- The Washington Times - Tuesday, January 9, 2001

An investment firm with a majority stake in Musicmaker.com is trying to take control of the now-defunct on-line music company as the Reston, Va.-based company liquidates its assets.

BCG Strategic Investors LLC, of New York, filed a letter last week with the Securities and Exchange Commission, asking Musicmaker stockholders to vote to give BCG control of the company so that it can liquidate its assets.

But yesterday, Musicmaker's chairman, Devarajan S. Pathukarai, urged stockholders not to accept BCG's proposal. He said the current board is already in the process of liquidation, having closed Musicmaker's New York City office, laid off most employees and shut down the company's Web site.

Neither Musicmaker nor BCG officials returned calls from the Washington Times.

The dot-com announced last week it was shutting down and liquidating its assets, worth about $32 million, to avoid bankruptcy.

BCG, which owns 38 percent of Musicmaker, said it wants control of Musicmaker in order to maximize shareholder value during liquidation.

Musicmaker, founded in 1996, produced a service that let Internet users pick songs and then create a CD on line.

The company, with offices in Reston and New York, went public in July of 1996 and raised $67 million.

But Musicmaker suffered because it couldn't strike deals with major record labels, who control most popular music and have been unwilling to deal with on-line music companies. The advent of Napster, which lets Internet users swap music files for free, also contributed to Musicmaker's demise.

Last year, the company confronted a number of problems, including its inability to find a buyer, a lawsuit from its shareholders accusing it of misinterpreting the company's potential and accounting adjustments.

In September, Musicmaker laid off one-third of its staff and kept only about 60 employees. Then two top company executives, CEO Robert Bernardi and Larry Lawrence, vice president of global marketing, resigned.

Meanwhile, shares of Musicmaker steadily dipped, losing almost 100 percent of its value in 2000.

The stock closed at $4.38, down 13 cents or 2.8 percent, on the Nasdaq Stock Market yesterday.

Musicmaker reported net sales for its third quarter ended Sept. 30 rose 347.4 percent to $850,000 from $190,000 the year before.

But at the same time the company's net loss grew 131.5 percent to $18.98 million ($57.30 per diluted share) from $8.2 million ($2.90) the year before.

Diluted shares reflect the value of options, warrants and other securities convertible into common stock.


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