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MakeMusic Reports Fourth Quarter and Fiscal Year 2012 Results

  MakeMusic Reports Fourth Quarter and Fiscal Year 2012 Results

Business Wire

MINNEAPOLIS -- March 13, 2013

MakeMusic, Inc. (NASDAQ: MMUS), a world leader in music technology, announced
financial results for the period ended December 31, 2012. As previously
announced and further explained below, MakeMusic has entered into a definitive
agreement with LaunchEquity Partners, LLC pursuant to which MakeMusic expects
to be acquired in an all-cash transaction.

Chairman of the Board Robert Morrison commented, “Our SmartMusic^® business
performed well during the fourth quarter and we continued our work to launch
new and enhanced versions of Finale^® and SmartMusic in mid-2013. We are
pleased with the progress we are making towards these goals, as well as with
our other product development, sales and marketing initiatives, including our
upcoming release of an iPad^® version of SmartMusic. We remain focused on
developing and offering fresh and innovative solutions that advance the ways
in which music is composed, taught, learned and performed.”

COO and CFO Karen VanDerBosch added, “SmartMusic subscriptions rose to 209,418
as of December 31, 2012, a 17% year-over-year increase and SmartMusic revenue
increased by 15% in 2012. This growth was offset by a decline in notation
revenue, reflecting year-over-year changes in the timing of a new release of
Finale. Our push to modernize our notation software platform is on schedule
and we look forward to unveiling the new product mid-year. In addition, we
completed our rebranding initiatives to achieve a more consistent look and
feel for our products. Just last week we launched a new version of MakeMusic’s
website that has our new branding and enhanced e-commerce capabilities.”

Financial Results for the Quarter Ended December 31, 2012 Compared to the
Quarter Ended December 31, 2011

  *Net revenues were $4.7 million, compared to $5.9 million.

       *Notation revenue was $2.3 million compared to $3.8 million. Included
         in 2012 Notation revenue was $320,000 relating to Garritan^TM product
         sales. A new version of Finale was released in October 2011, but not
         in 2012.
       *SmartMusic revenue was $2.4 million compared to $2.1 million.

  *Gross profit was $3.8 million, or 81% of revenue, compared to $5.0
    million, or 86% of revenue. The gross profit percentage decline is due to
    product mix.
  *Operating expenses were $5.0 million, compared to $4.0 million, due to
    previously announced investments in our technology architecture, increased
    expenses due to sales and marketing initiatives and legal and financial
    advisory expenses associated with responding to the proposal received from
    LaunchEquity Partners, LLC in July 2012.
  *Net loss was $1.3 million, or $0.26 per basic and diluted share, compared
    to net income of $694,000, or $0.14 per basic and diluted share.

Financial Results for the Year Ended December 31, 2012 Compared to the Year
Ended December 31, 2011

  *Net revenues were $17.7 million, compared to $17.0 million.

       *Notation revenue was $9.1 million compared to $9.5 million. Included
         in 2012 Notation revenue was $1.0 million relating to Garritan
         product sales.
       *SmartMusic revenue was $8.7 million compared to $7.5 million.

  *Gross profit was $14.8 million, or 83% of revenue, compared to $14.2
    million, or 84% of revenue.
  *Operating expenses were $19.8 million, compared to $14.1 million, due to
    previously announced investments in our technology architecture, increased
    expenses due to sales and marketing initiatives and legal and financial
    advisory expenses associated with responding to the proposal received from
    LaunchEquity Partners, LLC in July 2012. Additionally, there were
    increases in legal and severance expenses associated with the June 2012
    departure of the company’s former CEO.
  *Net loss was $3.7 million, or $0.74 per basic and diluted share, compared
    to net income of $4,000, or $0.00 per basic and diluted share.

Cash and cash equivalents were $5.7 million compared to $9.3 million as of
December 31, 2011. The decrease is attributable primarily to our technology
and sales and marketing investments, as well as our strategic alternatives
review process.

In light of MakeMusic’s pending acquisition by LaunchEquity, MakeMusic will
not conduct a conference call to review the company’s financial results.

LaunchEquity to Acquire MakeMusic

On March 13, 2013, LaunchEquity Partners, LLC and MakeMusic, Inc. announced a
definitive merger agreement, pursuant to which LaunchEquity would acquire
MakeMusic, subject to satisfaction of customary closing conditions, in an
all-cash transaction. The transaction is structured as a tender offer followed
by a back-end merger. At the effective time of the merger, each share of
common stock that has not been tendered and accepted at the offer price of
$4.85 per share in the tender offer (other than shares owned by LaunchEquity
or its affiliates or shares subject to perfected appraisal rights under
applicable law) will be converted into the right to receive the offer price of
$4.85 per share. MakeMusic anticipates that tender offer materials will be
provided to shareholders around the end of March 2013.

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.

Forward-Looking Statements

Statements in this earnings release regarding the proposed transaction between
MakeMusic and LaunchEquity, the expected timetable for completing the
transaction, future financial and operating results, future product
introductions, and beliefs, goals, plans or prospects constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Generally, forward-looking statements include
expressed expectations, estimates and projections of future events and
financial performance and the assumptions on which these expressed
expectations, estimates and projections are based. Statements that are not
historical facts, including statements about the beliefs and expectations of
the parties and their management are forward-looking statements. All
forward-looking statements are inherently uncertain as they are based on
various expectations and assumptions about future events, and they are subject
to known and unknown risks and uncertainties and other factors that can cause
actual events and results to differ materially from historical results and
those projected. Risks and uncertainties include the satisfaction of closing
conditions for the acquisition, including the tender of a number of shares
that, when added to the shares owned by LaunchEquity and its affiliates,
constitutes a majority of MakeMusic’s outstanding shares on a fully-diluted
basis; the possibility that the transaction will not be completed, or if
completed, not completed on a timely basis; the ability of MakeMusic’s
management team to successfully implement growth initiatives for SmartMusic;
market acceptance of MakeMusic’s products; the impact of changing technology
on MakeMusic’s product upgrades; delays in finalizing and implementing product
modernization initiatives.

Neither LaunchEquity nor MakeMusic can give any assurance that any of the
transactions contemplated by the agreement will be completed or that the
conditions to the tender offer and the back-end merger will be satisfied. A
further list and description of additional business risks, uncertainties and
other factors can be found in MakeMusic’s Annual Report on Form 10-K for the
fiscal year ended December31, 2012, as well as other MakeMusic SEC filings.
Copies of these filings, as well as subsequent filings, are available online
at www.sec.gov and www.makemusic.com. Many of the factors that will determine
the outcome of the subject matter of this communication are beyond
LaunchEquity’s or MakeMusic’s ability to control or predict. Neither
LaunchEquity nor MakeMusic undertakes to update any forward-looking statements
as a result of new information or future events or developments.

Important Additional Information

The tender offer described in this earnings release for all of the outstanding
shares of common stock of MakeMusic has not yet commenced. LaunchEquity
intends to file tender offer documents with the Securities and Exchange
Commission (the “SEC”). This earnings release is for informational purposes
only and does not constitute an offer to purchase, or a solicitation of an
offer to sell, shares of common stock of MakeMusic, nor is it a substitute for
the tender offer documents. Investors and MakeMusic shareholders are strongly
advised to read the tender offer documents, the related
solicitation/recommendation statement on Schedule14D-9 that will be filed by
MakeMusic and the related Schedules 13E-3 that will be filed by MakeMusic and
LaunchEquity with the SEC, and other relevant materials when they become
available, because they will contain important information.

Investors and MakeMusic shareholders can obtain copies of these materials (and
all other related documents filed with the SEC) when available, at no charge
on the SEC’s website at www.sec.gov. Copies can also be obtained at no charge
by directing a request to LaunchEquity at LaunchEquity Partners, LLC, 4230 N.
Oakland Avenue #317, Shorewood, WI 53211-2042, or by phone at (414) 390-8221.
Investors and MakeMusic shareholders may also read and copy any reports,
statements and other information filed by LaunchEquity or MakeMusic with the
SEC, at the SEC public reference room at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 or visit the SEC’s website for
further information on its public reference room.

                               MakeMusic, Inc.

                                Balance Sheets

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

                                                       December 31,
Assets                                                 2012        2011
Current assets:
Cash and cash equivalents                              $5,730         $9,296
Accounts receivable (net of allowance of $7 and $9 in
2012 and 2011, respectively)                           1,286          1,539
Inventories                                            392            291
Deferred income taxes, net                             2,612          2,338
Prepaid expenses and other current assets              429            362
Total current assets                                   10,449         13,826
                                                                      
Property and equipment, net                            631            441
Capitalized software products, net                     3,927          3,113
Finite life intangible assets                          782            1,020
Goodwill                                               4,483          4,483
Deferred income taxes, net                             1,086          57
Total assets                                           $21,358        $22,940
                                                                      
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of capital lease obligations           $3             $4
Accounts payable                                       875            585
Accrued compensation                                   961            676
Other accrued expenses                                 673            508
Post contract support                                  125            125
Reserve for product returns                            344            214
Current portion of deferred revenue                    5,161          4,208
Total current liabilities                              8,142          6,320
                                                                      
Capital lease obligations, net of current portion      6              -
Deferred revenue, net of current portion               115            123
Total liabilities                                      8,263          6,443
                                                       
Shareholders’ equity:
Common stock, $0.01 par value:
Authorized shares – 10,000,000
Issued and outstanding shares – 4,906,707 and          49             49
4,934,020 in 2012 and 2011, respectively
Additional paid-in capital                             67,180         66,930
Accumulated deficit                                    (54,134)       (50,482)
Total shareholders’ equity                             13,095         16,497
Total liabilities and shareholders’ equity             $21,358        $22,940

                               MakeMusic, Inc.

                           Statements of Operations

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

                             3 Months                 12 Months
                             Ended December 31,          Ended December 31,
                             2012       2011            2012       2011
Notation revenue             $2,314      $3,814          $9,080      $9,467
SmartMusic revenue           2,389       2,068           8,662       7,527
NET REVENUE                  4,703       5,882           17,742      16,994
                                                                     
COST OF REVENUES             882         846             2,964       2,757
                                                                     
GROSS PROFIT                 3,821       5,036           14,778      14,237
                             81%         86%             83%         84%
OPERATING EXPENSES:
Development expenses         2,097       1,367           7,554       4,638
Selling and marketing        1,829       1,550           6,934       5,182
expenses
General and administrative   1,089       1,049           5,266       4,053
expenses
Patent litigation expense    -           -               -           225
                                                                     
Total operating expenses     5,015       3,966           19,754      14,098
                                                                     
INCOME (LOSS) FROM            (1,194)   1,070           (4,976)     139
OPERATIONS
                                                                     
Other income, net            40          24              104         115
Net income (loss) before     (1,154)     1,094           (4,872)     254
income tax
                                                                     
Income tax expense (benefit) 100         400             (1,220)     250
NET INCOME (LOSS)            ($1,254)    $694            ($3,652)    $4
                                                                     
Income (Loss) per common
share:
Basic                        ($0.26)     $0.14           ($0.74)     $0.00
Diluted                      ($0.26)     $0.14           ($0.74)     $0.00
                                                                     
Weighted average common
shares outstanding:
Basic                        4,900,272   4,933,027       4,915,896   4,896,922
Diluted                      4,900,272   4,947,052       4,915,896   4,917,557

                               MakeMusic, Inc.

                           Statements of Cash Flows

                        (In thousands of U.S. dollars)

                                                        Year
                                                        Ended December 31,
                                                        2012        2011
Cash flows from operating activities
Net income (loss)                                       ($3,652)       $4
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization                           1,453          1,138
Loss on disposal of assets                              8              -
Deferred income taxes, net                              (1,303)        165
Share based compensation, net of forfeitures            223            482
Net changes in operating assets and liabilities,
excluding the effect of 2011 business acquisitions:
Accounts receivable                                     253            (255)
Inventories                                             (101)          (90)
Prepaid expenses and other current assets               (67)           (110)
Accounts payable                                        290            (29)
Accrued expenses and reserve for product returns        586            (668)
Deferred revenue                                        945            632
Net cash (used in) provided by operating activities     (1,365)        1,269
                                                                       
Cash flows from investing activities
Purchases of property and equipment                     (433)          (346)
Business acquisitions, net of acquired cash             -              (2,344)
Capitalized development and other intangibles           (1,783)        (588)
Net cash used in investing activities                   (2,216)        (3,278)
                                                                       
Cash flows from financing activities
Proceeds from stock options exercised                   20             111
Payments for redemption of stock options                -              (22)
Repurchase of common stock                              -              (291)
Payments on capital leases                              (5)            (25)
Net cash provided by (used in) financing activities     15             (227)
                                                                       
Net decrease in cash and cash equivalents               (3,566)        (2,236)
Cash and cash equivalents, beginning of year            9,296          11,532
Cash and cash equivalents, end of year                  $5,730         $9,296
                                                                       
Supplemental disclosure of cash flow information
Interest paid                                           $2             $3
Income taxes paid                                       97             124
Non-cash investment and financing activities
Equipment acquired under capital lease                  11             -

Contact:

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