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Info WorldSpace’s latest miserable position - 18-August-2008, 12:10

WorldSpace’s latest miserable position

Worldspace unveiled its quarterly and half-yearly numbers (to June 30) after the markets had closed on August 14 – and they’re not good. The statement showed that the company is completely out of cash.
Their SEC 10-K official filing is perhaps the most thorough yet released by the satellite radio broadcaster. It had just $1.2m available to it at June 30, which must have long ago been spent (plus $4.8m in “restricted cash” which it cannot use to fund day to day operations). Worldspace also revealed that a Class Action litigation has now commenced against it in a New York court, which it intends to “vigorously” contest.

The unaudited bottom line is that Worldspace (or 1Worldspace as we should now call it) had a net loss for Q2 of $36m, and an improvement on the same period a year ago when the broadcaster lost $51.2m. Nevertheless, the company says – with a few caveats – that it is still a going concern.

The 10-K report also goes someway to explain the unexpected departure earlier in August of its two co-COO’s, and the document admits: “We consider our current cash balances to be critically low and not sufficient to operate our business in the short term.” Worldspace added that it had to “delay” paying certain creditors “and our employees”.

“The Company must raise substantial additional capital during 2008 in order to continue its current level of operations and to pursue its business plan. Based upon our current plans, we estimate that our cash and cash equivalents will not be sufficient to cover our estimated funding needs for 2008,” said the company.

Noah Samara told investors that its Italian pay-radio launch, subject to raising adequate cash, should happen “sometime next year”, which suggests some slippage may be about to take place.

Worldspace firmly warns in its 10-K that it may not be able to raise fresh cash. To its credit Worldspace has shown that it can trim expenses in these desperate days, as it must given the decline in income in just about every aspect of its sales efforts. In the six months to June 30 it spent $21.4m on “general & admin” compared to $30.3m in the same period a year ago, a 29.6% reduction (although largely due to “reduction in legal cost”). An even greater percentage reduction (53.7%) was achieved in its sales & marketing expenditure, down from $6m a year ago to just $2.8m in the half-year to June 30. Overall, its total operating expenses fell 18.9% from $85.6m last year to $69.5m in this latest half-year.

As to the worrying Class Action lawsuits against the company, a consolidated claim was made on August 9 last year by those representing the plaintiffs. This year, on July 21, Worldspace and its co-defendants (including founder Noah Samara) applied to have the claim dismissed. The US District Court in New York denied the defendant’s motion. The claims, in essence, allege that Worldspace incorrectly counted subscriber numbers in its cash-raising prospectus for its IPO on August 3 2005.

The Worldspace filing shows that its European subsidiary (Worldspace Europe SAS) and through another further subsidiary Worldspace Italia Srl owns 35% of New Satellite Radio Srl (NSR). NSR is majority owned by Class Editori SpA, a media and broadcast company based in Milan. NSR in terms owns 35% of Worldspace Italia, and to June 30 has invested a modest $900,000 in capital investment into Worldspace’s Italian venture.

In essence, Worldspace’s subs and equipment revenues are shrinking, down $350,000 on the same period last year ($6.3m vs $6.65m last year). There’s a Worldspace stockholders meeting on Sept 11 to approve certain loan negotiations, and the pledging of assets covering those loans. Subject to the meeting approving these moves, the first cash is due to paid to the bridging loan note-holders on (or before) Sept 15.
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