<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
QRS Music Technologies, Inc.
----------------------------------------------
(Name of Small Business Issuer in its charter)
Delaware 36-3683315
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2011 Seward Avenue, Naples FL 34109
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number ( 941 ) 597 - 5888
-------------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None N/A
-------------------- ------------------------------
Securities to be registered under Section 12(g) of the Act:
Common, $0.01 par value
Please contact J. Scott Hunter at, Clyde Snow Sessions & Swenson
(801) 322-2516; 201 South Main, Suite 1300, Salt Lake City, Utah 84111
regarding any comments or questions.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
QRS Music Technologies, Inc. ("Registrant") is a Delaware Corporation which
was formed in January, 1990. During fiscal year ended June 30, 2000,
Registrant's primary lines of business were manufacture and sale of
Pianomation-Registered Trademark- Music Instrument Digital Interface ("MIDI"),
manufacture and sale of Story & Clark pianos, sale of MIDI CDs and floppy disks
and manufacture and sale of music rolls for player pianos. Registrant's
corporate offices and Pianomation-Registered Trademark- development facilities
and showroom are located in Naples, Florida. Registrant has a warehouse, piano
restoration and showroom facility in Las Vegas, Nevada, piano manufacturing and
Pianomation-Registered Trademark- assembly and showroom facilities in Seneca,
Pennsylvania, and a piano roll manufacturing and warehouse facility and software
development facility in Buffalo, New York. See "Consolidated Financial
Statements" for financial information.
PIANOMATION-Registered Trademark-
The Pianomation-Registered Trademark- MIDI System is a Musical Instrument
Digital Interface equipped playback system for acoustic and digital pianos.
Pianomation-Registered Trademark-, which is Registrant's flagship product,
automates Registrant's own line of Story & Clark pianos, and can be retrofitted
by independent installers into virtually any brand of piano. Several major piano
manufacturers, including Baldwin Piano & Organ Co, Samick Music Corporation and
Young Chang Pianos, have selected Pianomation-Registered Trademark- as an OEM
choice for factory installation in new instruments.
The Pianomation-Registered Trademark- product consists of an electronic
processor and a mechanical assembly which drives solenoid actuators. The
processor receives MIDI signals from a MIDI master controller such as a CD
player, disk drive or personal computer. The signals received from the master
controller are processed by the Pianomation-Registered Trademark- processor
which in turn causes the mechanical solenoid actuators to "play" the piano's
keys. The MIDI signal contains, and the Pianomation-Registered Trademark-
processor transmits, the information necessary to control the duration of each
note and the level of expression and foot pedal operation. The
Pianomation-Registered Trademark- system is unique as it is the only system
currently available which not only controls the mechanical operation of a piano
but synchronizes the MIDI signal with a separate track containing an audio music
signal and stores both tracks in analog format on a CD. This allows the
Pianomation-Registered Trademark- system to enhance the piano performance with a
vocalist, symphony orchestra or other recorded music.
The ease of installation and minimal service requirements of the
Pianomation-Registered Trademark- system and the proprietary software which
allows the conversion of a digital signal into analog format are principal
features. A unique low profile solenoid rail actuates the keys, and can be
easily regulated to the touch of the host piano to a high degree of sensitivity.
In fact, Pianomation-Registered Trademark- can actually play at volume levels
below the capabilities of the human pianist for the ultimate in background
music. The sustain pedal is operated by a specially designed solenoid, or can be
simulated by the system's exclusive "Magic Pedal" feature.
Pianomation's-Registered Trademark- flexibility and open-ended architecture
allow a wide range of use and flexibility for all current and future playback
formats. With QRS CDs, Pianomation-Registered Trademark- can play unobtrusively
with solo piano music or with concert-quality performances that include audio
accompaniment; with QRS videos, Pianomation-Registered Trademark- can be used
for group sing-alongs or karaoke; with QRS floppies, Pianomation-Registered
Trademark- can drive a
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general MIDI system for the MIDI enthusiast; and, with various computer
programs, it can serve the working musician as a MIDI slave, interacting on a
sophisticated level with all manner of MIDI equipment. Registrant also sells the
Playola System of portable piano automation. Unlike the Pianomation-Registered
Trademark- System which requires installation by a trained technician, the
Playola system consists of only two components which can be easily placed on and
removed from a piano by a user. Playola is also MIDI compatible.
PIANOMATION-Registered Trademark- MANUFACTURER
The components of the Pianomation-Registered Trademark- MIDI System and
Playola system are manufactured for Registrant by a number of different
suppliers. With the exception of a number of small pieces, Registrant has
located more than one supplier for each component. It maintains an inventory of
components which it believes would be sufficient to continue its business if the
single source vendor of small pieces should cease to adequately supply ordered
parts. Registrant assembles some of the Pianomation-Registered Trademark- System
and Playola components in its Pennsylvania facility. In large part, the
Pianomation-Registered Trademark- System is shipped in kit form for installation
by a technician into an acoustic piano. Registrant believes there to be ample
sources and quantities of raw materials for the manufacture of all components.
PIANOMATION-Registered Trademark- DISTRIBUTION
Registrant distributes the Pianomation-Registered Trademark- system as an
option on its Story & Clark pianos, through approximately 250 independent piano
retailers and independent piano technicians who install the system on pianos
initially sold by the retailer or as a retrofit on pianos owned by customers.
Registrant also distributes through OEM sales to large piano manufacturers such
as Baldwin Piano and Organ Co., Young Chang Pianos and Samick Music Corporation
and other distributors who private label the system. Playola is distributed
though the same network of independent piano retailers.
STORY & CLARK PIANOS
Registrant manufactures, imports and sells pianos under the Story & Clark
trademark. The Story & Clark line includes reproducing player pianos, grand
pianos, console and studio pianos, nickelodeons, custom leaded glass panel
pianos, roll players, and various piano accessories such as piano benches and
lamps. Currently, Story & Clark is the only manufacturer in the world of paper
roll player pianos, portable player piano devices (Playola) and nickelodeon
pianos. In 1997, Story & Clark introduced the Hampton Grand Piano which is one
of only two art-case pianos being manufactured in the United States. Story &
Clark is one of only six piano manufactures currently making pianos in the
United States. All Story & Clark pianos, including imported pianos, are
thoroughly serviced and prepared by factory piano technicians prior to sale. All
Story & Clark pianos are pre-slotted to allow for easy later installation of the
Pianomation-Registered Trademark- system. Registrant also sells its pianos under
the Hobart M. Cable trademark.
PIANO MANUFACTURE
With the exception of its Prelude and Cambridge lines, all Story & Clark
pianos are manufactured at Registrant's 46,000 square foot facility in Seneca,
Pennsylvania. The Prelude and Cambridge lines are imported from the Peoples
Republic of China. Registrant believes that there is an adequate supply of all
materials used to build its pianos in Pennsylvania. Registrant also believes
there are other sources of imported pianos if current supply were interrupted.
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PIANO DISTRIBUTION
Registrant distributes its pianos through a network of approximately 125 to
150 independent piano stores. Registrant arranges for third-party-floor-plan
financing of purchases by those stores. Registrant is contingently liable to
repurchase pianos financed and repossessed by any of its third-party-floor-plan
lenders. Recently, Registrant began retailing its pianos through its own
showrooms in Naples and Las Vegas.
PLAYER PIANO ROLLS
Registrant is the only major manufacturer in the world of paper player
piano rolls. Registrant has master recording data for over 5,000 music titles
for player piano rolls and maintains an inventory of over 50,000 music rolls at
its Buffalo facility. Registrant contracts with copyright owners for
nonexclusive rights to produce various musical selections and then with artists
who actually perform the musical selection. Registrant has master rolls
representing the only player piano performance of Liberace and one of only a few
of the performances of Scott Joplin, Fats Waller, George Gershwin and other
famous pianists. Celebrity performance of musical selections are done on
Registrant's vintage Marking Piano. The marking piano marks a paper roll which
is then converted into a digital format which is used to operate custom roll
perforating machines. Non-celebrity performances are done on a digital keyboard
or computer. All raw materials for the rolls are readily available from multiple
sources. Registrant also sells player piano accessories.
ROLL DISTRIBUTION
Player piano rolls and player piano accessories are primarily sold though
mail order catalog. Registrant maintains a mailing list of over 88,000 qualified
buyers. Registrant also sells player piano rolls and accessories on its internet
web site and through approximately 75 independent dealers.
MIDI CDS AND FLOPPY DISKS
Registrant has an inventory of 2000 musical data files in MIDI format which
it sells in CD and floppy disk format and as downloads on its internet web site.
The CDs are primarily used for electronic player devices such as
Pianomation-Registered Trademark-. The floppy disks and web downloads can be
used on digital keyboards, computers and any other MIDI sequencer.
COMPETITION
Pianomation-Registered Trademark- has two major competitors, Yamaha Music
and PianoDisc. The Yamaha Disklavier system is only available as a factory
installed option on Yamaha pianos. The PianoDisc system is retrofitable.
Registrant believes that it had in calendar year 1999 approximately 35% of the
electronic grand piano retrofit market and approximately 31% of the vertical
piano retrofit market. * Principal competitive factors are reliability,
features, system flexibility and ease of installation. Registrant believes it
competes well as a result of the reliability of its system, ease of
installation, and the ability to store live recorded background music including
vocals as well as piano signal on one CD.
Story & Clark competes with very large and small piano manufacturers and
has a very small portion of the market. Principal competitive factors are
distribution channels, trademark and price. Registrant competes
-------------------
* 1999 Music Industry Census
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only by filling niche markets including player pianos and nickelodeons. It is
not currently competing in the mass distribution market for pianos.
New player rolls are sold by only one other company which does not market
to the United States. Used player piano rolls are sold by numerous individuals.
EMPLOYEES
Registrant employs 79 full-time employees and 5 part-time employees.
PATENTS TRADEMARKS AND LICENSES
Registrant has 3 United States Trademark registrations: Registration No.
658,518 (QRS logo), Registration No. 2,190,286 (QRS), and Registration No.
2,227,035 (Pianomation). Registrant is the exclusive licensee of Patent #
4953039 which is the technology upon which Pianomation is based. The term of the
license is the life of the patent which was filed in 1988 and issued in 1990.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.
Certain statements in this Form 10-SB constitute "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Registrant to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
competition; seasonality; success of operating initiatives; new product
development and introduction schedules; acceptance of new product offerings;
advertising and promotional efforts; adverse publicity; changes in business
strategy or development plans; availability and terms of capital; labor and
employee benefit costs; changes in government regulations; and other factors
particular to Registrant.
GENERAL.
The Registrant's fiscal year ends each June 30, and the fiscal years ended
June 30, 2001, June 30, 2000 and June 30, 1999 are referred to as " fiscal
2001", "fiscal 2000" and "fiscal 1999", respectively.
Registrant is a Delaware Corporation and is a manufacturer and distributor
of pianos, pianomation units, and compact discs and music rolls for use in
player pianos. Registrant sells its products to dealers and end-users,
predominately in the United States and has divisions in New York, Pennsylvania,
Florida and Nevada.
FISCAL 2000 COMPARED TO FISCAL 1999.
SALES. Total sales increased 33.0% from $10.3 million in fiscal 1999 to
$13.7 million in fiscal
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2000. Increased sales of Pianomation systems accounted for the largest portion
of the overall increase, improving approximately $3.0 million over fiscal 1999
sales. The improved Pianomation system sales were the result of Registrant
adding two new piano manufacturers as distributors during fiscal 2000.
Registrant only had one piano manufacturer as a distributor in fiscal 1999. The
addition of the two new distributors accounted for approximately $1.2 million of
the increase.
COSTS AND EXPENSES. Total cost of sales increased 35.2% from $7.5 million
in fiscal 1999 to $10.2 million in fiscal 2000. As a percentage of sales,
however, cost of sales only increased 1.3 percentage points from 73.1% in fiscal
1999 to 74.4% in fiscal 2000. The minor increase is a result in a slight shift
in the sales mix.
Selling, general and administrative expenses ("S,G&A") increased 3.8% from
$1.9 million in fiscal 1999 to $2.0 million in fiscal 2000; however, as a
percentage of sales, S,G&A improved 4.2 percentage points from 18.9% in fiscal
1999 to 14.7% in fiscal 2000. The improvement is mostly due to the fixed nature
of the majority of Registrant's S,G&A expenses. Research and development
expenses increased 87.5% from $182,000 in fiscal 1999 to $341,000 in fiscal 2000
due to Registrant developing several new products in fiscal 2000 which were
mostly product enhancements and additions to its Pianomation system.
INTEREST EXPENSE, NET. Net interest expense decreased 3.4% from $142,000 in
fiscal 1999 to $137,000 in fiscal 2000. Registrant did not receive any proceeds
from borrowings during fiscal 2000.
PROVISION FOR INCOME TAXES. Registrant's effective tax rate for fiscal 1999
and fiscal 2000 was 22.1% and 44.4%, respectively. The variation in the
effective rate for the tax provision in fiscal 2000 and the tax provision in
fiscal 1999 is primarily due to the fiscal 2000 reversal of a prior year
deferred tax valuation allowance of $160,000 (see Note 8 to the Consolidated
Financial Statements).
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999.
SALES. Total sales increased 44.6% from $2.5 million in first three months
of fiscal 2000 to $3.5 million in the first three months of fiscal 2001.
Increased sales of Pianomation systems accounted for the largest portion of the
overall increase, improving approximately $1.1 million over the same period in
the prior year. The improved Pianomation sales were the result of Registrant
adding two new piano manufacturers after the first quarter of fiscal 2000.
Registrant only had one piano manufacturer as a distributor in the fiscal 2000
first quarter. The addition of the two new distributors accounted for
approximately $410,000 of the increase.
COSTS AND EXPENSES. Total cost of sales increased 51.9% from $1.7 million
in first three months of fiscal 2000 to $2.6 million in the first three months
of fiscal 2001. As a percentage of sales, cost of sales only increased 3.5
percentage points from 69.7% in first quarter of fiscal 2000 to 73.2% in the
first quarter of fiscal 2001. The increase relates to a shift in the sales mix.
Selling, general and administrative expenses ("S,G&A") increased 21.2% from
$512,000 in the first quarter of fiscal 2000 to $621,000 in the first quarter of
fiscal 2001; however, as a percentage of sales, S,G&A improved 3.4 percentage
points from 20.9% in first three months of fiscal 2000 to 17.5% in the first
three months of fiscal 2001. The improvement is mostly due to the fixed nature
of the majority of
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Registrant's S,G&A expenses. Research and development expenses increased from
$11,000 in the first quarter of fiscal 2000 to $45,000 in the first three months
fiscal 2001 due to Registrant developing several new products after December
1999 which were mostly product enhancements and additions to its Pianomation
system.
INTEREST EXPENSE, NET. Net interest expense decreased 28.4% from $47,000 in
the first quarter of fiscal 2000 to $33,000 in the first quarter of fiscal 2001.
PROVISION FOR INCOME TAXES. Registrant accrued a provision for federal and
state income taxes at a rate of 30% and 10% during the first quarter of fiscal
2001 and fiscal 2000, respectively.
LIQUIDITY AND CAPITAL RESOURCES.
The primary sources of Registrant's cash are net cash flows from operating
activities and short-term vendor financing. Currently, Registrant does not have
available any established lines of credit with banking facilities.
Registrant's cash and cash equivalents were $1.0 million and $512,000 at
June 30, 2000 and 1999, respectively. Fiscal 2000 earnings before interest,
taxes, depreciation and amortization ("EBITDA") increased $505,000 to $1,277,000
from $772,000 in fiscal 1999. The increase relates directly to greater sales in
fiscal 2000 along with the benefit of having a fixed nature attributable to many
of the Registrant's expenses.
The Registrant has a note payable to a lending institution due May 2002
with a balloon payment of approximately $919,000 payable at that time (see Note
4 to the Consolidated Financial Statements). Registrant intends to refinance
this note prior to the due date and has had favorable informal conversations
with the lending institution suggesting that refinancing the note is likely.
Registrant believes its current available cash position, coupled with its
cash forecast for the year and periods beyond, is sufficient to meet its cash
needs on both a short-term and long-term basis. There are no major capital
expenditures planned for in the foreseeable future, nor any payments planned for
off-balance sheet obligations. Registrant's management is not aware of any known
trends or demands, commitments, events, or uncertainties, as they relate to
liquidity which could negatively affect Registrant's ability to operate and grow
as planned.
ITEM 3. DESCRIPTION OF PROPERTIES.
Registrant owns a 24,000 square foot building in Buffalo, New York which is
used for piano roll manufacture and warehouse, a 46,000 building in Seneca
Pennsylvania which is used as a piano manufacturing and warehouse facility, and
a 17,000 square foot building in Seneca Pennsylvania which is used for
Pianomation-Registered Trademark- System assembly and warehouse. Registrant
leases from its President and largest shareholder, 4,000 square feet of office
and warehouse space in Naples, Florida. The Naples location is Registrant's
principal corporate office. Registrant leases from an unrelated party an
additional 1,500 square feet of showroom space in Naples, Florida. Registrant
leases from its president and largest shareholder approximately 6000 square feet
of showroom and warehouse space in Las Vegas, Nevada. The principle provisions
of those leases are as follows:
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<TABLE>
<CAPTION>
Location Base Rent Per Month Date of Lease Expiration
-------- ------------------- ------------- ----------
<S> <C> <C> <C>
Offices and Warehouse $2,000 01/01/1993 12/31/2012
Naples, Florida
Showroom $ 834 04/01/2000 04/01/2020
Naples, Florida
Showroom and Warehouse $6,250 04/01/2000 month-to-
Las Vegas, Nevada month
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS.
The following table sets forth as of June 30, 2000, the number of
Registrant's voting securities beneficially owned by persons who own five
percent or more of Registrant's voting stock, by each director, and by all
officers and directors as a group. The table presented below includes shares
issued and outstanding, and warrants to purchase shares and options exercisable
within 60 days.
<TABLE>
<CAPTION>
Name and Address Number of Percent
Title and of Type of Shares of
Class Beneficial Owner Ownership Owned Class
--------- ----------------- --------- --------- -------
<S> <C> <C> <C> <C>
$.01 par Richard Dolan Record and 6,440,491* 66%
Beneficial
$.01 par Ann Jones Record and 200,063 2%
Beneficial
$.01 par Geoffry Matlin Record and 14,000 ***
Beneficial
Common Stock
$.01 par value All Officers and Record and 6,654,554** 68%
Common Stock Directors as a Beneficial
Group (3 persons)
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
DIRECTORS AND OFFICERS. The Directors and Executive Officers of Registrant
and the positions held by each of them are as follows. All directors serve until
Registrant's next annual meeting of shareholders.
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* Includes 771,407 shares owned by family members of which Mr. Dolan
disclaims ownership. Also includes 534,925 shares of Series A preferred
stock with is convertible into shares of common stock.
** The directors and officers have sole voting and investment power as to the
shares beneficially owned by them.
*** Less than one percent
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<TABLE>
<CAPTION>
Serving as
Director of Position Held With
Name Age Registrant Since the Registrant
---- --- ---------------- ------------------
<S> <C> <C> <C>
Richard A. Dolan 64 1990 President, Chief Executive Officer, Director
Ann A. Jones 35 1996 Secretary, Treasurer, Chief Financial Officer, Director
Geoffry Matlin 49 1998 Director
</TABLE>
BIOGRAPHICAL INFORMATION.
Richard A. Dolan
For more than the past five years, Mr. Dolan has been majority shareholder,
President, Chief Executive Officer and a director of Registrant. He was the
founder of and has been the principal owner, Chairman, and President of Alltech
Associates, Inc since 1971. Prior to 1971 he was Research Director of Simoniz in
Europe. Mr. Dolan has a Bachelor of Science in chemistry from DePaul University,
a Master of Science degree in chemistry from Roosevelt University.
Ann A. Jones
Ms. Jones has been Secretary, Treasurer, Chief Financial Officer and Director of
Registrant since 1996. From June 1988 to June 1996 Ms. Jones has served in
various capacities with Registrant including customer service and manager. Ms
Jones has a Bachelor of Science degree in hotel and resort management from the
Rochester Institute of Technology.
Geoffry Matlin
Geoffry Matlin has been a director of the Registrant since September 1998. From
1998 to the present, Mr. Matlin has been the Chief Financial officer of Alltech
Associates, Inc., a manufacturer and distributor of chromatography equipment.
From 1995 to 1998 he was the corporate controller of Alltech.
ITEM 6. EXECUTIVE COMPENSATION.
The following table sets forth information concerning compensation for
services in all capacities by the Registrant and its subsidiaries for fiscal
years ended June 30,1998, 1999 and 2000 of those persons who were, at June 30,
2000, the Chief Executive Officer of the Registrant and other highly compensated
executive officers and employees of Registrant.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
---------------- ------------
Securities
Name and principal Other Annual Underlying
Position Year Salary Compensation(3) Options/SARs
------------------ ---- ------ --------------- ------------
<S> <C> <C> <C> <C>
Richard Dolan
President, CEO 1998 $ -- $ -- --
1999 -- -- --
2000 -- -- --
</TABLE>
Mr. Dolan has no employment agreement and has received no compensation for the
past three fiscal years.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name (1) Granted (#) Fiscal Year ($ / Share) Date
-------- ------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
Richard Dolan -- n/a n/a n/a
</TABLE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Registrant leases from Richard A. Dolan 4,000 square feet of warehouse and
office space located in Naples, Florida. Richard A. Dolan is Registrant's
President, Chief Executive Officer, controlling shareholder and a Member of
Registrant's Board of Directors. The lease was executed January 1, 1993 and has
a term of 20 years. Rental is $24,000 per year.
Registrant also leases from Mr. Dolan 6,000 square feet of showroom space
in Las Vegas, Nevada. That lease is month-to-month with rental payments of
$75,000 per year.
During the period July 1997 through September 2000, Registrant borrowed a
total of $694,796 from Mr. Dolan. The obligation bears interest at 6% per annum
and is payable on demand. No periodic payments are required. Currently
Registrant is indebted $606,796 to Mr. Dolan.
ITEM 8. DESCRIPTION OF SECURITIES.
Registrant's Amended Certificate of Incorporation, dated July 22, 1996
authorizes it to issue up to forty-two million (42,000,000) shares of all
classes of capital stock which are divided into two classes, to wit: 1) forty
million (40,000,000) shares of $0.01 par value common shares, and 2) two million
(2,000,000) shares of $0.01 par value Class A preferred stock. As of June 30,
2000 9,248,956 shares of common stock and 534,925 shares of Class A preferred
stock are issued and outstanding.
Holders of shares of common stock have no preemptive rights.
Holders of shares of common stock are entitled to vote at any meeting, in
person or by proxy. Each outstanding share is entitled to one vote. There are no
cumulative or similar type voting rights.
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Holders of shares of common stock are entitled to receive dividends when
properly declared the Board of Directors. It is not contemplated that dividends
will be declared in the foreseeable future. Shares of Class A preferred stock
have dividend rights and liquidation rights superior to those of the shares of
common stock.
Neither Registrant's Articles of Incorporation nor its Bylaws are designed
to delay, defer or prevent a change in control.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Registrant's common stock is quoted on the Electronic Pink Sheets. The high
and low bids of Registrant's common stock for each quarter during fiscal years
ended June 30, 2000, and 1999 are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1999: High Bid Price Low Bid Price
-------------- -------------
$ $
<S> <C> <C>
First Quarter 3.00 1 1/4
Second Quarter 1 5/8 1.00
Third Quarter 2.00 15/16
Fourth Quarter 1.00 1 9/16
Fiscal Year Ended June 30, 2000:
First Quarter 2 1/8 1 1/2
Second Quarter 1 3/4 1/2
Third Quarter 1 1/4 5/8
Fourth Quarter 1 3/16 1 1/2
Quarter Ended
Quarter Ended September 30, 2000 1.80 1.01
</TABLE>
Such over-the-counter quotations reflect inter-dealer prices, without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.
The records of American Registrar and Transfer Co., Registrant's transfer
agent, indicate that there are 150 registered owners of Registrant's common
stock as of June 30, 2000.
Registrant has paid no dividends in the past two fiscal years. Registrant
has no intention of paying dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
On October 16, 2000, Family Music Centers, Inc and Burgett, Inc (d/b/a
Pianodisc) brought an action in District Court, Clark County, Nevada against
Registrant, Richard Dolan and an employee of Registrant. The Plaintiffs allege
that Registrant and the other Defendants have engaged in wrongful conduct
associated with
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the employment of a former employee of a competitor, misuse of information in
the possession of that employee, copyright infringement by that employee and
other associated claims. On October 17, 2000, the Plaintiffs obtained a
Temporary Restraining Order prohibiting the Defendants from possessing or using
certain confidential customer records or music software known as PianoDisc and a
prejudgement writ of attachment directing the Defendants to deliver all copies
of that software to Plaintiffs. The Defendants have filed an answer and
counterclaims in the matter. The litigation is in an early pre-discovery phase
and Registrant makes no prediction of its outcome. Registrant intends to
vigorously defend the action.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
On June 1, 1999, Registrant dismissed Ernst and Young, LLP and on June 1,
1999 engaged Altschuler, Melvoin and Glasser, LLP as its principal independent
accountants. The change of independent accountants was approved by Registrant's
Board of Directors. There were no disagreements with Ernst and Young, LLP on any
matter of accounting principles or practices, financial disclosure or auditing
scope or procedure. Ernst and Young, LLP's audit reports of the past two years
did not contain any adverse or disclaimed opinions, nor were the opinions
qualified or modified as to uncertainty, audit scope or accounting principles.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, Registrant has issued without registration
under the Securities Act of 1933 only the following described warrant. The
warrant was issued directly by the Registrant without the involvement of an
underwriter. The warrant was issued to a single individual and Registrant relied
upon the private placement exemption set out in Section 4(2) of the Securities
Act of 1933 and there was no advertising or general solicitation. The recipient
was a financially sophisticated individual with substantial net worth and met
the definition of "Accredited Investor" as set out in Regulation D promulgated
pursuant to the Securities Act of 1933.
<TABLE>
<CAPTION>
Date of Sale Title of Security Amount Sold Total Purchase Price
------------ ----------------- ----------- --------------------
<S> <C> <C> <C>
July 1, 1998 Warrant to purchase One Warrant for Nominal consideration
Shares of Common Stock for the purchase
of 100,000 shares
</TABLE>
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The following are the statutory, Articles of Incorporation, and Bylaw
provisions or other arrangements that insure or indemnify controlling persons,
directors or officers of the Registrant or affects his or her liability in such
capacity.
The Articles of Incorporation Provide the Following:
ARTICLE VIII
12
<PAGE>
LIMITATION ON DIRECTORS LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE IX
INDEMNIFICATION
1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is
threatened to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
director, officer of employee of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in paragraph (b) hereof with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereto)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery of the Corporation of an undertaking, by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from
13
<PAGE>
which there is no further right to appeal that such indemnitee is not entitled
to be indemnified for such expenses under this Article or otherwise (hereinafter
an "undertaking").
2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under paragraph 1 of
this Article is not paid in full by the Corporation within Sixty (60) days after
a written claim has been received by the Corporation, except in the case of a
claim for an advancement of expenses, in which case the applicable period shall
be twenty (20) days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) any suit by the Corporation to recover any advancement of expenses
pursuant to the terms of an undertaking the Corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not met
the applicable standard of conduct set forth in the Delaware General Corporation
Law. Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right hereunder, or by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of [sic] providing that the indemnitee is not entitled to be indemnified
or to such advancement of expenses under this Article or otherwise shall be on
the Corporation.
3. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the
advancement of expenses conferred in this Article shall not be exclusive of any
other rights which any person may have or hereafter acquire under any statute,
this Certificate of Incorporation, by law, agreement, vote of stockholders or
disinterested directors or otherwise.
4. INSURANCE. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expenses, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
5. INDEMNIFICATION OF AGENTS OF THE CORPORATION. The Corporation may, to
the extent authorized from time to time by the Board of Directors, grant rights
to indemnification and to the advancement of expenses, to any agent of the
Corporation to the fullest extent of the provisions of this Article with respect
to the indemnification and advancement of expenses of directors, officers and
employees of the corporation.
The Bylaws of the Corporation Provide the Following:
ARTICLE VIII
INDEMNIFICATION
14
<PAGE>
Section 1. INDEMNIFICATION. Subject to the requirements of the Delaware
General Corporation Law, no officer or director shall be personally liable for
any obligations of the corporation or for any duties or obligations arising out
of any acts or conduct of said officer or Director performed for or on behalf of
the corporation. To the fullest extent allowable by the Delaware General
Corporation Law, the corporation shall and does hereby indemnify and hold
harmless each person and his heirs and administrators who shall serve at any
time as a Director or officer of the corporation from and against any and all
claims, judgments, and liabilities to which such persons shall become subject by
reason of his having heretofore or hereafter been a Director or officer of the
corporation, or by reason of any action alleged to have been heretofore or
hereafter taken or omitted to have been taken by him as such Director or
officer, and shall reimburse any such person for all legal and other expenses
reasonably incurred by him in connection with any such claim or liability;
PROVIDED that the corporation shall have the power to defend such person from
all suits or claims as provided for under the provisions of the Delaware General
Corporation law; PROVIDED FURTHER, however, that no such person shall be
indemnified against, or be reimbursed for, or be defended against any expense or
liability incurred in connection with any claim or action arising out of his own
negligence or willful misconduct. The rights accruing to any person under the
foregoing provisions of this section shall not exclude any other right to which
he may lawfully be entitled, nor shall anything herein contained restrict the
right of the corporation to indemnify or reimburse such person in any proper
case, even though not specifically provided for herein or otherwise permitted.
The corporation, its Directors, officers, employees, and agents shall be fully
protected in taking any action or making any payment, or in refusing so to do in
reliance upon the advice of counsel.
Section 2. OTHER INDEMNIFICATION. The indemnification herein provided shall
not be deemed exclusive of any other right to indemnification to which any
person seeking indemnification may be entitled under any bylaw, agreement, vote
of stockholders or disinterested Directors, or otherwise, both as to action
taken in his official capacity and as to action taken in any other capacity
while holding such office. It is the intent hereof that all officers and
Directors be and hereby are indemnified to the fullest extent permitted by the
laws of the State of Delaware and these Bylaws. The indemnification herein
provided shall continue as to any person who has ceased to be a Director,
officer, or employee, and shall inure to the benefit of the heirs, estate, and
personal representative of any such person.
Section 3. INSURANCE. The Board of Directors may, in its discretion, direct
that the corporation purchase and maintain insurance on behalf of any person who
is or was a Director, officer, or employee of the corporation, or is or was
serving at the request of the corporation as a Director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such whether or not the
corporation would have the power to indemnify him against liability under the
provisions of this section.
Section 4. SETTLEMENT BY CORPORATION. The right of any person to be
indemnified shall be subject always to the right of the corporation by the Board
of Directors, in lieu of such indemnity, to settle any claim, action, suit, or
proceeding at the expense of the corporation by the payment of the amount of
such settlement and the costs and expenses incurred in connection therewith.
Delaware Code Provides the Following:
8 Del. C. Section 145. Indemnification of officers, directors, employees and
agents; insurance.
15
<PAGE>
(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. The termination of any action, suit or proceeding
by judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that the
person's conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
the person in connection with the defense or settlement of such action or suit
if the person acted in good faith and in a manner the person reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made, with
respect to a person who is a director or officer at the time of such
determination, (1) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such
16
<PAGE>
director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by former directors and officers or other employees and agents may be so paid
upon such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
17
<PAGE>
Section 102(b)(7). Contents of certificate of incorporation.
(b) In addition to the matters required to be set forth in the certificate
of incorporation by subsection (a) of this section, the certificate of
incorporation may also contain any or all of the following matters:
(7) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director: (i) For any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) under Section 174 of this title; or (iv) for any
transaction from which the director derived an improper personal benefit. No
such provision shall eliminate or limit the liability of a director for any act
or omission occurring prior to the date when such provision becomes effective.
All references in this paragraph to a director shall also be deemed to refer (x)
to a member of the governing body of a corporation which is not authorized to
issue capital stock, and (y) to such other person or persons, if any, who,
pursuant to a provision of the certificate of incorporation in accordance with
Section 141(a) of this title, exercise or perform any of the powers or duties
otherwise conferred or imposed upon the board of directors by this title.
Section 121. General powers.
(a) In addition to the powers enumerated in Section 122 of this title,
every corporation, its officers, directors and stockholders shall possess and
may exercise all the powers and privileges granted by this chapter or by any
other law or by its certificate of incorporation, together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
set forth in its certificate of incorporation.
(b) Every corporation shall be governed by the provisions and be subject
to the restrictions and liabilities contained in this chapter. Section 141(e).
Board of directors; powers; number, qualifications, terms and quorum;
committees; classes of directors; nonprofit corporations; reliance upon books;
action without meeting; removal.
(e) A member of the board of directors, or a member of any committee
designated by the board of directors, shall, in the performance of such member's
duties, be fully protected in relying in good faith upon the records of the
corporation and upon such information, opinions, reports or statements presented
to the corporation by any of the corporation's officers or employees, or
committees of the board of directors, or by any other person as to matters the
member reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
corporation.
Section 172. Liability of directors and committee members as to dividends or
stock redemption.
A member of the board of directors, or a member of any committee designated
by the board of directors, shall be fully protected in relying in good faith
upon the records of the corporation and upon such information, opinions, reports
or statements presented to the corporation by any of its officers or employees,
or committees of the board of directors, or by any other person as to matters
the director reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the corporation, as to the value and amount of the assets, liabilities and/or
net profits of the corporation or any other facts pertinent to the existence and
amount of surplus or other funds from which dividends might properly be declared
and paid, or with which the corporation's stock might properly be purchased or
redeemed.
18
<PAGE>
QRS MUSIC TECHNOLOGIES INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
JUNE 30, 2000 AND 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 20
Financial Statements
Consolidated Balance Sheets 21
Consolidated Statements of Income 22
Consolidated Statements of Changes in Stockholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated Financial Statements 25
</TABLE>
19
<PAGE>
Independent Auditors' Report
Board of Directors of
QRS Music Technologies Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of QRS Music
Technologies Inc. and Subsidiary as of June 30, 2000 and 1999, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of QRS Music
Technologies Inc. and Subsidiary as of June 30, 2000 and 1999, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Altschuler Melvoin and Glasser LLP
Chicago, Illinois
August 23, 2000
20
<PAGE>
QRS Music Technologies Inc. and Subsidiary
Consolidated Balance Sheets
June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash $ 1,042,171 $ 512,102
Accounts receivable (net of allowance for
doubtful accounts of $180,000 and $505,256,
respectively, for June 30, 2000 and 1999) 3,046,118 2,066,256
Inventories 4,206,988 4,418,394
Deferred income taxes 200,000 25,000
Prepaid expenses 6,271 229,431
----------- -----------
8,501,548 7,251,183
Property, plant and equipment 1,164,779 1,013,683
Other assets 84,961 143,249
----------- -----------
$ 9,751,288 $ 8,408,115
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 129,047 $ 114,048
Note payable - stockholder 488,000 488,000
Accounts payable 873,675 349,970
Accrued expenses (including due to related
party of $150,988 and $72,708, respectively,
for June 30, 2000 and 1999) 446,047 236,811
Financing agreements payable 1,364,411 1,481,000
Income taxes payable 240,000 172,973
----------- -----------
3,541,180 2,842,802
----------- -----------
Other liabilities
Long-term debt 1,039,647 1,171,456
Deferred income taxes 5,000 25,000
----------- -----------
1,044,647 1,196,456
----------- -----------
Commitments and contingencies
Stockholders' equity
Series A preferred stock, voting, $ .01 par
value, 2,000,000 authorized, 534,925 shares
issued and outstanding in 2000 and 1999,
respectively, liquidation value of $2,653,288
and $2,524,846, respectively, for 2000 and 1999 5,349 5,349
Common stock, voting, $ .01 par value, 40,000,000
shares authorized, 9,248,956 shares issued in
2000 and 1999, respectively 92,490 92,490
Additional paid-in capital 5,631,245 5,631,245
Accumulated deficit (563,623) (1,360,227)
----------- -----------
5,165,461 4,368,857
----------- -----------
$ 9,751,288 $ 8,408,115
</TABLE>
See accompanying notes.
21
<PAGE>
QRS Music Technologies Inc. and Subsidiary
Consolidated Statements of Income
Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 13,724,006 $ 10,315,118
Cost of sales 10,204,618 7,545,155
------------ ------------
Gross profit 3,519,388 2,769,963
------------ ------------
Operating expenses
Selling, general and administrative 2,018,791 1,944,401
Research and development 340,804 181,731
------------ ------------
2,359,595 2,126,132
Income from operations 1,159,793 643,831
------------ ------------
Interest expense 136,841 141,590
------------ ------------
Income before income taxes 1,022,952 502,241
------------ ------------
Income taxes
Federal tax expense 317,871 170,000
State tax expense 103,477 50,000
Deferred income taxes (195,000) 3,000
------------ ------------
226,348 223,000
------------ ------------
Net income $ 796,604 $ 279,241
============ ============
Earnings per common share
Basic
Net income 0.07 0.02
============ ============
Assuming dilution
Net income 0.07 0.02
============ ============
Weighted average number of common shares outstanding
Basic 9,248,956 9,248,956
============ ============
Assuming dilution 9,783,881 9,783,881
============ ============
</TABLE>
See accompanying notes.
22
<PAGE>
QRS Music Technologies Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Series A Preferred Stock Common Stock
------------------------ --------------------- Additional Total
Number of Number of Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
--------- ------ --------- ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1998 534,925 $5,349 9,248,956 $92,490 $5,631,245 $(1,639,468) $ 4,089,616
Net income 279,241 279,241
------- ------ --------- ------- ---------- ----------- -----------
Balance, June 30, 1999 534,925 5,349 9,248,956 92,490 5,631,245 (1,360,227) 4,368,857
Net income 796,604 796,604
------- ------ --------- ------- ---------- ----------- -----------
Balance, June 30, 2000 534,925 $5,349 9,248,956 $92,490 $5,631,245 $ (563,623) $ 5,165,461
======= ====== ========= ======= ========== =========== ===========
</TABLE>
See accompanying notes.
23
<PAGE>
QRS Music Technologies Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating activities
Net income $ 796,604 $ 279,241
Depreciation and amortization 116,763 128,403
Allowance for doubtful accounts (325,256) 214,560
Deferred tax expense (195,000) 3,000
Changes in Accounts receivable (771,195) 8,786
Inventories 211,407 (456,334)
Prepaid expenses and other assets 281,448 (23,048)
Accounts payable 523,705 (445,774)
Accrued expenses 209,234 (908)
Income taxes payable 67,027 220,000
----------- -----------
Net cash provided by (used in) operating activities 914,737 (72,074)
----------- -----------
Investing activities
Acquisitions of property and equipment (267,858) (34,572)
----------- -----------
Net cash used in investing activities (267,858) (34,572)
----------- -----------
Financing activities
Proceeds from note payable - stockholder 488,000
Repayments of long-term debt (116,810) (115,261)
----------- -----------
Net cash provided by (used in) financing activities (116,810) 372,739
----------- -----------
Increase in cash 530,069 266,093
Cash
Beginning of year 512,102 246,009
----------- -----------
End of year $ 1,042,171 $ 512,102
=========== ===========
Supplemental disclosure of cash flow information
Interest paid $ 107,562 $ 116,882
=========== ===========
Income taxes paid $ 354,321 $ --
=========== ===========
</TABLE>
See accompanying notes.
24
<PAGE>
Note 1 Nature of Operations and Significant Accounting Policies
Nature of Operations--QRS Music Technologies, Inc. and Subsidiary (the
"Company") is a manufacturer and distributor of pianos, pianomation units,
and compact discs and music rolls for use in player pianos through its
wholly-owned subsidiary QRS Pianos, Inc. (the operating company). The
operating company sells its products to dealers and end-users,
predominantly in the United States.
The operating company has divisions in Buffalo, New York; Seneca,
Pennsylvania; Naples, Florida; and Las Vegas, Nevada.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash--At June 30, 2000 and 1999, the Company had deposits at two commercial
banks. Deposits are insured by the Federal Deposit Insurance Corporation
(FDIC) up to $100,000. Deposits may from time to time exceed federally
insured limits.
Inventories--Inventories are valued at the lower of cost or market under
the first-in, first-out (FIFO) method.
Property, Plant and Equipment--Property, plant and equipment are valued at
cost and depreciation using the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charge to income as
incurred. Expenditures that materially extend the useful lives of assets
are capitalized.
Advertising--The Company expenses advertising as the costs are incurred.
Research and Development--The Company expenses research and development as
the costs are incurred.
Deferred Income Taxes--Deferred income tax assets and liabilities are
recognized for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred income tax assets and liabilities are determined based on
the financial statement and tax basis of assets and liabilities.
Earnings Per Share--The Company computes basic earnings per share under
Financial Accounting Standard (FAS) No. 128, "Earnings per Share." Net
earnings less preferred dividends are divided by the weighted average
number of common shares outstanding during the year to calculate basic net
earnings per common share. Diluted net earnings per common share are
calculated to give effect to convertible preferred stock.
Fair Value of Financial Instruments--The carrying amounts of financial
instruments including cash, accounts receivable, accounts payable, and
short-term debt approximate their fair values because of the relatively
short maturity of these instruments. The carrying value of long-term debt,
including the current portion, approximated fair value based upon market
prices for the same or similar instruments.
25
<PAGE>
Note 1 Nature of Operations and Significant Accounting Policies, Continued
Reclassifications--Certain amounts reported in the 1999 financial
statements have been reclassified to conform with the 2000 presentation
without affecting previously reported net income. The Company reclassified
certain amounts from accounts payable to accrued expenses and how it
accounted for the Series A preferred stock.
Note 2 Inventories
Inventories at June 30, 2000 and 1999 consist of:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $ 2,170,984 $ 2,009,862
Work-in-process 496,292 183,471
Finished goods 1,648,157 2,399,563
----------- -----------
4,315,433 4,592,896
Valuation reserve (108,445) (174,502)
----------- -----------
$ 4,206,988 $ 4,418,394
=========== ===========
</TABLE>
Note 3 Property and Equipment
Property and equipment at June 30, 2000 and 1999 consist of:
<TABLE>
<CAPTION>
Depreciable
2000 1999 Lives
----------- ----------- -----------
<S> <C> <C> <C>
Land and buildings $ 874,983 $ 874,983 10-39
Leasehold improvements 455,614 229,628 10-20
Machinery and equipment 667,579 679,861 5-7
Office equipment 220,375 175,804 5-7
Vehicles 89,292 73,696 5
----------- -----------
2,307,843 2,033,972
Accumulated depreciation and amortization (1,143,064) (1,029,659)
----------- -----------
1,164,779 1,004,313
Construction in progress 9,370
----------- -----------
Net book value $ 1,164,779 $ 1,013,683
=========== ===========
</TABLE>
Depreciation and amortization expense amounted to $116,763 and $128,403 for the
years ended June 30, 2000 and 1999, respectively.
26
<PAGE>
Note 4 Long-Term Debt
Long-term debt at June 30, 2000 and 1999 consists of:
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
Note payable - lending institution - payable in monthly
installments of $18,638 including interest at 8.55%, due May
2002, secured by all assets of the Company $1,168,694 $ 1,285,504
Current portion (129,047) (114,048)
---------- -----------
$1,039,647 $ 1,171,456
========== ===========
</TABLE>
Scheduled maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2001 $ 129,047
2002 1,039,647
-----------
$ 1,168,694
===========
</TABLE>
Note 5 Financing Agreements
The Company has arranged financing of customers' purchases through commercial
financing companies. The terms of the arrangements generally require the Company
to repurchase outstanding contracts for the previously sold products, subject to
certain limitations, if the customer defaults. Amounts outstanding under such
recourse programs were approximately $1,364,000 at June 30, 2000 ($1,481,000 at
June 30, 1999). These amounts are also included in accounts receivable in the
accompanying balance sheets.
Note 6 Related-Party Transactions
The Company leases property from its major stockholder under a 20-year operating
lease which expires December 2012. Annual lease payments are $24,000. On April
1, 2000, the Company entered into an additional rental agreement with the same
stockholder. The lease is on a month-to-month basis for $6,250 per month. Unpaid
rent totaling $97,000 and $48,000 at June 30, 2000 and 1999, respectively, are
included in accrued expenses in the accompanying balance sheets.
On August 27, 1998, the Company borrowed $488,000 from its major stockholder.
This amount is due on demand and bears interest at the rate of 6 percent.
Interest expense incurred for the years ending June 30, 2000 and 1999 was
$29,280 and $24,708, respectively. These amounts are unpaid and included in
accrued expenses in the accompanying balance sheets.
27
<PAGE>
Note 7 Stockholders' Equity
Each share of the Series A Preferred Stock is convertible into one share of
common stock. Cumulative dividends accrue on the Series A Preferred Stock at a
rate of 6 percent per annum of the liquidation value and are payable on June 30
and December 31. The preferred liquidation amount is $4 per share. The holders
of the preferred shares are entitled to one vote per share with respect to all
matters submitted to a vote of the Company's stockholders. Dividends in arrears
on the Series A preferred stock amounted to $513,528 and $385,146, respectively,
for June 30, 2000 and 1999.
The Company has issued the following common stock warrants:
<TABLE>
<CAPTION>
Exercise Exercise
Number Price Period
------ -------- ----------
<S> <C> <C>
285,714 $6/share 10/96-09/00
100,000* $3/share 07/98-06/03
</TABLE>
*These warrants are exercisable only if the 285,714 warrants are exercised.
Note 8 Income Taxes
The components of the net deferred tax assets as of June 30, 2000 and 1999 are
as follows:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Deferred tax assets
Bad debt allowance $ 57,000 $ 88,000
Variation of inventories between tax
and financial reporting purposes 75,000 66,000
Other accruals 68,000 31,000
--------- ---------
200,000 185,000
Deferred tax liability
Variation of depreciation between tax
and financial reporting purposes (5,000) (25,000)
Valuation allowance (160,000)
--------- ---------
$ 195,000 $ --
========= =========
</TABLE>
28
<PAGE>
Note 8 Income Taxes, Continued
A reconciliation of the provision for income taxes and the amount computed by
applying the federal statutory rate to income before income tax expense is as
follows:
<TABLE>
<CAPTION>
2000 1999
--------- ---------
<S> <C> <C>
Computed income tax expense at federal statutory rate $ 348,000 $ 170,000
Income tax expense at state rates (net of federal income tax effect) 68,000 33,000
Reversal of prior year deferred tax valuation allowance (160,000)
Others (29,652) 20,000
--------- ---------
$ 226,348 $ 223,000
</TABLE>
29
<PAGE>
QRS Music Technologies Inc. and Subsidiary
Quarterly Financial Statements
September 30, 2000 and 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements
Consolidated Balance Sheet ............................................ 31
Consolidated Statements of Income...................................... 32
Consolidated Statements of Cash Flows.................................. 33
Notes to Consolidated Financial Statements............................. 34
</TABLE>
30
<PAGE>
QRS Music Technologies Inc. and Subsidiary
Unaudited Consolidated Balance Sheets
First Quarters ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash $ 163,285 $ 206,374
Accounts receivable (net of allowance
for doubtful accounts of $180,000 and
$505,256, respectively, for
September 30, 2000 and 1999) 3,380,518 2,390,731
Inventories 4,805,392 4,438,410
Deferred income taxes (187,500) 38,000
Prepaid expenses 6,272 5,420
----------- -----------
8,542,967 7,078,935
Property, plant and equipment 1,174,054 1,060,746
Other assets 7,749 451,916
----------- -----------
$ 9,742,770 $ 8,591,597
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 129,047 $ 114,048
Note payable - stockholder 600,000 488,000
Accounts payable 1,045,064 450,677
Accrued expenses (including due to related party expenses of $159,238
And $74,708, respectively, for September 30, 2000 and 1999) 171,739 77,287
Financing agreements payable 1,364,411 1,481,000
Income taxes payable 100,210 125,946
----------- -----------
3,410,471 2,736,958
----------- -----------
Other liabilities
Long-term debt 998,523 1,162,199
Deferred income taxes 0 220,000
----------- -----------
998,523 1,382,199
----------- -----------
Commitments and contingencies -- --
Stockholders' equity
Series A preferred stock, voting, $.01
par value, 2,000,000 authorized, 534,925
shares issued and outstanding in 2000 and
1999, respectively, liquidation value of
$2,653,288 and $2,524,846, respectively,
for 2000 and 1999 5,349 5,349
Common stock, voting, $.01 par value,
40,000,000 shares authorized, 9,248,956
shares issued and outstanding in 2000 and
1999, respectively 92,490 92,490
Additional paid-in capital 5,631,245 5,631,245
Accumulated deficit (413,308) (1,256,644)
----------- -----------
5,315,776 4,472,440
----------- -----------
$ 9,724,770 $ 8,591,597
=========== ===========
</TABLE>
See accompanying notes.
31
<PAGE>
QRS Music Technologies Inc. and Subsidiary
Unaudited Consolidated Statements of Income
First Quarters Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Net sales $3,548,530 $2,454,083
Cost of sales 2,599,277 1,711,259
---------- ----------
Gross profit 949,253 742,824
---------- ----------
Operating expenses
Selling, general and administrative 620,629 512,263
Research and development 44,671 11,267
---------- ----------
665,300 523,530
---------- ----------
Income from operations 283,953 219,294
---------- ----------
Interest expense 33,428 46,655
---------- ----------
Income before income taxes 250,525 172,639
---------- ----------
Income taxes
Federal tax expense 75,158 51,793
State tax expense 25,052 17,263
Deferred income taxes 0 0
---------- ----------
100,210 69,056
---------- ----------
Net income $ 150,315 $ 103,583
========== ==========
Earnings per common share
Basic
Net income $ 0.02 $ 0.01
========== ==========
Assuming dilution
Net income $ 0.02 $ 0.01
========== ==========
Weighted average number of common shares outstanding
Basic 9,248,956 9,248,956
========== ==========
Assuming dilution 9,783,881 9,783,881
========== ==========
</TABLE>
See accompanying notes.
32
<PAGE>
QRS Music Technologies Inc. and Subsidiary
Unaudited Consolidated Statements of Cash Flows
First Quarters Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Operating activities
Net income $ 150,315 $ 103,583
Depreciation and amortization 25,000 23,500
Allowance for doubtful accounts 0 0
Deferred tax expense 7,500 182,000
Changes in Accounts receivable (334,400) (324,476)
Inventories (598,404) (20,016)
Prepaid expenses and other assets 77,211 (84,656)
Accounts payable 171,389 175,414
Accrued expenses (274,308) (234,230)
Income taxes payable (139,790) (47,027)
----------- -----------
Net Cash used in operating activities (915,487) (225,908)
----------- -----------
Investing activities
Acquisitions of property and equipment (34,275) (70,563)
----------- -----------
Net cash used in investing activities (34,275) (70,563)
----------- -----------
Financing activities
Proceeds from note payable - stockholder 112,000
Repayments of long-term debt (41,124) (9,257)
----------- -----------
Net cash provided by (used in) financing activities 70,876 (9,257)
----------- -----------
Decrease in cash (878,886) (9,257)
Cash
Beginning of period 1,042,171 512,102
----------- -----------
End of period $ 163,285 $ 206,374
=========== ===========
Supplemental disclosure of cash flow information
Interest paid $ 33,428 $ 46,655
=========== ===========
Income taxes paid $ 275,000 $ 222,500
=========== ===========
</TABLE>
See accompanying notes.
33
<PAGE>
Note 1 Nature of Operations and Significant Accounting Policies
Nature of Operations--QRS Music Technologies, Inc. (the "Company") is a
manufacturer and distributor of pianos, pianomation units, and compact
discs and music rolls for use in player pianos. The company sells its
products to dealers and end-users, predominantly in the United States.
The operating company has divisions in Buffalo, New York; Seneca,
Pennsylvania; Naples, Florida; and Las Vegas, Nevada.
Use of Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash--At September 30, 2000 and 1999, the Company had deposits at two
commercial banks. Deposits are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. Deposits may from time to time exceed
federally insured limits.
Inventories--Inventories are valued at the lower of cost or market under
the first-in, first-out (FIFO) method.
Property, Plant and Equipment--Property, plant and equipment are valued at
cost and depreciation using the straight-line method over the estimated
useful lives of the assets. Maintenance and repairs are charge to income as
incurred. Expenditures that materially extend the useful lives of assets
are capitalized.
Advertising--The Company expenses advertising as the costs are incurred.
Research and Development--The Company expenses research and development as
the costs are incurred.
Deferred Income Taxes--Deferred income tax assets and liabilities are
recognized for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred income tax assets and liabilities are determined based on
the financial statement and tax basis of assets and liabilities.
Earnings Per Share--The Company computes basic earnings per share under
Financial Accounting Standard (FAS) No. 128, "Earnings per Share." Net
earnings less preferred dividends are divided by the weighted average
number of common shares outstanding during the year to calculate basic net
earnings per common share. Diluted net earnings per common share are
calculated to give effect to convertible preferred stock.
Fair Value of Financial Instruments--The carrying amounts of financial
instruments including cash, accounts receivable, accounts payable, and
short-term debt approximate their fair values because of the relatively
short maturity of these instruments. The carrying value of long-term debt,
including the current portion, approximated fair value based upon market
prices for the same or similar instruments.
Reclassifications--Certain amounts reported in the 1999 financial
statements have been reclassified to conform with the 2000 presentation
without affecting previously reported net income. The Company reclassified
certain amounts from accounts payable to accrued expenses and how it
accounted for the Series A preferred stock.
34
<PAGE>
Note 2 Unaudited Inventories
Unaudited Inventories at September 30, 2000 and 1999 consist of:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $ 2,528,971 $ 2,024,362
Work-in-process 496,292 183,471
Finished goods 1,888,574 2,405,079
----------- -----------
4,913,837 4,612,912
Valuation reserve (108,445) (174,502)
----------- -----------
$ 4,805,392 $ 4,438,410
=========== ===========
</TABLE>
Note 3 Unaudited Property and Equipment
Unaudited Property and equipment at September 30, 2000 and 1999 consist of:
<TABLE>
<CAPTION>
Depreciable
2000 1999 Lives
----------- ----------- -----------
<S> <C> <C> <C>
Land and buildings $ 874,983 $ 874,983 10-39
Leasehold improvements 455,614 269,628 10-20
Machinery and equipment 680,591 676,361 5-7
Office equipment 241,638 219,237 5-7
Vehicles 89,292 73,696 5
----------- -----------
2,342,118 2,113,905
Accumulated depreciation and amortization (1,168,064) (1,053,159)
----------- -----------
Construction in progress 1,174,054 1,060,746
----------- -----------
Net book value $ 1,164,779 $ 1,060,746
=========== ===========
</TABLE>
Depreciation and amortization expense amounted to $25,000 and $23,500 for the
periods ended September 30, 2000 and 1999, respectively.
35
<PAGE>
Note 4 Long-Term Debt
Unaudited Long-term debt at September 30, 2000 and 1999 consists of:
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
Note payable - lending institution - payable
in monthly installments of $18,638
including interest at 8.55%, due May 2002,
secured by all assets of the Company $1,127,570 $ 1,276,247
Current portion (129,047) (114,048)
---------- -----------
$ 998,523 $ 1,162,199
========== ===========
</TABLE>
Scheduled maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2001 $ 129,047
2002 1,039,647
-----------
$ 1,168,694
===========
</TABLE>
Note 5 Financing Agreements
The Company has arranged financing of customers' purchases through commercial
financing companies. The terms of the arrangements generally require the Company
to repurchase outstanding contracts for the previously sold products, subject to
certain limitations, if the customer defaults. Amounts outstanding under such
recourse programs were approximately $1,364,000 at September 30, 2000
($1,481,000 at September 30, 1999). These amounts are also included in accounts
receivable in the accompanying balance sheets.
Note 6 Related-Party Transactions
The Company leases property from its major stockholder under a 20-year operating
lease which expires December 2012. Annual lease payments are $24,000. On April
1, 2000, the Company entered into an additional rental agreement with the same
stockholder. The lease is on a month-to-month basis for $6,250 per month. Unpaid
rent totaling $121,750 and $54,000 at September 30, 2000 and 1999, respectively,
are included in accrued expenses in the accompanying balance sheets.
On August 27, 1998, the Company borrowed $488,000, and $112,000 on September 20,
2000 from its major stockholder. This amount is due on demand and bears interest
at the rate of 6 percent.
36
<PAGE>
PART III
Item 1
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Number Page #
<S> <C>
2 (i) Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . . . 38
(ii) Bylaws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
6 Material Contracts
(i) Lease - Naples, Florida . . . . . . . . . . . . . . . . . . . . . . . . 68
(ii) Monthly Rental Agreement - Las Vegas . . . . . . .. . . . . . . . . . . 72
(iii) MidiMan License . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
(iv) Micro-W Distributing License Agreement . . . . . . . . . . . . . . . . 76
7 Letter regarding change in certifying accountant. . . . . . . . . . . . . . . 80
</TABLE>
Pursuant to the requirements of Section 12 of the Securities Exchange Age of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
QRS Music Technologies, Inc.
Date: 12/7/00 By: /s/
----------- ----------------------------------
(Signature)
Ann Jones
Chief Financial Officer
37
