
|||||||
December
31,
|
December
31,
|
||||||
2005
|
2004
|
||||||
Series
A Convertible Preferred Stock
|
$
|
--
|
$
|
2,500
|
|||
Series
B Convertible Preferred Stock
|
20
|
20
|
|||||
Series
C Convertible Preferred Stock
|
--
|
4,353
|
|||||
Series
D Convertible Preferred Stock, total outstanding December 31, 2005
$21,063, net of cash fees and expenses of $2,114; value ascribed
to
investors’ and advisors’ warrants of $7,533
|
11,416
|
--
|
|||||
Total
Preferred Stock
|
$
|
11,436
|
$
|
6,873
|
·
|
all
$5,784 principal amount of the convertible notes of the Company owned
by
the Herrick Entities (the “Herrick Notes”) and 10,684 of their shares of
the Series A Convertible Preferred Stock of the Company (“Series A
Preferred”) were converted into an aggregate of approximately 2.03 million
shares of Common Stock (the “Herrick Shares”), at their stated conversion
rate of $3.36 per share;
|
·
|
the
Company agreed to redeem the remaining 14,316 shares of Series A
Preferred
held by the Herrick Entities and all 43,527 of their shares of the
Series
C Convertible Preferred Stock of the Company (collectively, the
“Redemption Securities”) for $5,784, the aggregate stated capital of such
shares, on the earlier of the effective date of the Shareholder Consent
(May 3, 2005);
|
·
|
the
Herrick Entities waived certain of their registration rights and
the
Company agreed to include the Herrick Shares for resale in the
registration statement declared effective May 11, 2005 so long as
such
Herrick Shares are owned by the Herrick Entities and not otherwise
transferred, including, but not limited to, in the Herrick Financing
(as
defined below);
|
·
|
the
Herrick Entities consented to the terms of the Financing and the
agreements entered into in connection with the Financing, as the
Company
was required to obtain such consents pursuant to the terms of the
Herrick
Notes, the Series A Preferred and the Series C Preferred;
|
·
|
Herrick
and Huntingdon also entered into a voting agreement and proxy with
the
Company pursuant to which they agreed not to take any action to contradict
or negate the Shareholder Consent;
|
·
|
the
Company entered into a registration rights agreement with Herrick
and
Huntingdon in which the parties are granted “piggy-back” registration
rights and, with respect to the shares of Common Stock issuable to
Herrick
and Huntingdon upon conversion of the Herrick Notes and Series A
Preferred
Stock, Herrick and Huntingdon are granted the same automatic registration
rights as the Investors under the Registration Rights Agreement;
|
·
|
the
Company also entered into another registration rights agreement dated
March 23, 2005, with Herrick and Huntingdon in which the parties
are
granted “piggy-back” registration rights with respect to the shares of our
common stock issuable to Herrick and Huntingdon upon exercise of
the
warrants held by Herrick and
Huntingdon.
|
2005
|
2004
|
2003
|
||||||||
Computed
tax benefit
|
$
|
(5,423
|
)
|
$
|
(6,360
|
)
|
$
|
(446
|
)
|
|
Increase
(decrease) in valuation allowance for Federal
and State deferred tax assets
|
5,423
|
21,113
|
1,917
|
|||||||
Income
tax expense
|
$
|
--
|
$
|
14,753
|
$
|
1,471
|
|
|
2005
|
|
2004
|
|||
Federal
and state net operating loss carry-forwards
|
$
|
37,162
|
$
|
31,103
|
|||
Loss
in I-Jam, LLC
|
85
|
85
|
|||||
Accounts
receivable, principally due to allowance for doubtful accounts and
reserve
for returns
|
214
|
606
|
|||||
Inventory,
principally due to reserve for obsolescence
|
1,688
|
1,522
|
|||||
Intangibles
|
11,101
|
11,186
|
|||||
Beneficial
conversion feature
|
113
|
438
|
|||||
Total
net deferred tax assets
|
50,363
|
44,940
|
|||||
Less
valuation allowance
|
(50,363
|
)
|
(44,940
|
)
|
|||
Net
deferred tax assets
|
$
|
--
|
$
|
--
|
2005
|
2004
|
2003
|
||||||||
Deemed
dividend on beneficial conversion of Series D Preferred
Stock
|
$
|
17,423
|
--
|
--
|
||||||
Conversion
of notes into preferred shares
|
$
|
14,837
|
$
|
4,353
|
--
|
|||||
Issuance
of warrants in connection with the March 2005 Financing
|
$
|
12,838
|
--
|
--
|
||||||
Conversions
of subordinated notes into common shares
|
$
|
5,784
|
$
|
5,649
|
--
|
|||||
Accrual
of dividends on preferred stock
|
$
|
555
|
$
|
574
|
$
|
246
|
||||
Conversion
of common shares and warrants into preferred stock
and warrants sold in the March 2005 Financing
|
$
|
900
|
--
|
--
|
||||||
Stock
tendered as payment for exercise of options
|
--
|
--
|
$
|
150
|
||||||
Settlement
of litigation
|
--
|
--
|
$
|
3,697
|
Twelve
Months Ended December 31, 2005
|
Inter-
|
||||||||||||||||||
Corporate
|
ABC
|
RSI
(1)
|
Mbay.com
|
segment
|
Total
|
||||||||||||||
Sales
|
-
|
4,648
|
4,135
|
173
|
(1
|
)
|
8,955
|
||||||||||||
Operating
(loss) profit
|
(4,679
|
)
|
(1,698
|
)
|
(3,644
|
)
|
(389
|
)
|
55
|
(10,355
|
)
|
||||||||
Interest
expense, net of interest income
|
510
|
-
|
-
|
-
|
-
|
510
|
|||||||||||||
Loss
on early retirement of debt
|
579
|
-
|
-
|
-
|
-
|
579
|
|||||||||||||
Loss
before income taxes
|
(5,768
|
)
|
(1,698
|
)
|
(3,644
|
)
|
(389
|
)
|
55
|
(11,444
|
)
|
||||||||
Dividends
and deemed dividends on Preferred Stock
|
18,869
|
-
|
-
|
-
|
-
|
18,869
|
|||||||||||||
Income
tax
|
-
|
-
|
|||||||||||||||||
Net
(loss) income applicable to common shares
|
(24,637
|
)
|
(1,698
|
)
|
(3,644
|
)
|
(389
|
)
|
55
|
(30,313
|
)
|
||||||||
Total
assets
|
-
|
9,154
|
9,498
|
15
|
-
|
18,667
|
|||||||||||||
Acquisition
of fixed assets
|
-
|
1,687
|
-
|
-
|
-
|
1,687
|
|||||||||||||
__________
|
|||||||||||||||||||
(1)
Includes a charge for impairment of goodwill of $3,502.
|
Twelve
Months Ended December 31, 2004
|
Inter-
|
||||||||||||||||||
Corporate
|
ABC
|
RSI
|
Mbay.com
|
segment
|
Total
|
||||||||||||||
Sales
|
-
|
12,303
|
6,382
|
205
|
(59
|
)
|
18,831
|
||||||||||||
Operating
(loss) profit
|
(2,108
|
)
|
(3,912
|
)
|
141
|
(416
|
)
|
17
|
(6,278
|
)
|
|||||||||
Interest
expense
|
9,078
|
-
|
4
|
-
|
-
|
9,082
|
|||||||||||||
Loss
on early retirement of debt
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||
Loss
before income taxes
|
(11,186
|
)
|
(3,912
|
)
|
137
|
(416
|
)
|
17
|
(15,360
|
)
|
|||||||||
Dividends
on Preferred Stock
|
574
|
-
|
-
|
-
|
-
|
574
|
|||||||||||||
Income
Tax
|
14,753
|
||||||||||||||||||
Net
(loss) income applicable to common shares
|
(26,513
|
)
|
(3,912
|
)
|
137
|
(416
|
)
|
17
|
(30,687
|
)
|
|||||||||
Total
assets
|
-
|
3,508
|
13,122
|
1
|
(55
|
)
|
16,576
|
||||||||||||
Acquisition
of fixed assets
|
-
|
128
|
8
|
-
|
-
|
136
|
Twelve
Months Ended December 31, 2003
|
|||||||||||||||||||
Corporate
|
ABC
|
RSI
|
MBAY.com
|
Inter-Seg.
|
Total
|
||||||||||||||
Sales
|
$
|
—
|
$
|
26,379
|
$
|
10,247
|
$
|
138
|
$
|
(147
|
)
|
$
|
36,617
|
||||||
Operating
(loss) profit
|
(3,880
|
)
|
349
|
804
|
(481
|
)
|
(19
|
)
|
(3,227
|
)
|
|||||||||
Interest
expense
|
1,913
|
-
|
12
|
-
|
-
|
1,925
|
|||||||||||||
Income
tax expense
|
1,200
|
271
|
-
|
-
|
1,471
|
||||||||||||||
Dividends
on preferred stock
|
246
|
-
|
-
|
-
|
-
|
246
|
|||||||||||||
Net
(loss) income applicable to common shares
|
(6,039
|
)
|
(851
|
)
|
521
|
(481
|
)
|
(19
|
)
|
(6,869
|
)
|
||||||||
Total
assets
|
24,312
|
14,613
|
38,925
|
||||||||||||||||
Purchase
of fixed assets
|
-
|
14
|
2
|
-
|
-
|
-
|
Year
ended
|
|||||||||||||
December
31, 2005:
|
First
|
Second
|
Third
|
Fourth
|
|||||||||
quarter
|
quarter
|
quarter
|
quarter
|
||||||||||
Sales
|
$
|
3,353
|
$
|
2,272
|
$
|
1,387
|
$
|
1,943
|
|||||
Cost
of sales
|
1,796
|
1,607
|
1,002
|
1,515
|
|||||||||
Net
(loss) income applicable to common shares
|
(19,234
|
)
|
(2,950
|
)
|
(2,240
|
)
|
(5,889
|
)
|
|||||
Basic
and diluted loss per share
|
$
|
(4.61
|
)
|
$
|
(0.47
|
)
|
$
|
(0.25
|
)
|
$
|
(0.56
|
)
|
|
Year
ended
|
|||||||||||||
December
31, 2004:
|
First
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
||||
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
Sales
|
$
|
5,684
|
$
|
4,801
|
$
|
3,849
|
$
|
4,496
|
|||||
Cost
of sales
|
2,570
|
2,228
|
3,975
|
3,774
|
|||||||||
Net
(loss) income applicable to common shares
|
(1,168
|
)
|
(7,111
|
)
|
(3,784
|
)
|
(18,624
|
)
|
|||||
Basic
and diluted loss per share
|
$
|
(0.54
|
)
|
$
|
(2.40
|
)
|
$
|
(1.26
|
)
|
$
|
(4.98
|
)
|
|
Year
ended
|
|||||||||||||
December
31, 2003:
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
||
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
|
quarter
|
|
Sales
|
$
|
10,697
|
$
|
9,407
|
$
|
9,572
|
$
|
6,941
|
|||||
Cost
of sales
|
5,234
|
4,124
|
4,252
|
3,869
|
|||||||||
Net
(loss) income applicable to common shares
|
(1,537
|
)
|
(228
|
)
|
285
|
(5,389
|
)
|
||||||
Basic
and diluted income (loss) per share:
|
|||||||||||||
Basic
earnings (loss) per common share
|
$
|
(.66
|
)
|
$
|
(.12
|
)
|
$
|
.12
|
$
|
(2.28
|
)
|
||
Diluted
earnings (loss) per common share
|
$
|
(.66
|
)
|
$
|
(.12
|
)
|
$
|
.12
|
$
|
(2.28
|
)
|
||
Page | |
Prospectus
Summary
|
1
|
Risk
Factors
|
3
|
Special
Information Regarding Forward-Looking
Statements
|
11
|
Use
Of Proceeds
|
12
|
Price
Range of Common Stock
|
12
|
Dividend
Policy
|
13
|
Selected
Financial Data
|
13
|
Management’s
Discussion and Analysis
of Financial Condition and Results of
Operations
|
15
|
Quantitative
And Qualitative Disclosures
Of Market Risk
|
39
|
Business
|
40
|
Legal
Proceedings
|
47
|
Principal
Stockholders
|
56
|
Certain
Transactions
|
58
|
Selling
Securityholder
|
61
|
Description
of Capital Stock
|
62
|
Plan
of Distribution
|
64
|
Indemnification
|
65
|
Legal
Matters
|
66
|
Experts
|
66
|
Where
You Can Find Information
|
66
|
Index
to Financial Statements
|
F-1
|
SEC
registration fee
|
$
|
391.00
|
||
Legal
fees and expenses*
|
$
|
30,000.00
|
||
Accounting
fees and expenses*
|
$
|
20,000.00
|
||
Miscellaneous*
|
$
|
5,000.00
|
||
Total*
|
$
|
55,391.00
|
(a)
|
all
$5.784 million principal amount of our convertible notes owned by
a
principal stockholder and one of his affiliates and 10,684 of their
shares
of our Series A Convertible Preferred Stock (“Series A Preferred”) were
converted as of that date into an aggregate of approximately 2 million
shares of Common Stock, at their stated conversion rate of $3.36
per
share; and
|
(b)
|
we
agreed to redeem the remaining 14,316 shares of Series A Preferred
held by
a principal stockholder and one of his affiliates and all 43,527
of their
shares of our Series C Convertible Preferred Stock (collectively,
the
“Redemption Securities”) for $5.8 million, the aggregate stated capital of
such shares, on the earlier of the effective date of the shareholder
consent and June 1, 2005, and both the Redemption Securities and
the
redemption price were placed into escrow pending such
date.
|
Exhibit
Number
|
Description
|
3.1
|
Restated
Articles of Incorporation of the Registrant. (1)
|
3.2
|
Articles
of Amendment to Articles of Incorporation. (3)
|
3.3
|
Articles
of Amendment to Articles of Incorporation. (4)
|
3.4
|
Articles
of Amendment to Articles of Incorporation of the Registrant filed
with the
Department of State of the State of Florida on January 18, 2002.
(7)
|
3.5
|
Articles
of Amendment to Articles of Incorporation of the Registrant filed
with the
Department of State of the State of Florida on May 7, 2003.
(9)
|
3.6
|
Amendment
to the Articles of Incorporation of MediaBay, Inc. regarding the
designation of the Series D Preferred Stock. (14)
|
3.7
|
Articles
of Amendment to the Articles of Incorporation of MediaBay, Inc. filed
with
the Department of State of the State of Florida on May 3, 2005.
(18)
|
3.8
|
Articles
of Amendment to the Articles of Incorporation of MediaBay, Inc. filed
with
the Department of State of the State of Florida on October 20, 2005
(22)
|
3.9
|
Amended
and Restated By-Laws of the Registrant. (8)
|
5
|
Opinion
of Blank Rome LLP as to the legality of the securities being
registered.
|
10.1
|
1997
Stock Option Plan. (1)
|
10.2
|
1999
Stock Incentive Plan. (2)
|
10.3
|
2000
Stock Incentive Plan. (5)
|
10.4
|
2001
Stock Incentive Plan. (6)
|
10.5
|
2004
Stock Incentive Plan. (13)
|
10.6
|
Form
of 2004 Stock Incentive Plan Non-Qualified Stock Option Agreement
for
Officers. (16)
|
10.7
|
Form
of 2004 Stock Incentive Plan Non-Qualified Stock Option Agreement
for
Directors. (16)
|
10.8
|
Letter
Agreement between the Registrant and Norton Herrick entered into
in
November 2002. (10)
|
10.9
|
Indemnification
Agreement dated as of November 15, 2002 between the Registrant, MEH
Consulting Services. Inc. and Michael Herrick. (8)
|
10.10
|
Indemnification
Agreement dated as of November 15, 2002 between the Registrant and
Norton
Herrick. (8)
|
10.11
|
Termination
Agreement dated as of March 8, 2004 among XNH Consulting Services,
Inc.,
the Registrant and Norton Herrick. (11)
|
10.12
|
Employment
Agreement between the Registrant and Jeffrey Dittus dated June 6,
2005.
(14)
|
10.13
|
Employment
Agreement between the Registrant and Joseph Rosetti dated June 6,
2005.
(14)
|
10.14
|
Employment
Agreement between the Registrant and John Levy dated June 6, 2005.
(14)
|
10.15
|
Employment
Agreement between the Registrant and Robert Toro dated June 6, 2005.
(14)
|
10.16
|
Amendment
No. 1 dated July 5, 2005 to Employment Agreement between the Registrant
and Jeffery Dittus dated June 6, 2005. (15)
|
10.17
|
Employment
Agreement between the Registrant and Patricia Campbell dated April
1, 2005
(effective April 4, 2005. (17)
|
10.18
|
Employment
Agreement between the Registrant and Howard Herrick dated October
30,
2002. (21)
|
10.19
|
Option
Agreement dated as of April 4, 2005 between the Registrant and Jeffrey
Dittus. (19)
|
10.20
|
Option
Agreement dated as of April 4, 2005 between the Registrant and Joseph
Rosetti. (19)
|
10.21
|
Option
Agreement dated as of April 4, 2005 between the Registrant and Robert
Toro. (19)
|
10.22
|
Option
Agreement dated as of April 4, 2005 between the Registrant and Patricia
Campbell. (19)
|
10.23
|
Option
Agreement dated as of April 4, 2005 between the Registrant and Daniel
Altobello. (19)
|
10.24
|
Option
Agreement dated as of April 4, 2005 between the Registrant and Richard
Berman. (19)
|
10.25
|
Option
Agreement dated as of April 4, 2005 between the Registrant and Paul
Neuwirth. (19)
|
10.26
|
Option
Agreement dated as of April 4, 2005 between the Registrant and Stephen
Yarvis. (19)
|
10.27
|
Severance
and Consulting Agreement between the Registrant and John Levy.
(19)
|
10.28
|
Approval
of Bonus Payable to Robert Toro. (19)
|
10.29
|
Letter
Agreement among the Registrant and the Forest Hill Entities dated
February
8, 2005. (20)
|
10.30
|
Registration
Rights Agreement dated March 21, 2005 by and among the Registrant
and each
of the investors whose names appear on the signature pages thereof.
(14)
|
10.31
|
Registration
Rights Agreement dated March 21, 2005 by and between the Registrant
and
Goldman, Sachs & Co. (14)
|
10.32
|
Registration
Rights Agreement (No. 1) dated March 19, 2005 by and among the Registrant,
Norton Herrick and Huntingdon Corporation. (14)
|
10.33
|
Registration
Rights Agreement (No. 2) dated March 19, 2005 by and among the Registrant,
Norton Herrick and Huntingdon Corporation. (14)
|
10.34
|
Securities
Purchase Agreement dated March 21, 2005 by and among the Registrant.,
Satellite Strategic Finance Associates, LLC and the other institutional
investors whose names appear on the signature pages thereof, including
exhibits and schedules thereto. (14)
|
10.35
|
Form
of Warrant issued to each Investor pursuant to the Securities Purchase
Agreement. (14)
|
10.36
|
Form
of Preferred Warrant issued to each Investor pursuant to the Securities
Purchase Agreement. (14)
|
10.37
|
Form
of Warrant issued to Satellite Strategic Finance Associates, LLC.
(14)
|
10.38
|
Form
of Warrant issued to Merriman Curhan Ford & Co.
(14)
|
10.39
|
Form
of Key Employee Agreement dated March 21, 2005 between the Registrant
and
each of Jeffrey A. Dittus and Joseph Rosetti. (14)
|
10.40
|
Form
of Voting Agreement and Proxy dated March 21, 2005 by and among the
Registrant, Norton Herrick and Huntingdon Corporation.
(14)
|
10.41
|
Agreement
dated March 19, 2005 by and among the Registrant, Norton Herrick
and
Huntingdon Corporation.
(14)
|
10.42
|
Letter
Agreement dated March 21, 2005 by
and among the Registrant,
Forest Hill Select Offshore Ltd., Forest Hill Select Fund, L.P. and
Lone
Oak Partners L.P. (14)
|
10.43
|
Form
of Letter Agreement between MediaBay, Inc. and each of Stephen Yarvis,
Paul Ehrlich, Paul Neuwirth and Richard Berman. (14)
|
10.44
|
Transition
Agreement dated January 31, 2006, by and between the Registrant and
Patricia Campbell.
|
10.45
|
Lease
on office space at 2 Ridgedale Avenue, Cedar Knolls, New Jersey.
(23)
|
10.46
|
Settlement
Agreement by and between the Registrant and Premier Electronics,
Inc.
|
21.1
|
Subsidiaries
of the Registrant. (11)
|
23.1
|
Consent
of Amper Politziner & Mattia, P.C.
|
23.2
|
Consent
of Blank Rome LLP included in opinion filed as Exhibit
5
|
24.1
|
Power
of Attorney, included in the signature page of this Registration
Statement
|
(1)
|
Incorporated
by reference to the applicable exhibit contained in our Registration
Statement on Form SB-2 (file no. 333-30665) effective October 22,
1997.
|
(2)
|
Incorporated
by reference to the applicable exhibit contained in our Definitive
Proxy
Statement dated February 23, 1999.
|
(3)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-QSB for the quarterly period ended June 30,
1999.
|
(4)
|
Incorporated
by reference to the applicable exhibit contained in our Registration
Statement on Form SB-2 (file no. 333-95793) effective March 14,
2000.
|
(5)
|
Incorporated
by reference to the applicable exhibit contained in our Definitive
Proxy
Statement dated May 23, 2000.
|
(6)
|
Incorporated
by reference to the applicable exhibit contained in our proxy statement
dated September 21, 2001.
|
(7)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated January 18,
2002.
|
(8)
|
Incorporated
by reference to the applicable exhibit contained in our Annual Report
on
Form 10-K for the year ended December 31, 2002.
|
(9)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-Q for the quarterly period ended March 31,
2003.
|
(10)
|
Incorporated
by reference to Exhibit 10.32 contained in our Annual Report on Form
10-K
for the year ended December 31, 2002.
|
(11)
|
Incorporated
by reference to the applicable exhibit contained in our Annual Report
on
Form 10-K for the year ended December 31, 2003.
|
(12)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-QSB for the quarterly period ended September 30,
2004.
|
(13)
|
Incorporated
by reference to the applicable exhibit contained in our Definitive
Proxy
Statement dated November 16, 2004.
|
(14)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated June 10, 2005.
|
(15)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated July 7, 2005.
|
(16)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 10-Q for the quarterly period ended June 30, 2005.
|
(17)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated April 7, 2005.
|
(18)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated May 3, 2005.
|
(19)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-Q for the quarterly period ended March 31,
2005.
|
(20)
|
Incorporated
by reference to the applicable exhibit contained in our Annual Report
on
Form 10-K for the fiscal year ended December 31, 2004.
|
(21)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-Q for the quarterly period ended September 30,
2002.
|
(22)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-Q for the quarterly period ended September 30,
2005.
|
(23)
|
Incorporated
by reference to the applicable exhibit contained in our Annual Report
on
Form 10-K for the year ended December 31,
2005.
|
Signature
|
Title
|
Date
|
/s/
Joseph R. Rosetti
Joseph
R. Rosetti
|
Director
and Chairman
|
May
8, 2006
|
/s/
Jeffrey Dittus
Jeffrey
Dittus
|
Director
and Chief Executive Officer (Principal Executive Officer)
|
May
8, 2006
|
/s/
Robert Toro
Robert
Toro
|
Chief
Financial Officer and Senior Vice President of Finance (Principal
Financial and Accounting Officer)
|
May
8, 2006
|
/s/
Daniel Altobello
Daniel
Altobello
|
Director
|
May
8, 2006
|
/s/
Richard Berman
Richard
Berman
|
Director
|
May
8, 2006
|
/s/
Robert B. Montgomery
Robert
B. Montgomery
|
Director
|
May
8, 2006
|
/s/
Marshall C. Phelps
Marshall
C. Phelps
|
Director
|
May
8, 2006
|
/s/
Carl U.J. Rossetti
Carl
U.J. Rossetti
|
Director
|
May
8, 2006
|
By
Attorney-in-fact
|
May
8, 2006
|
Balance
Beginning of Period
|
Amounts
Charged to Net Income
|
Amounts
Acquired
|
Write-Offs
Against Reserves
|
Balance
End of Period
|
||||||||||||
Allowances
for sales returns and doubtful accounts:
|
||||||||||||||||
Year
Ended December 31, 2005
|
$
|
2,708
|
$
|
51
|
$
|
1,226
|
$
|
1,533
|
||||||||
Year
Ended December 31, 2004
|
$
|
4,446
|
6,192
|
—
|
7,930
|
2,708
|
||||||||||
Year
Ended December 31, 2003
|
$
|
5,325
|
20,900
|
—
|
21,779
|
4,446
|
||||||||||
Valuation
allowance for Federal and State deferred tax assets
|
||||||||||||||||
Year
Ended December 31, 2005
|
$
|
44,940
|
$
|
--
|
$
|
--
|
$
|
5,423
|
$
|
50,363
|
||||||
Year
Ended December 31, 2004
|
$
|
23,826
|
14,753
|
6,361
|
—
|
44,940
|
||||||||||
Year
Ended December 31, 2003
|
$
|
21,911
|
1,471
|
—
|
446
|
23,826
|
Exhibit
|
|
Number
|
Description
|
3.1
|
Restated
Articles of Incorporation of the Registrant. (1)
|
3.2
|
Articles
of Amendment to Articles of Incorporation. (3)
|
3.3
|
Articles
of Amendment to Articles of Incorporation. (4)
|
3.4
|
Articles
of Amendment to Articles of Incorporation of the Registrant filed
with the
Department of State of the State of Florida on January 18, 2002.
(7)
|
3.5
|
Articles
of Amendment to Articles of Incorporation of the Registrant filed
with the
Department of State of the State of Florida on May 7, 2003.
(9)
|
3.6
|
Amended
and Restated By-Laws of the Registrant. (8)
|
3.7
|
Amendment
to the Articles of Incorporation of the Registrant regarding the
designation of the Series D Preferred Stock. (14)
|
3.8
|
Articles
of Amendment to the Articles of Incorporation the Registrant filed
May 3,
2005. (18)
|
5
|
Opinion
of Blank Rome LLP as to the legality of the securities being
registered.
|
10.1
|
1997
Stock Option Plan. (1)
|
10.2
|
1999
Stock Incentive Plan. (2)
|
10.3
|
2000
Stock Incentive Plan. (5)
|
10.4
|
2001
Stock Incentive Plan. (6)
|
10.5
|
2004
Stock Incentive Plan. (13)
|
10.6
|
Form
of 2004 Stock Incentive Plan Non-Qualified Stock Option Agreement
for
Officers. (16)
|
10.7
|
Form
of 2004 Stock Incentive Plan Non-Qualified Stock Option Agreement
for
Directors. (16)
|
10.8
|
Letter
Agreement between the Registrant and Norton Herrick entered into
in
November 2002. (10)
|
10.9
|
Indemnification
Agreement dated as of November 15, 2002 between the Registrant, MEH
Consulting Services. Inc. and Michael Herrick. (8)
|
10.10
|
Indemnification
Agreement dated as of November 15, 2002 between the Registrant and
Norton
Herrick. (8)
|
10.11
|
Termination
Agreement dated as of March 8, 2004 among XNH Consulting Services,
Inc.,
the Registrant and Norton Herrick. (11)
|
10.12
|
Employment
Agreement between the Registrant and Jeffrey Dittus dated June 6,
2005.
(14)
|
10.13
|
Employment
Agreement between the Registrant and Joseph Rosetti dated June 6,
2005.
(14)
|
10.14
|
Employment
Agreement between the Registrant and John Levy dated June 6, 2005.
(14)
|
10.15
|
Employment
Agreement between the Registrant and Robert Toro dated June 6, 2005.
(14)
|
10.16
|
Amendment
No. 1 dated July 5, 2005 to Employment Agreement between the Registrant
and Jeffery Dittus dated June 6, 2005. (15)
|
10.17
|
Employment
Agreement between the Registrant and Patricia Campbell dated April
1, 2005
(effective April 4, 2005. (17)
|
10.18
|
Employment
Agreement between the Registrant and Howard Herrick dated October
30,
2002. (21)
|
10.19
|
Option
Agreement dated as of April 4, 2005 between the Company and Jeffrey
Dittus. (19)
|
10.20
|
Option
Agreement dated as of April 4, 2005 between the Company and Joseph
Rosetti. (19)
|
10.21
|
Option
Agreement dated as of April 4, 2005 between the Company and Robert
Toro.
(19)
|
10.22
|
Option
Agreement dated as of April 4, 2005 between the Company and Patricia
Campbell. (19)
|
10.23
|
Option
Agreement dated as of April 4, 2005 between the Company and Daniel
Altobello. (19)
|
10.24
|
Option
Agreement dated as of April 4, 2005 between the Company and Richard
Berman. (19)
|
10.25
|
Option
Agreement dated as of April 4, 2005 between the Company and Paul
Neuwirth.
(19)
|
10.26
|
Option
Agreement dated as of April 4, 2005 between the Company and Stephen
Yarvis. (19)
|
10.27
|
Severance
and Consulting Agreement between the Company and John Levy.
(19)
|
10.28
|
Approval
of Bonus Payable to Robert Toro. (19)
|
10.29
|
Letter
Agreement among the Registrant and the Forest Hill Entities dated
February
8, 2005. (20)
|
10.30
|
Registration
Rights Agreement dated March 21, 2005 by and among the Registrant
and each
of the investors whose names appear on the signature pages thereof.
(14)
|
10.31
|
Registration
Rights Agreement dated March 21, 2005 by and between the Registrant
and
Goldman, Sachs & Co. (14)
|
10.32
|
Registration
Rights Agreement (No. 1) dated March 19, 2005 by and among the Registrant,
Norton Herrick and Huntingdon Corporation.
(14)
|
10.33
|
Registration
Rights Agreement (No. 2) dated March 19, 2005 by and among the Registrant,
Norton Herrick and Huntingdon Corporation. (14)
|
10.34
|
Securities
Purchase Agreement dated March 21, 2005 by and among the Registrant,
Satellite Strategic Finance Associates, LLC and the other institutional
investors whose names appear on the signature pages thereof, including
exhibits and schedules thereto. (14)
|
10.35
|
Form
of Warrant issued to each Investor pursuant to the Securities Purchase
Agreement. (14)
|
10.36
|
Form
of Preferred Warrant issued to each Investor pursuant to the Securities
Purchase Agreement. (14)
|
10.37
|
Form
of Warrant issued to Satellite Strategic Finance Associates, LLC.
(14)
|
10.38
|
Form
of Warrant issued to Merriman Curhan Ford & Co.
(14)
|
10.39
|
Form
of Key Employee Agreement dated March 21, 2005 between the Registrant
and
each of Jeffrey A. Dittus and Joseph Rosetti. (14)
|
10.40
|
Form
of Voting Agreement and Proxy dated March 21, 2005 by and among the
Registrant, Norton Herrick and Huntingdon Corporation.
(14)
|
10.41
|
Agreement
dated March 19, 2005 by and among the Registrant, Norton Herrick
and
Huntingdon Corporation.
(14)
|
10.42
|
Letter
Agreement dated March 21, 2005 by
and among the
Registrant,
Forest Hill Select Offshore Ltd., Forest Hill Select Fund, L.P. and
Lone
Oak Partners L.P. (14)
|
10.43
|
Form
of Letter Agreement between the Registrant and each of Stephen Yarvis,
Paul Ehrlich, Paul Neuwirth and Richard Berman. (14)
|
10.44
|
Transition
Agreement dated January 31, 2006, by and between the Registrant and
Patricia Campbell.
|
10.45
|
Lease
on office space at 2 Ridgedale Avenue, Cedar Knolls, New Jersey.
(23)
|
10.46
|
Settlement
Agreement by and between the Registrant and Premier Electronics,
Inc.
|
21.2
|
Subsidiaries
of the Company. (11)
|
23.1
|
Consent
of Amper Politziner & Mattia, P.C.
|
23.2
|
Consent
of Blank Rome LLP included in opinion filed as Exhibit
5*
|
24.2
|
Power
of Attorney, included in the signature page of this Registration
Statement*
|
(1)
|
Incorporated
by reference to the applicable exhibit contained in our Registration
Statement on Form SB-2 (file no. 333-30665) effective October 22,
1997.
|
(2)
|
Incorporated
by reference to the applicable exhibit contained in our Definitive
Proxy
Statement dated February 23, 1999.
|
(3)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-QSB for the quarterly period ended June 30,
1999.
|
(4)
|
Incorporated
by reference to the applicable exhibit contained in our Registration
Statement on Form SB-2 (file no. 333-95793) effective March 14,
2000.
|
(5)
|
Incorporated
by reference to the applicable exhibit contained in our Definitive
Proxy
Statement dated May 23, 2000.
|
(6)
|
Incorporated
by reference to the applicable exhibit contained in our proxy statement
dated September 21, 2001.
|
(7)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated January 18,
2002.
|
(8)
|
Incorporated
by reference to the applicable exhibit contained in our Annual Report
on
Form 10-K for the year ended December 31, 2002.
|
(9)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-Q for the quarterly period ended March 31,
2003.
|
(10)
|
Incorporated
by reference to Exhibit 10.32 contained in our Annual Report on Form
10-K
for the year ended December 31, 2002.
|
(11)
|
Incorporated
by reference to the applicable exhibit contained in our Annual Report
on
Form 10-K for the year ended December 31, 2003.
|
(12)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-QSB for the quarterly period ended September 30,
2004.
|
(13)
|
Incorporated
by reference to the applicable exhibit contained in our Definitive
Proxy
Statement dated November 16, 2004.
|
(14)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated June 10, 2005.
|
(15)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated July 7, 2005.
|
(16)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 10-Q for the quarterly period ended June 30, 2005.
|
(17)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated April 7, 2005.
|
(18)
|
Incorporated
by reference to the applicable exhibit contained in our Current Report
on
Form 8-K for the reportable event dated May 3, 2005.
|
(19)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-Q for the quarterly period ended March 31,
2005.
|
(20)
|
Incorporated
by reference to the applicable exhibit contained in our Annual Report
on
Form 10-K for the fiscal year ended December 31, 2004.
|
(21)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-Q for the quarterly period ended September 30,
2002.
|
(22)
|
Incorporated
by reference to the applicable exhibit contained in our Quarterly
Report
on Form 10-Q for the quarterly period ended September 30,
2005.
|
(23)
|
Incorporated
by reference to the applicable exhibit contained in our Annual Report
on
Form 10-K for the year ended December 31,
2005.
|