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)
|
MEDIABAY,
INC.
|
MEDIABAY,
INC.
|
Page
|
||
PART
I:
|
Financial
Information
|
|
Item
1:
|
Financial
Statements (unaudited)
|
|
Condensed
Consolidated Balance Sheets at March 31, 2006 (unaudited) and December
31,
2005
|
3
|
|
Condensed
Consolidated Statements of Operations for the three months ended
March 31,
2006 and 2005 (unaudited)
|
4
|
|
Condensed
Consolidated Statements of Cash Flows for the three months ended
March 31,
2006 and 2005 (unaudited)
|
5
|
|
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
6
|
|
Item
2:
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
17
|
Item
3:
|
Quantitative
and Qualitative Disclosures of Market Risk
|
26
|
Item
4:
|
Controls
and Procedures
|
27
|
PART
II:
|
Other
Information
|
|
Item
1:
|
Legal
Proceedings
|
27
|
Item
1A:
|
Risk
Factors
|
27
|
Item
5:
|
Other
Information
|
27
|
Item
6:
|
Exhibits
|
27
|
Signatures
|
28
|
PART
I: FINANCIAL
INFORMATION
Item
1: Financial Statements
MEDIABAY,
INC.
|
Condensed
Consolidated Balance Sheets
(Dollars
in thousands)
|
March
|
December
|
||||||
31,
|
31,
|
||||||
2006
|
2005
|
||||||
(Unaudited)
|
|||||||
Assets
|
|||||||
Current
Assets:
|
|||||||
Cash
and cash equivalents
|
$
|
5,333
|
$
|
8,243
|
|||
Accounts
receivable, net of allowances for sales returns and doubtful accounts
of
$1,392 and $1,533 at March 31, 2006 and December 31, 2005,
respectively
|
446
|
691
|
|||||
Inventory
|
764
|
763
|
|||||
Prepaid
expenses and other current assets
|
518
|
464
|
|||||
Royalty
advances
|
575
|
523
|
|||||
Total
current assets
|
7,636
|
10,684
|
|||||
Fixed
assets, net
|
1,700
|
1,785
|
|||||
Other
intangibles, net
|
40
|
42
|
|||||
Goodwill
|
6,156
|
6,156
|
|||||
$
|
15,532
|
$
|
18,667
|
||||
Liabilities
and Stockholders’ Equity
|
|||||||
Current
Liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
4,511
|
$
|
4,969
|
|||
Short-term
debt, net of original issue discount of $52 at March 31, 2006 and
December
31, 2005
|
32
|
32
|
|||||
Preferred
dividend payable
|
312
|
319
|
|||||
Total
current liabilities
|
4,855
|
5,320
|
|||||
Long-term
debt, net of original issue discount of $97 and $111 at March 31,
2006 and
December 31, 2005, respectively
|
608
|
608
|
|||||
Total
liabilities
|
5,463
|
5,928
|
|||||
Commitments
and Contingencies
|
|||||||
Preferred
stock, no par value, authorized 5,000,000 shares; 200 shares of Series
B
issued and outstanding at March 31, 2006 and December 31, 2005 and
21,063
shares of Series D issued and outstanding at March 31, 2006 and December
31, 2005
|
11,390
|
11,436
|
|||||
Common
stock; no par value, authorized 150,000,000 shares; issued and outstanding
10,516,444 at March 31, 2006 and December 31, 2005
|
121,681
|
121,681
|
|||||
Contributed
capital
|
42,637
|
42,637
|
|||||
Accumulated
deficit
|
(165,639
|
)
|
(163,015
|
)
|
|||
Total
common stockholders’ equity
|
10,069
|
12,739
|
|||||
$
|
15,532
|
$
|
18,667
|
MEDIABAY,
INC.
|
||||
Condensed
Consolidated Statements of Operations
(Dollars
in thousands, except per share
data)
|
(Unaudited)
Three
months ended March 31,
|
|||||||
2006
|
2005
|
||||||
Sales,
net of returns, discounts and allowances of $86 and $815 for the
three
months ended March 31, 2006 and 2005, respectively
|
$
|
1,414
|
$
|
3,352
|
|||
Cost
of sales
|
1,069
|
1,796
|
|||||
Gross
profit
|
345
|
1,556
|
|||||
Expenses:
|
|||||||
Advertising
and promotion
|
512
|
386
|
|||||
General
and administrative
|
2,040
|
1,574
|
|||||
Depreciation
and amortization
|
151
|
26
|
|||||
Operating
loss
|
(2,358
|
)
|
(430
|
)
|
|||
Interest
expense
|
15
|
610
|
|||||
Interest
(income
|
(63
|
)
|
(13
|
)
|
|||
Loss
on early extinguishment of debt
|
—
|
579
|
|||||
Loss
before income taxes
|
(2,310
|
)
|
(1,606
|
)
|
|||
Income
taxes
|
—
|
—
|
|||||
Net
loss
|
(2,310
|
)
|
(1,606
|
)
|
|||
Dividends
on preferred stock
|
312
|
205
|
|||||
Deemed
dividend for beneficial conversion feature of Series D
Preferred
Stock
|
—
|
17,423
|
|||||
Net
loss applicable to common shares
|
$
|
(2,622
|
)
|
$
|
(19,234
|
)
|
|
Basic
and diluted loss per common share:
|
|||||||
Basic
and diluted loss per common share
|
$
|
(0.25
|
)
|
$
|
(4.62
|
)
|
|
Weighted
average common shares outstanding:
|
|||||||
Basic
and diluted Weighted average common shares outstanding
|
10,516,444
|
4,174,218
|
MEDIABAY,
INC.
|
Condensed
Consolidated Statements of Cash Flows
(Dollars
in thousands)
|
(Unaudited)
Three
months ended March 31,
|
|||||||
2006
|
2005
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(2,310
|
)
|
$
|
(1,606
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Loss
on early extinguishment of debt
|
—
|
579
|
|||||
Depreciation
and amortization
|
150
|
26
|
|||||
Amortization
of deferred member acquisition costs
|
—
|
9
|
|||||
Amortization
of deferred financing costs and original issue discount
|
14
|
196
|
|||||
Non-current
accrued interest
|
—
|
101
|
|||||
Non-cash
stock compensation
|
—
|
—
|
|||||
Changes
in asset and liability accounts, net of asset acquisition:
|
|||||||
Decrease
in accounts receivable, net
|
245
|
434
|
|||||
(Increase)
decrease in inventory
|
(1
|
)
|
111
|
||||
Increase
in prepaid expenses
|
(54
|
)
|
(108
|
)
|
|||
(Increase)
decrease in royalty advances
|
(52
|
)
|
35
|
||||
Decrease
in accounts payable and accrued expenses
|
(458
|
)
|
(634
|
)
|
|||
Net
cash used in operating activities
|
(2,466
|
)
|
(857
|
)
|
|||
Cash
flows from investing activities:
|
|||||||
Acquisition
of fixed assets, including development of websites
|
(65
|
)
|
(175
|
)
|
|||
Net
cash used in investing activities
|
(65
|
)
|
(175
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Payment
of preferred dividends
|
(319
|
)
|
—
|
||||
Proceeds
from sale of Series D Preferred stock, net of cash fees and
expenses
|
—
|
31,866
|
|||||
Payment
of long-term debt, including accrued interest and dividends
|
(14
|
)
|
(11,700
|
)
|
|||
Increase
in restricted cash
|
—
|
(5,789
|
)
|
||||
Increase
in deferred financing costs
|
(46
|
)
|
(29
|
)
|
|||
Net
cash (used in) provided by financing activities
|
(379
|
)
|
14,348
|
||||
Net
(decrease) increase in cash and cash equivalents
|
(2,910
|
)
|
13,316
|
||||
Cash
and cash equivalents at beginning of period
|
8,243
|
3,122
|
|||||
Cash
and cash equivalents at end of period
|
$
|
5,333
|
$
|
16,438
|
· |
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
|
Three
Months Ended March 31,
|
2005
|
|||
Net
loss applicable to common shares, as reported
|
$
|
(19,234
|
)
|
|
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
|
(35
|
)
|
||
Pro
forma net loss applicable to common shares
|
$
|
(19,269
|
)
|
|
Net
loss per share
|
||||
Basic
and diluted - as reported
|
$
|
(4.62
|
)
|
|
Basic
and diluted - pro forma
|
$
|
(4.62
|
)
|
Date
|
No.
of
Shares
|
Exercise
Price
|
Assumed
Volatility
|
Risk-free
Interest
Rate
|
Fair
Value
per
Share
|
|||||||||||
First
Quarter 2005
|
100,000
|
$
|
.87
|
41
|
%
|
3.35
|
%
|
$
|
.35
|
March
31, 2006
|
December
31, 2005
|
||||||||||||||||||
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
|
298
|
15
|
313
|
296
|
17
|
|||||||||||||
Other
|
25
|
—
|
25
|
25
|
—
|
25
|
|||||||||||||
Total
Other Intangibles
|
$
|
5,310
|
$
|
5,270
|
$
|
40
|
$
|
5,310
|
$
|
5,268
|
$
|
42
|
As
of
|
|||||||
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
Premier
debt
|
$
|
789
|
$
|
803
|
|||
Less:
original issue discount
|
(149
|
)
|
(163
|
)
|
|||
Less:
current portion
|
(32
|
)
|
(32
|
)
|
|||
Long-term
debt
|
$
|
608
|
$
|
608
|
Nine
months ending December 31, 2006
|
$
|
63
|
||
Year
ending December 31, 2007
|
183
|
|||
Year
ending December 31, 2008
|
233
|
|||
Year
ending December 31, 2009
|
233
|
|||
Beyond
|
77
|
|||
Total
maturities, including debt discount of $163
|
$
|
789
|
||
· |
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); and
|
· |
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 dated the date
hereof
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 and, 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
|
||||
Conversions
of subordinated notes into common stock
|
$
|
5,784
|
||
Conversion
of preferred shares into common stock
|
$
|
1,063
|
||
Conversion
of common shares and warrants into preferred stock and warrants sold
in
the Financing
|
$
|
900
|
||
Issuance
of warrants in connection with the Financing
|
$
|
12,838
|
||
Segment
Reporting
|
||||||||||||||||
Three
Months Ended March 31, 2006
|
Inter-
|
|||||||||||||||
Corporate
|
ABC
|
RSI
|
segment
|
Total
|
||||||||||||
Sales,
net of returns, discounts and allowances
|
$
|
—
|
$
|
444
|
$
|
970
|
$
|
—
|
$
|
1,414,
|
||||||
Depreciation
and amortization
|
19
|
132
|
—
|
—
|
151
|
|||||||||||
Operating
(loss) profit
|
(1,403
|
)
|
(937
|
)
|
(18
|
)
|
—
|
(2,358
|
)
|
|||||||
Interest
income, net
|
48
|
--
|
—
|
—
|
48
|
|||||||||||
Net
loss
|
(1,355
|
)
|
(937
|
)
|
(18
|
)
|
—
|
(2,310
|
)
|
|||||||
Dividends
on Preferred Stock
|
(312
|
)
|
—
|
—
|
—
|
(312
|
)
|
|||||||||
Net
(loss) income applicable to common shares
|
(1,667
|
)
|
(937
|
)
|
(18
|
)
|
—
|
(2,622
|
)
|
|||||||
Total
assets
|
—
|
6,439
|
9,093
|
—
|
15,332
|
|||||||||||
Acquisition
of fixed assets
|
$
|
—
|
$
|
63
|
$
|
2
|
$
|
—
|
$
|
65
|
||||||
Segment
Reporting
|
||||||||||||||||
Three
Months Ended March 31, 2005
|
Inter-
|
|||||||||||||||
Corporate
|
ABC
|
RSI
|
segment
|
Total
|
||||||||||||
Sales,
net of returns, discounts and allowances
|
$
|
—
|
$
|
2,240
|
$
|
1,113
|
$
|
(1
|
)
|
$
|
3,352
|
|||||
Depreciation
and amortization
|
2
|
15
|
9
|
—
|
26
|
|||||||||||
Operating
(loss) profit
|
(538
|
)
|
183
|
(80
|
)
|
5
|
(430
|
)
|
||||||||
Interest
expense, net
|
597
|
—
|
—
|
—
|
597
|
|||||||||||
Loss
on early retirement of debt
|
579
|
—
|
—
|
—
|
579
|
|||||||||||
Net
loss
|
(1,714
|
)
|
183
|
(80
|
)
|
5
|
(1,606
|
)
|
||||||||
Dividends
on Preferred Stock
|
205
|
—
|
—
|
—
|
205
|
|||||||||||
Deemed
dividend for beneficial conversion feature of Series D Preferred
Stock
|
17,423
|
17,423
|
||||||||||||||
Net
(loss) income applicable to common shares
|
(19,342
|
)
|
183
|
(80
|
)
|
5
|
(19,234
|
)
|
||||||||
Total
assets
|
—
|
22,607
|
12,978
|
(50
|
)
|
35,535
|
||||||||||
Acquisition
of fixed assets
|
$
|
—
|
$
|
175
|
$
|
—
|
$
|
—
|
$
|
175
|
Three
Months Ended March 31,
|
|||||||
2006
|
2005
|
||||||
Sales
|
100
|
%
|
100
|
%
|
|||
Cost
of sales
|
75.6
|
53.6
|
|||||
Gross
profit
|
24.4
|
46.4
|
|||||
Advertising
and promotion
|
36.2
|
11.5
|
|||||
General
and administrative expense
|
144.3
|
47.0
|
|||||
Depreciation
and amortization expense
|
10.6
|
.8
|
|||||
Interest
income (expense), net
|
3.4
|
(17.8
|
)
|
||||
Loss
on early extinguishment of debt
|
—
|
17.2
|
|||||
Income
tax expense (benefit)
|
—
|
—
|
|||||
Net
(loss)
|
(163.3
|
)
|
(47.9
|
)
|
|||
Dividends
on preferred stock
|
22.1
|
6.1
|
|||||
Deemed
dividend for beneficial conversion feature of Series D Preferred
Stock
|
—
|
519.8
|
|||||
Net
(loss) applicable to common shares
|
(185.4
|
)%
|
(573.8
|
)%
|
|||
($000’s)
|
2005
|
2006
|
Change
from
2005
to 2006
|
%
Change
|
|||||||||
Audio
Book Club
|
$
|
2,240
|
$
|
444
|
$
|
(1,796
|
)
|
(80.2)
|
%
|
||||
Radio
Spirits
|
|||||||||||||
Catalog
|
734
|
709
|
(25
|
)
|
(3.4)
|
%
|
|||||||
Wholesale
|
211
|
191
|
(20
|
)
|
(9.5)
|
%
|
|||||||
Continuity
|
167
|
70
|
(97
|
)
|
(58.1)
|
%
|
|||||||
1,112
|
970
|
(142
|
)
|
(12.8)
|
%
|
||||||||
$
|
3,352
|
1,414
|
(1,938
|
)
|
(57.8)
|
%
|
|||||||
$
(000's)
|
2005
|
2006
|
|||||||||||||||||
As
a %
|
As
a %
|
From
2005 to 2006
|
|||||||||||||||||
$
of
Net Sales
|
$
of
Net Sales
|
Change
|
%
Change
|
||||||||||||||||
Audio
Book Club
|
$
|
1,261
|
56.3
|
%
|
$
|
468
|
105.5
|
%
|
$
|
793
|
62.9
|
%
|
|||||||
Radio
Spirits
|
|||||||||||||||||||
Catalog
|
294
|
40.1
|
%
|
340
|
47.9
|
%
|
(46
|
)
|
(15.6)
|
%
|
|||||||||
Wholesale
|
174
|
82.5
|
%
|
217
|
113.6
|
%
|
(43
|
)
|
(24.7)
|
%
|
|||||||||
Continuity
|
67
|
40.1
|
%
|
44
|
62.2
|
%
|
23
|
34.3
|
%
|
||||||||||
Total
Radio Spirits
|
535
|
48.1
|
%
|
601
|
62.0
|
%
|
(66
|
)
|
(12.3)
|
%
|
|||||||||
$
|
1,796
|
53.6
|
%
|
1,069
|
75.6
|
%
|
727
|
40.5
|
%
|
From
2005 to 2006
|
|||||||||||||
2005
|
2006
|
Change
|
%
Change
|
||||||||||
($000’s)
|
|||||||||||||
Audio
Book Club
|
|||||||||||||
Current
Member
|
193
|
371
|
178
|
92.2
|
%
|
||||||||
Total
Audio Book Club
|
193
|
371
|
178
|
92.2
|
%
|
||||||||
Radio
Spirits
|
|||||||||||||
Catalog
|
175
|
141
|
(34
|
)
|
(19.4)
|
%
|
|||||||
Wholesale
|
—
|
—
|
—
|
—
|
|||||||||
Continuity
|
9
|
—
|
(9
|
)
|
(100.0)
|
%
|
|||||||
Total
Radio Spirits
|
184
|
141
|
(43
|
)
|
(23.4)
|
%
|
|||||||
Total
Spending
|
377
|
512
|
135
|
35.8
|
%
|
||||||||
Amount
Capitalized
|
—
|
—
|
—
|
—
|
|||||||||
Amount
Amortized
|
9
|
—
|
(9
|
)
|
—
|
||||||||
Advertising
and Promotion Expense
|
$
|
386
|
512
|
126
|
32.6
|
%
|
Depreciation
and Amortization
|
|||||||
2005
|
2006
|
||||||
$
(000's)
|
|||||||
Depreciation
|
$
|
24
|
149
|
||||
Amortization
|
2
|
2
|
|||||
Total
depreciation and amortization
|
$
|
26
|
$
|
151
|
2005
|
2006
|
||||||
$
(000's)
|
|||||||
Interest
expensed
|
415
|
15
|
|||||
Amortization
of deferred financing costs and original issue
discount
|
195
|
—
|
|||||
Interest
income
|
(13
|
)
|
(63
|
)
|
|||
Total
interest expense
|
597
|
(48
|
)
|
2005
|
2006
|
||||||
$
(000's)
|
|||||||
Loss
on early extinguishment of debt
|
$
|
579
|
$
|
—
|
2005
|
2006
|
||||||
$
(000's)
|
|||||||
Dividends
accrued on Series A Preferred Stock
|
$
|
51
|
$
|
—
|
|||
Dividends
accrued on Series B Preferred Stock
|
1
|
—
|
|||||
Dividends
accrued on Series C Preferred Stock
|
100
|
1
|
|||||
Dividends
accrued on Series D Preferred Stock
|
53
|
311
|
|||||
Deemed
dividend for beneficial conversion feature of Series D Preferred
Stock
|
17,423
|
—
|
|||||
Total
dividends deemed or accrued on preferred stock
|
$
|
17,628
|
$
|
312
|
From
2005 to 2006
|
|||||||||||||
2005
|
2006
|
Change
|
%
Change
|
||||||||||
$
(000's)
|
|||||||||||||
Loss
applicable to common stockholders
|
$
|
19,234
|
$
|
2,622
|
$
|
(16,612
|
)
|
86.4
|
%
|
31.1 |
Chief
Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2 |
Chief
Financial Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1 |
Certification
of Jeffrey Dittus, 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.
|
32.2
|
Certification
of Robert Toro, 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
|