UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2010
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
0-26192
(Commission File Number)
MAKEMUSIC, INC.
(Exact name of registrant as specified in its charter)
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Minnesota
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41-1716250
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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7615 Golden Triangle Drive, Suite M
Eden Prairie, Minnesota 55344-3848
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes
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No
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of
the latest practicable date: As of April 30, 2010 there were 4,815,803 shares of Common Stock
outstanding.
PART I. FINANCIAL INFORMATION
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Item 1.
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Condensed Financial Statements.
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MakeMusic, Inc.
Condensed Balance Sheets
(In thousands of U.S. dollars, except share data)
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March 31,
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December 31,
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2010
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2009
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(Unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$
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8,076
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$
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8,943
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Accounts
receivable (net of allowance of $38 and $33 in 2010 and 2009, respectively)
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1,375
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1,277
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Inventories
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287
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386
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Deferred income taxes, net
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1,587
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1,587
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Prepaid expenses and other current assets
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401
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294
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Total current assets
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11,726
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12,487
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Property and equipment, net
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512
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533
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Capitalized software products, net
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2,583
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2,645
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Goodwill
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3,630
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3,630
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Long term deferred income taxes, net
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1,075
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977
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Other non-current assets
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5
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6
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Total assets
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$
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19,531
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$
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20,278
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Liabilities and Shareholders’ Equity
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Current liabilities:
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Current portion of capital lease obligations
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62
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$
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61
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Accounts payable
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444
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726
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Accrued compensation
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737
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1,167
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Other accrued liabilities
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305
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297
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Post contract support
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132
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132
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Reserve for product returns
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534
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414
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Deferred revenue
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2,724
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2,913
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Total current liabilities
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4,938
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5,710
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Capital lease obligations, net of current portion
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14
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30
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Other long term liabilities
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—
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8
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Shareholders’ equity:
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Common stock, $0.01 par value:
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Authorized shares — 10,000,000
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Issued and outstanding shares — 4,815,324
and 4,756,891 in 2010 and 2009, respectively
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48
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48
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Additional paid-in capital
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66,146
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65,980
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Accumulated deficit
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(51,615
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(51,498
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Total shareholders’ equity
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14,579
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14,530
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Total liabilities and shareholders’ equity
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$
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19,531
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$
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20,278
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See Notes to Condensed Financial Statements
3
MakeMusic, Inc.
Condensed Statements of Operations
(In thousands of U.S. dollars, except share and per share data)
(Unaudited)
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3 Months
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Ended March 31,
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2010
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2009
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Notation revenue
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$
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2,568
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$
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2,617
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SmartMusic revenue
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1,432
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1,225
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NET REVENUE
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4,000
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3,842
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COST OF REVENUES
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651
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557
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GROSS PROFIT
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3,349
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3,285
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OPERATING EXPENSES:
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Development expenses
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1,322
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1,279
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Selling and marketing expenses
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1,199
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1,131
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General and administrative expenses
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1,038
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1,032
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Total operating expenses
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3,559
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3,442
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LOSS FROM OPERATIONS
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(210
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(157
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Other, net
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26
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14
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Net loss before income tax
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(184
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(143
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Income tax expense (benefit)
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(67
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2
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Net loss
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($117
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($145
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Loss per common share:
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Basic and diluted
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($0.02
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($0.03
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Weighted average common shares outstanding:
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Basic and diluted
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4,768,095
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4,644,410
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See Notes to Condensed Financial Statements
4
MakeMusic, Inc.
Condensed Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
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3 Months
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Ended March 31,
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2010
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2009
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Cash flows from operating activities
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Net loss
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($117
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($145
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Adjustments to reconcile net loss to net cash used by operating activities:
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Depreciation and amortization
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256
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237
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Deferred income taxes, net
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(98
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—
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Share based compensation
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160
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158
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Net changes in operating assets and liabilities:
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Accounts receivable
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(98
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(120
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Inventories
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99
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39
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Prepaid expenses and other current assets
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(107
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(75
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Accounts payable
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(282
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)
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78
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Accrued liabilities and product returns
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(310
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(178
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Deferred revenue
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(188
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(161
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Net cash used by operating activities
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(685
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)
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(167
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Cash flows from investing activities
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Purchases of property and equipment
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(68
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(126
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Capitalized development and other intangibles
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(105
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(173
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Net cash used in investing activities
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(173
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(299
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Cash flows from financing activities
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Payments on capital leases
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(15
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(15
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Proceeds from exercise of options
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6
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0
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Net cash used in financing activities
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(9
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(15
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Net decrease in cash and cash equivalents
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(867
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(481
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)
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Cash and cash equivalents, beginning of period
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8,943
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6,592
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Cash and cash equivalents, end of period
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$
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8,076
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$
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6,111
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Supplemental disclosure of cash flow information
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Interest paid
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$
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2
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$
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3
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Income taxes paid
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97
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2
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See Notes to Condensed Financial Statements
5
MakeMusic, Inc.
Notes to Condensed Financial Statements
(Unaudited)
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Note 1
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Accounting Policies.
The information
furnished in this report is unaudited but reflects all adjustments
that are necessary, in the opinion of management, for a fair
statement of the results for the interim period. The operating
results for three months ended March 31, 2010 are not necessarily
indicative of the operating results to be expected for the full
fiscal year. In preparing the accompanying financial statements,
management has evaluated subsequent events and has determined no
events have occurred that require disclosure. The Company believes
that although the disclosures contained herein are adequate to
prevent the information presented from being misleading, these
statements should be read in conjunction with the Company’s most
recent Form 10-K.
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Note 2
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Net Loss Per Share.
Net loss per share was calculated by dividing
the net loss by the weighted average number of shares outstanding
during the period. The effect of options and warrants are excluded
for the three-month periods ended March 31, 2010 and 2009 because
the effect is anti-dilutive.
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Note 3
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Income Tax Expense.
We account for income taxes using the asset
and liability method. We estimate our income taxes in each of the
jurisdictions in which we operate and account for income taxes
payable as part of the preparation of our financial statements.
This process involves estimating our actual current tax expense as
well as assessing temporary differences resulting from differing
treatment of items, such as depreciation and amortization, for
financial and tax reporting purposes. These differences result in
deferred tax assets and liabilities, which are included in our
balance sheet to the extent deemed realizable. We assess the
likelihood that, and the extent to which, our deferred tax assets
will be realized and establish a valuation allowance to reduce
deferred tax assets to an amount for which realization is more
likely than not. If we increase or decrease a valuation allowance
in a given period, then we must increase or decrease the tax
provision in our statements of income.
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As of December 31, 2009, we had U.S. net operating loss (“NOL”)
carry-forwards of approximately $17,824,000, Minnesota net
operating loss carry-forwards of $6,392,000, and research and
development tax credits of $1,069,000. The losses and tax credits
are carried forward for federal and state corporate income taxes
and may be used to reduce future taxes.
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Significant management judgment is required in determining any
valuation allowance recorded against our net deferred tax assets.
Prior to the fourth quarter of 2009, we remained uncertain on how
economic conditions would impact our back to school selling cycle
and annual financial results. Based upon our strong performance in
the fourth quarter of 2009, our operating results in recent years
and an assessment of our expected future results of operations, we
determined in 2009 that it had become more likely than not that we
would realize a portion of our net deferred tax assets. As a
result, during the fourth quarter of 2009, we reduced our valuation
allowance by $2,564,000, representing the approximate estimated tax
on three years of forecasted net income. Due to uncertainties
related to our ability to utilize the balance of our deferred tax
assets, as of March 31, 2010 we have maintained a valuation
allowance of $5,690,000. As of March 31, 2009, we had established a
valuation allowance offsetting all of our deferred tax assets.
Should the remaining $5,690,000 valuation allowance be reversed in
the future, a liability of $3,009,000 would have to be established
for uncertain tax positions.
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We recognize the financial statement benefit of a tax position only after determining
that the relevant tax authority would more likely than not sustain the position following an
audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized
in the financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. We
recorded a benefit for income taxes of $98,000 for the three months ended March 31, 2010. We
did not record a benefit for income taxes for the three months ended March 31, 2009.
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In addition, future utilization of NOL carry-forwards is subject to certain limitations
under Section 382 of the Internal Revenue Code. This section generally relates to a 50
percent change in ownership of a company over a three-year period. The acquisition of
additional shares by a greater than 5% shareholder in January 2007 resulted in an “ownership
change” under Section 382. Accordingly, our ability to use NOL’s in the future may be
limited.
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6
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As of March 31, 2010 and March 31, 2009, there are no open positions for which the
unrecognized tax benefits will significantly increase or decrease during the next twelve
months. Additionally, tax years still open for examination by Federal and major state
agencies as of March 31, 2010 are 2005-2009.
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Note 4
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Stock-Based Compensation.
The MakeMusic, Inc. 2003 Equity Incentive Plan (the “2003 Plan”),
as amended, reserves a total of 1,500,000 shares of our common stock for issuance under stock
options, restricted stock, performance awards and stock appreciation rights. The 2003 Plan is
administered by the Compensation Committee of the Board of Directors, which recommends to the
Board persons eligible to receive awards and the number of shares and/or options subject to
each award, the terms, conditions, performance measures, and other provisions of the award.
Readers should refer to Note 5 of our financial statements on Form 10-K for the fiscal year
ended December 31, 2009 for additional information related to our stock-based compensation
plans.
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We measure stock-based compensation cost at the grant date based on the fair value of the
award and recognize the compensation expense over the requisite service period, which is
generally the vesting period. For the three months ended March 31, 2010 and 2009, we
recognized $108,000 and $106,000, respectively, of expense related to stock based
compensation.
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We use the Black-Scholes option pricing model to estimate the fair value of stock-based
awards with the weighted average assumptions noted in the following table.
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March 31,
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March 31,
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2010
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2009
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Black-Scholes Model:
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Risk-free interest rate
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1.98
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%
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1.06
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%
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Expected life, in years
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4.4
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4.1
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Expected volatility
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79.30
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%
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75.40
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%
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Dividend yield
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0.00
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%
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0.00
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%
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|
|
Expected volatility is based on the historical volatility of our share price in the period
prior to option grant equivalent to the expected life of the options. The expected term is
based on management’s estimate of when the option will be exercised which is generally
consistent with the vesting period. The risk-free interest rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in effect at the
time of grant.
|
7
|
|
|
|
|
|
|
The following table represents stock option and restricted stock activity under the 2003
Plan for the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
Average
|
|
|
|
|
Reserved for
|
|
|
2003 Plan
|
|
|
Plan Option
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
Future Grant
|
|
|
Restricted Shares
|
|
|
Shares
|
|
|
Price
|
|
|
Contract Life
|
|
|
At December 31, 2009
|
|
|
586,047
|
|
|
|
24,116
|
|
|
|
445,755
|
|
|
$
|
5.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
(234,433
|
)
|
|
|
55,933
|
|
|
|
178,500
|
|
|
$
|
4.60
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,500
|
)
|
|
$
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010
|
|
|
351,614
|
|
|
|
80,049
|
|
|
|
621,755
|
|
|
$
|
4.96
|
|
|
3.8 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
Exercisable at
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
311,755
|
|
|
$
|
5.12
|
|
|
1.9 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2010 the aggregate intrinsic value of options outstanding was $752,000,
and the aggregate intrinsic value of options exercisable was $396,000.
|
|
|
|
|
|
|
|
At March 31, 2010 there was $558,000 of unrecognized compensation cost related to nonvested
share-based option payments which is expected to be recognized over a weighted-average
period of 2.1 years. At March 31, 2010 there was $200,000 of unrecognized compensation cost
related to the issuance of restricted stock which is expected to be recognized over a
weighted-average period of 2.3 years.
|
|
|
|
|
|
Note 5
|
|
Segment Reporting.
|
|
|
|
|
|
|
|
MakeMusic reports results of operations by two unique reportable segments, Notation and
SmartMusic.
|
|
|
|
|
|
|
|
The Notation segment includes the design, development and sales and marketing of music
notation software in the Finale family of products.
|
|
|
|
|
|
|
|
The SmartMusic segment includes the design, development, amortization of capitalized song
title development and sales and marketing of the subscription-based SmartMusic product line
and related accessories.
|
|
|
|
|
|
|
|
The remaining activities are included in “Other.” These are unallocated expenses which
include costs related to general and administrative and business systems functions that are
not directly attributable to a particular segment. Unallocated expenses are reported in the
reconciliation of the segment totals to consolidated totals as “Other” items.
|
|
|
|
|
|
|
|
Segment assets or other balance sheet information are not prepared or presented to
management. Therefore, information relating to segment assets is not presented.
|
8
The following table presents results of operations by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the 3 Months Ended March 31, 2010
|
|
|
For the 3 Months Ended March 31, 2009
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
Notation
|
|
|
SmartMusic
|
|
|
Other
|
|
|
Total
|
|
|
Notation
|
|
|
SmartMusic
|
|
|
Other
|
|
|
Total
|
|
|
NET REVENUE
|
|
$
|
2,568
|
|
|
$
|
1,432
|
|
|
$
|
0
|
|
|
$
|
4,000
|
|
|
$
|
2,617
|
|
|
$
|
1,225
|
|
|
$
|
0
|
|
|
$
|
3,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF REVENUES
|
|
|
214
|
|
|
|
437
|
|
|
|
0
|
|
|
|
651
|
|
|
|
182
|
|
|
|
375
|
|
|
|
0
|
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
2,354
|
|
|
|
995
|
|
|
|
0
|
|
|
|
3,349
|
|
|
|
2,435
|
|
|
|
850
|
|
|
|
0
|
|
|
|
3,285
|
|
|
Percentage of Net Revenue
|
|
|
92
|
%
|
|
|
69
|
%
|
|
|
0
|
%
|
|
|
84
|
%
|
|
|
93
|
%
|
|
|
69
|
%
|
|
|
0
|
%
|
|
|
86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development expenses
|
|
|
536
|
|
|
|
533
|
|
|
|
253
|
|
|
|
1,322
|
|
|
|
488
|
|
|
|
482
|
|
|
|
309
|
|
|
|
1,279
|
|
|
Selling and marketing expenses
|
|
|
503
|
|
|
|
459
|
|
|
|
237
|
|
|
|
1,199
|
|
|
|
481
|
|
|
|
457
|
|
|
|
193
|
|
|
|
1,131
|
|
|
General and administrative
expenses
|
|
|
18
|
|
|
|
17
|
|
|
|
1003
|
|
|
|
1,038
|
|
|
|
19
|
|
|
|
15
|
|
|
|
998
|
|
|
|
1,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
1,057
|
|
|
|
1,009
|
|
|
|
1,493
|
|
|
|
3,559
|
|
|
|
988
|
|
|
|
954
|
|
|
|
1,500
|
|
|
|
3,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(Loss) from Operations
|
|
|
1,297
|
|
|
|
(14
|
)
|
|
|
(1,493
|
)
|
|
|
(210
|
)
|
|
|
1,447
|
|
|
|
(104
|
)
|
|
|
(1,500
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income/(Expense)
|
|
|
0
|
|
|
|
0
|
|
|
|
93
|
|
|
|
93
|
|
|
|
0
|
|
|
|
0
|
|
|
|
12
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME/(LOSS)
|
|
$
|
1,297
|
|
|
|
($14
|
)
|
|
|
($1,400
|
)
|
|
|
($117
|
)
|
|
$
|
1,447
|
|
|
|
($104
|
)
|
|
|
($1,488
|
)
|
|
|
($145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2009, as a result of the reorganization of its internal reporting structure,
MakeMusic has two reporting units. Accordingly, effective January 1, 2009, MakeMusic
assigned all goodwill ($3.63 million) to the Notation reporting unit.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
MakeMusic’s mission is to develop and market solutions that transform how music is composed,
taught, learned and performed. This is accomplished by:
|
|
•
|
|
Providing integrated technology, content and web services to enhance and expand how
music is taught, learned and prepared for performance.
|
|
|
|
|
•
|
|
Providing music education content developers with a technology-enriched publishing
platform that leverages their copyrighted assets while simultaneously increasing the
content and value of the SmartMusic library.
|
|
|
|
|
•
|
|
Offering software solutions for engraving and electronically distributing sheet
music.
|
MakeMusic develops and markets two product lines, SmartMusic
®
learning software for
band, jazz ensemble, orchestra and voice, and Finale
®
music notation software. We
believe these innovative products reinforce each other’s features and competitiveness and will
allow us to continue to achieve positive operating results. The well-established Finale family of
music notation software products provides a solid base business base and generates consistent
revenue through sales of new products, annual upgrades and trade-up campaigns. Music notation
software is a niche business with limited growth opportunity since only a small percentage of
musicians ever notate music.
The first quarter of 2010 resulted in continued sales growth for SmartMusic, comparable sales
for Finale products and overall, a 4% increase over first quarter 2009 net revenue. Gross margin
percentages decreased to 84% in the first quarter of 2010 compared to 86% in the first quarter of
2009, due to a larger percentage of our total sales coming from SmartMusic. SmartMusic provides
lower gross margins than our notation products due to the amortization of software and repertoire
development, royalty payments to publishers and accessory sales. Operating
expenses increased 3% in the first quarter of 2010, primarily due to increased sales and
marketing expenses as a
9
result of increased staffing to accelerate our strategic sales and
marketing initiatives. As a result of the factors mentioned, net loss in the first quarter of 2010
was $117,000, compared to a net loss of $145,000 for the same period last year.
We believe our greatest growth potential lies with SmartMusic, a subscription-based product
directed toward the very large and constantly renewing market of music students and their teachers.
SmartMusic combines a software application, a library of method books, thousands of titles and
skill-development exercises and a web service to provide students with a compelling experience and
teachers with the realistic means to document the progress of every student.
SmartMusic software enhances and transforms the hours spent practicing by putting students
inside a professional band, orchestra or choir so that they can hear how the music is supposed to
be performed and how their part fits in. This makes practicing much more engaging, causing students
to practice longer and more often. SmartMusic provides access to an ever-increasing library of
band, jazz ensemble and orchestra literature. Each title includes individual part assignments
authored by respected educators, thereby providing music teachers with a time-saving solution for
preparing selections for their next performance. SmartMusic also offers a rich variety of effective
practice tools that make practice time more efficient and productive. The combination of making
practice time more engaging and productive leads to rapid student skill-development, increased
student confidence, higher student retention and stronger music programs.
SmartMusic Gradebook
™
is a web-based grade book that is included with each teacher
subscription designed to manage student assignments, grades and recordings while documenting the
progress of each student and assessing student achievement. This provides music educators (and
students) with exciting new possibilities to assist in developing strong music programs and
complying with accountability requirements. SmartMusic Gradebook enables teachers to easily send
assignments to each of their students. Students complete the assignment on their home computer
provided that they have a SmartMusic subscription, or on a school computer equipped with
SmartMusic. Submitted assignments are automatically graded and posted in the teacher’s SmartMusic
Gradebook thereby providing teachers with the viable means for measuring student achievement.
Our sales staff focuses on direct school district sales activities aimed at the 17,000 schools
who match our ideal demographic profile. We sell site licenses that provide discounts for volume
purchases. As of March 31, 2010 we had executed 356 site licenses, compared to 208 site licenses as
of March 31, 2009.
In addition to tracking the total number of subscriptions, we track the number of teachers who
use SmartMusic Gradebook as well as the number of those teachers who are using SmartMusic Gradebook
to deliver and manage student assignments to fifty students or more (Gradebook teachers). As of
March 31, 2010, we reported 1,156 Gradebook teachers compared to 829 Gradebook teachers as of March
31, 2009.
The following table illustrates our quarterly SmartMusic metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar-09
|
|
|
Jun-09
|
|
|
Sep-09
|
|
|
Dec-09
|
|
|
Mar-10
|
|
|
Total Subscriptions
|
|
|
110,318
|
|
|
|
111,059
|
|
|
|
122,577
|
|
|
|
133,782
|
|
|
|
139,363
|
|
|
Educator Accounts
|
|
|
9,091
|
|
|
|
8,616
|
|
|
|
9,003
|
|
|
|
9,269
|
|
|
|
9,368
|
|
|
Educators who have issued
assignments*
|
|
|
1,874
|
|
|
|
1,994
|
|
|
|
1,178
|
|
|
|
1,857
|
|
|
|
2,340
|
|
|
Gradebook Teachers *
|
|
|
829
|
|
|
|
874
|
|
|
|
453
|
|
|
|
886
|
|
|
|
1,156
|
|
|
Site Licenses
|
|
|
208
|
|
|
|
203
|
|
|
|
236
|
|
|
|
322
|
|
|
|
356
|
|
|
Site License Educator Subscriptions
|
|
|
1,461
|
|
|
|
1,417
|
|
|
|
1,762
|
|
|
|
2,181
|
|
|
|
2,458
|
|
|
|
|
|
|
*
|
|
Annual statistics that restart on July 1 of each year reflecting the start of the school-year cycle
|
The SmartMusic target business model is to have music educators increase their use of
SmartMusic Gradebook to set up their classes, enroll students and issue assignments, which we
believe would result in an increase in student subscriptions. As stated above, 2,340, or 25%, of
the teachers who have purchased SmartMusic have utilized SmartMusic Gradebook, and those teachers
have 151,235 students receiving SmartMusic assignments. This is an increase of 36,324 students, or
32%, since December 31, 2009 and shows continued adoption of the SmartMusic model. The number of
students receiving assignments exceeds the number of total subscriptions as students can use the
SmartMusic software in school practice rooms.
10
To accelerate the adoption of this target business model, we have initiated strategic sales
and marketing initiatives including increasing the size of our sales force and marketing staff. In
addition, our development efforts are focused on improving and simplifying the SmartMusic purchase
process, Gradebook class set-up, student enrollment and SmartMusic assignments. The overall
objective is to make these processes easy and intuitive for both teachers and students. These
product enhancements were included in SmartMusic 2010, which was released on July 28, 2009. As a
result of the increased focus of our direct sales force and the product enhancements, site license
educator subscriptions increased 68% from 1,461 at March 31, 2009 to 2,458 at March 31, 2010.
During the third quarter of 2009, we engaged a third-party user interface design firm to
assist in making the SmartMusic and Gradebook experience more intuitive, engaging, rewarding and
social. We believe this will result in faster growth of new subscribers and improved retention
rates. The enhancements will be included in our next product release scheduled for this summer.
Additionally, we have introduced popular solo-literature in our SmartMusic repertoire that will be
focused on student fun and making practice more enjoyable, and we anticipate releasing additional
popular solo titles in the future. We believe this will help to improve student subscription
renewals and create a more provocative value proposition for students and parents.
The following table illustrates the net new SmartMusic subscription for each quarter during
the year ended December 31, 2009 and for the quarter ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly
|
|
|
|
Beginning
|
|
|
|
|
|
Renewed
|
|
|
|
|
|
|
|
|
|
Quarter End
|
|
Net New
|
|
Quarter End Date
|
|
Subscriptions
|
|
New Subscriptions
|
|
Subscriptions
|
|
Renewal Rate
|
|
Subscriptions Ended
|
|
Subscriptions
|
|
Subscriptions
|
|
3/31/2009
|
|
|
106,584
|
|
|
|
10,609
|
|
|
|
12,241
|
|
|
|
64
|
%
|
|
|
19,116
|
|
|
|
110,318
|
|
|
|
3,734
|
|
|
6/30/2009
|
|
|
110,318
|
|
|
|
5,256
|
|
|
|
11,350
|
|
|
|
72
|
%
|
|
|
15,865
|
|
|
|
111,059
|
|
|
|
741
|
|
|
9/30/2009
|
|
|
111,059
|
|
|
|
24,456
|
|
|
|
29,585
|
|
|
|
70
|
%
|
|
|
42,523
|
|
|
|
122,577
|
|
|
|
11,518
|
|
|
12/31/2009
|
|
|
122,577
|
|
|
|
20,122
|
|
|
|
26,402
|
|
|
|
75
|
%
|
|
|
35,319
|
|
|
|
133,782
|
|
|
|
11,205
|
|
|
3/31/2010
|
|
|
133,782
|
|
|
|
11,590
|
|
|
|
15,330
|
|
|
|
72
|
%
|
|
|
21,339
|
|
|
|
139,363
|
|
|
|
5,581
|
|
We define renewed subscriptions as those subscriptions that customers purchase within the
two-month period after their prior subscription ended. Because of changes to the start of school
from year to year as well as fluctuations in the date that music teachers implement their
curriculum, we commonly see subscribers that have a delay of up to two months in renewing their
subscription. As a result, we believe that using the above definition of a renewal more accurately
reflects the renewal rate for SmartMusic subscriptions.
We have achieved positive cash flow from operations for the last six years, including the most
recent year ended December 31, 2009. With increased revenues and, in particular, the growth in
SmartMusic subscriptions, plus improvements in operational efficiency over the last few years, we
feel that we can continue to achieve positive operating cash flow for the next twelve months. Our
quarterly results will fluctuate as a result of the cyclicality of the education market. Due to the
current economic conditions and concerns over school budgets, we have established contingency plans
that will be implemented if certain revenue and cash flow objectives are not met, which we believe
will be adequate to maintain positive cash flow.
In our Form 10-K filed with the Securities and Exchange Commission for the year ended December
31, 2009, we identified critical accounting policies and estimates for our business that we are
incorporating herein by reference.
11
Results of Operations
Comparison of the three-month period ended March 31, 2010 to the three-month period ended March 31,
2009
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Incr (Decr)
|
|
|
% Change
|
|
|
Notation
|
|
$
|
2,568
|
|
|
$
|
2,617
|
|
|
($
|
49
|
)
|
|
|
-2
|
%
|
|
SmartMusic
|
|
|
1,432
|
|
|
|
1,225
|
|
|
|
207
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,000
|
|
|
$
|
3,842
|
|
|
$
|
158
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue increased 4% for the three months ended March 31, 2010 compared to the three
months ended March 31, 2009.
Notation revenue decreased by $49,000 to $2,568,000 when comparing the three-month periods
ended March 31, 2010 and 2009. Notation revenue was generally comparable to the prior year and
decreases during the quarter were due to reductions in our channel sales offset by stronger direct
sales of our Finale Academic products and downloads.
SmartMusic revenue for the quarter ended March 31, 2010, was $1,432,000, an increase of
$207,000, or 17%, over the quarter ended March 31, 2009. The increase in revenue is due to the
growth of total SmartMusic subscriptions, offset by a slight decrease in accessory revenue.
SmartMusic subscriptions have increased due in part to the success of our site license program
which encourages school district deployment of SmartMusic student subscriptions and our direct
sales force which focuses on district level sales. As of March 31, 2010, there were 356 site
licenses for SmartMusic. SmartMusic is sold to schools, students and music organization members on
a subscription basis. Revenue for these subscriptions is recognized over the life of the
subscription which is typically 12 months. Total earned SmartMusic subscription revenue for the
three-month period ended March 31, 2010 was $1,130,000, an increase of $219,000, or 24%, over the
three-month period ended March 31, 2009. This increase is due to the increase in the total number
of subscriptions. Total unearned SmartMusic subscription revenue (deferred revenue) was $2,633,000
as of March 31, 2010, an increase of $555,000, or 27%, over the balance at March 31, 2009 and a
decrease of $200,000, or 7%, compared to the balance of $2,833,000 at December 31, 2009. Deferred
SmartMusic revenue represents the future revenue to be recorded on current subscriptions and
fluctuates based on new subscription sales, the total number of subscriptions and the remaining
life of those subscriptions.
SmartMusic has shown sustained growth since its launch. More than 9,368 schools have purchased
SmartMusic, an increase of 3% over the 9,091 schools that had purchased it as of March 31, 2009.
Total SmartMusic subscriptions as of March 31, 2010 number 139,363, representing a net gain of
29,045, or 26% over the March 31, 2009 subscription count of 110,318.
SmartMusic Gradebook is a web-based service that is designed to manage student assignments,
recordings and grades while documenting the progress of each student and assessing student
achievement. We track teachers that use SmartMusic as well as the number of those teachers who are
using SmartMusic Gradebook to deliver and manage student assignments to 50 or more students
(Gradebook teachers). As of March 31, 2010, we had 1,156 SmartMusic Gradebook teachers compared to
829 Gradebook teachers at March 31, 2009. This is an annual statistic, counting only teachers who
have issued assignments to 50 or more students during a school fiscal year. The number of Gradebook
teachers restarts at zero on July 1 of each year to correspond with the start of the school year.
Many SmartMusic customers, especially new customers, also purchase accessories (primarily
microphones) that are used with the software. Revenue for the sales of accessories, included in the
SmartMusic revenue category, for the quarter ended March 31, 2010 was $173,000, which was a
decrease of $3,000, or 2%, from the revenue of $176,000 for SmartMusic accessories in the quarter
ended March 31, 2009. This slight decline is primarily due to a decrease in the sales of foot
pedals and microphone adaptors.
12
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Incr (Decr)
|
|
|
%
|
|
|
Notation
|
|
$
|
2,354
|
|
|
$
|
2,435
|
|
|
($
|
81
|
)
|
|
|
-3
|
%
|
|
SmartMusic
|
|
|
995
|
|
|
|
850
|
|
|
|
145
|
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,349
|
|
|
$
|
3,285
|
|
|
$
|
64
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit in the quarter ended March 31, 2010 increased by $64,000, to $3,349,000, compared
to the quarter ended March 31, 2009. Gross profit for notation decreased for the three months ended
March 31, 2010 due to the slight decrease in notation revenue and lower margins on a translated
version of a Finale site license order that shipped in the first quarter of 2010. There was no
comparable sale in the first quarter of 2009. The increase in SmartMusic gross profit for the three
months ended March 31, 2010 is a result of the increase in SmartMusic revenue offset by higher
repertoire development amortization as a result of our increased repertoire offered in SmartMusic.
Repertoire added into SmartMusic is amortized over a five-year period and repertoire development
amortization as a percentage of SmartMusic revenue was 12% for the current quarter as compared to
10% for the same quarter last year. We expect amortization related to repertoire development to
increase as we continue to add repertoire to SmartMusic. Gross margin as a percentage of sales was
84% for the three months ended March 31, 2010 and 86% for the three months ended March 31, 2009.
Development expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Incr (Decr)
|
|
|
% Change
|
|
|
Notation
|
|
$
|
536
|
|
|
$
|
488
|
|
|
$
|
48
|
|
|
|
10
|
%
|
|
SmartMusic
|
|
|
533
|
|
|
|
482
|
|
|
|
51
|
|
|
|
11
|
%
|
|
Other
|
|
|
253
|
|
|
|
309
|
|
|
|
(56
|
)
|
|
|
-18
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,322
|
|
|
$
|
1,279
|
|
|
$
|
43
|
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development expenses increased 3% to $1,322,000, from $1,279,000, when comparing the three
months ended March 31, 2010 and 2009. Development expenses consist primarily of internal payroll,
payments to independent contractors and related expenses for the development and maintenance of our
Finale notation, SmartMusic and SmartMusic Gradebook products as well as non-capitalized SmartMusic
repertoire development, business systems and quality assurance. Development expenses increased
primarily due to contractor labor to support the enhanced SmartMusic Gradebook functionality in the
upcoming summer release of SmartMusic 2011 and an increase of non-capitalized SmartMusic repertoire
development. During the quarter ended March 31, 2010, 48 new SmartMusic large ensemble band, jazz
ensemble, and orchestra titles with pre-authored assignments were released, compared to 177 new
titles in the quarter ended March 31, 2009.
Selling and marketing expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Incr
|
|
|
% Change
|
|
|
Notation
|
|
$
|
503
|
|
|
$
|
481
|
|
|
$
|
22
|
|
|
|
5
|
%
|
|
SmartMusic
|
|
|
459
|
|
|
|
457
|
|
|
|
2
|
|
|
|
0
|
%
|
|
Other
|
|
|
237
|
|
|
|
193
|
|
|
|
44
|
|
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,199
|
|
|
$
|
1,131
|
|
|
$
|
68
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses primarily consist of marketing, advertising and promotion
expenses, business development and customer service activities and payroll. Sales and marketing
expenses increased 6% to $1,199,000 in the quarter ended March 31, 2010 compared to $1,131,000 for
the quarter ended March 31, 2009. The increase in expenses is primarily due to increased personnel
relating to our strategic sales and marketing initiates.
13
General and administrative expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Incr (Decr)
|
|
|
% Change
|
|
|
Notation
|
|
$
|
18
|
|
|
$
|
19
|
|
|
($
|
1
|
)
|
|
|
-5
|
%
|
|
SmartMusic
|
|
|
17
|
|
|
|
15
|
|
|
|
2
|
|
|
|
13
|
%
|
|
Other
|
|
|
1,003
|
|
|
|
998
|
|
|
|
5
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,038
|
|
|
$
|
1,032
|
|
|
$
|
6
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses consist primarily of payroll and related expenses for
executive and administrative personnel, professional services, facility costs, amortization of
certain intangible assets with finite lives, bad debt and other general corporate expenses. General
and administrative expenses increased slightly by 1% to $1,038,000 during the first quarter of 2010
compared to $1,032,000 for the same period of 2009. General and administrative costs increased
primarily as a result of increases in legal expenses offset by a decrease in consulting expenses.
Loss from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Incr (Decr)
|
|
|
% Change
|
|
|
Notation
|
|
$
|
1,297
|
|
|
$
|
1,447
|
|
|
($
|
150
|
)
|
|
|
-10
|
%
|
|
SmartMusic
|
|
|
(14
|
)
|
|
|
(104
|
)
|
|
|
90
|
|
|
|
87
|
%
|
|
Other
|
|
|
(1,493
|
)
|
|
|
(1,500
|
)
|
|
|
7
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
($
|
210
|
)
|
|
($
|
157
|
)
|
|
($
|
53
|
)
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from operations increased by $53,000 to $210,000 for the three months ended March 31,
2010 compared to $157,000 in the three months ended March 31, 2009. We maintained our operating
performance in the first quarter due mainly to the continued performance of our SmartMusic product,
offset in part by the increased development and sales and marketing costs noted above, when
compared to the same period last year.
The notation segment results for the first quarter of 2010 reflects a 10% decrease in income
from operations due to lower net revenue and increased development and selling and marketing
expenses. SmartMusic loss from operations improved $90,000 due to increased SmartMusic revenue
offset by increased operating expenses, primarily due to increased development expenses.
Net Loss
Net loss in the first quarter of 2010 was $117,000, or $0.02 per basic and diluted share,
compared to net loss of $145,000, or $0.03 per basic and diluted share, in the first quarter of
2009. The comparable net loss during the first quarter was due mainly to the same factors noted
above.
Liquidity and capital resources
Net cash used by operating activities was $685,000 for the quarter ended March 31, 2010,
compared to $167,000 of cash used by operating activities in the quarter ended March 31, 2009. The
increase in cash used in the first quarter of 2010 compared to the same period in 2009 is primarily
due to increased working capital requirements. Working capital requirements increased due to the
higher year-end 2009 accounts payable balance for prior year sales tax filings which were paid
during the first quarter of 2010.
Net cash used in investing activities was $173,000 for the quarter ended March 31, 2010,
compared to $299,000 cash used in investing activities for the comparable quarter of 2009. The
decrease is primarily due to the decrease of capitalization of software development, primarily for
repertoire development. Our spending on repertoire development has declined due to reducing the
overall number of titles being developed, shifting from band to orchestra titles that have fewer
parts and are therefore less expensive, and moving engraving work in-house from external
contractors.
14
Net cash used by financing activities was $9,000 in the first quarter of 2010. This is the
comparable to net cash used by financing activities in the first quarter of 2009.
Cash and cash equivalents as of March 31, 2010 was $8,076,000 compared to $6,111,000 as of
March 31, 2009. The increase in cash is due to our net income reported for the year ended December
31, 2009 and the increase in SmartMusic subscription revenue during the first quarter of 2010. Our
quarterly revenues and operating cash flows are typically seasonal, with the first and second
quarters being historically lower than the third and fourth quarters. This seasonal pattern is
primarily due to timing of the upgrade releases of Finale, which in recent years has occurred in
the second or third quarters, and school budget cycles.
15
Item 4T. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures
. Our Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covering this report.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are effective to provide reasonable assurance that
information required to be disclosed in the reports that are filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified by the
Securities and Exchange Commission’s rules and forms and that our disclosure controls and
procedures are designed to ensure that information required to be disclosed in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our management including
our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
(b)
Changes in internal controls
. There were no changes in our internal controls over
financial reporting that occurred during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal controls over financial
reporting.
Forward Looking and Cautionary Statements
The preceding discussion and analysis should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report. Management’s Discussion and Analysis 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,” “anticipate,” and similar words or expressions. The forward-looking
statements in this report generally relate to: our expectations relating to the synergies that
exist between our two product lines, future operating results, cash flows from operations and
revenue growth from new SmartMusic subscriptions; our anticipated product release dates; our
expectations regarding our target business model and future subscription growth for SmartMusic; our
intent to expand SmartMusic repertoire, particularly with respect to solo literature; our plans
relating to marketing and sales efforts; our belief that updates to the SmartMusic and Gradebook
interface will result in subscription growth and higher retention rates; our expectation that
amortization will increase; our beliefs relating to adequacy of capital resources; and our beliefs
relating to the sufficiency of management’s contingency plans. 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. MakeMusic cautions investors that many important factors
have affected, and in the future could affect our 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 MakeMusic or on its behalf. These factors include, but are not limited to:
unforeseen capital demands; the market acceptance of Finale, SmartMusic, SmartMusic Gradebook and
other products; the success of our direct sales efforts; the success of our initiatives to improve
the user interface of our products; the maintenance of strategic partnerships and customer
relationships; our ability to license titles from music publishers; the effectiveness of, and our
ability to implement, our target business model; the limited and fluctuating sales of certain of
our products; the intense competition that we face; the rapid technological changes and
obsolescence in software industry; our dependence on key personnel and the proprietary nature of
our technology; other general business and economic conditions (including changes to discretionary
spending by schools and students); and those factors described from time to time in our reports to
the Securities and Exchange Commission (including our Annual Report on Form 10-K). 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. We do not intend to update publicly or revise any forward-looking
statements.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no sales of unregistered equity securities during the quarter ended
March 31, 2010.
Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved)
Item 5. Other Information
As previously disclosed, we named two new board of directors pursuant to an agreement
dated March 2, 2010 with LaunchEquity Partners, LLC and LaunchEquity Acquisition
Partners, LLC – Designated Series Education Partners. This agreement is attached as
Exhibit 10.1 to our 8-K filed March 3, 2010 and is incorporated herein by reference.
As previously disclosed on March 2, 2009, the Compensation Committee of the Board of
Directors adopted an Executive Incentive Compensation Plan (the “Executive Plan”). The
Compensation Committee subsequently approved revisions to the Executive Plan on May 5,
2009. The Executive Plan is applicable to our Chief Executive Officer, Chief Financial
Officer, certain other key employees and such other participants as the Compensation
Committee may designate in the future. Participants have the potential to earn cash,
restricted stock and options.
On February 23, 2010, as previously disclosed, the Compensation Committee determined
that for 2010, the performance targets are free cash flow, operating margins, asset
turns, Notation revenue, SmartMusic revenue and SmartMusic subscriptions, with a maximum
payout of $177,984 cash and $177,984 worth of restricted stock for our Chief Executive
Officer and a maximum payout of $114,330 cash and $114,330 worth of restricted stock
units for our Chief Financial Officer. The Executive Plan is attached and is
incorporated herein by reference as Exhibit 10.2 to our 10-Q filed May 5, 2009.
Item 6. Exhibits
See the attached exhibit index.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
|
MAKEMUSIC, INC.
|
|
|
Date: May 7, 2010
|
By:
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/s/ Ronald Raup
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Ronald Raup,
|
|
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Chief Executive Officer
(Principal Executive Officer)
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|
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And:
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/s/ Karen L. VanDerBosch
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Karen L.VanDerBosch,
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|
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Chief Financial Officer
(Principal Financial Officer)
|
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18
EXHIBIT INDEX
Form 10-Q
Three months ended March 31, 2010
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Exhibit No.
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Description
|
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10.1*
|
|
Form of Restricted Stock Agreement under the MakeMusic 2003 Equity
Incentive Plan, as amended March 15, 2010.
|
|
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10.2
|
|
Agreement dated March 2, 2010 among MakeMusic, Inc., Launch Equity Partners, LLC
and Launch Equity Acquisition Partners, LLC - Designated
Series Education Partners- incorporated by reference to Exhibit 10.1 to the Registrant’s 8-K filed March 3, 2010.
|
|
|
|
|
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31.1*
|
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Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
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31.2*
|
|
Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
|
|
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|
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32.1*
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
32.2*
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
19
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