##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from            to
 Commission File Number: 0-29583
 Loudeye Corp.
  Delaware(State or other jurisdiction of
    
    91-1908833incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 
 
  þ o
 þ o
 o þ
  Common
    
    114,866,389(Class)
    
    (Outstanding at November 7, 2005)




---



Loudeye Corp.
 Form 10-Q Quarterly Report
As of and for the Quarter Ended September 30, 2005
 TABLE OF CONTENTS
  
 PagePART I. Financial InformationItem 1. Financial Statements.Unaudited Condensed Consolidated Balance Sheets
    
    
    3Unaudited Condensed Consolidated Statements of Operations
    
    
    4Unaudited Condensed Consolidated Statement of Stockholders Equity
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    22Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    59Item 4. Controls and Procedures.
    
    
    59Item 5. Other Information.
    
    
    67PART II. Other InformationItem 1. Legal Proceedings.
    
    
    68Item 6. Exhibits.
    
    
    68EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION.
 
 Item 1. Financial Statements.
 
 
 September 30,
    
    
    December 31,2005
    
    
    2004(in thousands, except pershare amounts)ASSETSCash and cash equivalents
    
    $
    9,796
    
    
    $
    29,864Marketable securities
    
    
    6,137
    
    
    
    9,016Accounts receivable, net of allowances of $353 and $241 respectively
    
    
    4,796
    
    
    
    5,333Prepaid expenses and other current assets
    
    
    1,409
    
    
    
    1,298Restricted cash
    
    
    645
    
    
    
    Total current assets
    
    
    22,783
    
    
    
    45,511Long-term marketable securities
    
    
    
    
    
    
    2,288Restricted cash
    
    
    
    
    
    
    2,568Property and equipment, net
    
    
    5,790
    
    
    
    5,661Goodwill
    
    
    41,415
    
    
    
    43,549Intangible assets, net
    
    
    4,151
    
    
    
    3,700Other assets, net
    
    
    177
    
    
    
    431Total assets
    
    $
    74,316
    
    
    $
    103,708LIABILITIES AND STOCKHOLDERS EQUITYAccounts payable
    
    $
    3,562
    
    
    $
    4,012Accrued compensation and benefits
    
    
    654
    
    
    
    929Accrued and other liabilities
    
    
    5,878
    
    
    
    4,966Accrued special charges
    
    
    
    
    
    
    403Accrued acquisition consideration
    
    
    
    
    
    
    15,924Deposits and deferred revenue
    
    
    5,521
    
    
    
    4,353Current portion of long-term debt and capital lease obligations
    
    
    1,013
    
    
    
    1,135Total current liabilities
    
    
    16,628
    
    
    
    31,722Deposits and deferred revenue, net of current portion
    
    
    996
    
    
    
    1,343Deferred rent
    
    
    72
    
    
    
    Common stock payable related to acquisition
    
    
    494
    
    
    
    3,193Long-term debt and capital lease obligations, net of current portion
    
    
    250
    
    
    
    1,000Total liabilities
    
    
    18,440
    
    
    
    37,258Commitments and contingenciesSTOCKHOLDERS EQUITYPreferred stock, $0.001 par value, 5,000 shares authorized, none outstanding
    
    
    
    
    
    
    Common stock, warrants and additional paid-in capital; for common stock
$0.001 par value, 250,000 shares authorized in 2005, 150,000 shares
authorized in 2004; 111,232 shares issued and outstanding in 2005, 99,021
issued and outstanding in 2004
    
    
    290,678
    
    
    
    273,958Deferred stock compensation
    
    
    (1,060
    )
    
    
    (111
    )Accumulated deficit
    
    
    (232,131
    )
    
    
    (209,284
    )Accumulated other comprehensive income (loss)
    
    
    (1,611
    )
    
    
    1,887Total stockholders equity
    
    
    55,876
    
    
    
    66,450Total liabilities and stockholders equity
    
    $
    74,316
    
    
    $
    103,708
  3




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(in thousands, except per share amounts)REVENUE
    
    $
    6,832
    
    
    $
    5,080
    
    
    $
    19,878
    
    
    $
    10,202COST OF REVENUE (1)
    
    
    7,392
    
    
    
    3,764
    
    
    
    20,548
    
    
    
    7,125Gross profit (loss)
    
    
    (560
    )
    
    
    1,316
    
    
    
    (670
    )
    
    
    3,077OPERATING EXPENSES:Sales and marketing (1)
    
    
    1,545
    
    
    
    1,478
    
    
    
    5,102
    
    
    
    2,949Research and development (1)
    
    
    2,694
    
    
    
    1,325
    
    
    
    6,730
    
    
    
    2,668General and administrative (1)
    
    
    3,517
    
    
    
    3,798
    
    
    
    10,508
    
    
    
    7,990Amortization of intangibles
    
    
    148
    
    
    
    41
    
    
    
    341
    
    
    
    191Stock-based compensation (1)
    
    
    139
    
    
    
    21
    
    
    
    201
    
    
    
    186Special charges (credits)  other
    
    
    
    
    
    
    350
    
    
    
    (43
    )
    
    
    300Total operating expenses
    
    
    8,043
    
    
    
    7,013
    
    
    
    22,839
    
    
    
    14,284LOSS FROM OPERATIONS
    
    
    (8,603
    )
    
    
    (5,697
    )
    
    
    (23,509
    )
    
    
    (11,207
    )OTHER INCOME (EXPENSE):Interest income
    
    
    143
    
    
    
    139
    
    
    
    534
    
    
    
    325Interest expense
    
    
    (36
    )
    
    
    (46
    )
    
    
    (138
    )
    
    
    (176
    )Gain on sale of media restoration assets
    
    
    
    
    
    
    273
    
    
    
    
    
    
    
    113Other income, net
    
    
    31
    
    
    
    
    
    
    
    266
    
    
    
    186Total other income
    
    
    138
    
    
    
    366
    
    
    
    662
    
    
    
    448NET LOSS
    
    $
    (8,465
    )
    
    $
    (5,331
    )
    
    $
    (22,847
    )
    
    $
    (10,759
    )Net loss per share  basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.07
    )
    
    $
    (0.21
    )
    
    $
    (0.15
    )Weighted average shares outstanding  basic and diluted
    
    
    109,666
    
    
    
    79,285
    
    
    
    106,722
    
    
    
    71,149
 
 (1)
    
    Stock-based compensation, consisting of amortization of deferred stock-based compensation and
the fair value of options issued to non-employees for services rendered, is allocated as
follows: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2005
    
    2004
    
    2005
    
    2004Cost of revenue
    
    $
    18
    
    
    $
    44
    
    
    $
    83
    
    
    $
    82Sales and marketing
    
    
    (11
    )
    
    
    (5
    )
    
    
    (12
    )
    
    
    45Research and development
    
    
    (2
    )
    
    
    19
    
    
    
    8
    
    
    
    70General and administrative
    
    
    152
    
    
    
    7
    
    
    
    205
    
    
    
    71
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Common Stock,Warrants and
    
    
    
    
    
    
    
    
    
    
    AccumulatedAdditional Paid-in
    
    
    Deferred
    
    
    
    
    
    
    Other
    
    
    TotalCapital
    
    
    Stock-based
    
    
    Accumulated
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Amount
    
    
    Compensation
    
    
    Deficit
    
    
    Income (Loss)
    
    
    Equity(in thousands)BALANCES, December 31,
2004
    
    
    99,021
    
    
    $
    273,958
    
    
    $
    (111
    )
    
    $
    (209,284
    )
    
    $
    1,887
    
    
    $
    66,450Stock option exercises
    
    
    3,893
    
    
    
    3,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,348Damages related to 2004
private equity transaction
    
    
    
    
    
    
    (464
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (464
    )Cancellation of escrowed
Overpeer and OnAir shares
    
    
    (83
    )
    
    
    (182
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (182
    )Shares issued in payment of
accrued acquisition
consideration
    
    
    7,001
    
    
    
    12,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,859Issuance of restricted stock
under stock-based
compensation plan
    
    
    1,400
    
    
    
    1,203
    
    
    
    (1,203
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred
stock-based compensation, net
of cancellations
    
    
    
    
    
    
    (56
    )
    
    
    254
    
    
    
    
    
    
    
    
    
    
    
    198Stock-based compensation
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Comprehensive loss:Unrealized gain on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    49Foreign currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,547
    )
    
    
    (3,547
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,847
    )
    
    
    
    
    
    
    (22,847
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,345
    )BALANCES, September 30, 2005
    
    
    111,232
    
    
    $
    290,678
    
    
    $
    (1,060
    )
    
    $
    (232,131
    )
    
    $
    (1,611
    )
    
    $
    55,876
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Nine Months EndedSeptember 30,2005
    
    
    2004(in thousands)OPERATING ACTIVITIESNet loss
    
    $
    (22,847
    )
    
    $
    (10,759
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    3,231
    
    
    
    2,063Special charges (credits) and other non cash items
    
    
    (67
    )
    
    
    (91
    )Stock-based compensation
    
    
    284
    
    
    
    268Loss on disposal of equipment
    
    
    91
    
    
    
    Foreign currency transaction gain
    
    
    (341
    )
    
    
    (183
    )Changes in operating assets and liabilities, net of amounts acquired in purchases of businesses:Accounts receivable
    
    
    407
    
    
    
    (3,048
    )Prepaid expenses and other assets
    
    
    530
    
    
    
    (4
    )Accounts payable
    
    
    (409
    )
    
    
    837Accrued compensation and benefits and other accrued expenses
    
    
    46
    
    
    
    (659
    )Accrued special charges
    
    
    (360
    )
    
    
    (749
    )Deposits and deferred revenue
    
    
    1,165
    
    
    
    2,534Net cash used in operating activities
    
    
    (18,270
    )
    
    
    (9,791
    )INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (2,054
    )
    
    
    (4,412
    )Purchases of intangibles
    
    
    (1,422
    )
    
    
    Cash paid for acquisition of business and technology, net
    
    
    
    
    
    
    (555
    )Assets and liabilities held for sale
    
    
    
    
    
    
    996Payments of accrued acquisition consideration
    
    
    (4,829
    )
    
    
    Restricted cash
    
    
    1,563
    
    
    
    Purchases of marketable securities
    
    
    (750
    )
    
    
    (16,046
    )Sales of marketable securities
    
    
    6,363
    
    
    
    10,211Net cash used in investing activities
    
    
    (1,129
    )
    
    
    (9,806
    )FINANCING ACTIVITIESProceeds from sale of stock and exercise of stock options and warrants
    
    
    651
    
    
    
    222Proceeds from private equity financing, net
    
    
    (464
    )
    
    
    18,934Principal payments on debt, line of credit and capital lease obligations
    
    
    (872
    )
    
    
    (2,280
    )Net cash provided by (used in) financing activities
    
    
    (685
    )
    
    
    16,876Effect of foreign currency translation on cash
    
    
    16
    
    
    
    (324
    )Net decrease in cash and cash equivalents
    
    
    (20,068
    )
    
    
    (3,045
    )Cash and cash equivalents, beginning of period
    
    
    29,864
    
    
    
    12,480Cash and cash equivalents, end of period
    
    $
    9,796
    
    
    $
    9,435
  6




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##### Table of Contents



LOUDEYE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
 1. Description of Business, Risks and Going Concern
 Business
  Risks
  Going Concern
     2. Summary of Significant Accounting Policies
 Accounting Principles
  7




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Basis of Consolidation
  Estimates and Assumptions
   Unaudited Interim Financial Information
    Cash, Cash Equivalents and Marketable Securities
   8




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September 30,
    
    
    December 31,2005
    
    
    2004Cash and cash equivalents:Cash
    
    $
    3,676
    
    
    $
    6,607Money market mutual funds
    
    
    6,120
    
    
    
    23,257Total cash and cash equivalents
    
    
    9,796
    
    
    
    29,864Marketable securities:Corporate notes & bonds
    
    
    6,137
    
    
    
    5,738Commercial paper & CDs
    
    
    
    
    
    
    1,289U.S. Government agency securities
    
    
    
    
    
    
    1,989Total marketable securities
    
    
    6,137
    
    
    
    9,016Long-term marketable securities:Corporate notes & bonds
    
    $
    
    
    
    $
    2,288Total long-term marketable securities
    
    
    
    
    
    
    2,288Total cash, cash equivalents and marketable securities
    
    $
    15,933
    
    
    $
    41,168
   Restricted Cash
  Accounts Receivable
  Goodwill
  
    
    poor economic performance relative to historical or projected future operating results;
    
    significant negative industry, economic or company specific trends;
    
    changes in the manner of our use of the assets or the plans for our business;
    
    market price of our common stock; or
    
    loss of key personnel
 9




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Impairment of Long-Lived Assets
  Fair Value of Financial Instruments and Concentrations of Credit Risk
    Revenue Recognition
    10




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##### Table of Contents



Determining Separate Elements and Allocating Value to Those Elements.
   Digital media store services revenue.
 
    
    Loudeye charges its digital media store customers fixed business-to-business platform
fees, which generally consist of enabling and hosting the service and maintenance of the
services overall functionality during the term of the customer contract. Business-to-business platform services may include fees related to integration to a customers website,
wireless sites, inventory, account management, and commerce and billing systems.
Additionally, platform fees associated with Loudeyes digital media store services include
digital rights management, editorial services, usage reporting, and digital content royalty
settlement. Loudeye charges platform fees to its customers in a variety of manners,
including initial set-up fees, monthly only fees, or a combination of initial set-up and
monthly fees.
    
    Loudeye provides transactional business-to-consumer services including prepaid credit
packages and digital downloads.
    
    Loudeye provides corporate clients with bundles of music credit packages for
distribution to their end consumers as part of marketing promotions. Although not a primary
source of revenue, Loudeye also provides a number of consultancy services, including cover
art and metadata publishing, and varied commerce and content consumption alternatives for
digital media content.
   
    
    Business-to-business platform service fees are generally recognized as revenue over the
term of the customer contract and represent charges in connection with enabling the service
and maintaining its overall functionality during the term of the
 11




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customer contract, which is generally one to three years. Loudeye charges platform fees to
its customers in a variety of manners, including initial set-up fees, monthly only fees, or a
combination of initial set-up and monthly fees.
    
    Loudeye also shares in the proceeds of business-to-consumer transactions such as digital
downloads. Revenue from digital downloads is recognized at the time the content is
delivered, digitally, to the consumer.
    
    A majority of Loudeyes business-to-consumer transactional revenue is generated through
the sale of prepaid credit packages which entitle a consumer to access a specified number
of digital music downloads or streams for a fixed price during a fixed time period. Prepaid
credit packages are also bundled with other end consumer offerings sponsored by Loudeyes
customers. Revenue from prepaid credit packages and bundle promotions is deferred until
the credits or promotional offers are utilized or expire. Loudeyes margin on the sale of
prepaid credit packages fluctuates depending upon a number of factors, including the type
of service for which the consumer redeems the credits (full downloads or streams), the
royalty rate for the download purchased and breakage.
    
    Revenue from bundles of prepaid music credit packages is deferred and then recognized
as tracks are downloaded by the consumer or as credits expire, whichever occurs earlier.
   Encoding services revenue.
 
    
    Evidence of an arrangement: Loudeye considers a non-cancelable agreement signed by
Loudeye and the customer to be evidence of an arrangement.
    
    Services have been rendered: Loudeye considers this criteria to be satisfied when the
content has been delivered.
    
    Fixed or determinable fee: Loudeye assesses whether fees are fixed or determinable at the
time of sale and recognize revenue if all other revenue recognition requirements are met.
Loudeye considers these criteria to be satisfied when the payment terms associated with the
transaction are within Loudeyes normal payment terms. If a significant portion of a fee is
due after the date that fees would customarily be due under Loudeyes normal payment terms,
Loudeye considers the fee to not be fixed and determinable, and in such cases, Loudeye would
defer revenue and recognize it when the fees become due and payable.
    
    Collection is deemed probable: Loudeye initially assesses the probability of collection
to determine whether this criterion is satisfied based on a number of factors, including
past transaction history with the customer and the current financial condition of the
customer. If Loudeye determines that collection of a fee is not reasonably assured, Loudeye
defers revenue until the time collection becomes reasonably assured, which is generally upon
the receipt of cash.
 Content protection services revenue.
 Samples services revenue.
 12




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##### Table of Contents



Internet radio and video services revenue.
 Webcasting and hosting services revenue.
  Software license revenue.
 Research and Development Costs
  Stock-Based Compensation
  13




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss, as reported
    
    $
    (8,465
    )
    
    $
    (5,331
    )
    
    $
    (22,847
    )
    
    $
    (10,759
    )Add: stock-based employee
compensation expense under APB 25
included in reported net loss
    
    
    108
    
    
    
    65
    
    
    
    150
    
    
    
    268Deduct: total stock-based employee
compensation expense determined
under fair value method for all
awards
    
    
    (584
    )
    
    
    (1,035
    )
    
    
    (3,081
    )
    
    
    (2,355
    )Pro forma net loss
    
    $
    (8,941
    )
    
    $
    (6,301
    )
    
    $
    (25,778
    )
    
    $
    (12,846
    )Net loss per share:Basic and diluted  as reported
    
    $
    (0.08
    )
    
    $
    (0.07
    )
    
    $
    (0.21
    )
    
    $
    (0.15
    )Basic and diluted  pro forma
    
    $
    (0.08
    )
    
    $
    (0.08
    )
    
    $
    (0.24
    )
    
    $
    (0.18
    )
  2005
    
    2004Risk-free interest rates
    
    
    2.92-4.18
    %
    
    
    2.33-5.71
    %Expected lives
    
    3 years
    
    3 yearsExpected dividend yields
    
    
    0
    %
    
    
    0
    %Expected volatility
    
    
    75-120
    %
    
    
    115-120
    %
 Comprehensive Loss
  Foreign Currencies
  Segments
  14




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Recent Accounting Pronouncements
   3. Acquisitions
 On Demand Distribution Limited
  15
    Table of Contents  
    
    In March 2005, Loudeye issued 3,026,405 shares (valued at approximately $5.2 million) as
settlement for the remaining deferred consideration obligations of approximately £3.2
million (or approximately $6.0 million based on March 31, 2005 exchange rates). This amount
excludes 528,014 shares issued but held in escrow. The value assigned to the stock issued in
March was $1.73 per share based on the average closing price of Loudeyes common stock for
the five days beginning two days prior to and ending two days after February 28, 2005 (the
date the terms of the OD2 Acquisition Amendment Agreement were announced).
    
    Loudeye paid $2.5 million in March and paid an additional $2.3 million in July in cash in
full satisfaction of the maximum potential contingent payment obligations of up to £10.0
million (or approximately $17.6 million based on September 30, 2005 exchange rates). These
amounts exclude an aggregate of £465,000 (approximately $820,000 based on September 30, 2005
exchange rates) to be held in escrow.
    16
    Table of Contents  Overpeer, Inc.
  4. Special Charges (Credits)
   Facilities-relatedCharges (credits)Balance, December 31, 2004
    
    $
    403Additional accruals
    
    
    Payments
    
    
    (360
    )Adjustments
    
    
    (43
    )Balance, September 30, 2005
    
    $
    
  5. Net Loss Per Share
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Options outstanding under Loudeye stock option plans
    
    
    13,585
    
    
    
    13,025
    
    
    
    13,585
    
    
    
    13,025Restricted stock outstanding under Loudeye stock option plans
    
    
    1,400
    
    
    
    
    
    
    
    1,400
    
    
    
    OD2 options assumed
    
    
    314
    
    
    
    2,212
    
    
    
    314
    
    
    
    2,212Warrants outstanding
    
    
    5,952
    
    
    
    1,041
    
    
    
    5,952
    
    
    
    1,041Shares excluded
    
    
    21,251
    
    
    
    16,278
    
    
    
    21,251
    
    
    
    16,278
 17
    Table of Contents  6. Long-Term Debt
  
    
    A term loan in the amount of $3.0 million, with a balance as of September 30, 2005, of
approximately $1.3 million. The term loan bears interest at an annual rate of 0.5% above the
prime interest rate (which rate was previously 1.25% above the prime interest rate under the
terms of the December 31, 2003 loan and security agreement). Payments of principal and
interest total $83,333 per month for 36 months from December 31, 2003. Once repaid, the term
loan may not be reborrowed.
    
    A new equipment term loan facility in the amount of $2.5 million, with a balance as of
September 30, 2005, of zero. The equipment loan facility is available on or before October
31, 2005, in minimum draw amounts of $250,000. The equipment loan bears interest at an
annual rate of 0.5% above the prime interest rate. Any advances drawn on the equipment loan
facility will be payable monthly over 36 months.
    
    A new guidance line facility in the amount of $1.5 million, which is available through
March 29, 2006, with a balance as of September 30, 2005, of approximately $175,000.
   7. Contingencies
   18
    Table of Contents  Legal Proceedings
 Altnet Matter.
 Regent Pacific Matter.
 IPO Class Action.
  
    
    issuer defendants and related individual defendants will be released from the litigation
without any liability other than certain expenses incurred to date in connection with the
litigation;
    
    issuer defendants insurers will guarantee $1.0 billion in recoveries by plaintiff class members;
 19
    Table of Contents  
    
    issuer defendants will assign certain claims against underwriter defendants to the plaintiff class members; and
    
    issuer defendants will have the opportunity to recover certain litigation-related
expenses if plaintiffs recover more than $5.0 billion from underwriter defendants.
  Tennessee Pacific Group
  8. Stockholders Equity
 2005 Incentive Award Plan
  Restricted Stock Awards
  9. Segment Information
    20
    Table of Contents  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue by Geographic Areas:United States
    
    $
    2,160
    
    
    $
    3,198
    
    
    $
    6,442
    
    
    $
    8,143Other countries, principally Europe
    
    
    4,672
    
    
    
    1,882
    
    
    
    13,436
    
    
    
    2,059Total revenue
    
    $
    6,832
    
    
    $
    5,080
    
    
    $
    19,878
    
    
    $
    10,202
  At
    
    
    AtSeptember 30,
    
    
    December 31,2005
    
    
    2004Long-lived Assets:United States
    
    $
    6,791
    
    
    $
    5,618United Kingdom
    
    
    3,124
    
    
    
    3,723Other countries
    
    
    26
    
    
    
    20Total long-lived assets
    
    $
    9,941
    
    
    $
    9,361
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenue:Digital media servicesDigital media store services
    
    $
    4,842
    
    
    $
    1,902
    
    
    $
    13,857
    
    
    $
    2,210Encoding services
    
    
    1,196
    
    
    
    1,389
    
    
    
    2,616
    
    
    
    2,866Content protection services
    
    
    295
    
    
    
    941
    
    
    
    1,670
    
    
    
    1,641Samples services
    
    
    261
    
    
    
    335
    
    
    
    882
    
    
    
    1,235Internet radio services
    
    
    28
    
    
    
    43
    
    
    
    227
    
    
    
    478Webcasting and hosting services
    
    
    210
    
    
    
    470
    
    
    
    626
    
    
    
    1,475Media restoration services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297Total revenue
    
    $
    6,832
    
    
    $
    5,080
    
    
    $
    19,878
    
    
    $
    10,202
 21
    Table of Contents  Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Forward-Looking Statements
    Overview
  
    
    The section entitled Loudeye Background describes our principal operational
activities and summarizes significant trends and developments in our business and in our
industry.
    
    Critical Accounting Policies and Estimates discusses our most critical accounting
policies.
    
    Recently Issued Accounting Policies discusses new accounting standards regarding
stock-based compensation which will require us to expense the value of stock option
grants to employees and accounting and disclosure guidance for the foreign earnings
repatriation provision within the American Jobs Creation Act of 2004.
    
    Consolidated Results of Operations discusses the primary factors that are likely
to contribute to significant variability of our results of operations from period to
period and then provides a detailed narrative regarding significant changes in our
results of operations for the three and nine months ended September 30, 2005 compared to
the three and nine months ended September 30, 2004.
    
    Liquidity, Capital Resources and Going Concern discusses our liquidity and cash
flow and factors that may influence our future cash requirements including going concern
qualifications and the status of certain contractual obligations, in particular with
respect to the recent restructuring of our payment obligations to former OD2 shareholders
in connection with our acquisition of OD2.
    
    Contractual Obligations discusses our contractual obligations as of September 30, 2005.
    
    Off-Balance Sheet Arrangements discusses certain indemnification and other obligations.
 22
    Table of Contents  Loudeye Background
   The Loudeye Solution
   Digital media store services.
 23
    Table of Contents  
    
    the dominance of Apple Computers iTunes service in certain markets driven in part by
sales of the market-share leading iPod portable music device,
    
    a trend towards increasing wholesale cost of music content and the apparent willingness
of certain music services to set a retail price to consumers that may be under the
wholesale cost of music content, and
    
    a trend towards a requirement for substantial cash advances to content owners, in
particular the four major music labels, in order to obtain some content distribution
rights, such as use for music subscription services.
      24
    Table of Contents  Digital media content services.
  
    
    Digital media supply chain services. Our proprietary systems and technology enable
the archiving and retrieval of large libraries of digital media assets, or digital
content. Digitized masters of the media assets are stored on our high-capacity storage
array systems and accessed via our proprietary, automated, web-based access tools to
search, deliver and manage such content. Such storage and access capabilities enable
digital content to be processed and converted into different digital formats pursuant to
our customers specifications via our proprietary encoding and transcoding systems. To
transmit digital content over the Internet or other advanced digital distribution
networks, the uncompressed, digitized content must be converted into compressed,
network-compatible digital formats. Our encoding services enable the conversion of such
content into a particular form, along with the relevant metadata, such that the content
can be distributed over various distribution networks. Encoding large catalogs of content
in an efficient manner is a complex process that requires scalable technology and
supporting infrastructures. Digital encoding formats and technologies continue to evolve
and often conflict with one another. As a result, content owners often convert their
digital assets into multiple formats and codecs (which are algorithms that reduce the
number of bytes consumed by large files and programs) to support their distribution
strategies. Additionally, the encoding process for a particular item (or for an entire
library) is often repeated as a result of the introduction of new formats or distribution
platforms. Our proprietary digital media supply chain services address these challenges
by providing an outsourced solution for the archiving, management, processing and
distribution of our
 25
    Table of Contents  customers digital assets. Our digital media supply chain services also provide
watermarking, encryption, metadata and other digital rights management services to enable
our customers to protect and manage their content digitally. We also provide project
analysis, as well as consulting and other related services to support the digital
fulfillment of encoded content libraries for content owners and retailers worldwide.
    
    Music sample and internet radio services. We provide a hosted end-to-end streaming
service that delivers high quality music samples to customers in the online and mobile
entertainment sectors. Our music samples service consists of streaming digital content,
or more specifically selections of such content, commonly referred to as samples, clips
or previews. Digital media samples are used by customers for many purposes, including
increasing online content sales, user traffic and customer retention. A significant
amount of our revenue from our music samples services is derived from a single customer
relationship. If that customer were to cancel our contract or fail to renew it, or if we
were unsuccessful in securing license rights from content owners to continue the samples
service, revenue from our music samples services would decline. We also provide digital
radio service. The Loudeye Radio service offers 100 channels of CD-quality streaming
music delivered through a partners own privately branded player interface. It is capable
of supporting delivery to a range of consumer music devices and appliances. The Loudeye
Radio service can be deployed online for web-based retailers and portals, as well as
offline for consumer electronic devices and appliances, digital home entertainment
systems and other digital broadcasting outlets.
 Content protection services MGM Studios, Inc. v. Grokster,
Ltd
 
    
    increased self-policing or filtering efforts by peer-to-peer service companies,
    
    increased pressure from industry organizations such as the Recording Industry
Association of America (RIAA) through cease-and-desist campaigns against peer-to-peer
companies which has resulted in several companies such as Grokster and eDonkey, ceasing operation of
free peer-to-peer services, and
    
    the emergence of peer-to-peer services offering only legitimateor licensedcontent.
  Media Restoration Services .
 26
    Table of Contents  Critical Accounting Policies and Estimates
   Recent Accounting Pronouncements
     Consolidated Results of Operations
  27
    Table of Contents  Comparison of Third Quarter 2005 Operating Results to Second Quarter 2005
      28
    Table of Contents  Three Months Ended
    
    
    
    
    
    
    
    
    
    
    Nine Months EndedSeptember 30,
    
    
    Variance
    
    
    September 30,
    
    
    Variance2005
    
    
    2004
    
    
    $
    
    
    %
    
    
    2005
    
    
    2004
    
    
    $
    
    
    %RevenueDigital media servicesDigital media store services
    
    $
    4,842
    
    
    $
    1,902
    
    
    $
    2,940
    
    
    
    155
    %
    
    $
    13,857
    
    
    $
    2,210
    
    
    $
    11,647
    
    
    
    527
    %Encoding services
    
    
    1,196
    
    
    
    1,389
    
    
    
    (193
    )
    
    
    (14
    )%
    
    
    2,616
    
    
    
    2,866
    
    
    
    (250
    )
    
    
    (9
    )%Content protection services
    
    
    295
    
    
    
    941
    
    
    
    (646
    )
    
    
    (69
    )%
    
    
    1,670
    
    
    
    1,641
    
    
    
    29
    
    
    
    2
    %Samples services
    
    
    261
    
    
    
    335
    
    
    
    (74
    )
    
    
    (22
    )%
    
    
    882
    
    
    
    1,235
    
    
    
    (353
    )
    
    
    (29
    )%Internet radio services
    
    
    28
    
    
    
    43
    
    
    
    (15
    )
    
    
    (35
    )%
    
    
    227
    
    
    
    478
    
    
    
    (251
    )
    
    
    (53
    )%Webcasting and hosting services
    
    
    210
    
    
    
    470
    
    
    
    (260
    )
    
    
    (55
    )%
    
    
    626
    
    
    
    1,475
    
    
    
    (849
    )
    
    
    (58
    )%Media restoration services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297
    
    
    
    (297
    )
    
    
    (100
    )%Total revenue
    
    
    6,832
    
    
    
    5,080
    
    
    
    1,752
    
    
    
    34
    %
    
    
    19,878
    
    
    
    10,202
    
    
    
    9,676
    
    
    
    95
    %Cost of revenue
    
    
    7,392
    
    
    
    3,764
    
    
    
    3,628
    
    
    
    96
    %
    
    
    20,548
    
    
    
    7,125
    
    
    
    13,423
    
    
    
    188
    %Gross profit (loss)
    
    
    (560
    )
    
    
    1,316
    
    
    
    (1,876
    )
    
    
    (143
    )%
    
    
    (670
    )
    
    
    3,077
    
    
    
    (3,747
    )
    
    
    (122
    )%Operating expensesSales and marketing
    
    
    1,545
    
    
    
    1,478
    
    
    
    67
    
    
    
    5
    %
    
    
    5,102
    
    
    
    2,949
    
    
    
    2,153
    
    
    
    73
    %Research and development
    
    
    2,694
    
    
    
    1,325
    
    
    
    1,369
    
    
    
    103
    %
    
    
    6,730
    
    
    
    2,668
    
    
    
    4,062
    
    
    
    152
    %General and administrative
    
    
    3,517
    
    
    
    3,798
    
    
    
    (281
    )
    
    
    (7
    )%
    
    
    10,508
    
    
    
    7,990
    
    
    
    2,518
    
    
    
    32
    %Amortization of intangibles
    
    
    148
    
    
    
    41
    
    
    
    107
    
    
    
    261
    %
    
    
    341
    
    
    
    191
    
    
    
    150
    
    
    
    79
    %Stock-based compensation
    
    
    139
    
    
    
    21
    
    
    
    118
    
    
    
    562
    %
    
    
    201
    
    
    
    186
    
    
    
    15
    
    
    
    8
    %Special charges (credits)  other
    
    
    
    
    
    
    350
    
    
    
    (350
    )
    
    
    (100
    )%
    
    
    (43
    )
    
    
    300
    
    
    
    (343
    )
    
    
    (114
    )%Total operating expenses
    
    
    8,043
    
    
    
    7,013
    
    
    
    1,030
    
    
    
    15
    %
    
    
    22,839
    
    
    
    14,284
    
    
    
    8,555
    
    
    
    60
    %Interest income
    
    
    143
    
    
    
    139
    
    
    
    4
    
    
    
    3
    %
    
    
    534
    
    
    
    325
    
    
    
    209
    
    
    
    64
    %Interest expense
    
    
    (36
    )
    
    
    (46
    )
    
    
    10
    
    
    
    (22
    )%
    
    
    (138
    )
    
    
    (176
    )
    
    
    38
    
    
    
    (22
    )%Gain on sale of media restoration assets
    
    
    
    
    
    
    273
    
    
    
    (273
    )
    
    
    (100
    )%
    
    
    
    
    
    
    113
    
    
    
    (113
    )
    
    
    (100
    )%Other income, net
    
    
    31
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    266
    
    
    
    186
    
    
    
    80
    
    
    
    43
    %Net loss
    
    $
    (8,465
    )
    
    $
    (5,331
    )
    
    $
    (3,134
    )
    
    
    59
    %
    
    $
    (22,847
    )
    
    $
    (10,759
    )
    
    $
    (12,088
    )
    
    
    112
    %
 Comparison of Three and Nine Month Periods Ended September 30, 2005 and September 30, 2004
 Revenue.
   Digital media store services revenue.
 29
    Table of Contents  
    
    Platform service fees are generally recognized as revenue over the term of the
customer contract and represent charges in connection with enabling the service and
maintaining its overall functionality during the term of the customer contract, which is
generally one to three years. We charge platform fees to our customers in a variety of
manners, including initial set-up fees, monthly only fees, or a combination of initial
set-up and monthly fees.
    
    We also share in the proceeds of consumer transactions such as digital downloads.
Revenue from downloads is recognized at the time the content is delivered, digitally, to
the consumer.
    
    A majority of our transactional revenue is generated through the sale of prepaid
credit packages which entitle a consumer to access a specified number of digital music
downloads or streams for a fixed price during a fixed time period. Prepaid credit
packages are also bundled with other end consumer offerings sponsored by our customers.
Revenue from prepaid credit packages and bundle promotions is deferred until the credits
or promotional offers are utilized or expire. Our margin on the sale of prepaid credit
packages fluctuates depending upon a number of factors, including the type of service for
which the consumer redeems the credits (full downloads or streams), the royalty rate for
the download purchased and breakage.
    
    Revenue from prepaid credit packages is deferred and then recognized as tracks are
downloaded by the consumer or as credits expire, whichever occurs earlier.
 Encoding revenue.
 Content protection services revenue.
 30
    Table of Contents  Samples services revenue.
 Internet radio services revenue.
 Webcasting and hosting services revenue.
 Media restoration services revenue.
 Deposits and deferred revenue.
  31
    Table of Contents  Cost of revenue.
   Sales and marketing.
 Research and development.
 32
    Table of Contents  General and administrative.
 Amortization of intangibles.
 Stock-based compensation.
  Special charges (credits).
 33
    Table of Contents  Facilities-relatedChargesBalance, December 31, 2004
    
    $
    403Additional accruals
    
    
    Payments
    
    
    (360
    )Adjustments
    
    
    (43
    )Balance, September 30, 2005
    
    $
    
 Interest income.
 Interest expense.
 Gain on sale of media restoration assets.
 Other income, net.
 Income taxes.
 Liquidity, Capital Resources and Going Concern
  34
    Table of Contents  35
    Table of Contents  
    
    A term loan in the amount of $3.0 million, with a balance as of September 30, 2005,
of approximately $1.3 million. The term loan bears interest at an annual rate of 0.5%
above the prime interest rate (which rate was previously 1.25% above the prime interest
rate under the terms of the December 31, 2003 loan and security agreement). Payments of
principal and interest total $83,333 per month for 36 months from December 31, 2003. Once
repaid, the term loan may not be reborrowed.
    
    A new equipment term loan facility in the amount of $2.5 million, with a balance as
of September 30, 2005, of zero. The equipment loan facility is available on or before
October 31, 2005, in minimum draw amounts of $250,000. The equipment loan bears interest
at an annual rate of 0.5% above the prime interest rate. Any advances drawn on the
equipment loan facility will be payable monthly over 36 months.
    
    A new guidance line facility in the amount of $1.5 million, which is available
through March 29, 2006, with a balance as of September 30, 2005, of approximately
$175,000.
    36
    Table of Contents  
    
    Enter new markets for our services, including through potential acquisitions of
complementary businesses, technology or other assets;
    
    Increase or decrease research and development spending;
    
    Increase or decrease sales and marketing activities;
    
    Improve our operational and financial systems; and
    
    Integrate acquired businesses.
     Contractual Obligations
  Payments Due by PeriodLess Than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 years
    
    
    4-5 years
    
    
    5 yearsContractual ObligationsLong-term debt and capital leases
    
    $
    1,263
    
    
    $
    1,013
    
    
    $
    250
    
    
    $
    
    
    
    $
    Operating leases (1)
    
    
    3,068
    
    
    
    704
    
    
    
    684
    
    
    
    530
    
    
    
    1,150Bandwidth and co-location purchase obligations (2)
    
    
    312
    
    
    
    272
    
    
    
    40
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    4,643
    
    
    $
    1,989
    
    
    $
    974
    
    
    $
    530
    
    
    $
    1,150
 
 (1)
    
    Our future minimum rental commitments under noncancellable leases comprise the majority of
the operating lease obligations 37
    Table of Contents  presented above. We expect to fund these commitments with existing cash and cash flows from
operations.(2)
    
    Many of the contracts underlying these obligations contain renewal provisions, generally for
a period of one year. In addition, amounts payable under these contracts may vary based on the
volume of data transferred. The amounts in the table represent the base fee amount. We also
have contracts for bandwidth and collocation services that run on a month-to-month basis and
for which there are no unconditional obligations. Monthly amounts due under the month-to-month
contracts are approximately $244,000 and have been excluded from the table above.Excluded from the table above are the following: 
    
    Accrued acquisition consideration of approximately £465,000 (approximately $820,000
based on September 30, 2005 exchange rates) under the OD2 agreement held in escrow which
is not recorded. Such amounts are being held in escrow by Loudeye until due in accordance
with the terms of the OD2 transaction.
    
    Deposits and deferred revenue of $6.5 million, net of related receivables, has been
excluded from the table above as the liabilities will not be settled in cash.
    
    The expected issuance of up to approximately 341,000 additional shares of Loudeye
common stock, representing shares to be issued to OD2 option holders issuable upon
exercise of OD2 options assumed by Loudeye in connection with the OD2 acquisition in June
2004. The associated common stock payable of approximately $494,000 has been excluded as
the related liability will not be settled in cash.
    
    Annual basic rent payable by Loudeye under an operating lease of approximately
$939,000 in 2006 and $960,000 in 2007. On October 5, 2005, Loudeye Corp. and its
wholly-owned subsidiary Loudeye Enterprise Communications, Inc. entered into the First
Amendment of Lease with 1130 Rainier LLC as Lessor. This agreement amended the Lease
Agreement dated December 23, 2003 for Loudeyes headquarters offices at 1130 Rainier
Avenue South, Seattle, Washington. The lease term is extended for a period of two (2)
years beginning January 1, 2006, and ending December 31, 2007. Loudeye retains an option
to terminate the Lease as of December 31, 2006, upon giving Lessor written notice of its
exercise of this option on or before June 30, 2006.
    
    Purchase commitments represent obligations under agreements which are not
unilaterally cancelable by us, are legally enforceable, and specifically fixed or minimum
quantities of goods or services at fixed or minimum prices. We generally require purchase
orders for vendor and third party spending. There were no other known contracts or
purchase orders exceeding $100,000 in the aggregate.
  
    
    We have continuing payment obligations under existing arrangements with certain
licensors of copyrighted materials that will require payments for content fees and
royalties on music delivered to end consumers. As of September 30, 2005, approximately
$4.2 million of these amounts are included in accrued and other liabilities in the
accompanying interim unaudited condensed consolidated balance sheets. Content fees and
royalties on music are due to our partners based on net revenue and online music
distribution volumes. As online service volumes fluctuate, our payment obligations for
content fees and royalties fluctuate proportionally.
    
    We may enter into future licensing agreements with content owners that could
require cash advances or prepayments for content licensing rights.
    
    We may enter into future transactions where we acquire complementary businesses.
Such acquisitions may require the use of our capital resources.
  38
    Table of Contents  Off-Balance Sheet Arrangements
 Indemnification Obligations.
 Other.
 Legal Proceedings
   Factors That May Affect Our Business, Future Operating Results and Financial Condition
  Risks Related to Our Business
 We have a history of losses and negative cash flows on a quarterly and annual basis and we may
experience greater losses from operations than we currently anticipate. These factors raise doubt
about our ability to continue as a going concern.
  We need to raise additional capital in the future to execute on our current business plan.
  Our quarterly and annual financial results will continue to fluctuate making it difficult to
forecast our operating results.
 39
    Table of Contents  
    
    Market acceptance of our services;
    
    Variability in demand for our digital media services;
    
    Competition from other companies entering our markets;
    
    The actual, commercial launch date of major new digital media stores;
    
    Our customers commitment to adequately market and promote their digital media stores;
    
    Ability of our customers and us to procure necessary intellectual property rights for digital media content;
    
    Willingness of our customers to enter into longer-term volume or recurring revenue
digital media services agreements and purchase orders in light of the economic and legal
uncertainties related to their business models;
    
    Fluctuating wholesale costs for digital media content, especially from major record
labels;
    
    Willingness of competitive consumer digital media services to maintain a consumer
retail price below the wholesale cost of the content in an effort to gain market share or
for other competitive reasons;
    
    Charges related to restructuring of our business, including personnel reductions
and excess facilities; and
    
    Governmental regulations affecting use of the Internet, including regulations
concerning intellectual property rights and security measures.
  We expect to restructure our business in the
near future. Even if we restructure our business, we may not have sufficient cash to execute on our current
business plan and any restructuring may impact our ability to execute on our business plan.
  We have not completed the integration of our acquisition of OD2, and we may need to make additional
future acquisitions to remain competitive. The process of identifying, acquiring and integrating
these future acquisitions may have a material adverse effect on our operating results.
   
    
    The difficulties of assimilating the operations and personnel of the acquired
companies and realizing anticipated operational and cost efficiencies without disruption
to the ongoing business;
 40
    Table of Contents  
    
    Impairment of relationships with employees, affiliates, advertisers and content
providers of our business and acquired businesses;
    
    The loss of key management and the difficulties in retaining key management or employees of acquired companies;
    
    Operational difficulties, including the need to attract and retain qualified personnel and the need to attract customers
    
    The cost and challenges of integrating IT and financial systems;
    
    Diversion of managements attention from other business concerns and the potential disruption of our ongoing business;
    
    The need to incorporate successfully the acquired or shared technology or content
and rights into our services, including maintaining customer satisfaction while migrating
to a single development platform; and
    
    The difficulties of maintaining uniform standards, systems, controls, procedures
and policies.
   We may divest acquired assets or companies, which may result in a loss on our investment and may
have a material adverse effect on our operating results.
  Our music content licenses are generally for limited terms. If we are unable to reach agreement
with recorded music companies, especially with the four major recorded music companies, to renew
existing licenses or to grant us expanded license rights, portions of our services could be
interrupted and our business and results of operations could be harmed.
   41
    Table of Contents  Our music content licenses generally require prior approval for us to distribute content to our
customers. If approval is delayed or withheld, portions of our services could be interrupted and
our business and results of operations could be harmed.
  Certain recorded music companies desire to license directly to our brand name customers. This trend
may lengthen our sales cycle and may result in us reporting certain music store services revenue on
a net basis rather than on a gross basis.
  Our music content licenses could result in operational complexity that may divert resources or make
our business more expensive to conduct.
   We make estimates of music publishing and performance rates; a determination of higher than
estimated royalty rates could negatively impact our operating results.
  42
    Table of Contents  We may be liable or alleged to be liable to third parties for music, software, and other content
that we encode, distribute, archive or make available to our customers.
  
    
    If the performance of our services is not properly licensed by the content owners
or their representatives such as the recorded music companies, music publishers and
performing rights organizations;
    
    If the content or the performance of our services violates third party copyright,
trademark, or other intellectual property rights;
    
    If our customers violate the intellectual property rights of others by providing
content to us or by having us perform digital media services;
    
    If the manner of delivery of content is alleged to violate terms of use of third
party delivery systems, such as peer-to-peer networks; or
    
    If content that we encode or otherwise handle for our customers is deemed obscene,
indecent, or defamatory.
     43
    Table of Contents  Competition may decrease our market share, revenue, and gross margins.
  44
    Table of Contents  
    
    Ability to offer a private branded solution;
    
    Service functionality, quality and performance;
    
    Substantial cash reserves;
    
    Ease of use, reliability, scalability and security of services;
    
    Establishing a significant base of customers and distribution partners;
    
    Ability to introduce new services to the market in a timely manner;
    
    Customer service and support;
    
    Quantity of available content and any exclusive content;
    
    Attracting third-party web developers; and
    
    Pricing.
  We depend on a limited number of customers for a significant percentage of our revenue. These
customers may be able to terminate their service contracts with us on short notice, with or without
cause. Accordingly, the loss of, or delay in payment from, one or a small number of customers
could have a significant impact on our revenue, operating results and cash flows.
  45
    Table of Contents  If we do not continue to add customers for our services, our revenue and business will be harmed.
  Our business will suffer if we do not anticipate and meet specific customer requirements or respond
to technological change.
  
    
    Our technology or systems may become obsolete upon the introduction of alternative
technologies;
    
    We may not have sufficient resources to develop or acquire new technologies or the
ability to introduce new services capable of competing with future technologies or
service offerings; and
    
    The price of our services is likely to decline as rapidly as the cost of any
competitive alternatives.
  We face competition from free peer-to-peer services such as KaZaA and Morpheus, from emerging
paid online music services delivered electronically, and from traditional retail music
distributors.
 MGM Studios, Inc. v. Grokster, Ltd.,
  Average selling prices of our services may decrease, which may negatively impact our gross margins.
  46
    Table of Contents  For the three and nine months ended September 30, 2005, we had a negative gross margin across our
entire business, primarily as a result of negative gross margin results at our Overpeer subsidiary.
  Our music store business generally may have lower gross margins than other service offerings.
  Increases in wholesale rates for digital music content may negatively impact gross margins and may
harm our business.
  Our music store services operating results fluctuate on a seasonal and quarterly basis.
  A decline in current levels of consumer spending could reduce our music store service revenue.
  Our success is dependent on the performance of our CEO and the cooperation, performance and
retention of our executive officers and key employees.
  We cannot be certain that we will be able to protect our intellectual property.
  47
    Table of Contents  We may be subject to intellectual property infringement claims which are costly to defend and could
limit our ability to use certain technologies in the future.
     We currently maintain two service platforms for our digital media store services which represents
additional significant expense and technological challenges.
  We must enhance our existing digital media services and develop and introduce new services in a
timely manner to remain competitive in that segment. Any failure to do so in a timely manner will
cause our results of operations to suffer.
  48
    Table of Contents  
    
    Identify and respond to emerging technological trends in the market;
    
    Enhance our services by adding innovative features that differentiate our digital
media services from those of our competitors;
    
    Develop, acquire and license leading technologies;
    
    Bring digital media services to market and scale our business and operations on a timely basis at competitive prices; and
    
    Respond effectively to new technological changes or new service announcements by others.
  Delays in technology enhancements could result in customer terminations which could cause our
results of operations to suffer.
  The technology underlying our services is complex and may contain unknown defects that could harm
our reputation, result in liability or decrease market acceptance of our services.
  
    
    Damage our reputation;
    
    Cause our customers to initiate liability suits against us;
    
    Increase our service development resources;
    
    Cause us to lose revenue; and
    
    Delay market acceptance of our digital media services.
 49
    Table of Contents  More consumers are utilizing non-PC devices to access digital content, and we may not be successful
in developing versions of our services that will gain widespread adoption by users of such devices.
   We provide guarantees to some of our customers under service level agreements and could be liable
for service credits for failure to meet specified performance metrics.
  Our network is subject to security and stability risks that could harm our business and reputation
and expose us to litigation or liability.
    Our services are complex and are deployed in complex environments and therefore may have errors or
defects that could seriously harm our business.
 50
    Table of Contents  Our transmission capacity is not entirely in our control, as we rely in part on transmission
capacity provided by third parties. Insufficient transmission capacity could result in delays or
interruptions in our services and loss of revenue.
  We identified material weaknesses in our internal control over financial reporting as of December
31, 2004, and we received an adverse opinion on internal control over financial reporting as of
December 31, 2004 from our independent registered public accounting firm in connection with their
annual internal control attestation process.
  
    
    Deficiencies pertaining to insufficiently skilled personnel and a lack of human
resources within our finance and accounting reporting functions.
    
    Insufficient oversight of financially significant processes and systems, including
deficiencies relating to monitoring and oversight of the work performed by our finance
and accounting personnel.
    
    Deficiencies in the design of our internal control environment reflected in either
a lack of controls or ineffectively designed controls.
    
    Deficiencies in our general computer controls relating to financially significant
applications and business processes, including application level design and documentation
deficiencies. As a result of these deficiencies and our inability to rely upon
information technology general controls to perform as expected over time, we were unable
to demonstrate through testing that our information technology dependent controls were
operating effectively.
    
    Deficiencies relating to insufficient analysis, review and documentation of the
selection and application of generally accepted accounting principles, or GAAP, to
significant non-routine transactions, including the preparation of financial statement
disclosures relating thereto.
    
    Failure to appropriately assess and monitor the effectiveness of controls executed
by third party service providers, and to adequately implement and/or maintain customer
level controls related to the provision of services by third party service providers.
    
    Inability to demonstrate through testing that all of our key internal controls over
financial reporting were effective as of December 31, 2004.
    
    Deficiencies related to entity-level controls.
  51
    Table of Contents  The lease for our corporate headquarters in Seattle, Washington can be terminated by the landlord
on 150 days notice. If the landlord terminates our lease, we most likely would be required to
locate new facilities and make significant expenditures in relocating our operations.
  Our operations could be harmed by factors including political instability, natural disasters,
fluctuations in currency exchange rates and changes in regulations that govern international
transactions.
  
    
    Changes in tariff regulations;
    
    Political instability, war, terrorism and other political risks;
    
    Foreign currency exchange rate fluctuations;
    
    Establishing and maintaining relationships with local distributors and dealers;
    
    Lengthy accounts receivable payment cycles;
    
    Import and export licensing requirements;
    
    Compliance with a variety of foreign laws and regulations, including unexpected
changes in taxation and regulatory requirements;
    
    Greater difficulty in safeguarding intellectual property than in the U.S.;
    
    Challenges caused by distance, language and cultural differences;
    
    Potentially adverse tax consequences;
    
    Difficulty in staffing and managing geographically diverse operations; and
    
    Higher costs associated with doing business internationally.
  We are subject to exchange rate risk in connection with our international operations.
  52
    Table of Contents  Our business and operations may be especially subject to the risks of earthquakes and other natural
catastrophes in the Pacific Northwest.
  Risks Related to Our Industry
 Digital media distribution services in general are new and rapidly evolving and may not prove to be
viable business models.
  We must provide digital rights management solutions that are acceptable to both content providers
and consumers.
  The industries we serve are a focus of attempts at means to improperly access and share
content and avoid digital rights management and anti-piracy technologies.
  Our industry is experiencing consolidation that may intensify competition.
  
    
    Competitors could acquire or enter into relationships with companies with which we
have strategic relationships and discontinue our relationship, resulting in the loss of
distribution opportunities for our services or the loss of certain enhancements or
value-added features to our services;
    
    Competitors could obtain exclusive access to desirable multimedia content and
prevent that content from being available in
 53
    Table of Contents  certain formats, thus impairing our content selection and our ability to attract customers;
    
    Suppliers of important or emerging technologies could be acquired by a competitor
or other company which could prevent us from being able to utilize such technologies in
our offerings, and disadvantage our offerings relative to those of competitors;
    
    A competitor could be acquired by a party with significant resources and experience
that could increase the ability of the competitor to compete with our services; and
    
    Other companies with related interests could combine to form new, formidable
competition, which could preclude us from obtaining access to certain markets or content;
or which could significantly change the market for our services.
  Our business could be harmed by a lack of availability of popular content.
  The growth of our business depends on the increased use of the Internet and wireless networks for
communications, electronic commerce and advertising.
   If broadband technologies do not become widely available or widely adopted, our online media
distribution services may not achieve broad market acceptance, and our business may be harmed.
  Government regulation could adversely affect our business prospects.
  54
    Table of Contents  
    
    Limit the growth of the Internet;
    
    Create uncertainty in the marketplace that could reduce demand for our services;
    
    Increase our cost of doing business;
    
    Expose us to increased litigation risk, substantial defense costs and significant
liabilities associated with content available on our Websites or distributed or accessed
through our services, with our provision of services, and with the features or
performance of our services and Websites;
    
    Lead to increased development costs or otherwise harm our business; or
    
    Decrease the rate of growth of our user base and limit our ability to effectively
communicate with and market to our user base.
  55
    Table of Contents  We may be subject to market risk and legal liability in connection with the data collection
capabilities of our services.
  Risks Related to Our Common Stock
 Our future capital-raising activities could involve the issuance of equity securities, which would
dilute your investment and could result in a decline in the trading price of our common stock.
  Some provisions of our amended and restated certificate of incorporation and amended bylaws and of
Delaware law may deter takeover attempts, which may limit the opportunity of our stockholders to
sell their shares at a favorable price.
   56
    Table of Contents  Securities analysts may not continue to cover our common stock or may issue negative reports, and
this may have a negative impact on our common stocks market price.
  Market fluctuations and volatility could cause the trading price of our common stock to
decline and limit our ability to raise capital.
  
    
    Our anticipated or actual operating results;
    
    Developments concerning our technologies and market offerings;
    
    Technological innovations or setbacks by us or our competitors;
    
    Conditions in the digital media and Internet markets;
    
    Announcements of merger or acquisition transactions; and
    
    Other events or factors and general economic and market conditions.
  57
    Table of Contents  Future sales of our common stock, or the perception that future sales could occur, may adversely
affect our common stock price.
    Our common stock could be delisted from the Nasdaq SmallCap Market if our stock price continues to
trade below $1.00 per share.
   The large number of holders and lack of concentration of ownership of our common stock may make it
difficult for us to reach a quorum or obtain an affirmative vote of our stockholders at future
stockholder meetings.
  As a result of accounting regulations which will become applicable to us on January 1, 2006
requiring companies to expense stock options, our expenses will increase and our stock price may
decline.
  58
    Table of Contents  Recently enacted and proposed changes in securities laws and regulations have increased and will
continue to increase our costs.
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  Interest Rate Risk.
   Foreign Currency Exchange Risk.
   
 Item 4. Controls and Procedures.
  59
    Table of Contents  Deficiencies pertaining to insufficiently skilled personnel and a lack of human resources
within our finance and accounting reporting functions.
 
    
    Remediation as of December 31, 2004.During fourth quarter 2004, we filled four of
five (two with temporary personnel)
 60
    Table of Contents  then existing positions within our accounting and finance department and created and filled
three new positions in our accounting and finance departments. As a result, our accounting
and finance staff consists of significantly more personnel with more accounting experience
than was the case during the second and third quarters of 2004. However, as all planned
personnel were not hired as of December 31, 2004, our remediation efforts were not complete
as of the December 31, 2004 measurement date. Although our Overpeer and OD2 subsidiaries
were outside the scope of our assessment of our internal control over financial reporting
as of December 31, 2004, we identified a need to hire additional qualified personnel for
our finance and accounting function at OD2.
    
    Remediation as of March 31, 2005.During first quarter 2005, we hired two permanent
employees to replace the temporary personnel and filled the fifth existing position. In
addition, during the first quarter 2005, we created and filled a new position in our
accounting and finance department at OD2 with temporary personnel.
    
    Remediation as of June 30, 2005. During second quarter 2005, we created and filled
two new positions in our accounting and finance department at OD2 with permanent
personnel.
    
    Remediation as of September 30, 2005. During third quarter 2005, we created two new
positions in our accounting and finance department at OD2 and began our recruiting
efforts to fill these positions.
    
    Timing.In October 2005, we filled the two new positions created in our accounting
and finance department at OD2 with permanent personnel. With the completion of our
hiring efforts during October 2005, we believe that we have remediated this material
weakness at Loudeye and the acquired entities.
 Insufficient oversight of financially significant processes and systems, including
deficiencies relating to monitoring and oversight of the work performed by our finance and
accounting personnel.
 
    
    All journal entries.
    
    Periodic reconciliations of sub ledgers, balance sheet and income statement accounts.
    
    Payroll and employee benefit related processing and accounting.
    
    Royalty related tracking, reporting and accounting.
    
    Processes related to the invoicing of customers and the processing of credits to customers.
    
    Processes related to the purchasing of and the payment for goods and services received.
    
    Accrual of expenses.
    
    Documents supporting the monthly, quarterly and annual consolidation and general ledger closing process.
    
    Periodic financial reporting.
  
    
    Remediation as of December 31, 2004.In fourth quarter 2004, we began to implement new
controls and procedures designed to ensure proper oversight of work performed by employees
in our accounting and finance functions. As of December 31, 2004, these efforts were not
complete or sufficiently integrated into our existing control environment.
    
    Remediation as of March 31, 2005.In first quarter 2005, our remediation efforts
continued, aided by the additional staff we
 61
    Table of Contents  hired within our accounting and finance department. For example, we established new
reconciliation, review and documentation procedures for finance and accounting employees to
ensure that:
 
    
    Journal entries, including the appropriate supporting documentation, are reviewed,
approved and documented prior to being posted to the general ledger.
    
    Sub ledgers, balance sheet and income statement accounts are periodically
reconciled, including the clearing of any reconciling items, and reviewed and approved in
a timely manner.
    
    Payroll and employee benefit calculations, payments and related journal entries are
reviewed approved and documented prior to posting in the general ledger.
    
    Royalty related tracking, reporting and accounting is reviewed, approved and
documented in a timely manner.
    
    System generated reports, invoicing support, and credit requests are reviewed,
approved and documented prior to posting to the general ledger.
    
    Invoices received for goods and services are properly approved and invoice coding
is reviewed, approved and documented prior to posting to the general ledger.
    
    Open purchase orders are periodically reviewed, investigated as necessary and
documented. Support and the basis for accruals of amounts in the general ledger is
reviewed, approved and documented prior to posting to the general ledger.
    
    Documents supporting the monthly, quarterly and annual consolidation and general
ledger closing process are reviewed, approved and documented as part of the periodic
closing process. Income statement and balance sheet accounts are reviewed approved and
documented monthly using actual to budget and/or actual to prior period actual
comparisons.
    
    Supporting working papers and documentation for financial data included in all
financial reports are reviewed, approved and documented.
 
    
    Remediation as of June 30, 2005.In the second quarter 2005, we continued to integrate
new reconciliation, review and documentation procedures into our operations excluding OD2.
As it relates to OD2, during the second quarter 2005, we began to implement new controls and
procedures designed to ensure proper oversight of work performed by employees in our
accounting and finance functions. As of June 30, 2005, these remediation efforts were not
complete.
    
    Remediation as of September 30, 2005.In the third quarter 2005, we continued to
implement new controls and procedures designed to ensure proper oversight of work performed
by employees in our accounting and finance functions and to integrate these new
reconciliation, review and documentation procedures at OD2.
    
    Timing.As of September 30, 2005, we believe we have remediated this weakness at Loudeye
and the acquired entities.
 Deficiencies pertaining to the lack of controls or ineffectively designed controls.
 
    
    All revenue transactions occurred, were accurately calculated in accordance with
the terms of the applicable contract, were processed properly and were accurately
reflected in the proper period in the general ledger.
    
    All royalty transactions occurred, were accurately calculated in accordance with
the terms of the applicable contract, were processed properly and were accurately
reflected in the proper period in the general ledger.
    
    All revenue transactions were properly authorized before entry into the general
ledger.
  62
    Table of Contents  
    
    Remediation as of December 31, 2004. We did not complete any significant remediation
efforts with respect to this material weakness during the year ended December 31, 2004.
    
    Remediation as of March 31, 2005. Beginning in March 2005, we focused our remediation
efforts with respect to these deficiencies on designing automated systems for tracking,
reporting and recording revenue generating transactions and associated royalty obligations.
    
    Remediation as of June 30, 2005. In second quarter 2005, we took several steps to
improve controls around our revenue and royalty accounting processes and procedures
including:
 
    
    Enhancing the levels of review and accelerated the timing of the preparation of the
monthly and quarterly royalty calculation.
    
    Formalizing processes, procedures and documentation standards relating to royalty
calculations, accruals and payments.
    
    Enhancing and restructuring the duties surrounding invoice processing to ensure
appropriate segregation of duties regarding preparation of invoices, review and
authorization of revenue transactions prior to entry in the general ledger.
 
    
    Remediation as of September 30, 2005. In third quarter 2005, we continued to improve
controls around our revenue and royalty accounting processes and procedures by further
enhancing the levels of review and accelerating the timing of the preparation of the
monthly and quarterly royalty calculation. We also continued to enhance invoice processing
to ensure appropriate segregation of duties regarding preparation of invoices and the
review and authorization of revenue transactions prior to entry in the general ledger at
our operations including OD2.
    
    Timing. We are continuing to remediate these deficiencies and anticipate completing our
remediation efforts during the fourth quarter of 2005 at Loudeye and the acquired entities.
 Deficiencies in our general computer controls relating to financially significant applications
and business processes, including application level design and documentation deficiencies. As a
result of these deficiencies noted during 2004, we were unable to rely upon general computer
controls to perform as expected over time and we were unable to demonstrate through testing that
our internal controls that depend upon general computer controls were operating effectively at
December 31, 2004.
  
    
    Insufficient approval and testing processes for internally developed software integrated
into financially significant business processes.
    
    Insufficient password management and unauthorized sharing of passwords.
    
    Insufficient physical access controls that could allow unauthorized access to our general computer controls.
  
    
    Insufficient formal documentation of the approval and testing process of internally
developed software integrated into financially significant business processes and changes to
those programs.
    
    Insufficient formal documentation to support system usage and maintenance.
    
    Insufficient formal documentation to support the design effectiveness of financially
significant general computer controls, such as the controls surrounding the capturing and
reporting of data from our music sample service or our encoding services.
  
    
    The proper capture, input, validation and processing of all data related to customer
invoicing and revenue recognition.
 63
    Table of Contents  
    
    The proper capture, input, validation and processing of all data related to the
calculation, tracking, reporting and recording of royalties.
    
    The proper processing of data related to fixed asset additions and deletions and the
calculation of periodic depreciation expense.
  
    
    Remediation as of December 31, 2004.As of December 31, 2004, our remediation efforts
were not complete. In the fourth quarter 2004, we began to document controls and procedures
designed to ensure proper oversight of work performed by employees in our information
technology operations and program and development functions. We began work to ensure that:
 
    
    A software development lifecycle (SDLC) methodology is documented and controls
relevant to testing and approvals are implemented as designed.
    
    A change management process is documented and controls relating to approvals are
implemented as designed.
    
    Controls are implemented for managing security and physical access to systems,
data, and applications that support financial reporting.
    
    Access policy and controls include a periodic review by management of access privileges.
    
    Transaction flows for applications that capture and report financial data are properly documented.
 
    
    Remediation as of March 31, 2005.During first quarter 2005, we continued to document
controls and procedures designed to ensure proper oversight of work performed by employees
in our information technology operations and program and development functions.
    
    Remediation as of June 30, 2005.During second quarter 2005, we took several steps to
improve general computer controls including:
 
    
    Implementing additional controls for managing security and physical access to
systems, data, and applications that support financial reporting.
    
    Continuing to document controls and procedures designed to ensure proper oversight
of work performed by employees in our information technology operations and program and
development functions.
    
    Continuing work to ensure that transaction flows for applications that capture and
report financial data are properly documented.
    
    As it relates to OD2, during second quarter 2005, we began to document controls and
procedures designed to ensure proper oversight of work performed by employees in our
information technology operations and program and development functions.
 
    
    Remediation as of September 30, 2005.During third quarter 2005, we took additional steps
to improve general computer controls, including:
 
    
    Further documentation of oversight controls and procedures and transactional
information flows for financially significant applications.
    
    Implementing additional controls for managing security and physical access to
systems, data, and applications that support
 64
    Table of Contents  financial reporting.
    
    Continued documentation of controls and procedures at OD2 designed to ensure proper
oversight of work performed by employees in our information technology operations and
program and development functions.
 
    
    Timing.We are continuing to remediate these deficiencies and anticipate completing our
remediation efforts during the fourth quarter of 2005 at Loudeye and the acquired entities.
 Deficiencies relating to insufficient analysis, documentation and review of the selection and
application of generally accepted accounting principles, or GAAP, to significant non-routine
transactions, including the preparation of financial statement disclosures relating thereto.
  
    
    Regent Fees.We revised our classification of $878,000 relating to service fees paid to
Regent Pacific Management Corporation during the year ended December 31, 2003, from special
charges  other to general and administrative expense in the current presentation as we
determined that these expenses were not restructuring charges in accordance with FAS 146 and
were more appropriately classified as general and administrative expense.
    
    Amortization of Intangible Assets.We revised our classification of amortization of
acquired technology and capitalized software costs totaling approximately $269,000 in 2003
and $1.3 million in 2002 from operating expenses  amortization of intangibles to cost of
revenue in the current presentation as we determined that these expenses were more
appropriately classified as cost of revenue in accordance with FAS 86 and related accounting
literature.
    
    Impairment of Intangible Assets.We revised our classification of impairment charges
related to acquired technology and capitalized software costs totaling approximately
$601,000 in 2003 and $694,000 in 2002 from operating expenses  special charges  other to
cost of revenue in the current presentation as we determined that these charges were more
appropriately classified as cost of revenue in accordance with FAS 86 and related accounting
literature.
  
    
    Remediation as of December 31, 2004.During fourth quarter 2004, we filled four of five
(two with temporary personnel) then existing positions within our accounting and finance
department and created and filled three new positions in our accounting and finance
departments. However, because we had not filled all of the vacancies in our accounting and
finance department as of December 31, 2004, our remediation efforts with respect to this
material weakness were not complete as of the December 31, 2004 measurement date.
    
    Remediation as of March 31, 2005.During first quarter 2005, we hired two permanent
employees to replace the temporary personnel and filled the fifth position. As a result, our
accounting and finance staff consists of significantly more personnel with more accounting
experience than was the case during the second and third quarters of 2004. We have also
implemented processes by which the classification of expenses, significant revenue related
and non-routine transactions are reviewed for application of GAAP by accounting and finance
personnel with appropriate subject matter expertise, by members of senior management, and,
where appropriate by our audit committee or our board of directors.
    
    Remediation as of June 30, 2005.During second quarter 2005, we undertook the following
additional steps to improve our resources in our accounting and finance department:
 
    
    Carried out additional training of accounting personnel, including training as it
relates to the adoption and implementation of new accounting pronouncements.
 65
    Table of Contents  
    
    Remediation as of September 30, 2005.During the third quarter 2005, we created two new
positions in our accounting and finance department at OD2 and began our recruiting efforts
to fill these positions with qualified permanent personnel.
    
    Timing.We completed our hiring efforts at Loudeye during the first quarter 2005. In
October 2005, we filled the two new positions in our accounting and finance department at
OD2. As of the date of this filing, we have completed the remediation efforts described
above to improve the effectiveness of our controls designed to ensure that underlying
non-routine transactions are appropriately and timely accounted for in the general ledger
and we believe we have remediated this weakness at Loudeye and the acquired entities.
 Failure to appropriately assess and monitor the effectiveness of controls executed by third
party service providers, and to adequately implement and/or maintain customer level controls
related to the provision of services by third party service providers.
 
    
    Failure to provide timely written notification to third party service providers of
changes in Loudeye authorized personnel that result from Loudeye employee terminations.
    
    Insufficient review and approval, and insufficient documentation of review and approval,
of input reports prior to their submission to the service provider and of output reports
received from service providers.
  
    
    Remediation as of December 31, 2004.In fourth quarter 2004, we began to implement new
controls and procedures designed to ensure proper oversight of work performed by employees
in our accounting and finance functions. As of December 31, 2004, these efforts were not
complete.
    
    Remediation as of March 31, 2005.In first quarter 2005, our remediation efforts
continued, aided by the additional staff we hired within our accounting and finance
department. For example, we established new reconciliation, review and documentation
requirements for finance and accounting employees to ensure that, among other things,
payroll and benefit related reports are reviewed and approved prior to submission to the
third party provider and that output reports received from the service provider were
reviewed and approved. Additionally, we put controls in place to ensure we provided timely
written notification to third party service providers of changes in authorized Loudeye
personnel.
    
    Remediation as of June 30, 2005.Our remediation efforts as described above continued in
the second quarter.
    
    Remediation as of September 30, 2005.Our remediation efforts as described above
continued in the third quarter as it relates to Loudeye. As it relates to OD2, at
September 30, 2005 we were in the process of assessing the effectiveness of controls
executed by third party service providers, and determining the adequacy of customer level
controls related to the provision of services by third party service providers.
    
    Timing.We are continuing to remediate this material weakness and anticipate completing
our remediation efforts during the fourth quarter 2005.
 Inadequate entity-level controls.
 
    
    Remediation as of December 31, 2004.In fourth quarter 2004, we began to implement new
controls and procedures designed to ensure that company-wide policies and procedures are
systematically communicated and that documentation evidencing employees receipt thereof is
retained. As of December 31, 2004, these efforts were not complete.
 66
    Table of Contents  
    
    Remediation as of March 31, 2005.In first quarter 2005, we continued to remediate these
deficiencies. and we also began developing an ongoing monitoring system to facilitate
continuous monitoring of our internal control over financial reporting.
    
    Remediation as of June 30, 2005.During second quarter 2005, we continued implementation
of an ongoing monitoring system to facilitate continuous monitoring of our internal control
over financial reporting. In particular, we began requiring quarterly certifications
regarding controls from operational management and others with particular knowledge in
regards to the operation of key controls.
    
    Remediation as of September 30, 2005.During third quarter 2005, we continued
implementation of our ongoing monitoring system to facilitate continuous monitoring of our
internal control over financial reporting.
    
    Timing.We are continuing to remediate this material weakness and anticipate completing
our remediation efforts during the fourth quarter 2005.
 Inability to demonstrate through testing that our internal control over financial reporting
was effective as of December 31, 2004.
    
 Item 5. Other Information.
  67
    Table of Contents  PART II. OTHER INFORMATION.
 
 Item 1. Legal Proceedings.
  
 Item 6. Exhibits.
  Exhibit No.
    
    Description10.1
    
    Letter agreement between Loudeye
Corp. and Anthony Bay dated November 9, 200531.1
    
    Certification of Michael A. Brochu, President and Chief Executive Officer of Loudeye
Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Ronald M. Stevens, Chief Financial Officer and Chief Operating Officers
of Loudeye Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Michael A. Brochu, President and Chief Executive Officer of Loudeye
Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Ronald M. Stevens, Chief Financial Officer and Chief Operating Officer
of Loudeye Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 68
    Table of Contents  SIGNATURES
  LOUDEYE CORP.BY:
    /s/ MICHAEL A. BROCHUMichael A. BrochuPresident and Chief Executive
Officer
(Principal Executive Officer) BY:
    /s/ RONALD M. STEVENSRonald M. StevensChief Financial Officer and Chief
Operating Officer
(Principal Financial and Accounting Officer) 69
    Table of Contents  EXHIBIT INDEX
 Exhibit No.
    
    Description10.1
    
    Letter agreement between Loudeye
Corp. and Anthony Bay dated November 9, 200531.1
    
    Certification of Michael A. Brochu, President and Chief Executive Officer of Loudeye
Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Ronald M. Stevens, Chief Financial Officer and Chief Operating Officers
of Loudeye Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 200232.1
    
    Certification of Michael A. Brochu, President and Chief Executive Officer of Loudeye
Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certification of Ronald M. Stevens, Chief Financial Officer and Chief Operating Officer
of Loudeye Corp., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
 70