MakeMusic, Inc. Announces Third Quarter 2009 Results

MINNEAPOLIS - (BUSINESS WIRE) - MakeMusic, Inc. (NASDAQ: MMUS) today announced financial results for the three and nine months ended September 30, 2009. Net revenues for the three and nine months ended September 30, 2009 were $4,346,000 and $11,661,000, a 9% decrease and 6% increase, respectively, compared to $4,765,000 and $10,988,000 for the same periods last year. The company also announced for the three and nine months ended September 30, 2009 a net income of $579,000 and $343,000, or $0.12 per diluted share and $0.07 per diluted share, respectively. These results represent a decrease from the reported net income of $971,000, or $0.20 per diluted share, for the three months ended September 30, 2008 and an increase over the net income of $11,000, or $0.00 per diluted share, for the nine months ended September 30, 2008.

The decrease in net revenue during the third quarter was attributable to the earlier release of Finale 2010 in the second quarter of June 2009, which shifted notation revenue from the third quarter to the second quarter of 2009. In 2008 and in prior years, the Finale upgrade was released in the third quarter. Notation revenue was $2,687,000 for the three months ended September 30, 2009, a 20% decrease from notation revenue of $3,361,000 during the same period in 2008. However, notation revenue for the nine months ended September 30, 2009 was $7,507,000, which was comparable to notation revenue of $7,542,000 during the nine months ended September 30, 2008.

SmartMusic subscriptions increased to 122,577 as of September 30, 2009, a 25% increase over the September 30, 2008 subscription count of 98,119. As a result of the increased base of subscriptions, SmartMusic subscription revenue continues to represent an increasing share of the company's revenue and was $988,000 for the three months ended September 30, 2009, a 29% increase over subscription revenue of $766,000 during the same period in 2008. Subscription revenue was $2,840,000 for the nine months ended September 30, 2009, a 28% increase over subscription revenue of $2,216,000 during the same period in 2008.

The following table illustrates the net new SmartMusic subscription data for the nine months ended September 30, 2009:

										Net New
										Subscriptions
										9 months
12/31/2008		New		Renewed		Subscriptions		9/30/2009		ended
Subscriptions		Subscriptions		Subscriptions		Ended		Subscriptions		9/30/2009
106,584		40,321		53,176		77,504		122,577		15,993

Renewed subscriptions are defined 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, subscribers may have a delay of up to two months in renewing their subscriptions.

Total SmartMusic educator accounts were 9,003 as of September 30, 2009, a 2% decrease compared to 9,165 educator accounts as of September 30, 2008. The number of educators who had issued a SmartMusic assignment increased 42% from 827 as of September 30, 2008 to 1,178 as of September 30, 2009. The number of SmartMusic Gradebook teachers, defined as teachers who deliver and manage SmartMusic student assignments to 50 students or more, was 453 as of September 30, 2009 and the average number of student subscriptions per Gradebook teacher was 54. As of September 30, 2008, the company reported 247 Gradebook teachers and an average number of student subscriptions per teacher of 46. The Gradebook teacher growth reflects an 83% annual increase. The number of SmartMusic site licenses totaled 236 as of September 30, 2009 compared to 178 a year ago. Finally, along with the release of SmartMusic 2010, the company released 322 new SmartMusic large ensemble band, jazz ensemble and orchestra titles with pre-authored assignments in the third quarter of 2009. This results in a total of 499 new titles since the beginning of the year.

Gross profit for the three months ended September 30, 2009 decreased by $422,000, to $3,617,000, compared to the three months ended September 30, 2008 and improved by $588,000, to $9,901,000, for the nine months ended September 30, 2009 compared to the same period in 2008. The decrease in gross profit for the three months ended September 30, 2009 is primarily due to the decrease in notation revenue during the quarter. The increase in gross profit for the nine months ended September 30, 2009 is primarily due to the increase in revenues, partially offset by higher software development amortization as a result of the expanded repertoire added to SmartMusic since July 1, 2008.

Operating expenses for the three months ended September 30, 2009 decreased by $24,000, to $3,058,000, primarily due to decreased marketing costs as a result of the timing of the Finale 2010 release compared to the prior year. Operating expenses increased by $262,000, to $9,608,000, for the nine months ended September 30, 2009 compared to the same period in 2008. These planned increases, primarily in development, were the result of increased personnel and contract labor costs to achieve numerous product development goals. General and administrative expenses also increased due to prior year sales tax expense which had not previously been collected from our customers in certain states.

Total cash increased by $938,000, to $7,530,000, during the first nine months of 2009. The increase in cash for the first nine months of the year is primarily due to the increased net income and the increased number of SmartMusic subscriptions, which increases the company's deferred revenue. During the first nine months of 2009, cash of $635,000 was used in investing activities, primarily to expand SmartMusic repertoire. By comparison, during the first nine months of 2008, $1,707,000 was used in investing activities.

CEO Ron Raup commented on third quarter results, "As we had anticipated, notation revenue during the third quarter was lower when compared to the third quarter of 2008. This is the result of our successful efforts to release our annual Finale upgrade in the second quarter rather than the third quarter as we have in the past. Notation revenue for the first nine months of 2009 has held steady compared to the first nine months of 2008.

"Because of the early Finale upgrade release, our development teams were subsequently able to release PrintMusic 2010, SongWriter^® 2010, and SmartMusic 2010 all in the third quarter. These releases benefit our back-to-school efforts, as well as lay important groundwork for holiday season sales for our notation products.

"We continue to see growth in SmartMusic subscriptions and are focusing on a higher level of strategic initiatives to ensure continued subscription sales momentum. We have expanded our social media efforts and general web presence and in September, hired Diane Hummon as our Senior Vice President of Marketing. In addition, we engaged an interactive design firm to assist our efforts in improving the SmartMusic user interface. Our objective is to make the SmartMusic experience more intuitive, engaging, rewarding and social. Towards this end, in the fourth quarter the company will release a series of fun repertoire titles allowing students to use our software in performing as the 'star', with recognizable titles, music on-screen and great-sounding professional accompaniment."

The company will be hosting a conference call today, November 4, 2009 at 3:30 p.m. CST to discuss these results. Participants should call 877-840-1316 and reference Conference ID Number 36213094. A replay of the conference call will be available through November 14, 2009. To access this replay, please dial 800-642-1687 or 706-645-9291.

About MakeMusic, Inc.
MakeMusic, Inc., a Minnesota corporation, 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. It has transformed the process by which composers, arrangers, musicians, teachers, students and publishers create, edit, audition, print and publish musical scores. Additionally, MakeMusic is the creator of SmartMusic, the complete practice tool for band, orchestra and voice and SmartMusic Gradebook^TM, the web-based student grading and records management system. Further information about the 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 financial performance and include any statement that does not directly relate to a current or historical fact. Our forward-looking statements in this release relate to our expectations for notation sales and SmartMusic subscription growth, our focus on strategic marketing initiatives, our efforts in improving the SmartMusic user interface and new title releases. Forward-looking statements cannot be guaranteed and actual results may vary materially due to the uncertainties and risks, known and unknown, associated with such statements. Examples of risks and uncertainties for MakeMusic include, but are not limited to, the success of our product development efforts, the impact of emerging and existing competitors, our ability to hire and retain key personnel and effective sales agents, our ability to successfully implement our marketing and sales strategies, errors in management estimates with respect to the seasonality of our business, fluctuations in general economic conditions including changes in discretionary spending, and those risks 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 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,
		2009			2008			2009			2008
Notation revenue		$	2,687		$	3,361		$	7,507		$	7,542
SmartMusic revenue			1,385			1,133			3,592			2,874
Other revenue			274			271			562			572
NET REVENUE			4,346			4,765			11,661			10,988
COST OF REVENUES			729			726			1,760			1,675
GROSS PROFIT			3,617			4,039			9,901			9,313
OPERATING EXPENSES:
Development expenses			1,220			1,182			3,728			3,466
Selling and marketing expenses			1,024			1,225			3,174			3,365
General and administrative expenses			814			675			2,706			2,515
Total operating expenses			3,058			3,082			9,608			9,346
INCOME (LOSS) FROM OPERATIONS			559			957			293			(33	)
Other, net			23			14			55			50
Net income before income tax			582			971			348			17
Income tax expense			3			0			5			6
Net Income		$	579		$	971		$	343		$	11
Income per common share:
Basic		$	0.12		$	0.21		$	0.07		$	0.00
Diluted		$	0.12		$	0.20		$	0.07		$	0.00
Weighted average common shares outstanding:
Basic			4,698,562			4,634,768			4,668,497			4,615,655
Diluted			4,794,315			4,939,271			4,766,535			4,983,017

MakeMusic, Inc.
Condensed Balance Sheets
(In thousands of U.S. dollars, except share data)
Assets			September 30,					December 31,
			2009					2008
			(Unaudited)
Current assets:
Cash and cash equivalents			$	7,530				$	6,592
Accounts receivable (net of allowance of $31 and $44 in
2009 and 2008, respectively)				1,277					1,397
Inventories				571					465
Prepaid expenses and other current assets				338					293
Total current assets				9,716					8,747
Property and equipment, net				614					673
Capitalized software products, net				2,674					2,631
Goodwill				3,630					3,630
Other non-current assets				7					10
Total assets			$	16,641				$	15,691
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of capital lease obligations			$	60				$	56
Accounts payable				561					373
Accrued compensation				1,231					1,170
Other accrued liabilities				209					272
Post contract support				146					146
Reserve for product returns				320					382
Current portion of deferred rent				31					30
Deferred revenue				2,561					2,336
Total current liabilities				5,119					4,765
Capital lease obligations, net of current portion				46					76
Deferred rent, net of current portion				16					39
Shareholders' equity:
Common stock, $0.01 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 4,708,599 and 4,635,529
in 2009 and 2008, respectively				47					46
Additional paid-in capital				66,021					65,716
Accumulated deficit				(54,608	)				(54,951	)
Total shareholders' equity				11,460					10,811
Total liabilities and shareholders' equity			$	16,641				$	15,691

MakeMusic, Inc.
Condensed Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
			9 Months
			Ended September 30,
			2009					2008
Cash flows from operating activities
Net income			$	343				$	11
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization				702					631
Gain on disposal of assets				(7	)				-
Stock based compensation				242					318
Net changes in assets and liabilities:
Accounts receivable				120					(30	)
Inventories				(106	)				(163	)
Prepaid expenses and other current assets				(45	)				(101	)
Accounts payable				166					174
Accrued liabilities and product returns				(108	)				(49	)
Deferred revenue				225					361
Net cash provided by operating activities				1,532					1,152
Cash flows from investing activities
Purchases of property and equipment				(196	)				(328	)
Proceeds from disposal of property and equipment				9					-
Capitalized development and other intangibles				(448	)				(1,379	)
Net cash used in investing activities				(635	)				(1,707	)
Cash flows from financing activities
Proceeds from stock options and warrants exercised				86					299
Payments on capital leases				(45	)				(42	)
Net cash provided by financing activities				41					257
Net increase (decrease) in cash and cash equivalents				938					(298	)
Cash and cash equivalents, beginning of period				6,592					6,041
Cash and cash equivalents, end of period			$	7,530				$	5,743
Supplemental disclosure of cash flow information
Interest paid			$	8				$	11
Income taxes paid				5					0
Other non-cash investment and financing activities
Equipment acquired under capital lease				19					0
Equipment addition included in accounts payable				22					0
Accrued liabilities associated with shares repurchased				22					0

MakeMusic, Inc.
Karen L. VanDerBosch, 952-906-3690
Chief Financial Officer
kvanderbosch@makemusic.com