MMUS Makemusic, Inc. (MM)

MakeMusic, Inc. (Nasdaq:MMUS) (the �Company�) today announced financial results for the three and nine months ended September 30, 2006. Net revenues for the three months ended September 30, 2006, were $4,025,000, a 1% increase compared to $3,981,000 in the prior years third quarter. Net revenues for the nine months ended September 30, 2006 were $9,259,000, an increase of 9% over the nine months ended September 30, 2005. The Company also announced net income of $843,000, or $0.22 and $0.17 per basic and diluted share respectively, for the third quarter of 2006 compared $940,000 or $0.27 and $0.23 per basic and diluted share respectively, for the same periods last year. As a result of adopting SFAS 123(R) on January 1, 2006 the Company incurred a stock-based compensation charge of approximately $66,000 or $0.02 per diluted share, for the three months ended September 30, 2006 that would not have been incurred under the Company�s previous method of accounting for stock options. Net loss for the nine months ended September 30, 2006 narrowed to $181,000, or $0.05 per basic and diluted share. This is a reduction of $380,000 compared to the net loss of $561,000, or $0.16 per basic and diluted share, in the first nine months of 2005, despite $231,000 of incremental non-cash stock-based compensation expense or 6 cents per share in 2006, due to stock option expensing under SFAS 123(R). Revenue during the third quarter was impacted by the timing of the 2007 Finale release, which was in August of this year compared to July in the 2005 quarter. Despite the later release of Finale 2007, the Company was still able to increase revenue during the third quarter compared to last year�s third quarter. This increase was attributable to the continued growth in SmartMusic revenue which was $218,000 more than in the third quarter of 2005. For the nine-month period ended September 30, 2006, the Company also achieved an increase of $229,000 in notation revenue as a result of the continued good performance from Finale 2006 and improved performance from the Company�s Finale 2007 product. The Company began shipping Finale 2006 in July of 2005 with new features and functionality that have resulted in a strong revenue performance in the last four quarters. During August of this year, the Company began shipping Finale 2007, which is currently the best selling release in Finale�s history. The SmartMusic subscription service continues to show steady growth and represents an increasing share of net revenue. Subscription revenue was $435,000 in the quarter ended September 30, 2006, a 39% increase over subscription revenue of $312,000 in the third quarter of 2005. Subscription revenue was $1,179,000 in the nine months ended September 30, 2006, a 38% increase over subscription revenue of $855,000 in the nine-month period ended September 30, 2005. Total SmartMusic revenue, including accessories related to the SmartMusic product, increased by 54% to $621,000 in the three months ended September 30, 2006, and increased by 46% to $1,558,000 in the nine months ended September 30, 2006 compared to the comparable nine months in 2005. As of September 30, 2006 the Company had 54,821 active SmartMusic subscriptions, a 27% increase over the 43,199 active subscriptions as of September 30, 2005. Total schools using SmartMusic reached 5,507 during the third quarter of 2006 compared to 4,374 as of September 30, 2005. The combination of students sponsored by schools and individuals sponsored by associations grew to 34,922 compared to 27,189 as of September 30, 2005. The Company introduced, in December 2005, a price increase that raised annual sponsored student subscriptions from $20 to $25. This increase was done in the context of a simplified pricing structure and appears to have met no significant buyer resistance. With the release of SmartMusic Impact, the web service that manages SmartMusic student assignments and grades, the Company plans to begin tracking teachers that use SmartMusic, as well as the percentage of those teachers that are using Impact to deliver and manage student assignments (Impact teachers) and the average number of students each Impact teacher has. Gross profit in the quarter ended September 30, 2006 increased by $138,000 to $3,485,000 compared to the quarter ended September 30, 2005, and improved by $903,000 to $7,952,000 in the nine months ended September 30, 2006 compared to the same period in 2005. The increase in gross profit for the quarter and nine months ended September 30, 2006 is a result of the increase in revenues and a higher gross margin percentage. Gross margin percentages improved, in large part, due to the expiration of a patent-based royalty payment and completion of software amortization related to the reverse merger that occurred in 2000. Operating expenses for the quarter were $2,672,000 compared to $2,415,000 in the same quarter last year. Operating expenses for the first nine months of 2006 were $8,208,000, an increase of 7% from $7,639,000 in the first nine months of 2005. Expenses for the first nine months increased, as planned, as the Company increased its investments in product development, marketing and customer support to manage an expected increase in revenue as the year progresses. Operating expenses included $195,000 and $538,000 in non-cash depreciation, amortization and option expense during the three and nine months ended September 30, 2006, respectively, compared to $309,000 and $935,000 during the three and nine month periods ended September 30, 2005, respectively. Net cash provided by operating activities was $749,000 in the third quarter of 2006 compared to net cash provided by operating activities of $529,000 in the third quarter of 2005. The total cash increased by $510,000 in the third quarter of 2006 compared to an increase of $519,000 in the third quarter of 2005. MakeMusic believes that positive operating cash flow is likely on an annual basis going forward but, due to seasonality in notation revenue, the Company is not likely to achieve positive operating cash flow in each quarter. �Finale 2007 is off to the strongest start in Finale�s history in both units and dollars,� stated President Ron Raup. �This is likely due as much to our strong marketing and communications improvements as it is to the powerful new features in the upgrade.� John Paulson, CEO, stated, �We are very excited about the future of SmartMusic. For the first time, SmartMusic will be supporting the music titles teachers are rehearsing for public concerts, which constitute the core curriculum of school bands, orchestras and choirs. This will be accomplished through new technologies which utilize audio recordings created by publishers to promote their music. Publishers are licensing these audio recordings to us along with the corresponding Finale files which display onscreen so that SmartMusic can accompany, guide and motivate students as they prepare for concerts via SmartMusic assignments. Posting, tracking and documenting these assignments are features of our new web service, SmartMusic Impact. Starting this month the Company is actively promoting the 2007 availability of�SmartMusic Impact and demonstrating our complete solution at major education conferences and clinics. We expect this combination of core curriculum support, SmartMusic assignments managed by Impact, and the wide range of available SmartMusic practice tools to drive significant SmartMusic growth.� About MakeMusic, Inc. MakeMusic�, Inc. is a world leader in music education technology whose mission is to enhance and transform the experience of making, teaching and learning music. Among its leading products are Finale�, the world�s best-selling music notation software, and SmartMusic�, the complete music practice system that features Intelligent Accompaniment� and the world�s largest interactive accompaniment library. MakeMusic maintains its corporate headquarters in Minneapolis, Minnesota. The Company can be reached at www.makemusic.com. Cautionary Statements This release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and can be identified by the use of terminology such as �believe,� �estimate,� �expect,� �intend,� �may,� �could,� �will,� and similar words or expressions. Our forward-looking statements in this release generally relate to the Company�s plans for SmartMusic Impact and the anticipated effect of SmartMusic Impact on its SmartMusic subscriptions and revenue growth, the timing of new product introduction, and the Company�s ability to achieve positive operating cash flow. Forward-looking statements cannot be guaranteed and actual results may vary materially due to the uncertainties and risks, known and unknown, associated with such statements. The Company cautions investors that many important factors have affected, and in the future could affect, its actual results of operations and cause such results to differ materially from those anticipated in forward-looking statements made in this release and elsewhere by the Company or on its behalf. These factors include, but are not limited to, the Company�s possible need for and ability to obtain additional capital; the market acceptance of Impact and other of its products; the Company�s dependence upon new product development effort; our dependence on releasing annual Finale upgrades; the maintenance of strategic relationships; the success of the Company�s SmartMusic subscription business; maintaining license agreements with a limited number of publishers; the limited and fluctuating sales of certain of our products; the intense competition the Company faces; the rapid technological changes and obsolescence in the Company�s industry; the Company�s dependence on key personnel and the proprietary nature of its technology; other general business and economic conditions; and those risks described from time to time in the Company�s reports to the Securities and Exchange Commission (including its Annual Report on Form 10-KSB). It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. As such, investors should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or potentially inaccurate assumptions that investors should take into account when making investment decisions. Shareholders and other readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements. MakeMusic, Inc. Condensed Consolidated Balance Sheets (In thousands of U.S. dollars) � September 30, 2006 � September 30, 2005 (unaudited) Assets Cash $2,524� $2,952� Accounts receivable, net of allowances 1,492� 1,004� Inventories, net of reserves 384� 435� Prepaid expenses and other current assets 81� � 161� Total current assets 4,481� 4,552� � Property and equipment, net 648� 323� Goodwill, net 3,630� 3,630� Capitalized software 734� 471� Other non-current assets 60� � 66� Total assets $9,553� � $9,042� � Liabilities and Shareholders� Equity Current portion of capital lease obligations $ 10� $ 6� Accounts payable 277� 441� Accrued compensation 921� 681� Other accrued liabilities 228� 238� Post-contract support 181� 181� Reserve for product returns 440� 339� Current portion of deferred rent 23� 20� Deferred revenue 1,010� � 842� Total current liabilities 3,090� 2,748� � Capital lease obligations, net of current portion 18� 9� Deferred rent, net of current portion 102� � 120� 120� 129� � Shareholders� Equity: Common stock, $0.01 par value: Authorized shares - 10,000,000 39� 39� Issued and outstanding shares - 3,937,562 and 3,856,654 in 2006 and 2005, respectively � Additional paid-in capital 62,832� 62,459� Accumulated deficit (56,528) (56,347) Other comprehensive income 0� � 14� Total shareholders� equity 6,343� � 6,165� Total liabilities and shareholders� equity $9,553� � $9,042� See Notes to Condensed Consolidated Financial Statements included in the Company�s current Form 10QSB, incorporated herein by reference MakeMusic, Inc. Condensed Consolidated Statements of Operations (In thousands of U.S. dollars, except share and per share data) (Unaudited) � Three Months Nine Months Ended September 30, Ended September 30, 2006 2005 2006 2005 Notation Revenue 3,208� 3,391� 7,312� 7,083� SmartMusic Revenue 621� 403� 1,558� 1,070� Other Revenue 196� 187� 389� 375� NET REVENUE 4,025� 3,981� 9,259� 8,528� � COST OF REVENUES 540� 634� 1,307� 1,479� � GROSS PROFIT 3,485� 3,347� 7,952� 7,049� � OPERATING EXPENSES: Development expenses 901� 746� 2,623� 2,471� Selling and marketing expenses 1,051� 942� 3,088� 2,754� General and administrative expenses 720� 727� 2,497� 2,414� � Total operating expenses 2,672� 2,415� 8,208� 7,639� � INCOME (LOSS) FROM OPERATIONS 813� 932� (256) (590) � Interest income 17� 12� 68� 15� Other income (expense) 14� (4) 16� 16� Net loss before income tax 844� 940� (172) (559) � Income tax expense (1) 0� (9) (2) Net income (loss) 843� 940� (181) (561) � Income (loss) per common share: Basic 0.22� 0.27� (0.05) (0.16) Diluted 0.17� 0.23� (0.05) (0.16) � Weighted average common shares outstanding: Basic 3,913,251� 3,497,749� 3,904,041� 3,457,132� Diluted 4,866,195� 4,085,181� 3,904,041� 3,457,132� See Notes to Condensed Consolidated Financial Statements included in the Company�s current Form 10QSB, incorporated herein by reference MakeMusic, Inc. Condensed Consolidated Statements of Cash Flows (In thousands of U.S. dollars) (Unaudited) Three Months Ended 2006 Three Months Ended 2005 Nine Months Ended 2006 Nine Months Ended 2005 � � � Operating activities Net income (loss) 843� 940� (181) (561) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization of intangible assets 0� 226� 0� 679� Depreciation and amortization of property and equipment 69� 39� 167� 117� Other amortization 57� 46� 132� 135� Stock based compensation expense 69� (2) 239� 4� Increase (decrease) in cash from: Accounts receivable (664) (422) (488) (175) Inventories (76) (20) 51� (285) Prepaid expenses and other current assets 37� (30) 66� 32� Accounts payable 62� (265) (164) (254) Accrued liabilities and product returns 224� 32� 316� (93) Deferred revenue 128� � (15) � 168� � 38� Net cash provided by (used in) operating activities 749� 529� 306� (364) � Investing activities Purchases of property and equipment (66) (59) (463) (201) Capitalized software development and other intangibles (172) � (69) � (389) � (191) Net cash used in investing activities (238) (128) (852) (392) � Financing activities Proceeds from the exercise of stock options and warrants 13� 119� 134� 279� Payments on capital leases (14) � (1) � (16) � (4) Net cash provided by (used in) financing activities (1) 118� 118� 275� � � � � � � � Net increase (decrease) in cash 510� 519� (428) (481) Cash, beginning of period 2,014� � 1,215� � 2,952� � 2,215� Cash, end of period 2,524� � $1,734� � 2,524� � $1,734� � Supplemental disclosure of cash flow information Interest paid 0� 1� 0� 5� Income taxes paid 1� 0� 9� 1� Other non-cash investment and financing activities Equipment acquired under capital lease 29� 0� 29� 0� See Notes to Condensed Consolidated Financial Statements included in the Company�s current Form 10QSB, incorporated herein by reference MakeMusic, Inc. (Nasdaq:MMUS) (the "Company") today announced financial results for the three and nine months ended September 30, 2006. Net revenues for the three months ended September 30, 2006, were $4,025,000, a 1% increase compared to $3,981,000 in the prior years third quarter. Net revenues for the nine months ended September 30, 2006 were $9,259,000, an increase of 9% over the nine months ended September 30, 2005. The Company also announced net income of $843,000, or $0.22 and $0.17 per basic and diluted share respectively, for the third quarter of 2006 compared $940,000 or $0.27 and $0.23 per basic and diluted share respectively, for the same periods last year. As a result of adopting SFAS 123(R) on January 1, 2006 the Company incurred a stock-based compensation charge of approximately $66,000 or $0.02 per diluted share, for the three months ended September 30, 2006 that would not have been incurred under the Company's previous method of accounting for stock options. Net loss for the nine months ended September 30, 2006 narrowed to $181,000, or $0.05 per basic and diluted share. This is a reduction of $380,000 compared to the net loss of $561,000, or $0.16 per basic and diluted share, in the first nine months of 2005, despite $231,000 of incremental non-cash stock-based compensation expense or 6 cents per share in 2006, due to stock option expensing under SFAS 123(R). Revenue during the third quarter was impacted by the timing of the 2007 Finale release, which was in August of this year compared to July in the 2005 quarter. Despite the later release of Finale 2007, the Company was still able to increase revenue during the third quarter compared to last year's third quarter. This increase was attributable to the continued growth in SmartMusic revenue which was $218,000 more than in the third quarter of 2005. For the nine-month period ended September 30, 2006, the Company also achieved an increase of $229,000 in notation revenue as a result of the continued good performance from Finale 2006 and improved performance from the Company's Finale 2007 product. The Company began shipping Finale 2006 in July of 2005 with new features and functionality that have resulted in a strong revenue performance in the last four quarters. During August of this year, the Company began shipping Finale 2007, which is currently the best selling release in Finale's history. The SmartMusic subscription service continues to show steady growth and represents an increasing share of net revenue. Subscription revenue was $435,000 in the quarter ended September 30, 2006, a 39% increase over subscription revenue of $312,000 in the third quarter of 2005. Subscription revenue was $1,179,000 in the nine months ended September 30, 2006, a 38% increase over subscription revenue of $855,000 in the nine-month period ended September 30, 2005. Total SmartMusic revenue, including accessories related to the SmartMusic product, increased by 54% to $621,000 in the three months ended September 30, 2006, and increased by 46% to $1,558,000 in the nine months ended September 30, 2006 compared to the comparable nine months in 2005. As of September 30, 2006 the Company had 54,821 active SmartMusic subscriptions, a 27% increase over the 43,199 active subscriptions as of September 30, 2005. Total schools using SmartMusic reached 5,507 during the third quarter of 2006 compared to 4,374 as of September 30, 2005. The combination of students sponsored by schools and individuals sponsored by associations grew to 34,922 compared to 27,189 as of September 30, 2005. The Company introduced, in December 2005, a price increase that raised annual sponsored student subscriptions from $20 to $25. This increase was done in the context of a simplified pricing structure and appears to have met no significant buyer resistance. With the release of SmartMusic Impact, the web service that manages SmartMusic student assignments and grades, the Company plans to begin tracking teachers that use SmartMusic, as well as the percentage of those teachers that are using Impact to deliver and manage student assignments (Impact teachers) and the average number of students each Impact teacher has. Gross profit in the quarter ended September 30, 2006 increased by $138,000 to $3,485,000 compared to the quarter ended September 30, 2005, and improved by $903,000 to $7,952,000 in the nine months ended September 30, 2006 compared to the same period in 2005. The increase in gross profit for the quarter and nine months ended September 30, 2006 is a result of the increase in revenues and a higher gross margin percentage. Gross margin percentages improved, in large part, due to the expiration of a patent-based royalty payment and completion of software amortization related to the reverse merger that occurred in 2000. Operating expenses for the quarter were $2,672,000 compared to $2,415,000 in the same quarter last year. Operating expenses for the first nine months of 2006 were $8,208,000, an increase of 7% from $7,639,000 in the first nine months of 2005. Expenses for the first nine months increased, as planned, as the Company increased its investments in product development, marketing and customer support to manage an expected increase in revenue as the year progresses. Operating expenses included $195,000 and $538,000 in non-cash depreciation, amortization and option expense during the three and nine months ended September 30, 2006, respectively, compared to $309,000 and $935,000 during the three and nine month periods ended September 30, 2005, respectively. Net cash provided by operating activities was $749,000 in the third quarter of 2006 compared to net cash provided by operating activities of $529,000 in the third quarter of 2005. The total cash increased by $510,000 in the third quarter of 2006 compared to an increase of $519,000 in the third quarter of 2005. MakeMusic believes that positive operating cash flow is likely on an annual basis going forward but, due to seasonality in notation revenue, the Company is not likely to achieve positive operating cash flow in each quarter. "Finale 2007 is off to the strongest start in Finale's history in both units and dollars," stated President Ron Raup. "This is likely due as much to our strong marketing and communications improvements as it is to the powerful new features in the upgrade." John Paulson, CEO, stated, "We are very excited about the future of SmartMusic. For the first time, SmartMusic will be supporting the music titles teachers are rehearsing for public concerts, which constitute the core curriculum of school bands, orchestras and choirs. This will be accomplished through new technologies which utilize audio recordings created by publishers to promote their music. Publishers are licensing these audio recordings to us along with the corresponding Finale files which display onscreen so that SmartMusic can accompany, guide and motivate students as they prepare for concerts via SmartMusic assignments. Posting, tracking and documenting these assignments are features of our new web service, SmartMusic Impact. Starting this month the Company is actively promoting the 2007 availability of SmartMusic Impact and demonstrating our complete solution at major education conferences and clinics. We expect this combination of core curriculum support, SmartMusic assignments managed by Impact, and the wide range of available SmartMusic practice tools to drive significant SmartMusic growth." About MakeMusic, Inc. MakeMusic(R), Inc. is a world leader in music education technology whose mission is to enhance and transform the experience of making, teaching and learning music. Among its leading products are Finale(R), the world's best-selling music notation software, and SmartMusic(R), the complete music practice system that features Intelligent Accompaniment(R) and the world's largest interactive accompaniment library. MakeMusic maintains its corporate headquarters in Minneapolis, Minnesota. The Company can be reached at www.makemusic.com. Cautionary Statements This release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and can be identified by the use of terminology such as "believe," "estimate," "expect," "intend," "may," "could," "will," and similar words or expressions. Our forward-looking statements in this release generally relate to the Company's plans for SmartMusic Impact and the anticipated effect of SmartMusic Impact on its SmartMusic subscriptions and revenue growth, the timing of new product introduction, and the Company's ability to achieve positive operating cash flow. Forward-looking statements cannot be guaranteed and actual results may vary materially due to the uncertainties and risks, known and unknown, associated with such statements. The Company cautions investors that many important factors have affected, and in the future could affect, its actual results of operations and cause such results to differ materially from those anticipated in forward-looking statements made in this release and elsewhere by the Company or on its behalf. These factors include, but are not limited to, the Company's possible need for and ability to obtain additional capital; the market acceptance of Impact and other of its products; the Company's dependence upon new product development effort; our dependence on releasing annual Finale upgrades; the maintenance of strategic relationships; the success of the Company's SmartMusic subscription business; maintaining license agreements with a limited number of publishers; the limited and fluctuating sales of certain of our products; the intense competition the Company faces; the rapid technological changes and obsolescence in the Company's industry; the Company's dependence on key personnel and the proprietary nature of its technology; other general business and economic conditions; and those risks described from time to time in the Company's reports to the Securities and Exchange Commission (including its Annual Report on Form 10-KSB). It is not possible to foresee or identify all factors that could cause actual results to differ from expected or historic results. As such, investors should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or potentially inaccurate assumptions that investors should take into account when making investment decisions. Shareholders and other readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly or revise any forward-looking statements. -0- *T MakeMusic, Inc. Condensed Consolidated Balance Sheets (In thousands of U.S. dollars) September 30, September 30, 2006 2005 --------------------------- (unaudited) Assets Cash $2,524 $2,952 Accounts receivable, net of allowances 1,492 1,004 Inventories, net of reserves 384 435 Prepaid expenses and other current assets 81 161 --------------------------- Total current assets 4,481 4,552 Property and equipment, net 648 323 Goodwill, net 3,630 3,630 Capitalized software 734 471 Other non-current assets 60 66 --------------------------- Total assets $9,553 $9,042 =========================== Liabilities and Shareholders' Equity Current portion of capital lease obligations $10 $6 Accounts payable 277 441 Accrued compensation 921 681 Other accrued liabilities 228 238 Post-contract support 181 181 Reserve for product returns 440 339 Current portion of deferred rent 23 20 Deferred revenue 1,010 842 --------------------------- Total current liabilities 3,090 2,748 Capital lease obligations, net of current portion 18 9 Deferred rent, net of current portion 102 120 --------------------------- 120 129 Shareholders' Equity: Common stock, $0.01 par value: Authorized shares - 10,000,000 39 39 Issued and outstanding shares - 3,937,562 and 3,856,654 in 2006 and 2005, respectively Additional paid-in capital 62,832 62,459 Accumulated deficit (56,528) (56,347) Other comprehensive income 0 14 --------------------------- Total shareholders' equity 6,343 6,165 --------------------------- Total liabilities and shareholders' equity $9,553 $9,042 =========================== *T See Notes to Condensed Consolidated Financial Statements included in the Company's current Form 10QSB, incorporated herein by reference -0- *T MakeMusic, Inc. Condensed Consolidated Statements of Operations (In thousands of U.S. dollars, except share and per share data) (Unaudited) Three Months Nine Months Ended September 30, Ended September 30, 2006 2005 2006 2005 ---------- ---------- ---------- ---------- Notation Revenue 3,208 3,391 7,312 7,083 SmartMusic Revenue 621 403 1,558 1,070 Other Revenue 196 187 389 375 ---------- ---------- ---------- ---------- NET REVENUE 4,025 3,981 9,259 8,528 COST OF REVENUES 540 634 1,307 1,479 ---------- ---------- ---------- ---------- GROSS PROFIT 3,485 3,347 7,952 7,049 OPERATING EXPENSES: Development expenses 901 746 2,623 2,471 Selling and marketing expenses 1,051 942 3,088 2,754 General and administrative expenses 720 727 2,497 2,414 ---------- ---------- ---------- ---------- Total operating expenses 2,672 2,415 8,208 7,639 ---------- ---------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS 813 932 (256) (590) Interest income 17 12 68 15 Other income (expense) 14 (4) 16 16 ---------- ---------- ---------- ---------- Net loss before income tax 844 940 (172) (559) Income tax expense (1) 0 (9) (2) ---------- ---------- ---------- ---------- Net income (loss) 843 940 (181) (561) ========== ========== ========== ========== Income (loss) per common share: Basic 0.22 0.27 (0.05) (0.16) Diluted 0.17 0.23 (0.05) (0.16) Weighted average common shares outstanding: Basic 3,913,251 3,497,749 3,904,041 3,457,132 Diluted 4,866,195 4,085,181 3,904,041 3,457,132 *T See Notes to Condensed Consolidated Financial Statements included in the Company's current Form 10QSB, incorporated herein by reference -0- *T MakeMusic, Inc. Condensed Consolidated Statements of Cash Flows (In thousands of U.S. dollars) (Unaudited) Three Three Nine Nine Months Months Months Months Ended Ended Ended Ended 2006 2005 2006 2005 ----------------------------------- Operating activities Net income (loss) 843 940 (181) (561) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Amortization of intangible assets 0 226 0 679 Depreciation and amortization of property and equipment 69 39 167 117 Other amortization 57 46 132 135 Stock based compensation expense 69 (2) 239 4 Increase (decrease) in cash from: Accounts receivable (664) (422) (488) (175) Inventories (76) (20) 51 (285) Prepaid expenses and other current assets 37 (30) 66 32 Accounts payable 62 (265) (164) (254) Accrued liabilities and product returns 224 32 316 (93) Deferred revenue 128 (15) 168 38 ----------------------------------- Net cash provided by (used in) operating activities 749 529 306 (364) Investing activities Purchases of property and equipment (66) (59) (463) (201) Capitalized software development and other intangibles (172) (69) (389) (191) ----------------------------------- Net cash used in investing activities (238) (128) (852) (392) Financing activities Proceeds from the exercise of stock options and warrants 13 119 134 279 Payments on capital leases (14) (1) (16) (4) ----------------------------------- Net cash provided by (used in) financing activities (1) 118 118 275 ----------------------------------- Net increase (decrease) in cash 510 519 (428) (481) Cash, beginning of period 2,014 1,215 2,952 2,215 ----------------------------------- Cash, end of period 2,524 $1,734 2,524 $1,734 =================================== Supplemental disclosure of cash flow information Interest paid 0 1 0 5 Income taxes paid 1 0 9 1 Other non-cash investment and financing activities Equipment acquired under capital lease 29 0 29 0 *T See Notes to Condensed Consolidated Financial Statements included in the Company's current Form 10QSB, incorporated herein by reference