MMUS Makemusic, Inc. (MM)

MakeMusic, Inc. (Nasdaq:MMUS) today announced financial results for the three months and six months ended June 30, 2007. Net revenues for the three and six months ended June 30, 2007 were $2,403,000 and $5,674,000, a 12% and 8% increase respectively, compared to $2,147,000 and $5,235,000 for the same periods last year. We also announced for the three and six months ended June 30, 2007 a net loss of $705,000 and $869,000, or $(0.17) and $(0.22) per basic and diluted share, respectively. These results represent an improvement over the reported net loss of $714,000 and $1,024,000, or $(0.18) and $(0.26) per basic and diluted shares, respectively, for the same periods last year. The increase in net revenue during the second quarter and first half of the year was primarily attributable to continued growth in SmartMusic� revenue as well as continued strong performances from our Allegro� and PrintMusic� products. SmartMusic revenue includes revenue from SmartMusic subscriptions and accessories related to the SmartMusic product. Total SmartMusic revenue increased by $99,000, or 21%, to $571,000 for the three months ended June 30, 2007 compared to same period in 2006. Total SmartMusic revenue for the six-month period ended June 30, 2007 increased by $220,000, or 23%, compared to the first six months in 2006. As disclosed in our Annual Report on Form 10-KSB, we were anticipating the release of SmartMusic 10.0 and SmartMusic Impact� in early 2007. We released these products in April and expect that they will result in continued growth in revenue beginning Fall of 2007 with back-to-school teacher purchases. The SmartMusic subscription service continues to show steady growth and represents an increasing share of net revenue. Subscription revenue was $456,000 for the three months ended June 30, 2007, a 19% increase over subscription revenue of $382,000 during the same period in 2006. Subscription revenue was $937,000 for the six months ended June 30, 2007, a 27% increase over subscription revenue of $743,000 during the same period in 2006. As of June 30, 2007, MakeMusic had 61,028 active SmartMusic subscriptions, a 24% increase over the 49,182 active subscriptions as of June 30, 2006. Total schools using SmartMusic reached 6,205 as of June 30, 2007 compared to 5,178 as of June 30, 2006. Additionally, with the release of SmartMusic 10.0 and SmartMusic Impact in April 2007, we began tracking and reporting Impact Teachers. Impact Teachers are teachers using SmartMusic 10.0 who have issued assignments to 50 or more students. After six weeks since the introduction of Impact during the final weeks of the school year, we closed the quarter with 26 Impact Teachers, and the average number of student subscriptions per Impact Teacher was 29. Notation revenue increased by $150,000 to $1,748,000 when comparing the three-month periods ended June, 2007 and 2006, and increased by $198,000 to $4,302,000 when comparing the six-month periods ended June 30, 2007 and 2006. Gross profit for the three-month period ended June 30, 2007 increased by $195,000 to $1,993,000 compared to the three months ended June 30, 2006, and improved by $399,000 to $4,867,000 for the six months ended June 30, 2007 compared to the same period in 2006. The increase in gross profit for the three and six months ended June 30, 2007 is due to the increase in revenues and a slightly higher gross margin percentage. Operating expenses for the three-and six-month periods ended June 30, 2007 were $2,723,000, and $5,792,000, respectively, a 7% and 5% increase from $2,544,000 and $5,537,000 for the same periods last year, respectively. Development expenses for the three and six months ended June 30, 2007 increased by $192,000 and $282,000, respectively, when compared to the same periods last year. Development expenses continue to increase as we expand our SmartMusic repertoire and invest in the implementation of our new SmartMusic Impact product. Sales and marketing expenses remained mostly flat for the quarter but decreased by $76,000 for the first half of 2007 compared to the same period last year. General and administrative expenses for the quarter decreased by $27,000 but increased by $49,000 for the first half of 2007 compared to the quarter and six months last year. General and administrative expenses increased for the first half mainly due to our Sarbanes-Oxley 404 implementation and consulting expenses relating to FIN48 adoption. During the six-month period ended June 30, 2007 we used $131,000 of cash in operating activities compared to $443,000 in the comparable period of 2006. The improvements in cash used in 2007 compared to the same periods in 2006 are primarily a result of the reduction in net loss for the periods and significantly improved cash collections resulting in reduced accounts receivable. �We continued our positive revenue growth in the second quarter as a result of expansion of our SmartMusic subscription base and sustained increases in notation revenue,� said John Paulson, CEO. �We plan to implement a direct SmartMusic sales strategy in the third quarter of 2007, in which we will introduce school district level pricing, increase our sales staff to focus on district sales, and initiate lead generation marketing. Our increased investment in repertoire development is focused on building a persuasive band solution to ensure we have the content music educators require in their band programs. Significant choral and orchestra titles will then be added. As a result of these investments, we anticipate continued growth of SmartMusic subscriptions.� 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 belief that SmartMusic revenue and subscriptions will continue to grow and our plans to implement a direct SmartMusic sales strategy in the third quarter of 2007, hire sales agents focused on district sales, initiate lead generation marketing, and increase our investment in repertoire development. 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 impact of emerging and existing competitors, our ability to hire and retain effective sales agents and successfully implement our marketing and sales strategies, 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 6 Months Ended June 30, Ended June 30, 2007 2006 2007 2006 Notation Revenue 1,748 1,598 4,302 4,104 Smart Music Revenue 571 472 1,158 938 Other Revenue 84 77 214 193 NET REVENUE 2,403 2,147 5,674 5,235 � COST OF REVENUES 410 349 807 767 � GROSS PROFIT 1,993 1,798 4,867 4,468 � OPERATING EXPENSES: Development expenses 1,026 834 2,004 1,722 Selling and marketing expenses 871 857 1,961 2,037 General and administrative expenses 826 853 1,827 1,778 � Total operating expenses 2,723 2,544 5,792 5,537 � LOSS FROM OPERATIONS (730) (746) (925) (1,069) � Interest Income 33 32 66 51 Interest Expense (8) 0 (9) 0 Other income (expense) 0 0 0 1 Net loss before income tax (705) (714) (868) (1,017) � Income tax 0 0 1 7 Net loss (705) (714) (869) (1,024) � Loss per common share: Basic (0.17) (0.18) (0.22) (0.26) Diluted (0.17) (0.18) (0.22) (0.26) � Weighted average common shares outstanding: Basic 4,109,392 3,910,490 4,074,962 3,899,360 Diluted 4,109,392 3,910,490 4,074,962 3,899,360 MakeMusic, Inc. Condensed Balance Sheets (In thousands of U.S. dollars) � Assets June 30, December 31, 2007(Unaudited) 2006 Current assets: Cash and cash equivalents $3,084 $3,130 Accounts receivable (net of allowance of $126 and $149 in 2007 and 2006, respectively) 957 1,664 Inventories 397 347 Prepaid expenses and other current assets 113 199 Total current assets 4,551 5,340 � Property and equipment, net 819 663 Capitalized software products, net 1,127 954 Goodwill, net 3,630 3,630 Other non-current assets 25 � 39 Total assets 10,152 � 10,626 � Liabilities and shareholders� equity Current liabilities: Current portion of capital lease obligations 55 10 Accounts payable 231 507 Accrued compensation 1,001 1,066 Other accrued liabilities 64 254 Post contract support 181 181 Reserve for product returns 507 429 Current portion of deferred rent 26 25 Deferred revenue 1,199 1,199 Total current liabilities 3,264 3,671 � Capital lease obligations, net of current portion 161 15 Deferred rent, net of current portion 82 96 � Shareholders� equity: Common stock, $0.01 par value: Authorized shares � 10,000,000 Issued and outstanding shares � 4,119,522 and 3,971,229 in 2007 and 2006, respectively 41 40 Additional paid-in capital 63,565 62,896 Accumulated deficit (56,961) (56,092) Total shareholders� equity 6,645 6,844 Total liabilities and shareholders� equity $10,152 $10,626 MakeMusic, Inc. Condensed Statements of Cash Flows (In thousands of U.S. dollars) (Unaudited) � 6 Months 6 Months Ended Ended June 2007 � June 2006 Operating activities Net loss (869) (1,024) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization of property, equipment and capitalized software 289 173 Issuance of options and warrants for services 161 171 Net change in assets and liabilities: Accounts receivable 707 176 Inventories (50) 126 Prepaid expenses and other assets 97 43 Accounts payable (277) (226) Accrued liabilities and product returns (189) 89 Deferred revenue 0 � 29 Net cash used in operating activities (131) (443) � Net cash used in investing activities Purchases of property & equipment (107) (396) Capitalized development and other intangibles (305) � (217) Net cash used in investing activities (412) (613) � Net cash provided by financing activities Proceeds from stock options & warrants exercised 509 121 Payments on long-term debt and capital leases (12) � (3) Net cash provided by financing activities 497 118 � � � Net decrease in cash and cash equivalents (46) (938) Cash and cash equivalents, beginning of period 3,130 � 2,952 Cash and cash equivalents, end of period 3,084 � 2,014 � Supplemental disclosure of cash flow information Interest paid 8 0 Income taxes paid 0 7 � Other non-cash investment and financing activities Equipment acquired under capital lease 203 0