CDNow Misses Self-Imposed Cash Deadline

CDNow, Inc., the cash-strapped online music retailer, said Thursday it is in talks with a number of potential investors in its quest for survival, but so far has not solidified a deal.

The embattled e-tailer’s announcement is the latest in a series of updates the company has issued to offer reassurance that it expects to bolster its shaky economic position by partnering with investors.

In recent weeks the company’s stock has tumbled, closing on Thursday at 2 13/16 on Nasdaq, down from its 52-week high of 23 1/16. The company had earlier said it would secure an infusion of new cash by the end of this quarter.

In its statement on Thursday, CDNow said, “The company has not agreed on terms with any party, including a price for an investment or acquisition of all or part of the securities of CDNow. There can be no assurance that an offer will be received from any of these groups, or that a transaction will be consummated at any time, or what the terms of an agreement might be.”

Has the Music Stopped?

Since starting business in 1994, CDNow has lost $212 million (US$). In March, its auditor cited “substantial doubt” about the company’s viability, with a report that it was down to $28.7 million on its balance sheet.

Since March, shortly after that pronouncement, CDNow has put on the best face possible and issued a series of statements about possible investment deals.

In May, Mexican billionaire Carlos Slim Helu, one of the richest men in Latin America, bought a 9.2 percent stake in the company for $52.8 million. That infusion of cash came after the company had reported a loss of $28.2 million or 92 cents per share, for the first quarter of this year.

Earlier this month, in its most dramatic cost-cutting measure to date, CDNow closed its London office, but said it would continue to maintain a presence abroad and sell its products worldwide.

About the same time as the London closing, the company said it had finalized a one-year marketing deal with Time, Inc. that will provide CDNow with promotions throughout the publishing company’s online and offline magazines in exchange for promoting Time through CDNow.

Saviors Hard To Find

Stockholders have had a wild ride with CDNow, including several brushes with hope over the past few months. A planned merger with Columbia House seemed to be the answer to the company’s problems, but it fell through in March.

In an attempt to soothe investors’ concerns, the company said at that time it still had a commitment from Time Warner and Sony to provide an additional $51 million in cash as an equity investment. It also planned to convert an existing $30 million short-term loan into long-term convertible debt.

So far, some analysts see CDNow’s financial juggling act as nothing more than a smokescreen for the inevitability of the company’s demise. At best, some believe, the company can hope to be swallowed up by a tougher competitor.

Whether CDNow will go the way of such former high profile e-tailers as Boo.com and Reel.com remains to be seen. CEO Jason Olim had assured investors of a new infusion of cash or a merger by the end of June, but once again the company has missed the deadline.