MakeMusic Reports Third Quarter 2012 Results

  MakeMusic Reports Third Quarter 2012 Results

                      3^rd Quarter Net Revenues Rise 27%

Business Wire

MINNEAPOLIS -- November 06, 2012

MakeMusic, Inc. (NASDAQ: MMUS), a world leader in music technology, announced
financial results for the quarter ended September 30, 2012.

Chairman of the Board Robert Morrison commented, “The MakeMusic team executed
well in the third quarter, achieving a sizable increase in net revenues and
making solid headway with the company’s key growth initiatives.

We believe the commitment we made to invest in product development, sales and
marketing capabilities and personnel is positioning MakeMusic to leverage the
many changes in our markets and enhance our standing as a pre-eminent provider
of cutting-edge, interactive music software products.”

COO and CFO Karen VanDerBosch added, “Net revenues rose 27% compared to the
third quarter of 2011 and 17% on a year-to-date basis, reflecting the
expansion of MakeMusic’s product lines and continued SmartMusic® growth. We
ended the quarter with 201,838 SmartMusic subscriptions, a 14% increase over
September 2011. Both our rebranding and our technology initiatives have been
moving forward smoothly and we are on track to complete important
modernizations to our software platform and unveil our new version of Finale®
in mid-2013. It will offer many innovative features and a common file format
to provide a platform for future development.”

Financial Results for the Quarter Ended September 30, 2012 Compared to the
Quarter Ended September 30, 2011

  *Net revenues were $4.8 million, compared to $3.8 million.

       *Notation revenue was $2.4 million compared to $1.6 million. Included
         in 2012 Notation revenue was $216,000 relating to Garritan product
         sales.
       *SmartMusic revenue was $2.4 million compared to $2.2 million.

  *Gross profit was $4.0 million, or 82% of revenue, compared to $3.0
    million, or 79% of revenue.
  *Operating expenses were $4.9 million, compared to $3.3 million, due to
    previously-announced investments in our technology architecture and sales
    and marketing initiatives, as well as legal and financial advisory
    expenses associated with responding to the proposal received from
    LaunchEquity Partners, LLC in July 2012.
  *Net loss was $620,000, or $0.13 per basic and diluted share, compared to
    net loss of $205,000, or $.04 per basic and diluted share.

Financial Results for the Nine Months Ended September 30, 2012 Compared to the
Nine Months Ended September 30, 2011

  *Net revenues were $13.0 million, compared to $11.1 million.

       *Notation revenue was $6.8 million compared to $5.7 million. Included
         in 2012 Notation revenue was $699,000 relating to Garritan product
         sales.
       *SmartMusic revenue was $6.3 million compared to $5.5 million.

  *Gross profit was $11.0 million, or 84% of revenue, compared to $9.2
    million, or 83% of revenue.
  *Operating expenses were $14.7 million, compared to $10.1 million, due to
    previously-announced investments in our technology architecture and sales
    and marketing initiatives, as well as legal and financial advisory
    expenses associated with responding to the proposal received from
    LaunchEquity Partners, LLC in July 2012 and legal and severance expenses
    associated with the June 2012 departure of the company’s former CEO.
  *Net loss was $2.4 million, or $0.49 per basic and diluted share, compared
    to net loss of $690,000, or $0.14 per basic and diluted share.

Cash and cash equivalents were $5.9 million compared to $9.3 million as of
December 31, 2011. The decrease is attributable primarily to our technology
and marketing investments, as well as our strategic alternatives review
process.

Strategic Alternatives Review Process

The Special Committee appointed by MakeMusic’s Board of Directors is
continuing to evaluate strategic alternatives including, but not limited to,
the July 15, 2012 proposal from its largest shareholder, LaunchEquity
Partners, LLC, other potential strategic transactions to realize the long-term
value of the Company, or continuing as an independent, public company with the
Company’s current growth plans. In August 2012 the Special Committee retained
Lazard Middle Market LLC to advise the Special Committee during its
deliberations and assist it in determining the course of action that it
believes is in the best interests of MakeMusic and its shareholders. No
assurance can be given as to whether this process, which is ongoing, will
result in a proposed transaction, whether any transaction that may be proposed
as a result of such process would be acceptable to the Company, the Special
Committee and the Board, or whether any such proposed transaction will be
announced or consummated.

Conference Call Information

The company will hold a conference call to review operating results for the
quarter ended September 30, 2012, today, Tuesday, November 6, 2012, at 3:30
p.m. CST / 4:30 p.m. EST. To access the call, participants should call
888-463-4487 or 706-679-5355 and reference Conference ID #43445815. Two hours
after the completion of the conference call, a digital recording will be
available for replay by calling 855-859-2056 or 404-537-3406. The recording
will be available through November 13, 2012.

About MakeMusic, Inc.

MakeMusic^®, Inc. is a world leader in music technology whose mission is to
develop and market solutions that transform how music is composed, taught,
learned and performed. For more than 20 years, Finale^® has been the industry
standard in music notation software, enabling composers, arrangers, musicians,
teachers, students and publishers to create, edit, audition, print and publish
musical scores. MakeMusic is also the creator of SmartMusic^®  interactive
software that is transforming the way students practice. With SmartMusic,
students and teachers have access to thousands of band, orchestra and vocal
pieces allowing students to practice with background accompaniment and get
immediate feedback on their performance. SmartMusic allows teachers to
individualize instruction and document the progress of every student. The
SmartMusic Inbox^™, an Android^™ and Apple^® mobile application, provides
additional access for teachers to review, grade and comment on student
assignments. MusicXML^™ is an Internet-friendly way to publish musical scores,
enabling musicians to distribute interactive sheet music online and to use
sheet music files with a wide variety of musical applications. Garritan^™
sound libraries provide musicians with state-of-the-art virtual instruments
with the playback quality of a live performance. Additional information about
this Minnesota company can be found 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 include any statement that does not directly
relate to a current or historical fact. Our forward-looking statements in this
release relate to our expectations regarding: the opportunities created by
technology upgrades; expected timing for future product offerings; the
implementation of branding, marketing and sales efforts; and the Board and
Special Committee’s evaluation of strategic alternatives. 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: (i) the ability of our management team to successfully
implement growth initiatives for SmartMusic; (ii) market acceptance of our
products; (iii) the impact of changing technology on our product upgrades;
(iv) delays in finalizing and implementing product modernization initiatives;
(v) risks and uncertainties relating to a possible transaction and process of
exploring strategic alternatives; and (vi) those factors described from time
to time in our reports to the Securities and Exchange Commission (including
our Annual Report on Form 10-K). 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 do not intend to update publicly or revise
any forward-looking statements.


MakeMusic, Inc.

Condensed Balance Sheets

(In thousands of U.S. dollars, except share data)
                                                               
                                                  September 30,   December 31,
Assets                                            2012            2011
                                                  (Unaudited)     
Current assets:
Cash and cash equivalents                         $  5,894        $  9,296
Accounts receivable (net of allowance of $5 and      1,862           1,539
$9 in 2012 and 2011, respectively)
Inventories                                          488             291
Deferred income taxes, net                           2,338           2,338
Prepaid expenses and other current assets           359           362     
Total current assets                                 10,941          13,826
                                                                  
Property and equipment, net                          589             441
Capitalized software products, net                   3,872           3,113
Finite life intangible assets                        843             1,020
Goodwill                                             4,483           4,483
Deferred income taxes, net                          1,457         57      
Total assets                                      $  22,185      $  22,940  
                                                                  
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of capital lease obligations      $  3            $  4
Accounts payable                                     824             585
Accrued compensation                                 1,138           676
Other accrued expenses                               626             508
Post contract support                                125             125
Reserve for product returns                          243             214
Current portion of deferred revenue                 4,828         4,208   
Total current liabilities                            7,787           6,320
                                                                  
Capital lease obligations, net of current            8               -
portion
Deferred revenue, net of current portion            114           123     
Total liabilities                                   7,909         6,443   
                                                                  
Shareholders’ equity:
Common stock, $0.01 par value:
Authorized shares – 10,000,000
Issued and outstanding shares – 4,898,707 and
4,934,020
in 2012 and 2011, respectively                       49              49
Additional paid-in capital                           67,107          66,930
Accumulated deficit                                 (52,880  )     (50,482 )
Total shareholders’ equity                          14,276        16,497  
Total liabilities and shareholders’ equity        $  22,185      $  22,940  



MakeMusic, Inc.

Condensed Statements of Operations

(In thousands of U.S. dollars, except share and per share data)

(Unaudited)

                3 Months                       9 Months
                 Ended September 30,             Ended September 30,
                 2012           2011            2012           2011
Notation         $ 2,377         $ 1,647         $ 6,766         $ 5,653
revenue
SmartMusic        2,438         2,158         6,273         5,459     
revenue
NET REVENUE        4,815           3,805           13,039          11,112
                                                                 
COST OF           853           783           2,082         1,911     
REVENUES
                                                                 
GROSS PROFIT      3,962         3,022         10,957        9,201     
                                                                 
OPERATING
EXPENSES:
Development        1,971           971             5,457           3,271
expenses
Selling and
marketing          1,846           1,384           5,105           3,632
expenses
General and
administrative     1,123           907             4,177           3,004
expenses
Patent
litigation        -             -             -             225       
expense
Total
operating         4,940         3,262         14,739        10,132    
expenses
                                                                 
LOSS FROM          (978      )     (240      )     (3,782    )     (931      )
OPERATIONS
                                                                 
Other, net        11            38            64            91        
Net loss
before income      (967      )     (202      )     (3,718    )     (840      )
tax
Income tax
expense           (347      )    3             (1,320    )    (150      )
(benefit)
Net loss          ($620     )    ($205     )    ($2,398   )    ($690     )
                                                                 
Loss per
common share:
Basic and          ($0. 13   )     ($0.04    )     ($0.49    )     ($0.14    )
diluted
                                                                 
Weighted
average common
shares
outstanding:
Basic and          4,898,707       4,908,829       4,921,142       4,884,755
diluted



MakeMusic, Inc.

Condensed Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)
                                                     
                                                       9 Months
                                                       Ended September 30,
                                                       2012        2011
Cash flows from operating activities
Net loss                                               $ (2,398 )   $ (690   )
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization                            1,073        826
Loss on disposal of asset                                5            -
Deferred income taxes, net                               (1,400 )     (208   )
Share based compensation                                 171          293
Net changes in operating assets and liabilities:
Accounts receivable                                      (323   )     (505   )
Inventories                                              (197   )     (134   )
Prepaid expenses and other current assets                3            (76    )
Accounts payable                                         239          (91    )
Accrued expenses and product returns                     615          (659   )
Deferred revenue                                        611        531    
Net cash used in operating activities                   (1,601 )    (713   )
                                                                    
Cash flows from investing activities
Purchases of property and equipment                      (325   )     (239   )
Capitalized development and other intangibles           (1,472 )    (453   )
Net cash used in investing activities                   (1,797 )    (692   )
                                                                    
Cash flows from financing activities
Proceeds from stock options exercised                    -            87
Payments on redemption of stock options                  -            (18    )
Repurchase of common stock                               -            (291   )
Payments on capital leases                              (4     )    (24    )
Net cash used in financing activities                   (4     )    (246   )
                                                                    
Net decrease in cash and cash equivalents                (3,402 )     (1,651 )
Cash and cash equivalents, beginning of period          9,296      11,532 
Cash and cash equivalents, end of period               $ 5,894     $ 9,881  
                                                                    
Supplemental disclosure of cash flow information
Interest paid                                          $ 2          $ 1
Income taxes paid                                        97           124
Non-cash investment and financing activities
Equipment acquired under capital lease                   11           -

Contact:

Company:
MakeMusic, Inc.
Karen VanDerBosch, 952-906-3690
Chief Operating Officer & Chief Financial Officer
kvanderbosch@makemusic.com
or
Investor Relations:
LHA
Harriet Fried / Jody Burfening
212-838-3777
hfried@lhai.com
 
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