EMusic.com Announces Third-Quarter Financial Results

Apr 18, 2001, 01:00 ET from EMusic.com Inc.

    REDWOOD CITY, Calif., April 18 /PRNewswire/ --
 EMusic.com Inc. (Nasdaq: EMUS), the Internet's leading downloadable music
 subscription service, today reported its financial results for the fiscal
 third quarter ended March 31, 2001.
     (Photo:  http://www.newscom.com/cgi-bin/prnh/19990602/LAW064 )
     EMusic's revenues for the quarter ended March 31, 2001, were $4.3 million,
 a 36-percent increase compared with combined EMusic.com and Tunes.com revenues
 of $3.2 million for the quarter ended March 31, 2000. Revenues for the quarter
 ended December 31, 2000 were $4.7 million. Music revenues increased to
 $2.2 million for the quarter ended March 31, 2001 compared with
 $450,000 and $1.7 million for the quarters ended March 31, 2000 and
 December 31, 2000, respectively. Advertising revenues were $2.0 million for
 the quarter, a 32-percent decrease compared with the preceding
 quarter -- reflecting the continued decline in online advertising rates and
 sell through.
     The pro forma net loss for the fiscal third quarter ended March 31, 2001,
 was $5.3 million or $0.13 per share compared with a pro forma net loss of
 $13.3 million or $0.37 per share in the same quarter of the prior year and
 $8.7 million or $0.21 per share for the quarter ended December 31, 2000. Pro
 forma net losses exclude non-cash charges related to stock compensation, the
 amortization of intangible assets, impairment and restructuring charges and
 gain on the sale of IUMA. Including these charges net losses for the quarters
 ended March 31, 2001 and 2000 and December 31, 2000 were $6.1 million or
 $0.15 per share, $22.5 million or $0.62 per share and $191.0 million or
 $4.65 per share. As of March 31, 2001, the company's cash and short-term
 investments totaled approximately $10.9 million.
     In January 2001, EMusic announced a corporate reorganization aimed at
 reducing expenses and focusing the company on its two core sources of revenue
 -- advertising and promotional revenue through RollingStone.com, and
 downloadable music sales through EMusic.com. As a result of these actions the
 Company recorded a restructuring charge in the quarter ended March 31, 2001 of
 approximately $1.3 million that primarily included charges related to
 severance, lease terminations and other contract cancellations.
 
     Proposed Acquisition by Universal Music Group
     On April 9, 2001, EMusic and Universal Music Group announced that they had
 entered into a definitive merger agreement. Under this agreement, Universal
 Music Group will commence a cash tender offer to acquire all of EMusic's
 outstanding shares at a price of $0.57 per share. Any shares not purchased in
 the tender offer will be converted into the same cash price in a subsequent
 merger.
     The tender offer will commence on or prior to April 20, 2001 and will be
 made only by an offer to purchase and other offering and solicitation
 documents, copies of which will be filed with the Securities and Exchange
 Commission (SEC) and mailed to EMusic stockholders.
     The obligation of Universal to complete the tender offer will be
 conditioned on a minimum tender of shares representing a majority of EMusic's
 fully diluted shares. In addition, the offer will be conditioned on EMusic
 having cash and marketable securities (after deduction for estimated
 transaction costs) of a minimum of $5 million on April 30, 2001, reducing by
 no more than approximately $48,000 for each day thereafter until the offer
 closes. Either party can terminate the agreement if the offer is not completed
 by June 25, 2001.
     The transaction is subject to other customary conditions. It is not
 subject to the waiting period requirements of the Hart-Scott-Rodino Antitrust
 Improvement Act of 1976.
 
     About EMusic.com
     Since it was founded in January 1998, EMusic has established itself at the
 forefront of how music will be discovered, delivered and enjoyed in the next
 decade. In addition to having the Internet's leading downloadable music
 subscription service, EMusic operates one of the most popular families of
 music-oriented Web sites -- including RollingStone.com, EMusic.com and
 DownBeat.com. The company is based in Redwood City, California, with regional
 offices in Chicago, Los Angeles and New York.
 
     Availability of SEC Tender Offer and Other Information
     EMusic security holders and any potential investors in EMusic securities
 are advised to carefully read the tender offer statement on Schedule TO to be
 filed by Universal with the SEC, the solicitation/recommendation statement on
 Schedule 14D-9 to be filed by EMusic with the SEC and all other documents
 filed by either company with the SEC in connection with the proposed tender
 offer and/or merger when they become available. Those documents will contain
 important information about the proposed transaction. Security holders and
 potential investors may obtain free copies of those documents (when
 available), as well as other documents filed by EMusic at the SEC's website at
 http://www.sec.gov . These documents will also be made available to all
 stockholders of EMusic at no expense to them by submitting a request to
 Investor Relations at EMusic.
 
     NOTE:  EMUSIC is a registered trademark and EMUSIC.COM is a trademark of
 EMusic.com Inc.
 
     Any forward-looking statements contained in this release involve a number
 of uncertainties, risks and other factors which may cause the actual results,
 performance or achievements expressed or implied by such forward-looking
 statements to materially differ. Factors that could cause actual events or
 results to differ materially include, among others, whether the conditions to
 Universal's obligations under the merger agreement are satisfied and changes
 in the Nasdaq listing status of the Company, and those other factors set forth
 in the Company's SEC reports.
 
                                EMUSIC.COM INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                           (In thousands) (Unaudited)
 
 
                                                 March 31, 2001  June 30, 2000
     Assets
     Current Assets:
      Cash and short-term investments                $10,888         $34,260
      Accounts receivable, net                         1,813           2,488
      Prepaid expenses and other assets                3,064           9,715
      Total current assets                            15,765          46,463
 
     Property and equipment, net                       2,794           4,706
     Music rights, intangibles, and other
      assets, net                                     18,142         202,091
 
        Total assets                                 $36,701        $253,260
 
     Liabilities and Stockholders' Equity
     Current Liabilities:
 
      Accounts payable                                $1,154          $4,130
      Accrued liabilities                              4,106           3,540
      Accrued compensation and related benefits        1,546           2,352
      Deferred revenue                                   759           1,151
       Total current liabilities                       7,565          11,173
 
     Capital lease                                       107             245
 
     Stockholders' Equity:
      Common stock and additional paid-in
       capital                                       369,072         367,406
      Accumulated deficit                          (340,043)       (125,564)
       Total stockholders' equity                     29,029         241,842
 
        Total liabilities and stockholders'
         equity                                      $36,701        $253,260
 
 
                                EMUSIC.COM INC.
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
               (In thousands, except per share data) (Unaudited)
 
                                                   Three months   Three months
                                                       ended           ended
                                                     March 31,       March 31,
                                                       2001            2000
     Revenues:
      Music revenues                                   $2,246           $450
      Advertising revenues                              2,036          1,650
      Total revenues                                    4,282          2,100
     Cost of revenues                                   1,989            579
     Gross profit                                       2,293          1,521
 
     Operating expenses:
      Product development                               3,195          4,922
      Stock compensation                                   22          2,072
       Total product development                        3,217          6,994
      Selling and marketing                             3,059          8,810
      General and administrative                        1,407          2,141
      Amortization of intangible assets                   225          7,132
      Restructuring and other charges                   1,349             --
 
        Total operating expenses                        9,257         25,077
 
     Operating loss                                   (6,964)       (23,556)
 
     Gain on sale of IUMA                                 751             --
 
     Interest and other income, net                        85          1,027
 
     Net loss                                        $(6,128)      $(22,529)
 
     Net loss per common share-basic and diluted      $(0.15)        $(0.62)
 
     Weighted average common shares outstanding -
      basic and diluted                                41,588         36,201
 
 
                                EMUSIC.COM INC.
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
               (In thousands, except per share data) (Unaudited)
 
                                                    Nine months    Nine months
                                                       ended           ended
                                                     March 31,       March 31,
                                                       2001            2000
     Revenues:
      Music revenues                                   $5,419           $733
      Advertising revenues                              8,176          1,970
      Total revenues                                   13,595          2,703
     Cost of revenues                                   5,672            751
     Gross profit                                       7,923          1,952
 
     Operating expenses:
      Product development                              11,403          9,908
      Stock compensation                                  369          8,987
       Total product development                       11,772         18,895
      Selling and marketing                            13,606         19,218
      General and administrative                        5,703          4,031
      Amortization of intangible assets                18,469         12,292
      Impairment, restructuring and other charges     174,410             --
 
        Total operating expenses                      223,960         54,436
 
     Operating loss                                 (216,037)       (52,484)
 
     Gain on sale of IUMA                                 751             --
 
     Interest and other income, net                       807          2,181
 
     Net loss                                      $(214,479)      $(50,303)
 
     Accretion of preferred stock to
      redemption value                                     --          (224)
     Dividend on preferred stock                           --          (493)
 
     Net loss applicable to common shares          $(214,479)      $(51,020)
 
     Net loss per common share-basic and diluted      $(5.22)        $(1.92)
 
     Weighted average common shares outstanding
      - basic and diluted                              41,096         26,615
 
 
                                EMUSIC.COM INC.
            CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
               (In thousands, except per share data) (Unaudited)
 
                                    Three months   Three months   Three months
                                       ended           ended          ended
                                     March 31,     December 30,     March 31,
                                        2001           2000            2000
     Revenues:
      Music                           $2,246          $1,667          $450
      Advertising                      2,036           3,010         1,650
      Total revenues                   4,282           4,677         2,100
     Cost of revenues                  1,989           1,838           579
     Gross profit                      2,293           2,839         1,521
 
     Operating expenses:
      Product development              3,195           3,977         4,922
      Selling and marketing            3,059           5,550         8,810
      General and administrative       1,407           2,310         2,141
 
        Total operating expenses       7,661          11,837        15,873
 
     Operating loss                  (5,368)         (8,998)      (14,352)
 
     Interest and other income, net       85             307         1,027
 
     Net loss                       $(5,283)        $(8,691)     $(13,325)
 
     Net loss per common share
      - basic and diluted            $(0.13)         $(0.21)       $(0.37)
 
     Weighted average common shares
      outstanding - basic and
      diluted                         41,588          41,099        36,201
 
 
     Note:  Pro forma amounts for all periods presented exclude impairment,
 restructuring and other charges and non-cash charges related to stock
 compensation and the amortization of intangible assets and the gain on sale of
 IUMA.
 
 

SOURCE EMusic.com Inc.
    REDWOOD CITY, Calif., April 18 /PRNewswire/ --
 EMusic.com Inc. (Nasdaq: EMUS), the Internet's leading downloadable music
 subscription service, today reported its financial results for the fiscal
 third quarter ended March 31, 2001.
     (Photo:  http://www.newscom.com/cgi-bin/prnh/19990602/LAW064 )
     EMusic's revenues for the quarter ended March 31, 2001, were $4.3 million,
 a 36-percent increase compared with combined EMusic.com and Tunes.com revenues
 of $3.2 million for the quarter ended March 31, 2000. Revenues for the quarter
 ended December 31, 2000 were $4.7 million. Music revenues increased to
 $2.2 million for the quarter ended March 31, 2001 compared with
 $450,000 and $1.7 million for the quarters ended March 31, 2000 and
 December 31, 2000, respectively. Advertising revenues were $2.0 million for
 the quarter, a 32-percent decrease compared with the preceding
 quarter -- reflecting the continued decline in online advertising rates and
 sell through.
     The pro forma net loss for the fiscal third quarter ended March 31, 2001,
 was $5.3 million or $0.13 per share compared with a pro forma net loss of
 $13.3 million or $0.37 per share in the same quarter of the prior year and
 $8.7 million or $0.21 per share for the quarter ended December 31, 2000. Pro
 forma net losses exclude non-cash charges related to stock compensation, the
 amortization of intangible assets, impairment and restructuring charges and
 gain on the sale of IUMA. Including these charges net losses for the quarters
 ended March 31, 2001 and 2000 and December 31, 2000 were $6.1 million or
 $0.15 per share, $22.5 million or $0.62 per share and $191.0 million or
 $4.65 per share. As of March 31, 2001, the company's cash and short-term
 investments totaled approximately $10.9 million.
     In January 2001, EMusic announced a corporate reorganization aimed at
 reducing expenses and focusing the company on its two core sources of revenue
 -- advertising and promotional revenue through RollingStone.com, and
 downloadable music sales through EMusic.com. As a result of these actions the
 Company recorded a restructuring charge in the quarter ended March 31, 2001 of
 approximately $1.3 million that primarily included charges related to
 severance, lease terminations and other contract cancellations.
 
     Proposed Acquisition by Universal Music Group
     On April 9, 2001, EMusic and Universal Music Group announced that they had
 entered into a definitive merger agreement. Under this agreement, Universal
 Music Group will commence a cash tender offer to acquire all of EMusic's
 outstanding shares at a price of $0.57 per share. Any shares not purchased in
 the tender offer will be converted into the same cash price in a subsequent
 merger.
     The tender offer will commence on or prior to April 20, 2001 and will be
 made only by an offer to purchase and other offering and solicitation
 documents, copies of which will be filed with the Securities and Exchange
 Commission (SEC) and mailed to EMusic stockholders.
     The obligation of Universal to complete the tender offer will be
 conditioned on a minimum tender of shares representing a majority of EMusic's
 fully diluted shares. In addition, the offer will be conditioned on EMusic
 having cash and marketable securities (after deduction for estimated
 transaction costs) of a minimum of $5 million on April 30, 2001, reducing by
 no more than approximately $48,000 for each day thereafter until the offer
 closes. Either party can terminate the agreement if the offer is not completed
 by June 25, 2001.
     The transaction is subject to other customary conditions. It is not
 subject to the waiting period requirements of the Hart-Scott-Rodino Antitrust
 Improvement Act of 1976.
 
     About EMusic.com
     Since it was founded in January 1998, EMusic has established itself at the
 forefront of how music will be discovered, delivered and enjoyed in the next
 decade. In addition to having the Internet's leading downloadable music
 subscription service, EMusic operates one of the most popular families of
 music-oriented Web sites -- including RollingStone.com, EMusic.com and
 DownBeat.com. The company is based in Redwood City, California, with regional
 offices in Chicago, Los Angeles and New York.
 
     Availability of SEC Tender Offer and Other Information
     EMusic security holders and any potential investors in EMusic securities
 are advised to carefully read the tender offer statement on Schedule TO to be
 filed by Universal with the SEC, the solicitation/recommendation statement on
 Schedule 14D-9 to be filed by EMusic with the SEC and all other documents
 filed by either company with the SEC in connection with the proposed tender
 offer and/or merger when they become available. Those documents will contain
 important information about the proposed transaction. Security holders and
 potential investors may obtain free copies of those documents (when
 available), as well as other documents filed by EMusic at the SEC's website at
 http://www.sec.gov . These documents will also be made available to all
 stockholders of EMusic at no expense to them by submitting a request to
 Investor Relations at EMusic.
 
     NOTE:  EMUSIC is a registered trademark and EMUSIC.COM is a trademark of
 EMusic.com Inc.
 
     Any forward-looking statements contained in this release involve a number
 of uncertainties, risks and other factors which may cause the actual results,
 performance or achievements expressed or implied by such forward-looking
 statements to materially differ. Factors that could cause actual events or
 results to differ materially include, among others, whether the conditions to
 Universal's obligations under the merger agreement are satisfied and changes
 in the Nasdaq listing status of the Company, and those other factors set forth
 in the Company's SEC reports.
 
                                EMUSIC.COM INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                           (In thousands) (Unaudited)
 
 
                                                 March 31, 2001  June 30, 2000
     Assets
     Current Assets:
      Cash and short-term investments                $10,888         $34,260
      Accounts receivable, net                         1,813           2,488
      Prepaid expenses and other assets                3,064           9,715
      Total current assets                            15,765          46,463
 
     Property and equipment, net                       2,794           4,706
     Music rights, intangibles, and other
      assets, net                                     18,142         202,091
 
        Total assets                                 $36,701        $253,260
 
     Liabilities and Stockholders' Equity
     Current Liabilities:
 
      Accounts payable                                $1,154          $4,130
      Accrued liabilities                              4,106           3,540
      Accrued compensation and related benefits        1,546           2,352
      Deferred revenue                                   759           1,151
       Total current liabilities                       7,565          11,173
 
     Capital lease                                       107             245
 
     Stockholders' Equity:
      Common stock and additional paid-in
       capital                                       369,072         367,406
      Accumulated deficit                          (340,043)       (125,564)
       Total stockholders' equity                     29,029         241,842
 
        Total liabilities and stockholders'
         equity                                      $36,701        $253,260
 
 
                                EMUSIC.COM INC.
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
               (In thousands, except per share data) (Unaudited)
 
                                                   Three months   Three months
                                                       ended           ended
                                                     March 31,       March 31,
                                                       2001            2000
     Revenues:
      Music revenues                                   $2,246           $450
      Advertising revenues                              2,036          1,650
      Total revenues                                    4,282          2,100
     Cost of revenues                                   1,989            579
     Gross profit                                       2,293          1,521
 
     Operating expenses:
      Product development                               3,195          4,922
      Stock compensation                                   22          2,072
       Total product development                        3,217          6,994
      Selling and marketing                             3,059          8,810
      General and administrative                        1,407          2,141
      Amortization of intangible assets                   225          7,132
      Restructuring and other charges                   1,349             --
 
        Total operating expenses                        9,257         25,077
 
     Operating loss                                   (6,964)       (23,556)
 
     Gain on sale of IUMA                                 751             --
 
     Interest and other income, net                        85          1,027
 
     Net loss                                        $(6,128)      $(22,529)
 
     Net loss per common share-basic and diluted      $(0.15)        $(0.62)
 
     Weighted average common shares outstanding -
      basic and diluted                                41,588         36,201
 
 
                                EMUSIC.COM INC.
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
               (In thousands, except per share data) (Unaudited)
 
                                                    Nine months    Nine months
                                                       ended           ended
                                                     March 31,       March 31,
                                                       2001            2000
     Revenues:
      Music revenues                                   $5,419           $733
      Advertising revenues                              8,176          1,970
      Total revenues                                   13,595          2,703
     Cost of revenues                                   5,672            751
     Gross profit                                       7,923          1,952
 
     Operating expenses:
      Product development                              11,403          9,908
      Stock compensation                                  369          8,987
       Total product development                       11,772         18,895
      Selling and marketing                            13,606         19,218
      General and administrative                        5,703          4,031
      Amortization of intangible assets                18,469         12,292
      Impairment, restructuring and other charges     174,410             --
 
        Total operating expenses                      223,960         54,436
 
     Operating loss                                 (216,037)       (52,484)
 
     Gain on sale of IUMA                                 751             --
 
     Interest and other income, net                       807          2,181
 
     Net loss                                      $(214,479)      $(50,303)
 
     Accretion of preferred stock to
      redemption value                                     --          (224)
     Dividend on preferred stock                           --          (493)
 
     Net loss applicable to common shares          $(214,479)      $(51,020)
 
     Net loss per common share-basic and diluted      $(5.22)        $(1.92)
 
     Weighted average common shares outstanding
      - basic and diluted                              41,096         26,615
 
 
                                EMUSIC.COM INC.
            CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
               (In thousands, except per share data) (Unaudited)
 
                                    Three months   Three months   Three months
                                       ended           ended          ended
                                     March 31,     December 30,     March 31,
                                        2001           2000            2000
     Revenues:
      Music                           $2,246          $1,667          $450
      Advertising                      2,036           3,010         1,650
      Total revenues                   4,282           4,677         2,100
     Cost of revenues                  1,989           1,838           579
     Gross profit                      2,293           2,839         1,521
 
     Operating expenses:
      Product development              3,195           3,977         4,922
      Selling and marketing            3,059           5,550         8,810
      General and administrative       1,407           2,310         2,141
 
        Total operating expenses       7,661          11,837        15,873
 
     Operating loss                  (5,368)         (8,998)      (14,352)
 
     Interest and other income, net       85             307         1,027
 
     Net loss                       $(5,283)        $(8,691)     $(13,325)
 
     Net loss per common share
      - basic and diluted            $(0.13)         $(0.21)       $(0.37)
 
     Weighted average common shares
      outstanding - basic and
      diluted                         41,588          41,099        36,201
 
 
     Note:  Pro forma amounts for all periods presented exclude impairment,
 restructuring and other charges and non-cash charges related to stock
 compensation and the amortization of intangible assets and the gain on sale of
 IUMA.
 
 SOURCE  EMusic.com Inc.