LOS ANGELES, May 23 /PRNewswire-FirstCall/ -- ARTISTdirect, Inc.
(OTC:ARTD) (BULLETIN BOARD: ARTD) , a digital entertainment company
providing digital distribution and copyright protection services
for content owners, today announced the results of its operations
for the three months ended March 31, 2006. The consolidated
statements of operations for the three months ended March 31, 2006
are not comparable to the three months ended March 31, 2005 because
the prior year period did not include the results of operations of
MediaDefender, which was acquired by the Company effective July 28,
2005, as described below. MediaDefender is one of the leading
providers of anti-piracy solutions in the
Internet-piracy-protection industry. In order to provide a
comparable performance measure for the combined company, pro forma
information for the three months ended March 31, 2005 is presented
below as though ARTISTdirect and MediaDefender had been combined as
of the beginning of fiscal 2005. First Quarter 2006 Operating
Results For the three months ended March 31, 2006, total net
revenue was $5,273,000, an increase of $3,983,000 or 309%, as
compared to total net revenue of $1,290,000 for the three months
ended March 31, 2005. The Company's net loss from continuing
operations for the three months ended March 31, 2006 was
$16,437,000, or $2.81 per basic and diluted common share, as
compared to a net loss from continuing operations of $375,000, or
$0.11 per basic and diluted common share for the three months ended
March 31, 2005. Included in net loss from continuing operations for
the three months ended March 31, 2006 was a charge to other expense
of $14,644,000 ($2.50 per basic and diluted common share) relating
to an increase in warrant liability during the period, as required
by a recent accounting pronouncement relating to convertibility and
registration of stock warrants. For purposes of evaluating
operating performance, the Company's management uses "Adjusted
EBITDA", a non-GAAP financial measure that represents income or
loss from continuing operations before net interest expense,
provision for income taxes, depreciation and amortization, and also
excludes certain other items, including stock-based compensation,
adjustment to warrant liability, impairment losses and
non-recurring gains and losses. Management excludes these items in
assessing financial performance, primarily due to their non-
operational nature or because they are outside of the Company's
normal operations. The Company has provided this information
because it believes that it is useful to investors in understanding
the Company's financial condition and results of operations. As
summarized below, Adjusted EBITDA for the three months ended March
31, 2006 was $1,228,000, as compared to $(349,000) for the three
months ended March 31, 2005. Presented below is a summary of Net
Revenue and Adjusted EBITDA by operating segment for the three
months ended March 31, 2005 and 2006. Included in Adjusted EBITDA
are direct operating expenses for each segment. Corporate expenses
consist of general operating expenses that are not directly related
to the operations of the segments. Three Months Ended March 31, As
Reported ($000) 2005 2006 Net Revenue: E-commerce $635 $539 Media
655 1,143 Anti-piracy services -- 3,591 $1,290 $5,273 Adjusted
EBITDA: E-commerce $42 $(49) Media 244 258 Anti-piracy services --
2,237 286 2,446 Corporate (635) (1,218) $(349) $1,228 Anti-piracy
services revenue was $3,591,000 for the three months ended March
31, 2006, or approximately 68% of the Company's total net revenue
for the period. Anti-piracy services Adjusted EBITDA was $2,237,000
for the three months ended March 31, 2006, reflecting a net
operating margin of approximately 62%. The Company expects that
this business will provide a significant proportion of the
Company's future revenues, Adjusted EBITDA, and operating cash
flows. The Company intends to make a continuing investment in this
business. Media segment revenue increased by $488,000, or 75%, to
$1,143,000 for the three months ended March 31, 2006, as compared
to $655,000 for the three months ended March 31, 2005, as a result
of an increase in the number of online advertisers, an increase in
the cost per thousand ("CPM") amounts earned from the sales of
impression and non-impression based advertising, and the expansion
of the Company's affiliations with other web-sites for which the
Company both markets advertising and participates in advertising
revenues. The Company experienced a disproportionate increase in
media cost of revenue as compared to media revenue in 2006,
reflecting an acceleration of costs incurred to continue to develop
the ARTISTdirect Network. The Company is in the process of
implementing various business initiatives designed to improve
operating margins throughout the network. Included in corporate
expenses for the three months ended March 31, 2006 are almost
$300,000 of legal and accounting fees relating to the Company's
fiscal 2005 consolidated audit and the preparation and filing of
various documents with the SEC and amendments to its financing
agreements. The Company expects these costs to continue through
June 30, 2006, and then to decrease significantly thereafter
through December 31, 2006. Presented below is a reconciliation of
Adjusted EBITDA to Net Income (Loss) for the three months ended
March 31, 2005 and 2006. Three Months Ended March 31, As Reported
($000) 2005 2006 Reconciliation of Adjusted EBITDA to Net Income
(Loss): Adjusted EBITDA per segments $(349) $1,228 Add (deduct) -
Stock-based compensation -- (567) Depreciation (30) (124)
Amortization of intangible assets -- (939) Amortization of deferred
financing costs -- (207) Write-off of unamortized discount on debt
and deferred financing costs due to conversion of subordinated
convertible notes payable into common stock -- (314) Interest
income 4 2 Other income -- 53 Interest expense, including
amortization of discount on debt of $140 -- (825) Adjustment to
warrant liability -- (14,644) Provision for income taxes -- (100)
Discontinued operations: -Loss from operations of ARTISTdirect
Records, LLC (271) -- -Gain from sale of interest in ARTISTdirect
Records, LLC (substantially all non-cash) 21,079 -- Net Income
(Loss) $20,433 $(16,437) Information with respect to the
adjustments noted above is contained in the Company's Quarterly
Report on Form 10-QSB for the quarterly period ended March 31,
2006, as filed with the Securities and Exchange Commission on May
22, 2006. Pro Forma Results As previously announced, on July 28,
2005, ARTISTdirect completed the acquisition of its anti-piracy
business by purchasing all of the outstanding shares of
MediaDefender, Inc., a privately-held Delaware corporation, for a
total purchase price of $42,500,000 cash. ARTISTdirect funded the
acquisition through the issuance of $15,000,000 of senior secured
notes payable, $30,000,000 of subordinated convertible notes
payable, and warrants to purchase common stock, to several
accredited investors. This transaction was accounted for as a
purchase in accordance with SFAS No. 141, "Business Combinations",
and the operations of the two companies have been consolidated
commencing August 1, 2005. Accordingly, ARTISTdirect's consolidated
results of operations for the three months ended March 31, 2006
include MediaDefender's operations for such period, and are
therefore not directly comparable to ARTISTdirect's consolidated
results of operations for the three months ended March 31, 2005. In
order to provide information on the trends and on-going performance
of the combined companies, pro forma information is presented below
as though the operations of ARTISTdirect and MediaDefender had been
combined as of the beginning of fiscal 2005. Presented below is a
summary of Pro Forma Net Revenue and Adjusted EBITDA by operating
segment for the three months ended March 31, 2005. Included in
Adjusted EBITDA are direct operating expenses for each segment.
Corporate expenses consist of general operating expenses that are
not directly related to the operations of the segments. Pro Forma
($000) Net Revenue: E-commerce $635 Media 655 Anti-piracy services
2,724 $4,014 Adjusted EBITDA: E-commerce $42 Media 244 Anti-piracy
services 1,666 1,952 Corporate (798) $1,154 Presented below is a
reconciliation of Pro Forma Adjusted EBITDA to Pro Forma Net Loss
for the three months ended March 31, 2005. Pro Forma ($000)
Reconciliation of Adjusted EBITDA to Net Loss: Adjusted EBITDA per
segments $1,154 Add (deduct) - Depreciation (112) Amortization of
intangible assets (939) Amortization of deferred financing costs
(215) Interest income 8 Interest expense (733) Amortization of
discount on debt (142) Provision for income taxes (127) Net Loss
$(1,106) Information with respect to the adjustments noted above is
contained in the Company's Quarterly Report on Form 10-QSB for the
quarterly period ended March 31, 2006, as filed with the Securities
and Exchange Commission on May 22, 2006. Recent Developments From
December 2005 through April 30, 2006, the Company has issued a
total of approximately 2,362,000 common shares upon conversion of
$3,661,000 of subordinated convertible notes payable. Effective
April 7, 2006, the Company entered into various agreements with the
investors in its Senior Financing and Sub-Debt Financing to amend
their respective registration rights agreements and to amend and
waive certain financial covenants. In consideration thereof, the
Company offered to temporarily reduce the exercise price of the
3,250,000 warrants held by the investors in the Senior Financing
from $2.00 to $1.85 per share through April 30, 2006, and agreed to
permanently reduce the exercise price of the 1,596,744 warrants
held by the investors in the Sub-Debt Financing from $1.55 to $1.43
per share on certain terms and conditions. Any exercise of the
aforementioned warrants at the reduced exercise price was required
to be for cash only. The conversion price of the Sub-Debt Notes of
$1.55 per share was not affected. The Company also entered into
similar agreements, as applicable, and provided identical temporary
and permanent reductions to warrant exercise prices, with Broadband
Capital Management LLC (1,516,935 warrants originally exercisable
at $1.55 per share) and Libra FE, LP (237,500 warrants originally
exercisable at $2.00 per share). These warrants were issued to
Broadband and Libra as partial consideration for their services as
the Company's placement agents in the Senior and Sub-Debt
Financings. The Company also agreed to utilize 25% of the proceeds
from the exercise of the warrants held by the investors in the
Senior Financing to reduce the respective principal balances on the
Senior Notes payable held by such exercising investors, and to pay
any related unpaid accrued interest on such principal payments.
Effective April 19, 2006, Libra exercised its warrants on a
cashless basis at $2.00 per share, resulting in the issuance of
123,864 shares of common stock. Effective April 27, 2006, certain
of the investors in the Senior Financing exercised their warrants
to purchase 2,816,667 shares of common stock at $1.85 per share,
resulting in the issuance of 2,816,667 shares of common stock in
exchange for cash proceeds of $5,211,000, of which $1,303,000 was
used to reduce the respective principal balances on the Senior
Notes payable held by such exercising investors, thus reducing the
aggregate amount outstanding under such notes from approximately
$14,600,000 to $13,300,000. Previously, in early April 2006, the
Company made a cash payment of approximately $400,000 to reduce the
outstanding principal balance on the Senior Notes (reflecting 60%
of the Company's 2005 excess cash flow, as defined in the Senior
Financing transaction documents) from approximately $15,000,000 to
$14,600,000. The Company intends to use the remaining approximately
$3,900,000 of the net proceeds for development of its anti-piracy
services and online music network business, as well as for general
corporate purposes and possible strategic acquisitions. As a result
of the exercise of the warrants by certain of the Senior Financing
investors and by Libra in April 2006, approximately $7,635,000 of
the warrant liability of $17,904,000 included in current
liabilities at March 31, 2006 will be reclassified to additional
paid-in capital. The following pro forma condensed consolidated
balance sheet as of March 31, 2006 gives effect to the
aforementioned warrant exercises and related transactions as if
such transactions had occurred as of that date, and is based on
management's estimate of the effects of such transactions based on
certain assumptions that the Company believes are reasonable under
the circumstances. The pro forma condensed consolidated balance
sheet as of March 31, 2006 is unaudited. Amounts are presented in
thousands. March 31, 2006 As Reported Pro Forma Current assets
$9,526 $13,427 Property and equipment, net 2,450 2,450 Other
assets, net 42,481 42,410 $54,457 $58,287 Current liabilities,
excluding warrant liability $6,273 $6,266 Warrant liability 17,904
10,269 Long-term liabilities 41,038 39,835 Stockholders equity
(deficiency), net (10,758) 1,917 $54,457 $58,287 About
ARTISTdirect, Inc. ARTISTdirect, Inc. is a digital media
entertainment company that is home to an online music network and,
through its acquisition of MediaDefender, is one of the leading
providers of anti-piracy solutions in the
Internet-piracy-protection industry. The ARTISTdirect Network
(http://www.artistdirect.com/) is a network of web-sites offering
multi-media content, music news and information, communities
organized around shared music interests, music-related specialty
commerce and digital music services. Additional information with
regard to the matters discussed in this news release can be found
in ARTISTdirect's Annual Report on Form 10-KSB, as amended, for the
fiscal year ended December 31, 2005, and Quarterly Report on Form
10-QSB for the quarterly period ended March 31, 2006, as filed with
the U.S. Securities and Exchange Commission on April 28, 2006 and
May 22, 2006, respectively, which can be viewed without charge on
the Internet at http://www.sec.gov/. Forward-Looking Statements
This news release may contain "forward-looking" statements, which
are made pursuant to the safe-harbor provisions of the Private
Securities Litigation Reform Act of 1995, and include words such as
"anticipates," "expects," "intends," "plans," "believes," "may,"
"will" or similar expressions that are intended to identify
forward-looking statements. In addition, any statements that refer
to expectations, projections or other characterizations of future
events or circumstances, including any underlying assumptions, are
forward-looking statements. Such statements include, but are not
limited to, statements concerning the Company's business model and
outlook, competition in its business segments, online product
sales, advertising and other revenue streams, the Company's ability
to increase visits to its web-site, the level of acceptance and
satisfaction of its products and services by its customers, its
ability to adequately fund its operations, its ability to offer
compelling content, its ability to fulfill online music and
merchandise orders in a timely manner, its ability to build brand
recognition, its ability to integrate its acquisition of
MediaDefender and the acquisitions of technology and other
businesses, its ability to protect, obtain and/or develop
intellectual property rights and proprietary technology, its
ability to manage changing technologies and markets, its ability to
service its debt obligations, and its ability to manage growth.
Such statements are not guarantees of future performance and are
subject to risks, uncertainties and assumptions that are difficult
to predict. Therefore, the Company's actual results could differ
materially and adversely from those expressed in any
forward-looking statements as a result of various factors. Except
as required by applicable law or regulation, the Company undertakes
no obligation to revise or update any forward-looking statements
contained herein in order to reflect future events or
circumstances. Results of operations for the three months ended
March 31, 2006 and 2005 are summarized as follows ($000): Three
Months Ended March 31, 2006 2005 Net revenue $5,273 $1,290 Loss
from continuing operations $(16,437) $(375) Discontinued
operations: Loss from operations of ARTISTdirect Records, LLC --
(271) Gain from sale of interest in ARTISTdirect Records, LLC
(substantially all non-cash) -- 21,079 Net income (loss) $(16,437)
$20,433 Net income (loss) per common share for the three months
ended March 31, 2006 and 2005 is summarized as follows: Three
Months Ended March 31, 2006 2005 Net income (loss) per common share
- basic and diluted: From continuing operations $(2.81) $(0.11)
From discontinued operations -- 5.94 Net income (loss) $(2.81)
$5.83 Weighted average common shares outstanding - basic and
diluted 5,857,520 3,502,117 ________________________________
CONTACT: ARTISTdirect, Inc. Investor Relations 310-956-3310
DATASOURCE: ARTISTdirect, Inc. CONTACT: ARTISTdirect, Inc.,
Investor Relations, +1-310-956-3310 Web site:
http://www.artistdirect.com/
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