-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SPKXFWTufeifCdbBJjgPBb+9ImZuboDus0gpT4GmhRfVA/k4v1pjVHUSoLEwa7oE TugOXz6dUygbWA88n6UTow== 0001005477-00-000384.txt : 20000203 0001005477-00-000384.hdr.sgml : 20000203 ACCESSION NUMBER: 0001005477-00-000384 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991116 ITEM INFORMATION: FILED AS OF DATE: 20000131 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CDBEAT COM INC CENTRAL INDEX KEY: 0001076682 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL- COMPUTER & PRERECORDED TAPE STORES [5735] IRS NUMBER: 061529524 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 333-70663 FILM NUMBER: 517658 BUSINESS ADDRESS: STREET 1: BEDFORD TOWERS STREET 2: 444 BEDFORD STREET SUITE 8 CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2036029994 MAIL ADDRESS: STREET 1: BEDFORD TOWERS STREET 2: 444 BEDFORD STREET SUITE 8 CITY: STAMFORD STATE: CT ZIP: 06901 FORMER COMPANY: FORMER CONFORMED NAME: SMD GROUP INC DATE OF NAME CHANGE: 19990113 8-K/A 1 AMENDMENT TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): November 16, 1999 CDBEAT.COM, INC. ---------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware ---------------------------------------------------------- (State or other jurisdiction of incorporation) 333-70663 06-1529524 (Commission File Number) (I.R.S. Employer Identification No.) 29 West 57th Street, 9th Floor, New York, New York 10019 -------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 583-0300 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. The Current Report on Form 8-K filed with the Securities and Exchange Commission on December 1, 1999 by CDBeat.com, Inc., is hereby amended to include the following financial statements and pro forma financial information, which were previously omitted from such Current Report on Form 8-K. (a) Financial Statements of Business Acquired. The following financial statements for Cakewalk LLC are submitted herewith: Page of Form 8-K/A-1 Independent Auditors Report 2 Consolidated Balance Sheets as of December 31, 1998 and 1997 3 Consolidated Statements of Operations for the years ended December 31, 1998 and 1997 4 Consolidated Statement of Changes in Members' Equity for the years ended December 31, 1998 and 1997 5 Consolidated Statements of Cash Flows for the years ended December 31, 1998 and 1997 6 Notes to Consolidated Financial Statements 7 Unaudited Consolidated Balance Sheet as of September 30, 1999 13 Unaudited Consolidated Statement of Operations for the nine months ended September 30, 1998 and 1997 14 Unaudited Consolidated Statement of Changes in Members' Equity for the nine months ended September 30, 1998 15 Unaudited Consolidated Statement of Changes in Members' Equity for the nine months ended September 30, 1999 16 Unaudited Consolidated Statement of Cash Flows for the nine months ended September 31, 1999 and 1998 17 Notes to Unaudited Consolidated Financial Statements 18 ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Cakewalk LLC: We have audited the accompanying consolidated balance sheets of Cakewalk LLC and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of operations, changes in members' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cakewalk LLC and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, New York November 16, 1999 2 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS 1998 1997 ----------- ----------- CURRENT ASSETS: Cash and cash equivalents $ 8,901 $ 74,410 Accounts receivable, net 1,466,735 11,136 Other receivables 7,580 17,490 Inventory 1,047,445 260,710 Royalty advances 111,543 138,229 Prepaid expenses and other current assets 7,262 27,044 ----------- ----------- Total current assets 2,649,466 529,019 ----------- ----------- PROPERTY AND EQUIPMENT: Furniture and fixtures, net 10,119 11,426 Equipment, net 34,663 30,686 ----------- ----------- Total property and equipment, net 44,782 42,112 ----------- ----------- OTHER ASSETS Product masters and copyrights, net of accumulated amortization of $1,496,956 in 1998 and $480,356 in 1997 (Note 5) 4,724,500 4,222,502 Loan acquisition costs and other intangible assets, net of accumulated amortization of $87,094 in 1998 and zero in 1997 319,508 39,000 ----------- ----------- Total other assets 5,044,008 4,261,502 ----------- ----------- Total assets $ 7,738,256 $ 4,832,633 =========== =========== LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES: Accounts payable and other current liabilities $ 1,368,955 $ 491,988 Copyrights and artists' royalties payable 490,048 133,474 Licensing advances - current 354,231 177,750 Revolving credit 677,000 -- Current portion of long-term debt -- 192,000 Shareholder loans -- 512,895 ----------- ----------- Total current liabilities 2,890,234 1,508,107 LONG-TERM DEBT - NONCURRENT 3,000,000 2,543,600 LICENSING ADVANCES-- NONCURRENT 375,297 270,453 SUBORDINATED DEBT: Notes payable to shareholders 517,418 -- Less- Unamortized discount based on imputed interest rate of 15% 59,560 -- ----------- ----------- Notes payable less unamortized discount 457,858 -- ----------- ----------- COMMITMENTS (Note 4) MEMBERS' EQUITY: Class A Units 2,609,678 2,602,000 Class B Units 2,208,853 -- Discount on subordinated debt 67,925 -- Accumulated deficit (3,871,589) (2,091,527) ----------- ----------- Total members' equity 1,014,867 510,473 ----------- ----------- Total liabilities and members' equity $ 7,738,256 $ 4,832,633 =========== =========== The accompanying notes are an integral part of these consolidated balance sheets. 3 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 1998 1997 ----------- ----------- NET SALES $ 4,183,676 $ 1,198,742 COST OF SALES 1,806,889 845,982 ----------- ----------- Gross profit 2,376,787 352,760 ----------- ----------- SELLING EXPENSES 889,330 -- GENERAL AND ADMINISTRATIVE EXPENSES 1,751,185 1,138,208 DEPRECIATION AND AMORTIZATION 1,103,372 450,687 ----------- ----------- 3,743,887 1,588,895 ----------- ----------- (Loss) Income from operations (1,367,100) 1,236,135 INTEREST EXPENSE, NET 412,962 254,637 ----------- ----------- Net loss $(1,780,062) $(1,490,772) =========== =========== The accompanying notes are an integral part of these consolidated statements. 4 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Members' Discount on Total Contributed Class A Class B Subordinated Accmulated Members' Capital Units Units Debt Debt Deficit ----------- ----------- ---------- ------- ----------- ----------- BALANCE, December 31, 1996 $ 1,851,000 $ -- $ -- $ -- $ (600,755) $ 1,250,245 Capital contributions 751,000 -- -- -- -- 751,000 Net loss -- -- -- -- (1,490,772) (1,490,772) ----------- ----------- ---------- ------- ----------- ----------- BALANCE, December 31, 1997 2,602,000 -- -- -- (2,091,527) 510,473 Conversion of shareholders' loan to capital contribution 52,898 -- -- -- -- 52,898 Conversion of members' contributed capital to Class A Units (2,654,898) 2,654,898 -- -- -- -- Issuance of Class A Units in acquisition of affiliate entities -- 325,000 -- -- -- 325,000 Issuance of Class A Units in repayment of loan due to shareholder -- 100,000 -- -- -- 100,000 Issuance of Class B Units, net of issuance costs - -- -- 2,208,853 -- -- 2,208,853 Redemption of Class A Units -- (470,220) -- -- -- (470,220) Discount on subordinated debt based on imputed interest rate of 15% -- -- -- 67,925 -- 67,925 Net loss -- -- -- -- (1,780,062) (1,780,062) ----------- ----------- ---------- ------- ----------- ----------- BALANCE, December 31, 1998 $ -- $ 2,609,678 $2,208,853 $67,925 $(3,871,589) $ 1,014,867 =========== =========== ========== ======= =========== ===========
The accompanying notes are an integral part of these consolidated statements. 5 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,780,062) $(1,490,772) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization 1,103,372 450,687 Non-cash interest expense and other financing costs 86,860 -- Increase in reserve for returns 60,549 30,000 (Increase) decrease in receivables (1,506,238) (58,625) Decrease (increase) in other assets 19,783 (12,719) (Increase) in inventory (786,735) (260,710) Decrease in royalty advances 26,686 61,961 Increase in other noncurrent assets (29,082) -- Increase in payables and other current liabilities 1,252,018 540,464 Increase in advances received 281,327 353,202 ----------- ----------- Net cash used in operating activities (1,271,522) (386,512) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture and equipment (21,794) (38,752) Acquisition of music rights in business combination (1,518,598) (1,135,358) Acquisition of intangibles -- (39,000) Net cash used in investing activities (1,540,392) (1,213,110) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 3,000,000 735,600 Proceeds from loan from shareholder -- 115,022 Proceeds from shareholders' contribution -- 751,000 Payment of long-term borrowings (2,735,600) -- Proceeds from revolving line of credit 677,000 -- Proceeds from subordinated debt 498,850 -- Increase in loan acquisition costs (332,478) -- Proceeds from issuance of Class B Units 2,500,000 -- Costs associated with issuance of Class B Units (291,147) -- Repayment of loan due to shareholder (100,000) -- Redemption of Class A Units (470,220) -- ----------- ----------- Net cash provided by financing activities 2,746,405 1,601,622 ----------- ----------- Net (decrease) increase in cash (65,509) 2,000 CASH, beginning of year 74,410 72,410 ----------- ----------- CASH, end of year $ 8,901 $ 74,410 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for lnterest $ 311,708 $ 207,804 Taxes 13,335 10,427 NONCASH INVESTING AND FINANCING ACTIVITIES: Increase of shares in repayment of loan due to shareholder $ 100,000 -- Increase of shares for business acquired 325,000 --
The accompanying notes are an integral part of these consolidated statements. 6 CAKEWALK LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Cakewalk LLC ("Cakewalk," or the "Company") is an independent record company specializing in the catalogue or reissue segment of the recorded music industry. Cakewalk seeks to acquire classic, timeless recordings by established, world-class artists who have been underperforming or underutilized with the intention of recompiling, repackaging, remarketing and ultimately selling music compact discs. Property, Equipment and Depreciation Propertv and equipment are carried at cost, less accumulated depreciation. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets, which approximates 5 to 7 years. Royalty Advances In accordance with Statement of Financial Accounting Standards ("SFAS") No. 50, "Financial Reporting in the Record and Music Industry," advances to artists and producers are capitalized as an asset when the current popularity and past performance of the artist or producer provides a sound basis for estimating the probable future recoupment of such advances from earnings otherwise payable to the artist or producer. Product Masters Product masters, which primarily include the Company's catalogue of sound recordings and copyrights, are amortized over their future estimated useful lives, using a method that reasonably relates to the amount of net revenue expected to be realized. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and accounts are eliminated in consolidation. 7 Licensing Advances Licensing advances represent the balance of advances received less revenues earned in connection with licensing agreements. Inventory Inventory consists of compact discs, packaging and inserts and is valued at the lower of cost or market, determined on a first-in, first-out basis, or net realizable value. The cost of finished goods includes all direct product costs. Income Taxes The Company is a limited liability company taxed as a partnership for federal and state income tax purposes and, as a result, its earnings are taxable directly to the members. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets The Company's policy is to record long-lived assets at cost, amortizing these costs over the expected useful lives of the related assets. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," these assets are reviewed on a periodic basis for impairment whenever events or changes in circumstances indicate the carrying amounts of the assets may not be realizable. Furthermore, the assets are evaluated for continuing value and proper useful lives by comparison to expected future cash flows. For the years ended December 31, 1998 and 1997, there was no material impairment of the long-lived assets of the Company. Revenue Recognition Income from the sale of compact discs is recognized upon shipment to the customer. However, in accordance with industry practice, substantially all sales are made with return privileges. The Company provides for estimated future returns by establishing a provision for sales returns. License income is recognized proportionately over the term of the license agreement or on the basis of actual sales of the license, whichever results in the higher amount. 8 2. PROPERTY AND EQUIPMENT Property and equipment as of December 31. 1998 and 1997, comprise of the following: 1998 1997 -------- -------- Office furniture and fixtures $ 13,486 $ 12,430 Equipment 62,792 42,054 -------- -------- 76,278 54,484 Less- Accumulated depreciation (31,496) (12,372) -------- -------- $ 44,782 $ 42,112 ======== ======== For the years ended December 31, 1998 and 1997, depreciation expense amounted to $19,124 and $12,039, respectively. 3. LONG-TERM DEBT At December 31, 1998, long-term debt consists of the following: Term loan (a) $ 3,000,000 Subordinated debt (b) 517,418 ----------- Total long-term and subordinated debt $ 3,517,418 =========== (a) In February 1998, the Company refinanced its existing credit agreement and entered into another credit agreement for a $3,000,000 term loan facility (the "Term Loan") and a $700,000 revolving credit facility (the "Revolver," and collectively, the "Credit Agreement"). The Credit Agreement also included a $250,000 sub-allotment for letters of credit. The Term Loan and the Revolver bore an interest rate equal to the Euro Basic Rate plus 3.25%. Each of the facilities provided under the Credit Agreement matured on December 31, 2000 and required the Company to comply with specified covenants and certain financial ratios. At December 31, 1998, the Company was not in compliance with the required Earnings Before Interest, Taxes, Depreciation and Amortization covenant. In July 1999, through its newly created wholly owned subsidiary Cakewalk BRE LLC, the Company refinanced the Credit Agreement and entered into a new credit agreement for $5.5 million (the "$5.5 Million Credit Agreement"). The $5.5 Million Credit Agreement bears interest at 10.09% and matures June 2009. The $5.5 Million Credit Agreement requires the Company to maintain certain financial ratios. For the period July 15, 1999 through June 15, 2000, the Company is required to make monthly payments of interest only; commencing July 15, 2000, the Company will make 107 equal monthly installment payments of principal and interest in the amount of $77,701. In conjunction with the $5.5 Million Credit Agreement, the Company issued warrants to the lender to purchase up to 15% of the equity of the Company calculated on a fully diluted basis. See Subsequent Event note 9. 9 In accordance with SFAS No. 6, "Consolidated Classification of Short-Term Obligations Expected to Be Refinanced," as a result of the refinancing discussed above, $1.4 million due in 1999 under the Credit Agreement has been classified as Long-Term Debt - Noncurrent in the accompanying Balance Sheets. (b) In August 1998. the Company issued promissory notes totaling $498,850 to its existing shareholders (collectively the "Promissory Notes"). The Promissory Notes, which are subordinated to the credit facilities described above, have a stated interest rate of 10% and mature in August 2001. The Company also issued 1,995,400 warrants to its existing shareholders on a pro rata basis based upon each individual shareholder's then current percentage ownership of the Company. Immediately subsequent to the issuance of the warrants, each individual shareholder's percentage ownership of the Company remained unchanged. As a result, no value has been assigned to the warrants in the accompanying financial statements. Consequently, the Company recorded a discount on the Promissory Note of approximately $68,000, based upon a fair value interest rate of 15%. In accordance with the terms of the Promissory Notes, interest expense due to the holders of the notes that has not been paid increases the principal amount of the Promissory Notes. At December 31, 1998, approximately $18,600 of accrued interest expense was added to the face of the Promissory Notes in the accompanying Consolidated Balance Sheets. In June 1999, the Company repaid $271,354, in principal and interest to the Promissory Note holders. Interest expense for the years ended December 31, 1998 and 1997 was $413,407 and $254,637, respectively. At December 31, 1998, future principal payments of long-term debt were approximately as follows: 1999 $ -- 2000 3,000,000 2001 498,850 ---------- $3,498,850 ========== 4. COMMITMENTS The Company leases its office space at an annual rental of $51,012. The lease expires April 30, 2001. Minimum rental commitments on the Company's noncancelable operating lease at December 31, 1998, are as follows: 1999 $ 42,282 2000 42,282 2001 98,658 -------- $183,222 ======== 10 5. PRODUCT MASTERS AND COPYRIGHTS Other assets consist of the following at December 31, 1998 and 1997 (000's omitted): 1998 1997 ------- ------- Muse-Landmark $ 3,573 $ 3,573 Tom Jones 920 920 Judy Garland 1,654 210 Night Eagle 75 -- ------- ------- 6,222 4,703 Less-Accumulated amortization (1,497) (480) ------- ------- $ 4,725 $ 4,223 ======= ======= 6. CHANGE IN DISTRIBUTOR On December 31, 1997, the Company discontinued its domestic distribution agreement with MS Distributing and entered into a new two-year domestic distribution agreement with Ryko Distribution Partners on January 1, 1998. Under the new agreement, Ryko Distribution Partners charge selling expenses and distribution fees separately. 7. ACQUISITIONS In February 1998, the Company issued Class A Units valued at $325,000 to acquire 100% of the outstanding shares of Cakewalk Productions and Productions II (collectively the "Affiliates"). Prior to the Company's acquisition of the Affiliates, the Affiliates were 100% owned by a shareholder of the Company. Where applicable, the net assets of the Affiliates were recorded at their respective fair market values. 8. CONVERSION OF MEMBERSHIP INTERESTS Effective February 13, 1998 (the "Effective Date"), the Company amended and restated its operating agreement. In conjunction therewith, the membership interests of the Company's owners were converted into Class A Units and Class B Units. Class A Units represent all membership interests outstanding immediately prior to the Effective Date; Class B Units represent the aggregate 1,111,111 shares issued at $2.25 per share. 9. SUBSEQUENT EVENT On November 16, 1999, the Company contributed substantially all assets and liabilities of the Company to 32 Records LLC, a newly formed, wholly-owned subsidiary of CD Beat.com Inc. ("CDBeat"), in exchange for approximately 46% of the issued and outstanding shares of common stock of CDBeat, a development stage company that intends to provide branded, interactive information and programming as well as merchandise to music enthusiasts over the Internet. The Company received, and subsequently distributed to its members, an aggregate of 8,307,785 shares of common stock of CDBeat. In conjunction with this business combination, the warrants issued 11 with the $5.5 Million Credit Agreement were revised such that they are exercisable for an aggregate of 1,466,080 shares of common stock of CDBeat. 12 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1999 (unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 781,944 Accounts receivable, net 1,794,217 Other receivables 56,541 Inventory 1,469,511 Royalty advances 73,567 Prepaid expenses and other current assets -- ----------- Total current assets 4,175,780 ----------- PROPERTY AND EQUIPMENT: Furniture and fixtures, net 7,858 Equipment, net 21,116 ----------- Total property and equipment, net 28,974 ----------- OTHER ASSETS (Note 5): Product masters and copyrights, net of accumulated amortization of $2,510,306 in 1999 3,711,150 Loan acquisition costs and other intangible assets, net of accumulated amortization of 291,310 in 1999 679,971 ----------- Total other assets 4,391,121 ----------- Total assets 8,595,875 =========== LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 786,504 Copyrights and artists' royalties payable 939,547 Licensing advances - current 379,007 Other current liabilities 50,464 Notes payable 175,554 ----------- Total current liabilities 2,331,076 LONG-TERM DEBT - NONCURRENT 3,694,814 SUBORDINATED DEBT: Notes payable to shareholders 278,196 Less- unamortized discount 21,290 ----------- Note payable less unamortized discount 256,906 ----------- Total noncurrent liabilities 3,951,720 ----------- Total liabilities 6,282,796 ----------- COMMITMENTS (Note 4) MEMBER'S EQUITY: Class A Units 2,609,678 Class B Units 2,208,853 Warrants 1,851,473 Discount on subordinated debt 67,925 Accumulated deficit (4,424,850) ----------- Total members' equity 2,313,079 ----------- Total liabilities and members' equity $ 8,595,875 =========== The accompanying notes are an integral part of this consolidated balance sheet. 13 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited) 1999 1998 ----------- ----------- NET SALES $ 5,075,044 $ 2,491,683 COST OF SALES 2,157,808 1,132,912 ----------- ----------- Gross profit 2,917,236 1,358,771 ----------- ----------- SELLING EXPENSES 1,035,373 521,274 GENERAL AND ADMINISTRATIVE EXPENSES 1,362,766 1,221,556 DEPRECIATION AND AMORTIZATION 1,094,607 867,861 ----------- ----------- 3,492,746 2,610,691 ----------- ----------- Loss from operations (575,510) (1,251,920) INTEREST EXPENSE, net 637,917 281,357 ----------- ----------- NET (LOSS) BEFORE EXTRAORIDNARY ITEMS (1,213,427) (1,533,277) EXTRAORDINARY ITEM ON LOAN EXTINGUISHMENT 660,166 -- ----------- ----------- NET (LOSS) $ (553,261) $(1,533,277) =========== =========== The accompanying notes are an integral part of these consolidated statements. 14 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (unaudited)
Members' Discounted on Total Contributed Class A Class B Subordinated Accumulated Members' Capital Units Units Debt Deficit Equity ----------- ----------- ---------- ---------- ----------- ----------- BALANCE, December 31, 1997 $ 2,602,000 $ -- $ -- $ -- $(2,091,527) $ 510,473 Conversion of shareholders' loan to capital contribution 52,898 -- -- -- 52,898 Conversion of members' contributed capital to Class A Units (2,654,898) 2,654,898 -- -- -- Issuance of Class A Units in acquisition of affiliate entities -- 325,000 -- -- 325,000 Issuance of Class A Units in repayment of loan due to shareholder -- 100,000 -- -- -- 100,000 Issuance of Class B Units, net of issuance costs -- -- 2,208,853 -- -- 2,208,853 Redemption of Class A Units -- (470,220) -- -- (470,220) Discount on subordinated date based on imputed interest rate of 15% -- -- -- 67,925 -- 67,925 Net loss -- -- -- -- (1,533,277) (1,533,277) ----------- ----------- ---------- ---------- ----------- ----------- BALANCE, September 30, 1998 $ -- $ 2,609,678 $2,208,853 $ 67,925 $(3,624,804) $ 1,261,652 =========== =========== ========== =========== =========== ===========
The accompanying notes are an integral part of this consolidated statement. 15 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (unaudited)
Discounted Total Class A Class B Subordinated Accumulated Members' Units Units Warrants Debt Deficit Equity ---------- ---------- ---------- ----------- ----------- ----------- BALANCE, December 31, 1998 $2,609,678 $2,208,853 $ -- $ 67,925 $(3,871,589) $ 1,014,867 Issuance of warrants in conjunction with long-term debt, at fair value -- -- 1,851,473 -- -- 1,851,473 Net loss -- -- -- -- (553,261) (553,261) ---------- ---------- ---------- ----------- ----------- ----------- BALANCE, September 30, 1999 $2,609,678 $2,208,853 $1,851,473 $ 67,925 $(4,424,850) $ 2,313,079 ========== ========== ========== =========== =========== ===========
The accompanying notes are an integral part of this consolidated statement. 16 CAKEWALK LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (unaudited)
1999 1998 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (553,261) $(1,533,276) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization 1,094,607 867,861 Non-cash interest expense and other financing costs 256,545 55,686 Increase in reserve for returns 57,020 19,583 Increase in receivables (383,463) (823,819) Decrease in other assets 7,262 27,045 Increase in inventory (422,066) (827,557) Decrease in royalty advances (9,162) (18,505) Increase in payables and other current liabilities 93,066 947,906 (Decrease) increase in advances received (350,522) 48,566 ----------- ----------- Net cash used in operating activities (209,974) (1,236,510) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of furniture and equipment (853) (17,458) Acquisition of music rights in business combination -- (1,412,098) ----------- ----------- Net cash used in investing activities (853) (1,429,556) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in partners' contributions -- 477,898 Proceeds from long-term borrowings 2,500,000 264,400 (Payment of) proceeds from revolving line of credit (677,000) 472,971 (Payment of) proceeds from subordinated debt (239,222) 504,670 Increase in loan acquisition costs (588,178) (354,018) Increase in preferred members interest -- 2,500,000 Increase in cost of members capital -- (291,147) Repayment of loan due to shareholder -- (512,898) Payment for treasury shares -- (470,220) Payment for notes receivable (50,000) -- Increase in discount on subordinated debt 38,270 -- ----------- ----------- Net cash provided by financing activities 983,870 2,591,656 ----------- ----------- Net increase (decrease) in cash 773,043 (74,410) CASH, beginning of period 8,901 74,410 ----------- ----------- CASH, end of period $ 781,944 $ -- =========== ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period- Interest $ 329,398 $ 182,590 Taxes $ 4,774 $ 3,150 NONCASH INVESTING AND FINANCING ACTIVITIES: Increase of shares in repayment of loan due to shareholder $ -- $ 100,000 Increase of shares for business acquired $ -- $ 325,000 Issuance of warrants in conjunction with long-term $ 1,851,473 $ -- debt, at fair value
The accompanying notes are an integral part of these consolidated statements. 17 CAKEWALK LLC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Cakewalk LLC ("Cakewalk," or the "Company") is an independent record company specializing in the catalogue or reissue segment of the recorded music industry. Cakewalk seeks to acquire classic, timeless recordings by established, world-class artists who have been underperforming or underutilized with the intention of recompiling, repackaging, remarketing and ultimately selling music compact discs. Property, Equipment and Depreciation Property and equipment are carried at cost, less accumulated depreciation. Depreciation is recognized using the straight-line method over the estimated useful lives of the assets, which approximates 5 to 7 years. Royalty Advances In accordance with Statement of Financial Accounting Standards ("SFAS") No. 50, "Financial Reporting in the Record and Music Industry," advances to artists and producers are capitalized as an asset when the current popularity and past performance of the artist or producer provides a sound basis for estimating the probable future recoupment of such advances from earnings otherwise payable to the artist or producer. Product Masters Product masters, which primarily include the Company's catalogue of sound recordings and copyrights, are amortized over their future estimated useful lives, using a method that reasonably relates to the amount of net revenue expected to be realized. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany transactions and accounts are eliminated in consolidation. 18 Licensing Advances Licensing advances represent the balance of advances received less revenues earned in connection with licensing agreements. Inventory Inventory consists of compact discs, packaging and inserts and is valued at the lower of cost or market, determined on a first-in, first-out basis, or net realizable value. The cost of finished goods includes all direct product costs. Income Taxes The Company is a limited liability company taxed as a partnership for federal and state income tax purposes and, as a result, its earnings are taxable directly to the members. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Long-Lived Assets The Company's policy is to record long-lived assets at cost, amortizing these costs over the expected useful lives of the related assets. In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of," these assets are reviewed on a periodic basis for impairment whenever events or changes in circumstances indicate the carrying amounts of the assets may not be realizable. Furthermore, the assets are evaluated for continuing value and proper useful lives by comparison to expected future cash flows. For the nine months ended September 30, 1999 and 1998, there was no material impairment of the long-lived assets of the Company. Revenue Recognition Income from the sale of compact discs is recognized upon shipment to the customer. However, in accordance with industry practice, substantially all sales are made with return privileges. The Company provides for estimated future returns by establishing a provision for sales returns. License income is recognized proportionately over the term of the license agreement or on the basis of actual sales of the license, whichever results in the higher amount. 19 2. PROPERTY AND EQUIPMENT Property and equipment as of September 30, 1999 comprise the following: 1999 -------- Office furniture and fixtures $ 13,486 Equipment 63,644 -------- 77,130 Less- Accumulated depreciation (48,156) -------- $ 28,974 ======== For the years ended September 31, 1999 and 1998, depreciation expense amounted to $16,661 and $13,211, respectively. 3. LONG-TERM DEBT At September 30, 1999, long-term debt consists of the following: Term loan (a) $3,694,814 Subordinated debt (b) 256,906 ---------- Total long-term and subordinated debt $3,951,720 ========== (a) In July 1999, through its newly created wholly owned subsidiary Cakewalk BRE LLC, the Company refinanced their existing credit agreement and entered into a new credit agreement for $5.5 million (the "$5.5 Million Credit Agreement"). The $5.5 Million Credit Agreement bears interest at 10.09% and matures July 2009. The $5.5 Million Credit Agreement requires the Company to maintain certain financial ratios. For the period July 15, 1999 through June 15, 2000, the Company is required to make monthly payments of interest only; commencing July 15, 2000, the Company will make 107 equal monthly installment payments of principal and interest in the amount of $77,701. In conjunction with the $5.5 Million Credit Agreement, the Company issued warrants to the lender to purchase up to 15% of the equity of the Company calculated on a fully diluted basis. In conjunction with the business combination on November 16, 1999 (see Subsequent Event Note 8), these warrants were revised such that they are exercisable for an aggregate of 1,466,080 shares of common stock of CDBeat. This fair value of these warrants calculated using the Black Scholes pricing model, is $1,851,473 and has been recognized as debt issuance costs. (b) In August 1998, the Company issued promissory notes totaling $498,850 to its existing shareholders (collectively the "Promissory Notes"). The Promissory Notes, which are subordinated to the credit facilities described above, have a stated interest rate of 10% and mature in August 2001. The Company also issued 1,995,400 warrants to its existing shareholders on a pro rata basis based upon each individual shareholder's then current percentage ownership of the Company. Immediately subsequent to the issuance of the warrants, each individual shareholder's percentage ownership of the Company 20 remained unchanged. As a result, no value has been assigned to the warrants in the accompanying financial statements. Consequently, the Company recorded a discount on the Promissory Note of approximately $68,000, based upon a fair value interest rate of 15%. In accordance with the terms of the Promissory Notes, interest expense due to the holders of the notes that has not been paid increases the principal amount of the Promissory Notes. At September 30, 1999, approximately $29,000 of accrued interest expense was added to the face of the Promissory Notes in the accompanying Consolidated Balance Sheet. In June 1999, the Company repaid $271,354, in principal and interest to the Promissory Note holders. Interest expense for the nine months ended September 30, 1999 and 1998 was $637,917 and $281,357, respectively. 4. OTHER ASSETS Other assets consist of the following at September 30, 1999 (000's omitted): 1999 ------ Product Masters: Muse-Landmark $3,573 Tom Jones 920 Judy Garland 1,653 Night Eagle 75 ------ 6,221 Less- Accumulated amortization 2,510 ------ $3,711 ====== 5. CHANGE IN DISTRIBUTOR During September 1997, the Company discontinued its domestic distribution agreement with MS Distributing and entered into a new two-year domestic distribution agreement with Ryko Distribution Partners on January 1, 1998. Under the new agreement, the Company has been charged selling expenses. 21 6. ACQUISITIONS In February 1998, the Company issued Class A Units valued at $325,000 to acquire 100% of the outstanding shares of Cakewalk Productions and Productions II (collectively the "Affiliates"). Prior to the Company's acquisition of the Affiliates, the Affiliates were 100% owned by a shareholder of the Company. Where applicable, the net assets of the Affiliates were recorded at their respective fair market values. 7. CONVERSION OF MEMBERSHIP INTERESTS Effective February 13, 1998 (the "Effective Date"), the Company amended and restated its operating agreement. In conjunction therewith, the membership interests of the Company's owners were converted into Class A Units and Class B Units. Class A Units represent all membership interests outstanding immediately prior to the Effective Date; Class B Units represent the aggregate 1,111,111 shares issued at $2.25 per share. 8. SUBSEQUENT EVENT On November 16, 1999, the Company contributed substantially all assets and liabilities of the Company to 32 Records LLC, a newly formed, wholly-owned subsidiary of CD Beat.com Inc. ("CDBeat"), in exchange for approximately 46% of the issued and outstanding shares of common stock of CDBeat, a development stage company that intends to provide branded, interactive information and programming as well as merchandise to music enthusiasts over the Internet. The Company received, and subsequently distributed to its members, an aggregate of 8,307,785 shares of common stock of CDBeat. In conjunction with this business combination, the warrants issued with the $5.5 Million Credit Agreement were revised such that they are exercisable for an aggregate of 1,466,080 shares of common stock of CDBeat. 22 (b) Pro Forma Financial Information. The following unaudited pro forma financial information gives effect to the Company's business combination with Cakewalk LLC, which was completed on November 16, 1999. The unaudited pro forma balance sheet gives effect to the combination of the Company and Cakewalk LLC as if such transaction had been completed on September 30, 1999. Such unaudited pro forma balance sheet is derived from the Company's unaudited balance sheet as of September 30, 1999 included in its Quarterly Report on Form 10-QSB for the nine months ended September 30, 1999 which is incorporated herein by reference and Cakewalk's unaudited balance sheet as of September 30, 1999. The pro forma income statements present unaudited pro forma results of operations for the year ended December 31, 1998 and for the nine months ended September 30, 1999. For purposes of the unaudited pro forma income statements, the combination of the Company and Cakewalk LLC are included as if such transaction had been completed on the first day of the periods presented. The historical income statements for the year ended December 31, 1998 have been derived from the audited financial statements of the Company included in its Registration Statement on Form SB-2, Registration Number 333-70663 which is oncorporated herein by reference, and Cakewalk's audited income statement for the year ended December 31, 1998, and the historical income statements for the nine months ended September 30, 1999 have been derived from the unaudited financial statements of the Company included in its Quarterly Report on Form 10-QSB for the nine months ended September 30, 1999 which is incorporated herein by reference and the unaudited income statement of Cakewalk LLC for the nine months ended September 30, 1999. These unaudited pro forma financial statements may not be indicative of the results that actually would have occurred if the transaction referred to above had been in effect on the dates indicated or the results that may be obtained in the future. Page of Form 8-K/A-1 Unaudited Pro Forma Balance Sheet as of September 30, 1999 24 Unaudited Pro Forma Income Statement for the nine months ended September 30, 1999 25 Unaudited Pro Forma Income Statement for the year ended December 31, 1998 26 Notes to Unaudited Pro Forma Financial Statements 27 23 CDBEAT.COM, INC. AND CAKEWALK LLC PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 1999
PRO FORMA PRO FORMA Cakewalk LLC CDbeat.com, Inc. COMBINED ADJUSTMENTS CONSOLIDATED ASSETS Current Assets $ 4,175,780 $ 23,834 $ 4,199,614 $ 1,000,000 (7) (50,000) (6) $ 5,149,614 Property and equipment, net 28,974 12,102 41,076 41,076 Other Assets 4,391,121 4,391,121 3,909,546 (3) 8,300,667 --------------------------------------------------------------- ------------ TOTAL ASSETS $ 8,595,875 $ 35, 936 $ 8,631,811 $ 4,859,546 $ 13,491,357 =============================================================== ============ LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Current Liabilities $ 2,331,076 $ 239,284 $ 2,570,360 $ (50, 000) (6) $ 2,520,360 Noncurrent Liabilities 3,951,720 3,951,720 3,951,720 --------------------------------------------------------------- ------------ TOTAL LIABILITIES 6,282,796 239,284 6,522,080 (50, 000) 6,472,080 --------------------------------------------------------------- ------------ SHAREHOLDERS' EQUITY CAKEWALK LLC- Capital Capital 4,886,457 4,886,457 (4,886,457) (4) Paid--in capital 1,851,473 1,851,473 (1,851,473) (8) Accumulated deficit (4,424,851) (4,424,851) 4,424,851 (9) -- ----------- ------------------------ 2,313,079 2,313,079 (2,313,079) ----------- ------------------------ Cdbeat Shareholders' Equity Convertible Preferred Stock, $.001 par value, 10,000,000 shares authorized Class C preferred stock, 50,000 shares issued and outstanding 50 50 (50) (1) -- ------------------------------------------------- Common stock, $.001 par value 4,496 4,496 500 (1) 20,000,000 shares authorized, 18,081,650 (3, 049) (2) issued and outstanding 8,316 (3) 7,819 (7) ------------------------------------------------- 4,496 4,496 13,586 18,082 ------------------------------------------------- Paid-in capital 1,094,857 1,094,857 (450) (1) (1,302,751) (5) 992, 181 (7) 4,886,457 (4) 3,049 (2) 3,901,230 (3) 1,851,473 (8) ------------------------------------------------- 1,094,857 1,094,857 10,331,189 11,426,046 ------------------------------------------------- Accumulated deficit (1,302,751) (1,302,751) 1,302,751 (5) (4, 424, 851) (9) ------------------------------------------------- (1,302,751) (1,302,751) (3,122, 100) (4,424,851) ------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 2,313,079 (203, 348) 2,109,731 4,909,546 7,019,277 --------------------------------------------------------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,595,875 $ 35,936 $ 8,631,811 $ 4,859,546 $ 13,491,357 =============================================================== ============
24 CDBEAT.COM, INC. AND CAKEWALK LLC PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED) FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1999
PRO FORMA PRO FORMA Cakewalk LLC Cdbeat.com, Inc. COMBINED ADJUSTMENTS CONSOLIDATED Net Sales $ 5,075,044 $ 5,075,044 $ 5,075,044 Cost of Sales 2,157,808 2,157,808 2,157,808 ----------- ------------ ------------ Gross Profit 2,917,236 2,917,236 2,917,236 ----------- ------------ ------------ EXPENSES Selling 1,035,373 1,035,373 1,035,373 General and administrative 1,362,766 $ 1,179,227 2,541,993 $ 586,430 (11) 826,107 (12) 3,954,530 Depreciation and amortization 1,094,607 1,515 1,096,122 586,432 (10) 1,682,554 ------------------------------------------------------------- ------------ Total expenses 3,492,746 1,180,742 4,673,488 1,998,969 6,672,457 ------------------------------------------------------------- ------------ Loss from operations (575, 510) (1,180,742) (1,756,252) (1,998,969) (3,755,221) Interest expense (income), net 637,917 (2,065) 635,852 635,852 ------------------------------------------------------------- ------------ Loss before extraordinary item (1,213,427) (1,178,677) (2,392,104) (1,998,969) (4,391,073) Extraordinary Item - Gain on Loan 660,166 Extinguishment 660,166 660,166 ------------------------------------------------------------- ------------ Net loss $ (553,261) $ (1,178,677) $ (1,731,938) $ (1,998,969) $ (3,730,907) ============================================================= ============ Loss per share: Pro forma basic and diluted loss per share - before extraordinary item $ (0.24) Pro forma basic and diluted loss per share - extraordinary item 0.03 ------------ Pro forma basic and diluted loss per share $ (0.21) ============ Shares used in computing pro forma basic and diluted loss per share-before extraordinary item, extraordinary item, and basic and diluted loss per share 18,081,650 ============
25 CDBEAT.COM, INC. AND CAKEWALK LLC PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED) FOR THE YEAR ENDING DECEMBER 31, 1998
PRO FORMA PRO FORMA Cakewalk LLC Cdbeat.com, Inc. COMBINED ADJUSTMENTS CONSOLIDATED Net Sales $ 4,183,676 $ 4,183,676 $ 4,183,676 Cost of Sales 1,806,889 1,806,889 1,806,889 ------------ ----------- ------------ Gross Profit 2,376,787 2,376,787 2,376,787 ------------ ----------- ------------ EXPENSES Selling 889,330 889,330 889,330 General and administrative 1,751,185 $ 124, 813 1,875,998 $ 586,430 (14) 785,022 (15) 3,247,450 Depreciation and amortization 1,103,372 -- 1,103,372 521,273 (13) 1,624,645 -------------------------------------------------------------------------- ------------ Total expenses 3,743,887 124,813 3,868,700 1,892,725 5,761,425 -------------------------------------------------------------------------- ------------ Loss from operations (1,367,100) (124,813) (1,491,913) (1,892,725) (3,384,638) Interest expense(income), net 412,962 (739) 412,223 412,223 -------------------------------------------------------------------------- ------------ Net Loss $ (1,780,062) $ (124,074) $(1,904,136) $ 1,892,725 $ (3,796,861) ========================================================================== ============ Pro forma basic and diluted loss per share $ (0.21) ============ Shares used in computing pro forma basic and diluted loss per share 18,081,650 ============
26 CDBEAT.COM, INC. AND CAKEWALK LLC Notes to Pro Forma Financial Statements (Unaudited) (1) Basis of Presentation The pro forma balance sheet combines the balance sheet of Cdbeat.com, Inc. (the "Company") and Cakewalk LLC ("Cakewalk") as of September 30, 1999, assuming the business combination had been completed as of the balance sheet date. The pro forma income statement as of December 31, 1998, combines the income statement of the Company for the period from inception (May 8, 1998) until December 31, 1998 with the income statement of Cakewalk for the year ended December 31, 1998. The pro forma income statement as of September 30, 1999 combines the income statements of the Company and Cakewalk for the nine months ended September 30, 1999. Both pro forma income statements reflect the business combination as if it had occurred on the first day of the periods presented. The historical balance sheets used in the presentation of the pro forma financial statements have been derived from the Company's and Cakewalk's unaudited financial statements as of September 30, 1999. The historical income statements for the year ended December 31, 1998, have been derived from the companies' audited financial statements, and the historical income statements for the nine months ended September 30, 1999, have been derived from the unaudited financial statements of the companies. (2) Unaudited Pro Forma Adjustments A description of the adjustments included in the unaudited pro forma financial statements are as follows: (1) Reflects the conversion of 50,000 shares of the Company's Class C Preferred Stock to 500,000 shares of the Company's Common Stock. (2) Reflects the surrender of 3,049,424 shares of Common Stock held by management of the Company. (3) Reflects the estimated fair market value of software acquired in conjunction with the business combination of the Company and Cakewalk. (4) Reflects the elimination of Cakewalk's capital account. (5) Reflects the elimination of the Company's accumulated deficit. (6) Reflects the elimination of the $50,000 loan made by Cakewalk to the Company. (7) Reflects the aggregate $1 million investment by Atlantis Equities, Inc. and Dylan LLC in exchange for an aggregate of 7,819,092 shares of Common Stock of the Company. 27 (8) Reflects the reclassification of Cakewalk's paid-in capital to paid-in capital of the Company. (9) Reflects the reclassification of Cakewalk's accumulated deficit to accumulated deficit of the Company. (10) Reflects the amortization expense (calculated using a 5-year estimated useful life) of software acquired in conjunction with the business combination of the Company and Cakewalk. (11) Reflects consulting expense for options granted for 293,215 shares of Common Stock of the Company as payment for services rendered in connection with the business combination of the Company and Cakewalk. (12) Reflects compensation expense for options granted for 1,955,750 shares of Common Stock of the Company to an officer of the Company upon consummation of the business combination of the Company and Cakewalk. (13) Reflects the amortization expense (calculated using a 5-year estimated useful life) of software acquired in conjunction with the business combination of the Company and Cakewalk. (14) Reflects consulting expense for options granted for 293,215 shares of Common Stock of the Company as payment for services rendered in connection with the business combination of the Company and Cakewalk. (15) Reflects compensation expense for options granted for 1,955,750 shares of Common Stock of the Company to an officer of the Company upon consummation of the business combination of the Company and Cakewalk. 28 (c) Exhibits. The following Exhibits are filed herewith: Regulation S-K Exhibit Number - -------------- 2 (a)* Contribution Agreement, dated as of October 29, 1999 between CDBeat.com, Inc. and Cakewalk LLC. 2 (b)* Amendment Agreement, dated as of November 16, 1999 by and among Atlantis Equities, Inc., Dylan LLC, CDBeat.com, Inc. Cakewalk LLC and 32 Records LLC. 10* Employment Agreement, dated as of November 16, 1999 between CDBeat.com, Inc. and Robert Miller. 23.1** Consent of Arthur Andersen LLP 23.2** Consent of Kingery, Crouse & Hohl, P.A. 99* Voting Agreement, dated as of November 16, 1999 between Robert Miller and Dylan LLC. - ------------------------- * Previously filed as part of this Current Report on Form 8-K on December 1, 1999. ** Filed herewith. 29 SIGNATURE 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. CDBEAT.COM, INC. By: /s/ Robert Miller ----------------- Robert Miller, President Dated: January 31, 2000 30 EXHIBIT INDEX Regulation S-K Exhibit Number - -------------- 2 (a)* Contribution Agreement, dated as of October 29, 1999 between CDBeat.com, Inc. and Cakewalk LLC. 2 (b)* Amendment Agreement, dated as of November 16, 1999 by and among Atlantis Equities, Inc., Dylan LLC, CDBeat.com, Inc. Cakewalk LLC and 32 Records LLC. 10* Employment Agreement, dated as of November 16, 1999 between CDBeat.com, Inc. and Robert Miller. 23.1** Consent of Arthur Andersen LLP 23.2** Consent of Kingery, Crouse & Hohl, P.A. 99* Voting Agreement, dated as of November 16, 1999 between Robert Miller and Dylan LLC. - ------------------------- * Previously filed as part of this Current Report on Form 8-K on December 1, 1999. ** Filed herewith. 31 EX-23.1 2 CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 8-K of our report dated November 16, 1999 included in Registration Statement File No. 333-70663. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1998 or performed any audit procedures subsequent to the date of our report." Arthur Andersen LLP New York, New York January 27, 2000 EX-23.2 3 CONSENT OF KINGERY, CROUSE & HOHL, P.A. Exhibit 23.2 [Letterhead of Kingery, Crouse & Hohl, P.A.] January 27, 2000 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in this Form 8K of our report dated February 16, 1999 (except for Note J as to which the Date is May 1, 1999), with respect to the financial statements of CDbeat.com, Inc. as of and for the period May 8, 1998 (date of incorporation) to December 31, 1998, filed with the Securities and Exchange Commission as part of the registration statement on Form SB-2. /s/ KINGERY CROUSE & HOHL, P.A. -----END PRIVACY-ENHANCED MESSAGE-----