[LIQUID AUDIO LOGO]
Filed by Liquid Audio, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 13e-4(c) and Rule 14a-12
under the Securities Act of 1934
August 15, 2002
Subject Company: Alliance Entertainment Corp.
Commission File No. 001-13054
LIQUID AUDIO ANNOUNCES 2Q02 RESULTS 2
INVESTOR CONTACT: MEDIA CONTACT:
Michael Bolcerek Kimberly Strop
650-549-2000 650-549-2194
mbolcerek@liquidaudio.com kstrop@liquidaudio.com
A. FOR IMMEDIATE RELEASE
LIQUID AUDIO ANNOUNCES SECOND-QUARTER 2002 RESULTS
REDWOOD CITY, Calif., August 14, 2002 -- Liquid Audio, Inc. (Nasdaq:LQID), a
leading provider of software, infrastructure and services for secure Internet
media delivery, today announced its financial results for the second quarter
ended June 30, 2002.
Net revenues for the second quarter were $151,000, compared with
$135,000 for the first quarter of 2002 and with $1.0 million for the second
quarter of 2001. Net loss for the second quarter was $5.6 million, or a loss of
$0.25 per share(1). This compared sequentially with a net loss of $4.9 million,
or a loss of $0.22 per share, and year-over-year with a net loss of $14.0
million, or a loss of $0.62 per share. Net loss for the year-ago quarter
included the effect of non-cash charges of $4.0 million for restructuring and
strategic marketing -- equity instruments. Liquid Audio's cash and cash
equivalents at June 30, 2002 were $81.0 million, compared with $86.4 million at
March 31 and with $91.6 million at December 31, 2001.
Today, Liquid Audio filed its Quarterly Report on Form 10-Q for the
second quarter ended June 30, 2002 with the United States Securities and
Exchange Commission (SEC). In connection with this filing, President and Chief
Executive Officer Gerry Kearby and Senior Vice President and Chief Financial
Officer Michael Bolcerek executed and filed sworn certification as to the
second-quarter 2002 report and the financial results contained therein with the
SEC, in compliance with Section 906 of the Sarbanes-Oxley Act of 2002.
On July 13, 2002, Liquid Audio announced a proposed merger with
Alliance Entertainment Corp., one of the largest home entertainment product
distribution, fulfillment and infrastructure companies in the United States.
Liquid Audio announced an amended merger agreement with Alliance Entertainment
on July 15, 2002.
"While quarterly revenues continue to be disappointing, we have
consistently reduced costs and expenses to keep cash burn to a minimum, as we
prepare to complete our proposed merger with Alliance Entertainment," said
Kearby. "Recently, we closed our offices in Japan and Europe, and reduced our
work force by 35%, leaving approximately 70 employees. We strongly believe that
the merger agreement -- as amended to include a $30-million cash return to
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1 All per-share computations are both basic and diluted.
LIQUID AUDIO ANNOUNCES 2Q02 RESULTS 3
Liquid Audio stockholders, in addition to the strategic combination of our
digital media delivery business with Alliance Entertainment's high-growth
distribution and fulfillment services business -- offers maximum value to all
Liquid Audio stockholders."
Liquid Audio's 2002 Annual Meeting of Stockholders to vote on the
election of directors and Special Meeting of Stockholders to vote on the
issuance of common stock to effect the proposed merger with Alliance
Entertainment are scheduled for September 26, 2002, in Redwood City, California.
LIVE WEBCAST OF MANAGEMENT TELECONFERENCE
Liquid Audio plans to hold its regular management teleconference on
first-quarter 2002 financial results today at 2:00 p.m. PT / 5:00 p.m. ET. A
live webcast of this call will be available at www.liquidaudio.com. In addition,
a phone replay will be available for seven days after the call at 706-645-9291,
code #5034003.
THE COMPANY
Liquid Audio, Inc. is a leading provider of software, infrastructure
and services for the secure digital delivery of media over the Internet. The
Liquid Audio solution gives content owners, websites and companies the ability
to publish, syndicate and securely sell digital media online with copy
protection and copyright management. Using the Liquid(TM) Player software,
available for free download at www.liquidaudio.com, consumers can preview and
purchase downloadable music from hundreds of affiliate websites in the Liquid
Music Network(SM).
EDITOR'S NOTE: Liquid; Liquid Audio; Liquid Audio, Inc.; the Liquid Audio logo;
Liquid Music Network; and Liquid Player are trademarks and service marks of
Liquid Audio, Inc. All other trademarks and service marks are the property of
their respective owners.
B. FORWARD-LOOKING STATEMENTS
All statements made in this release, other than statements of historical fact,
are forward-looking statements. The words "anticipate," "believe," "estimate,"
"expect," "intend," "will," "guidance" and similar expressions typically are
used to identify forward-looking statements. Forward-looking statements are
based on the then-current expectations, beliefs, assumptions, estimates and
forecasts about the businesses of Liquid Audio and Alliance Entertainment Corp.
and the industries and markets in which the companies operate. Those statements
are not guarantees of future performance and involve risks, uncertainties and
assumptions that will be difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or implied by those
forward-looking statements. Factors that may affect Liquid Audio's and Alliance
Entertainment's businesses, financial condition and operating results include
the effects of changes in the economy, consumer spending, the stock market and
the industries in which they operate generally, changes affecting the Internet
and e-commerce, the ability of the companies to maintain relationships with
strategic partners and suppliers, the ability of the companies to timely and
successfully develop, maintain and protect their technology and product and
service offerings and execute operationally and the ability of the
LIQUID AUDIO ANNOUNCES 2Q02 RESULTS 4
companies to attract and retain qualified personnel. These factors may also
include, but are not limited to, general market conditions, our ability to
develop new products to meet market demand, our ability to successfully combine
two geographically dispersed businesses, our ability to realize synergies of the
merger; our ability to maintain cost controls; the mix of products and services
our customers require and the effects of natural disasters, international
conflicts and other events beyond our control. More information about potential
factors that could affect Liquid Audio can be found in its most recent Form
10-K, Form 10-Q and other reports and statements filed by Liquid Audio with the
Securities and Exchange Commission ("SEC"). Each of Liquid Audio and Alliance
Entertainment expressly disclaims any intent or obligation to update those
forward-looking statements, except as otherwise specifically stated by it.
C. ADDITIONAL INFORMATION AND WHERE TO FIND IT
Liquid Audio has filed a Registration Statement on SEC Form S-4 in connection
with the merger and plans to file a Tender Offer Statement on Schedule TO in
connection with the offer. Investors and stockholders of Liquid Audio and
Alliance Entertainment are urged to read the Registration Statement and the
Tender Offer Statement carefully when it is available. The Registration
Statement contains important information about the companies, the merger and
related matters. Investors and stockholders will be able to obtain free copies
of these documents through the web site maintained by the SEC at
http://www.sec.gov. Free copies of the Registration Statement and these other
documents may also be obtained from Liquid Audio by directing a request through
the Liquid Audio Web site at http://www.liquidaudio.com or by mail to Liquid
Audio, Inc., Attention: Investor Relations.
In addition to the Registration Statement and the Tender Offer Statement, Liquid
Audio files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or other
information filed by Liquid Audio at the SEC's public reference rooms at 450
Fifth Street, N.W., Washington, D.C. 20549 or at any of the SEC's other public
reference rooms in New York and Chicago. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Liquid Audio's filings
with the SEC are also available to the public from commercial document-retrieval
services and at the Web site maintained by the SEC at http://www.sec.gov.
D. INTERESTS OF CERTAIN PERSONS IN THE MERGER
The directors and executive officers of Liquid Audio and Alliance Entertainment
have interests in the merger, some of which may differ from, or may be in
addition to, those of the stockholders of Liquid Audio and Alliance
Entertainment generally. A description of the interests that the directors and
executive officers of the companies have in the merger is available in the
Registration Statement.
SOLICITATION OF PROXIES
Liquid Audio and Alliance Entertainment, their respective directors, executive
officers and certain other members of their management and employees may be
soliciting proxies from stockholders of Liquid Audio and Alliance Entertainment
in favor of the merger. Information concerning the participants is set forth in
the Registration Statement filed with the SEC.
-- FINANCIAL STATEMENTS ATTACHED --
LIQUID AUDIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)
Three months ended Six months ended
June 30, June 30,
2002 2001 2002 2001
-------- -------- -------- --------
Net revenues:
License $ 40 $ 194 $ 76 $ 484
Services 111 362 210 787
Business development (related party) -- 468 1,414 7,307
-------- -------- -------- --------
Total net revenues 151 1,024 286 2,685
-------- -------- -------- --------
Cost of revenues:
License 84 128 181 287
Services 174 364 302 1,075
Non-cash cost of revenues 36 98 69 181
-------- -------- -------- --------
Total cost of revenues 294 590 552 1,543
-------- -------- -------- --------
Gross profit (loss) (143) 434 (266) 1,142
-------- -------- -------- --------
Operating expenses:
Sales and marketing 1,027 3,061 2,185 7,717
Research and development 2,914 4,731 5,937 9,961
General and administrative 1,905 3,078 3,011 6,272
Strategic marketing -- equity instruments -- 340 -- 652
Restructuring -- 3,672 -- 3,672
Stock compensation amortization (29) (119) (13) (96)
-------- -------- -------- --------
Total operating expenses 5,817 14,763 11,120 28,178
-------- -------- -------- --------
Loss from operations (14,329) (11,386) (27,036)
(5,960)
Interest and other income, net 318 1,176 851 2,835
Loss in equity investment -- (881) -- (1,100)
-------- -------- -------- --------
Net loss $ (5,642) $(14,034) $(10,535) $(25,301)
======== ======== ======== ========
Net loss per share:
Basic and diluted $ (0.25) $ (0.62) $ (0.46) $ (1.12)
======== ======== ======== ========
Weighted average shares 22,737 22,593 22,723 22,563
======== ======== ======== ========
Pro forma net loss(2):
Net loss $ (5,642) $(14,034) $(10,535) $(25,301)
Pro forma adjustments:
Non-cash cost of revenues 36 98 69 181
Strategic marketing -- equity instruments -- 340 -- 652
Restructuring -- 3,672 -- 3,672
Stock compensation amortization (29) (119) (13) (96)
-------- -------- -------- --------
Pro forma net loss $ (5,635) $(10,043) $(10,479) $(20,892)
======== ======== ======== ========
Pro forma net loss per share:
Basic and diluted $ (0.25) $ (0.44) $ (0.46) $ (0.93)
======== ======== ======== ========
Weighted average shares 22,737 22,593 22,723 22,563
======== ======== ======== ========
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2 This pro forma information is supplemental and not prepared in accordance
with accounting principles generally accepted in the U.S.
LIQUID AUDIO, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2002 2001
------- -------
Current assets:
Cash and cash equivalents $81,018 $91,594
Accounts receivable, net 115 130
Other current assets 718 1,099
------- -------
Total current assets 81,851 92,823
------- -------
Restricted cash 826 826
Property and equipment, net 2,391 3,603
Other assets 73 163
------- -------
Total assets $85,141 $97,415
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,110 $ 1,107
Accrued liabilities 2,140 3,821
Deferred revenue 109 122
Capital lease obligations 11 28
Equipment loan -- 169
Note payable to related party 376 343
------- -------
Total current liabilities 3,746 5,590
------- -------
Stockholders' equity 81,395 91,825
------- -------
Total liabilities and stockholders' equity $85,141 $97,415
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