The Cupertino, Calif.-based company, which offers free audio content, said it had a funding commitment that fell through and that the reduction in work force is designed to bring expenses in line with revenues.
"The management and the board of directors wanted to have enough money to secure either a new strategic partner or new funding," said Nathan Schulhof, CEO of Audiohighway.com.
The announcement comes as reports circulate that venture funding is declining, particularly in the third quarter, marking the first time since 1996 that funding has fallen for two consecutive quarters.
Since Audiohighway.com was founded six years ago, it has lined up with relatively big-name players, including Microsoft, Universal Music Group and Warner Music Group. In April 1999, Audiohighway.com also acquired online music retailer Mass Music to enter directly into the online retail business and acquire revenue by selling physical products online, such as music and other electronic products.
But the company has been faced with financial difficulties and investor skepticism as its stock has been trading as low as 31 cents a share.
In an earnings report released Tuesday, the company reported a nine-month loss of $12 million on revenues of $1.98 million. That compares with a net loss of $6.8 million on revenues of $1 million in the same period last year.
Despite the financial difficulties, Schulhof said Audiohighway.com kept enough people in every department so that it "can function as normal"; the Web site can stay up, and the company can fulfill its advertising commitments as well as deliver products.
"We laid off a lot of good people. If things go as we hope, we hope to bring many of them back," Schulhof said. "Our strategy at this time is to preserve the cash so the company can operate (and) pay its bills while it secures new funding or a strategic partner."