Continuing losses and a working capital deficiency prompted MediaBay's auditor to report in the company's year-end filing with the Securities and Exchange Commission that there is "substantial doubt" about the spoken-word audio book club's ability to continue as an ongoing concern. MediaBay had a net loss of $6.9 million in 2003 compared to a loss of $2.5 million in 2002. Sales in the year fell to $36.6 million from $45.7 million.
In its 10-k filing, the company acknowledged that during the year it "did not have sufficient cash to undertake marketing activities to the extent of historical levels." And while the decrease in marketing costs helped to improve MediaBay's cash flow, the company said that without new funding to increase its marketing initiatives in 2004, the company will not be able to sustain operations.
The cut in marketing in 2003 took the biggest toll on MediaBay's biggest segment, the audio book club. Marketing expenses, which includes promotions for new members, was reduced by 75% last year, resulting in a decline in new members from 290,000 in 2002 to 134,000 last year. The drop in membership was responsible for the decline in audiobook club sales to $26.4 million in 2003 from $34.3 million in the previous year. The company also said that during the fourth quarter, it decided to close the Audio Passages marketing program, a club aimed at the Christian market. Sales in the Radio Spirits division fell 9.8% last year, to $11.2 million, principally due to a reduction in catalogue mailings.
MediaBay is now on its third CEO in little over one year. Hakan Lindskog was CEO from January 1, 2003, to August 13 when he was replaced by Ron Celmer. Celmer resigned in January and was succeeded by Jeffrey Dittus. Celmer is receiving $56,250 in severance and Lindskog $145,833.
Commenting on MediaBay's situation, Dittus said the company is exploring various financial alternatives, but said it is not certain if any transaction will be completed.