Mezzanine, the bar and restaurant group, yesterday announced it had sold its loss-making internet dance music business, mezzmusic, to its management.

The company, which introduced mezzmusic in February last year in a blaze of publicity, sold the dot.com arm for £750,000 but will keep a 19.9% stake.

The group has agreed to defer the payment for two years.

It has poured £2.5m into the site and last year planned to list mezzmusic on the stock exchange.

"We still believe it has got a great future, though. We just take the view that it was wrong to put aside the huge amount of funds that would have been necessary," chief executive Marios Georgallides said.

Radio One disc jockey Dave Pearce, who in 1999 was drafted in to attract young customers by jazzing up the image of Mezzanine, will stay with the internet branch.

The announcement came as the company posted a pre-tax loss of £1.3m for the six months to the beginning of December, including losses of £813,447 at mezzmusic, compared with a profit of £23,442 for the previous six months. Turnover increased from £2.5m to £4.6m.

The group, which is focused on its core activities of restaurants, bars and clubs, plans to roll out further Smollensky's bars and restaurants - described by chairman Roddy Sutherland as being like "an American Chez Gerard".

The company opened Attica, a club and restaurant in Soho, in December and is looking for acquisitions.

There are concerns in the City, however, about the long-term strength of the Smollensky's brand and the company's ability to generate enough turnover to cover costs and to expand.

Shares in Mezzanine rose 1.5p to 16p.