8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 23, 2005 (February 21, 2005)

LOUDEYE CORP.

(Exact Name of Registrant as Specified in Charter)

Delaware	0-29583	91-1908833
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1130 Rainier Avenue South Seattle, Washington	98144
(Address of Principal Executive Offices)	Zip Code

(206) 832-4000
(Registrant’s telephone number, including area code)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operation and Financial Condition

     On February 23, 2006, Loudeye issued a press release announcing its financial results for the fourth quarter and fiscal year ended December 31, 2005, and certain other information. A copy of Loudeye’s press release announcing these financial results and certain other information is furnished as Exhibit 99.1 hereto and is incorporated by reference into this Item 2.02.

     Loudeye management will conduct an audio webcast to discuss these financial results. The public is invited to listen in on this webcast. Management will discuss financial and operating results in the quarter and end the call with an audio question and answer session. Information regarding the fourth quarter and fiscal year ended December 31, 2005 results’ webcast and slide presentation is as follows:

Date:	Thursday, February 23, 2006
Time:	5:00 p.m. EDT / 2:00 p.m. PDT
Audio Webcast:	5:00 p.m. EDT / 2:00 p.m. PDT; live and archived; Webcast from http://www.loudeye.com/en/aboutus/earningscalls.asp. This webcast will be available until March 9, 2006 at 5:00 p.m. EDT

Item 2.05 Costs Associated with Ext or Disposal Activities

     As disclosed in a current report on Form 8-K filed December 9, 2005, Loudeye Corp. announced that Overpeer, Inc., Loudeye’s wholly-owned content protection services subsidiary, had ceased operations effective immediately. Item 2.05 of this current report on Form 8-K updates information contained in Loudeye’s February 17, 2005 Form 8-K/A relating to the status of Overpeer’s impairment of long-lived assets as a result of its cessation of operations.

• Impairment of Long-Lived Assets. In addition to the amounts disclosed in Loudeye’s current report on Form 8-K/A filed February 17, 2006, Loudeye has determined that certain Overpeer technology with an aggregate net book value of approximately $430,000 has no continuing value as a result of the cessation of the Overpeer business. For the year ended December 31, 2005, Loudeye expects to include an additional non-cash impairment charge of approximately $430,000 in loss from discontinued operations with respect to the value of the Overpeer technology.

• Overpeer Lease. On February 21, 2006, Overpeer, Loudeye and the landlord for leased premises formerly occupied by Overpeer finalized a settlement pursuant to which the Landlord released Overpeer and Loudeye from any future obligations with respect to the lease in exchange for the landlord retaining an approximate $175,000 security deposit and certain Loudeye-owned furniture with a net book value of approximately $80,000.

Item 2.06 Material Impairments

     Please refer to the discussion in Item 2.05 hereof, which is incorporated herein by reference. Together with the amounts disclosed in Loudeye’s current report on Form 8-K/A filed February 17, 2006, Loudeye expects to record an aggregate non-cash impairment of long-lived assets and goodwill of approximately $3.3 million as a result of cessation of the Overpeer business.

Item 3.02 Unregistered Sales of Equity Securities.

     On February 20, 2006, Loudeye entered into a Subscription Agreement with a limited number of institutional investors pursuant to which Loudeye agreed to sell and issue to such investors 16,500,000 shares of its common stock, together with warrants to purchase 12,375,000 shares of common stock at an

exercise price of $0.68 per share, for an aggregate purchase price of $8.25 million. Loudeye consummated the transaction on February 22, 2006. Following consummation of the transaction, Loudeye has approximately 131,901,757 shares of common stock outstanding (excluding shares issuable upon exercise of the warrants). The warrants are not exercisable until six months after the closing date and are then exercisable until the fifth anniversary of the closing date. Loudeye also granted the investors a one year right to purchase 30% of any securities sold by Loudeye in future financings, subject to exceptions. Loudeye has agreed to pay a placement fee of $556,875 in connection with the financing. The transaction resulted in net proceeds to Loudeye of approximately $7.6 million.

     The offering was made only to accredited investors, as such term is defined in Regulation D under the Securities Act of 1933, as amended. The shares of common stock and the warrants (and Additional Shares, if any) to be issued to the investors have not been registered under the Securities Act of 1933, as amended, or any state securities laws. Loudeye is relying on the exemption from the registration requirements of the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof and Rule 506 of Regulation D promulgated thereunder. Loudeye has agreed to file a registration statement covering the resale of the shares of common stock and the shares of common stock underlying the warrants (and of additional shares, if any, that Loudeye may elect to issue under the terms of the Subscription Agreement to the extent it is required to repay a portion of the purchase price to the investors).

     A complete copy of each of the Subscription Agreement and the form of Common Stock Purchase Warrant were filed as Exhibits 10.1 and 10.2 to Loudeye’s Current Report on Form 8-K filed on February 22, 2006, and are incorporated herein by reference. The summary of the transaction set forth above is qualified in its entirety by reference to such exhibits.

     This Current Report on Form 8-K is neither an offer to sell nor a solicitation of an offer to buy any of these securities.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

10.1   Subscription Agreement, dated February 20, 2006, by and among Loudeye and the investors named therein *

10.2   Form of Common Stock Purchase Warrant *

99.1   Press Release dated February 23, 2006

• Incorporated by reference to Loudeye Corp.’s current report on Form 8-K filed February 21, 2006.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Loudeye Corp.
Dated: February 23, 2006	By:	/s/ Chris J. Pollak
		Chris J. Pollak
		Chief Financial Officer

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Loudeye Announces Fourth Quarter 2005 and Full Year 2005 Financial Results

Total Revenue Grows 93% Year-Over-Year, Driven by Strong Growth in Digital Media Store Services Revenue

February 23, 2006 — Loudeye Corp. (Nasdaq: LOUD), a worldwide leader in business-to-business digital media solutions, today announced financial results for the fourth quarter 2005 and full year 2005.

Fourth Quarter 2005 and Full Year 2005 Financial Highlights

Revenue. Revenue was $8.8 million in the fourth quarter 2005 compared with revenue of $5.5 million in the fourth quarter 2004, an increase of 61%. Revenue for the year ended December 31, 2005 was $27.0 million compared with revenue of $14.0 million in 2004, an increase of 93%. Fourth quarter 2005 revenue increased approximately 35% compared to $6.5 million in the third quarter 2005.

• Digital media store services revenue represented $7.0 million of total revenue, or 80%, an increase of approximately 90% from $3.7 million, or 68% of total revenue, in the fourth quarter 2004. Fourth quarter 2005 digital media store services revenue increased approximately 46% compared to $4.8 million in the third quarter 2005.

• Digital media store services revenue for the year ended December 31, 2005 represented $20.9 million of total revenue, or 77%, an increase of more than 250% from $5.9 million, or 42% of total revenue, in 2004.

Deferred Revenue. Deferred revenue was $6.4 million as of December 31, 2005, net of related receivables of approximately $2.2 million, compared to $6.5 million as of September 30, 2005, net of related receivables of $2.9 million.

Loss from continuing operations and net loss. For the fourth quarter 2005, GAAP loss from continuing operations was $5.7 million, compared to $5.6 million in the fourth quarter 2004 and down from $7.2 million in the third quarter 2005. For the year ended December 31, 2005, GAAP loss from continuing operations was $25.6 million, compared to $16.0 million in 2004. Loss from continuing operations for all periods presented excludes results of Loudeye’s Overpeer subsidiary which ceased operations in December 2005.

• For the fourth quarter 2005, GAAP net loss was $10.5 million, compared to $5.6 million in the fourth quarter 2004 and $8.5 million in the third quarter 2005.

• EBITDA loss from continuing operations totaled $4.9 million in both the fourth quarter of 2005 and 2004, and was down from $6.3 million in the third quarter 2005. EBITDA loss from continuing operations excludes charges related to depreciation and amortization expense and interest income and expense. A reconciliation of GAAP loss from continuing operations to EBITDA loss from continuing operations is provided below.

Cash and Investments. Unrestricted and restricted cash, cash equivalents and marketable securities were approximately $10.9 million as of December 31, 2005 compared to $16.6 million at September 30, 2005.

• On February 22, 2006, we closed a private placement of common stock and warrants raising $8.25 million, or approximately $7.6 million in net proceeds. This announcement does not constitute an offer to sell or a solicitation of an offer to buy shares of Loudeye’s common stock.

2006 Operating Plan—Focus on Key Markets and Customers

Loudeye’s 2006 operating plan will focus on the markets and customers which are generating the most economic value and opportunity for the company.

• Focus on digital media services offerings in Europe where Loudeye’s services have a significant installed customer base. Loudeye’s digital media store service operations will be centralized at its European headquarters in the United Kingdom.

• Invest in our mobile music platform and service offerings.

• Continue to operate digital media content services located at Loudeye’s Seattle, Washington headquarters, including encoding and samples services.

Forward-Looking Financial Guidance

While future results are subject to change and risks, Loudeye expects revenue for the full year 2006 will be approximately $35.0 to $40.0 million. Digital media store services revenue is expected to represent more than 75% of revenue in 2006.

Loudeye expects that first quarter 2006 revenue will be approximately $7.5 million to $8.0 million. This is less than $8.8 million in fourth quarter 2005 revenue, which included approximately $1.3 million in promotional credit revenue from one internet service provider in Europe that had been included in deferred revenue as of September 30, 2005.

“We are implementing our plans to improve our margins, reduce our cost structure and improve efficiency,” said Chris Pollak, Loudeye’s chief financial officer. “We believe that our financial resources, including proceeds from our recent capital raise, will be sufficient to meet our anticipated cash needs for working capital or other purposes for at least the next twelve months.”

Forward-looking financial guidance reflects management’s expectations as of the date of this release and is based upon limited available information, including loss contingencies, which is dynamic and subject to change. Results may be materially affected by many factors including those described in the Forward-looking Statements section below.

Fourth Quarter and Full Year 2005 Webcast Information
Loudeye management will conduct an audio webcast to discuss these financial results. The public is invited to listen in on this webcast. Management will discuss financial and operating results for the quarter and end the call with an audio question

and answer session. Information regarding the fourth quarter and full year 2005 results webcast is as follows:

Date: Time:	Thursday, February 23, 2006 5:00 p.m. EST / 2:00 p.m. PST
Audio Webcast:	5:00 p.m. EST / 2:00 p.m. PST; Webcast from http://www.loudeye.com/en/aboutus/earningscalls.asp

This webcast will be available until March 9, 2006 at 5:00 p.m. EST

About Loudeye Corp.
Loudeye is a worldwide leader in business-to-business digital media solutions. Loudeye combines innovative services with one of the world’s largest music archives, a broad catalog of licensed digital music and the industry’s leading digital media infrastructure, enabling partners to rapidly and cost effectively launch complete, customized digital media stores and services. For more information, visit www.loudeye.com.

Forward Looking Statements

This press release and management’s audio webcast contain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking financial guidance regarding Loudeye’s 2006 operating plan and statements about expected revenue, revenue mix and loss for the fourth quarter 2005, first quarter 2006 and the years 2005 and 2006, growth rates, cost reductions, technology platform migration, and other matters. In particular, the financial results announced today are unaudited and are subject to change. The words or phrases “believes,” “expects,” “will,” and “anticipates” and similar words and phrases are intended to identify such forward-looking statements. The forward-looking statements contained in this press release are based on current estimates and actual results may differ materially. Risks Loudeye faces include the potential effects of Loudeye’s restructuring on our business and operations including potential loss of customers; potential effect on our cash reserves of payments, if any, that we could owe to investors in our February 2006 financing transaction in the event we are delayed in registering the shares sold to the investors or if we effect a reverse stock split and our stock price declines below certain thresholds; loss contingencies such as an adverse outcome in litigation to which Loudeye is a party; inability to add new customers, and inability to continue to provide services to existing customers on discontinued technology platforms; customer concentration, especially in our European digital media store business and our digital media content encoding services; potential loss of key employees; competitive pressures in the market for mobile music services and customer concentration and technical risks associated with Loudeye’s mobile music service offerings; competition with other providers of business-to-business digital media store services and associated pricing pressures; the complexity of Loudeye’s services and delivery networks; pressure on our margins, in particular resulting from increasing wholesale content rates; adverse or uncertain legal developments with respect to copyrights surrounding the creation and distribution of digital content; and other risks set forth in Loudeye’s most recent Form 10-Q, 10-K and other SEC filings which are available through EDGAR at www.sec.gov. These are among the primary risks we foresee at the present time. Loudeye assumes no obligation to update the forward-looking statements.

As disclosed in our annual report on Form 10-K for the year ended December 31, 2004, we determined that, as of the December 31, 2004 measurement date, there were deficiencies in both the design and effectiveness of our internal control over financial reporting. We assessed those deficiencies and determined that there were eight material weaknesses in our internal control over financial reporting as of December 31, 2004. As a result, management concluded that our internal control over financial reporting was not effective as of December 31, 2004. We may not be successful in remediating each of these material weaknesses and we identify further material weaknesses during the course of our internal control assessment as of December 31, 2005. The existence of a material weakness or weaknesses is an indication that there is more than a remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period.

Use of Non-GAAP Financial Information

EBITDA loss from continuing operations as presented in this press release and management’s audio presentation is a non-GAAP financial measure that represents GAAP loss from continuing operations excluding the effects of interest income and expense and depreciation and amortization expense. EBITDA loss from continuing operations as presented below may differ from non-GAAP measures used by other companies and is not a measurement under GAAP. Management believes the EBITDA loss from continuing operations presentation enhances an overall understanding of Loudeye’s financial performance from continuing operations, and is used by management for that purpose. We believe EBITDA loss from continuing operations and per share EBITDA loss from continuing operations presented below provides useful information to investors about our financial performance because it eliminates the effects of period to period changes in depreciation and amortization, interest income, and interest expense on our debt and capital lease obligations, all of which we believe are not reflective of the underlying performance of our ongoing operations. The adjustments made in calculating EBITDA loss from continuing operations are adjustments that would be made in calculating our performance for purposes of employment agreements and associated bonus potentials for our senior executives. Measures similar to EBITDA loss from continuing operations are also widely used by us and others in the industry to evaluate and price potential acquisition candidates. We believe EBITDA loss from continuing operations facilitates operating performance comparisons by backing out potential differences across periods caused by variations in capital structures (affecting interest expense) and the age and book depreciation of equipment (affecting depreciation expense). In addition, we present EBITDA loss from continuing operations because we believe it is frequently used by analysts, investors and other interested parties in evaluating companies such as ours. Since Loudeye has historically reported non-GAAP results to the investment community, management believes the inclusion of non-GAAP financial measures provides consistency in its financial reporting.

There are limitations inherent in non-GAAP financial measures such as EBITDA loss from continuing operations in that they exclude a variety of charges and credits that are required to be included in a GAAP presentation, and do not therefore present the full measure of Loudeye’s recorded costs against its revenue. Management compensates for these limitations in non-GAAP measures by also evaluating our performance based on traditional GAAP financial measures. Accordingly, investors should consider these non-GAAP results together with GAAP results, rather than as an alternative to GAAP basis financial measures.

Contacts
Media/Public Relations: Karen DeMarco, mPRm for Loudeye, 323.933.3399,
kdemarco@mprm.com
Investor relations: Chris Pollak, 206.832.4000, ir@loudeye.com

LOUDEYE CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,		December 31,
	2005		2004
	(in thousands)
ASSETS
Current assets:
Cash and short-term marketable securities	$	9,045	$	37,994
Accounts receivable, net		5,132		4,847
Prepaids and other current assets		1,212		1,226
Restricted cash		1,810		-
Current assets of discontinued operations		5		1,444
Total current assets		17,204		45,511
Long-term marketable securities		—		2,288
Restricted cash		—		2,393
Property and equipment, net		4,686		4,129
Goodwill and intangible assets, net		47,329		43,611
Other assets, net		189		431
Assets of discontinued operations		—		5,345
Total assets	$	69,408	$	103,708
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,701	$	3,443
Accrued compensation and benefits		825		923
Accrued and other liabilities		6,531		4,769
Accrued special charges		—		403
Accrued acquisition consideration		—		15,924
Deposits and deferred revenue		6,061		4,343
Current portion of long-term debt and capital lease obligations		1,000		1,135
Current liabilities of discontinued operations		981		782
Total current liabilities		19,099		31,722
Deposits and deferred revenue, net of current portion		350		1,343
Common stock payable related to acquisition		321		3,193
Long-term debt and capital lease obligations, net of current portion		—		1,000
Total liabilities		19,770		37,258
STOCKHOLDERS’ EQUITY		49,638		66,450
Total liabilities and stockholders’ equity	$	69,408	$	103,708

LOUDEYE CORP. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended						Years Ended
	December 31,						December 31,
	2005			2004			2005			2004
				(in thousands, except per share data)
REVENUE	$	8,833		$	5,472		$	27,041		$	14,033
COST OF REVENUE		7,810			4,271			25,082			10,336
Gross profit		1,023			1,201			1,959			3,697
Gross profit percent		12	%		22	%		7	%		26	%
OPERATING EXPENSES:
Sales and marketing		1,502			1,431			6,412			4,200
Research and development		2,254			1,252			8,404			3,726
General and administrative		2,954			3,103			13,057			10,658
Amortization of intangibles		62			2			235			92
Stock-based compensation		69			13			250			199
Special charges (credits)		—			12			(43	)		312
Total operating expenses		6,841			5,813			28,315			19,187
LOSS FROM OPERATIONS		(5,818	)		(4,612	)		(26,356	)		(15,490	)
OTHER INCOME (EXPENSE), net		120			(955	)		778			(507	)
Loss from continuing operations		(5,698	)		(5,567	)		(25,578	)		(15,997	)
Loss from discontinued operations		(4,816	)		(71	)		(7,783	)		(400	)
NET LOSS	$	(10,514	)	$	(5,638	)	$	(33,361	)	$	(16,397	)
Loss per share — basic and diluted:
From continuing operations	$	(0.05	)	$	(0.07	)	$	(0.24	)	$	(0.22	)
From discontinued operations		(0.04	)		—			(0.07	)		—
LOSS PER SHARE — BASIC AND DILUTED	$	(0.09	)	$	(0.07	)	$	(0.31	)	$	(0.22	)
Weighted average shares outstanding		110,411			81,848			107,652			73,845
NON-GAAP INFORMATION:
Loss from continuing operations	$	(5,698	)	$	(5,567	)	$	(25,578	)	$	(15,997	)
Adjustments to reconcile GAAP net loss to EBITDA loss from continuing operations:
Depreciation and amortization expense		873			674			3,334			2,308
Interest (income) expense		(73	)		(27	)		(465	)		(176	)
EBITDA loss from continuing operations	$	(4,898	)	$	(4,920	)	$	(22,709	)	$	(13,865	)
Basic and diluted EBITDA loss per share from continuing operations	$	(0.04	)	$	(0.06	)	$	(0.21	)	$	(0.19	)
Weighted average shares outstanding		110,411			81,848			107,652			73,845