MMUS Makemusic, Inc. (MM)

MakeMusic, Inc. (Nasdaq:MMUS) today announced financial results for the three months ended March 31, 2007. Net revenues for the three months ended March 31, 2007, were $3,271,000, a 6% increase compared to $3,088,000 in the prior year. The company also announced for the first quarter of 2007 a net loss of $164,000 or 4 cents per basic and diluted share. These results represent an improvement of $145,000, or 4 cents per share, over the net loss of $309,000, or 8 cents per basic and diluted share, reported in the first quarter of 2006. The increase in net revenue during the first quarter was primarily attributable to continued growth in SmartMusic� revenue. The SmartMusic subscription service continues to show steady growth and represents an increasing share of net revenue. SmartMusic subscription revenue was $481,000 in the quarter ended March 31, 2007, a 33% increase over subscription revenue of $361,000 in the quarter ended March 31, 2006. Total SmartMusic revenue, including accessories related to the SmartMusic product, increased by 25% to $588,000 in the three months ended March 31, 2007, compared to revenue of $470,000 during the same period in 2006. As of March 31, 2007, the company had 59,961 active subscriptions, a 26% increase over the 47,600 active subscriptions as of March 31, 2006. Total schools using SmartMusic reached 6,085 during the first quarter of 2007 compared to 4,960 as of March 31, 2006. Notation revenue increased by $46,000 to $2,553,000 during the first quarter of 2007 compared to $2,507,000 in the first quarter of 2006. This 2% increase is primarily due to the release of Allegro� 2007 during the quarter and Finale Songwriter� released late in 2006. Gross profit in the quarter ended March 31, 2007, increased by $204,000 to $2,874,000 compared to the quarter ended March 31, 2006. The increase in gross profit for first quarter is the result of the increase in revenues and lower repertoire development amortization. Repertoire development amortization as a percentage of revenue was 5% for the current quarter as compared to 7% for the same quarter last year. Gross margin as a percentage of sales improved to 88% from 86% in the three months ended March 31, 2007 and 2006, respectively. Operating expenses for the first quarter of 2007 were $3,069,000, a 3% increase from $2,993,000 in the same period last year. Development expenses for the quarter increased over the prior year by $90,000 to $978,000 as the company increased its investments in repertoire development and business systems in support of SmartMusic 10.0 and Impact which were released in April 2007. Sales and marketing expenses for the quarter ended March 31, 2007, declined $90,000 from the prior year due to timing of promotions. General and administrative expenses increased 8% to $1,001,000 during the first quarter of 2007 compared to first quarter of 2006 primarily due to an increase in our annual audit fees and consulting expenses as a result of Sarbanes Oxley 404 implementation and the adoption of FIN48. Net cash used by operating activities was $69,000 in the first quarter of 2007 compared to $333,000 in the first quarter of 2006. Total cash increased by $93,000 to $3,223,000 in the first quarter of 2007 compared to a decrease of $566,000 in the first quarter of 2006. The improved cash position for the first quarter is primarily due to the reduced loss and the exercise of stock options. �We continued our positive revenue growth in the first quarter as a result of continued growth in our SmartMusic subscription base and modest increases in notation revenue,� said John Paulson, CEO. �We intend to expand our investment in SmartMusic marketing and content development through the balance of 2007 and anticipate accelerated growth of SmartMusic subscriptions beginning the fall of 2007 with back-to-school teacher purchases. With the release of SmartMusic Impact�, we will begin reporting the number of teachers that use SmartMusic as well as the number of those teachers who are using Impact to deliver and manage student assignments (Impact teachers), along with the average number of students subscriptions per Impact teacher.� About MakeMusic, Inc. MakeMusic�, Inc. is a 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�, a best-selling music notation software, and SmartMusic�, the complete music practice system that features Intelligent Accompaniment� and an interactive library of more than 30,000 professionally performed and recorded accompaniments. MakeMusic maintains its corporate headquarters in Minneapolis, Minnesota. The company can be reached at www.makemusic.com. Cautionary Statements Certain statements found in this release may constitute forward-looking statements as defined in the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect the speaker�s current views with respect to future events and financial performance and include any statement that does not directly relate to a current or historical fact. Our forward-looking statements in this release relate to our planned expansion of investment in marketing and repertoire development in 2007, our anticipated accelerated rate of SmartMusic subscriptions in the fall of 2007, and our plans to begin tracking teachers that use SmartMusic and Impact. 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. Examples of risks and uncertainties for MakeMusic include, but are not limited to, the rapid technological changes and obsolescence in our industry, the impact of emerging and existing competitors, errors in management estimates with respect to the seasonality of our business, our inability to successfully and efficiently track teachers using SmartMusic and Impact, fluctuations in general economic conditions, and those risks described from time to time in our reports to the Securities and Exchange Commission (including our Annual Report on Form 10-KSB). Investors should not consider any list of such factors to be an exhaustive statement of all of the risks, uncertainties or potentially inaccurate assumptions investors should take into account when making investment decisions. Shareholders and other readers should not place undue reliance on �forward-looking statements,� as such statements speak only as of the date of this release. We undertake no obligation to update publicly or revise any forward-looking statements. � � � � MakeMusic, Inc. Condensed Statements of Operations (In thousands of U.S. dollars, except share and per share data) (Unaudited) � 3 Months Ended March 31, 2007 2006 Notation revenue 2,553� 2,507� Smart Music revenue 588� 470� Other revenue 130� 111� NET REVENUE 3,271� 3,088� � COST OF REVENUES 397� 418� � GROSS PROFIT 2,874� 2,670� � OPERATING EXPENSES: Development expenses 978� 888� Selling and marketing expenses 1,090� 1,180� General and administrative expenses 1,001� 925� � Total operating expenses 3,069� 2,993� � LOSS FROM OPERATIONS (195) (323) � Interest income 33� 19� Interest expense (1) -� Other income (expense) (1) 1� Net loss before income tax (164) (303) � Income tax 0� 6� Net loss (164) (309) � Income (loss) per common share: Basic (0.04) (0.08) Diluted (0.04) (0.08) � Weighted average common shares outstanding: Basic 4,040,150� 3,888,106� Diluted 4,040,150� 3,888,106� � � � � MakeMusic, Inc. Condensed Balance Sheets (In thousands of U.S. dollars) � Assets March 31, December 31, 2007 (unaudited) 2006 Current assets: Cash and cash equivalents $3,223� $3,130� Accounts receivable (net of allowance of $153 and $149 in 2007 and 2006, respectively) 1,454� 1,664� Inventories 318� 347� Prepaid expenses and other current assets 142� 199� Total current assets 5,137� 5,340� � Property and equipment, net 659� 663� Capitalized software products, net 1,050� 954� Goodwill, net 3,630� 3,630� Other non-current assets 32� 39� Total assets 10,508� 10,626� � Liabilities and shareholders� equity Current liabilities: Current portion of capital lease obligations 10� 10� Accounts payable 151� 507� Accrued compensation 814� 1,066� Other accrued liabilities 297� 254� Post contract support 181� 181� Reserve for product returns 524� 429� Current portion of deferred rent 24� 25� Deferred revenue 1,259� 1,199� Total current liabilities 3,260� 3,671� � Capital lease obligations, net of current portion 13� 15� Deferred rent, net of current portion 91� 96� � Shareholders� equity: Common stock, $0.01 par value: Authorized shares � 10,000,000 Issued and outstanding shares � 4,072,647 and 3,971,229 in 2007 and 2006, respectively 41� 40� Additional paid-in capital 63,359� 62,896� Accumulated deficit (56,256) (56,092) Total shareholders� equity 7,144� 6,844� Total liabilities and shareholders� equity $10,508� $10,626� � � � � MakeMusic, Inc. Condensed Statements of Cash Flows (In thousands of U.S. dollars) (Unaudited) � 3 Months Ended March 31, 2007 � 2006 Operating activities Net loss (164) (309) Adjustments to reconcile net loss to net cash provided (used) by operating activities: Depreciation and amortization of property, equipment and capitalized software 104� 79� Issuance of options and warrants for services 104� 93� Net change in assets and liabilities: Accounts receivable 210� (148) Inventories 29� 47� Prepaid expenses and other current assets 63� 11� Accounts payable (356) (251) Accrued liabilities and product returns (120) 80� Deferred revenue 61� 65� Net cash used by operating activities (69) (333) � Net cash used in investing activities Purchases of property and equipment (68) (292) Capitalized development and other intangibles (126) (59) Net cash used in investing activities (194) (351) � Net cash provided by (used in) financing activities Proceeds from stock options and warrants exercised 358� 120� Payments on long-term debt and capital leases (2) (2) Net cash provided by financing activities 356� 118� � � Net increase in cash and cash equivalents 93� (566) Cash and cash equivalents, beginning of period 3,130� 2,952� Cash and cash equivalents, end of period 3,223� 2,386� � Supplemental disclosure of cash flow information Interest paid 1� 0� Income taxes paid 0� 6�