The company attributed a significant portion of its net sales decline to its third-party media-buying operations, which it said were curtailed by the end of June.
The music company known for its television pitches and now for its move onto the Net said it posted a loss of 37 cents per share, compared to a year-ago profit of 16 cents per share. First Call did not have any earnings expectations for this quarter.
Shares of K-Tel fell, dropping 13.39 percent to 24.25. The stock has traded as high as 39.47 and as low as 3.19 during the past 52 weeks.
The company said that net sales for the quarter ended September 30 were $18 million, compared to $25 million for the comparable quarter of fiscal 1998.
Contributing to the loss for the period was a $1.6 million charge incurred by the company when it discontinued marketing and distribution activities of certain marginal business lines, including its retail home-video product line, and write-offs of remaining assets from its curtailed third-party media-buying operation.
In addition, the company said it incurred a $600,000 loss from continued investments in its e-commerce operations.
"The company continues to refocus and position itself to be a prominent long-term strategic player in the e-commerce arena," K-Tel chairman and chief executive Philip Kives said in a statement. "In so doing, we are eliminating certain marginal business lines and focusing on existing profitable business units which have natural synergies with our e-commerce operations."
This week, shares of K-Tel surged after the company announced that Microsoft would put K-Tel's online service on the Microsoft Network.
Earlier this month, the company's stock also surged after it announced with Playboy that the two firms will jointly launch a cobranded online music store.
"This is an exciting and pivotal time for K-Tel as we move forward in the e-commerce marketplace," said Kives. "In support of expanding our online business, we continue to explore strategic alliances, as well as sources of capital to fund the expansion of K-Tel Express."
The company, however, noted that although it continues to pursue e-commerce opportunities, the success of online marketing cannot currently be determined. K-Tel added that to increase participation in this market, it will require substantial additional financial resources, including funding from outside resources, development and acquisition of technology, investments in marketing, and contractual relationships with third parties.