<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Transition Period From to
---------- ----------
Commission File Number 000-22172
MIDISOFT CORPORATION
(Exact name of small business issuer as specified in its charter)
Washington 91-1345532
(State of incorporation) (I.R.S. Employer Identification No.)
1605 NW Sammamish Rd., Suite 205
Issaquah, Washington 98027
(Address of principal executive offices)
(425) 391-3610
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common stock, no par value; 6,297,130 shares outstanding;
as of August 11, 1997
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<PAGE>
MIDISOFT CORPORATION
INDEX TO FORM 10-QSB
PAGE
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . 3
a) Balance Sheets - June 30, 1997 and December 31, 1996
b) Statements of Operations - For the Three and Six
Months Ended June 30, 1997 and 1996
Statements of Cash Flows - For the Six
c) Months Ended June 30, 1997 and 1996
d) Notes to Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation . . . . . . . . . . . . . . . 8
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . 12
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders. . . . . 12
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 12
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2
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ITEM 1. MIDISOFT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(Unaudited) (Audited)
At June 30, At December 31,
1997 1996
------------ ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 66,000 $ 709,000
Accounts receivable - net of allowances of
$468,000 in 1997 and $1,052,000 in 1996 605,000 1,282,000
Inventories 777,000 942,000
Prepaid expenses and other receivable 351,000 282,000
------------ ------------
Total current assets 1,799,000 3,215,000
Property & equipment, net 320,000 421,000
Capitalized software and other costs, net 151,000 455,000
------------ ------------
Total assets $ 2,270,000 $ 4,091,000
------------ ------------
------------ ------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 764,000 $ 691,000
Note Payable 360,000
Accrued wages & payroll taxes 140,000 186,000
Other accrued expenses 118,000 118,000
Deferred revenue 202,000 821,000
------------ ------------
Total current liabilities 1,584,000 1,816,000
------------ ------------
Shareholders' equity
Common stock, no par value; 10,000,000 shares authorized,
6,050,750 issued and outstanding in 1997 and
5,345,425 issued and outstanding in 1996 19,809,000 18,733,000
Preferred stock; 60 convertible shares outstanding in 1997 and
1,100 convertible shares issued and outstanding in 1996 60,000 1,100,000
Retained deficit (19,183,000) (17,558,000)
------------ ------------
Total shareholders' equity 686,000 2,275,000
------------ ------------
Total liabilities and shareholders' equity $ 2,270,000 $ 4,091,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
3
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MIDISOFT CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ----------------------------
1997 1996 1997 1996
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 819,000 $ 491,000 $ 1,356,000 $ 1,003,000
Cost of revenues 344,000 391,000 672,000 812,000
---------- ----------- ------------ ------------
Gross profit 475,000 100,000 684,000 191,000
Operating expenses:
Sales and marketing 428,000 1,076,000 966,000 1,736,000
General and administrative 420,000 637,000 790,000 1,220,000
Research and development 255,000 204,000 521,000 422,000
---------- ----------- ------------ ------------
Total operating expenses 1,103,000 1,917,000 2,277,000 3,378,000
---------- ----------- ------------ ------------
Operating loss (628,000) (1,817,000) (1,593,000) (3,187,000)
Interest and other income/(expense) (25,000) 33,000 (32,000) 78,000
---------- ----------- ------------ ------------
Net loss $ (653,000) $(1,784,000) $ (1,625,000) (3,109,000)
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
Net loss per share $ (0.11) $ (0.38) $ (0.28) $ (0.66)
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
Weighted average shares outstanding 5,890,000 4,673,000 5,863,000 4,677,000
---------- ----------- ------------ ------------
---------- ----------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
4
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MIDISOFT CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operations:
Net loss $ (1,625,000) $ (3,109,000)
------------- -------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation & amortization 408,000 565,000
Interest paid through Common Stock 36,000
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, net 677,000 1,119,000
Inventories 165,000 159,000
Prepaid expenses (69,000) (83,000)
INCREASE (DECREASE) IN LIABILITIES:
Trade accounts payable 73,000 (221,000)
Accrued wages & payroll taxes (46,000) (79,000)
Other accrued expenses - (118,000)
Deferred revenue (619,000) 99,000
------------- -------------
Total adjustments 625,000 1,441,000
------------- -------------
Net cash used for operations (1,000,000) (1,668,000)
------------- -------------
Cash from/(used for) investments:
Redemption of short term investments 1,540,000
Additions to plant & equipment (3,000) (51,000)
------------- -------------
Net cash from/(used for) investments (3,000) 1,489,000
------------- -------------
Cash flows from financing:
Note payable 360,000
Stock options exercised - 72,000
------------- -------------
Net cash provided by financing 360,000 72,000
------------- -------------
Net change in cash and cash equivalents (643,000) (107,000)
Cash and cash equivalents, beginning of year 709,000 2,143,000
------------- -------------
Cash and cash equivalents, end of period $ 66,000 $ 2,036,000
------------- -------------
------------- -------------
Supplemental cash flow information:
Common stock issued in payment of interest $ 36,000 $ -
</TABLE>
See accompanying notes to financial statements.
5
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MIDISOFT CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
INTERIM FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared by
Midisoft Corporation (the "Company") without audit, according to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
However, in the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
accruals) considered necessary to present fairly the results for the interim
periods presented. The accompanying condensed financial statements and
related notes should be read in conjunction with the Company's 1996 audited
financial statements included in its Annual Report on Form 10-KSB filed April
15, 1997.
The results of operations for the three and six months ended June 30,
1997 are not necessarily indicative of the results to be expected for the
full calendar year.
ACCOUNTS RECEIVABLE AND MAJOR CUSTOMER INFORMATION
Accounts receivable from Original Equipment Manufacturers (OEM) and
other resellers are summarized as follows:
June 30, December 31,
1997 1996
---------- ------------
OEM $ 459,000 $ 1,600,000
Resellers and other 614,000 734,000
---------- ------------
Subtotal 1,073,000 2,334,000
Less: Allowance for doubtful accounts (294,000) (781,000)
Allowance for sales returns (174,000) (271,000)
---------- ------------
Total accounts receivable $ 605,000 $ 1,282,000
---------- ------------
---------- ------------
Accounts receivable consist principally of amounts due from OEMs and
reseller customers for licensing fees, royalties and direct sales of
products. OEM customer payment terms typically are one year in duration and
require payments to be made in monthly or quarterly installments. At June
30, 1997, OEM accounts receivable amounts not yet due were $173,000, equal to
38% of total OEM receivables compared to $173,000, equal to 11% at December
31, 1996. Reseller payment terms typically are standardized and similar to
those given software distributors. At June 30, 1997, reseller accounts
receivable amounts not yet due were $284,000, equal to 46% of total reseller
receivables compared to $154,000, equal to 21% at December 31, 1996.
The Company's primary credit concentrations involve domestic and foreign
OEM and reseller customers. Foreign customers are primarily located in
Western Europe, Taiwan, and Japan. Domestic customers comprised $682,000 of
accounts receivable at June 30, 1997, compared to $1,540,000 at December 31,
1996. Foreign customers comprised $391,000 of accounts receivable at June
30, 1997 compared to $794,000 at December 31, 1996.
6
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INCOME TAXES
No income taxes are payable at June 30, 1997, the result of the
Company's year-to-date loss and the result of Federal net operating losses at
December 31, 1996 of approximately $18.1 million that will reduce taxes due
in future periods and expire beginning in 2008. In certain circumstances, as
specified in the Internal Revenue Code, a 50% or more ownership change by
certain combination of the Company's stockholders during any three-year
period would result in limitations on the Company's ability to utilize its
net operating loss carry-forward.
INVENTORIES
Inventories are summarized as follows:
June 30, December 31,
1997 1996
---------- ------------
Raw Materials $ 660,000 $ 760,000
Finished Goods 204,000 287,000
Less: Allowance for obsolescence (87,000) (105,000)
---------- ----------
Total Inventories $ 777,000 $ 942,000
---------- ----------
---------- ----------
CAPITALIZED SOFTWARE AND OTHER COSTS
Capitalized software and other costs are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Purchased software technology, net of accumulated amortization of
$529,000 and $412,000, respectively, in 1997 and 1996 $ 76,000 $ 193,000
Purchased contract software technology, net of accumulated
amortization of $461,000 and $380,000, respectively, in 1997 and 1996 33,000 115,000
Capitalized software development costs, net of accumulated
amortization of $535,000 and $430,000, respectively, in 1997 and 1996 42,000 147,000
--------- ---------
Total capitalized software $ 151,000 $ 455,000
--------- ---------
--------- ---------
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND THE NOTES THERETO APPEARING ELSEWHERE IN THIS FORM
10-QSB.
GENERAL
Midisoft is a leading provider of innovative applications and utilities
for the control and use of sound on personal computers. The Company was
founded in 1986 and has developed award-winning audio software products since
that time. Over the past 11 years the total available market for these types
of products has expanded dramatically from a very small segment of PCs used
mainly by computer hobbyists into virtually each computer that ships from
every system manufacturer. Sound on the PC has changed from a differentiating
feature into a standard component on all hardware platforms and product
lines. The emergence of the Internet has amplified this expansion and created
the backbone with which sounds, voice messages and music can now be sent
globally to enhance communication world-wide. As new technologies evolve, the
Company believes it can continue to be a premiere provider of audio control
expertise. The Company markets its products on a worldwide basis to (i)
original equipment manufacturers (OEMs), which "bundle" one or more of
Midisoft's products with their own products, (ii) distributors and resellers,
which directly supply the retail distribution channel, (iii) end users,
catalog companies, and businesses and (iv) on-line Internet purchasers.
Sales to software distributors and resellers, together with direct
sales, represented 68% and 61% of revenues in the three and six months ended
June 30, 1997, and OEM sales represented 32% and 39% during the same periods.
International sales accounted for 9% and 22% of the Company's revenues during
the three and six months ended June 30, 1997. Midisoft's customer base tends
to vary from period to period as it establishes new relationships in each of
its customer segments. During the three months ended June 30, 1997, two
different software distributors individually accounted for greater than 10%
of the Company's total revenues, collectively accounting for 28%. During the
six months ended June 30, 1997, one software distributor accounted for 10% of
the Company's total revenues.
The Company's revenues include sales of software, software licenses and
services, less returns. Cost of revenues includes the costs of manuals,
diskettes and duplication, packaging materials, assembly, paper goods,
shipping and amortization of purchased software technology and capitalized
software development costs. Cost of revenues as a percentage of sales is
lower for OEM sales than for distributor and direct sales because few direct
costs are involved. Sales and marketing expenses consist primarily of
salaries of sales and marketing personnel, customer service and technical
support costs and advertising and promotion expenses. General and
administrative expenses consist of salaries of administrative personnel,
legal and accounting costs and general operating expenses including rent and
insurance. Research and development expenses consist primarily of personnel
and equipment costs required to conduct the Company's development efforts.
Software development costs are expensed as incurred, until technological
feasibility is established, after which any additional costs may be
capitalized until the software is ready for release. Amortization of
capitalized software development costs begins when the related product is
available for release to customers. The Company has determined that the
dynamic nature of software technology precludes it from capitalizing software
development in the future.
Revenues from sales to distributors and resellers and direct sales are
recognized when products are shipped. The Company's software sales
agreements generally do not involve any significant obligations to customers
subsequent to delivery. Revenues from products licensed to OEMs, consisting
of one-time license fees, are recognized at the time the software master is
delivered and when the criteria for fixed fee revenue recognition under
Statement of Position No. 91-1 "Software Revenue Recognition" are satisfied.
Additional royalty use or unit copy royalty fees are recognized when they are
received pursuant to license agreements upon notification of shipment from
OEMs.
SEASONALITY
Sales to distributors tend to be greater in the third and fourth quarter
as consumers buy software to supplement their holiday computer hardware
purchases. OEM sales are concentrated in a small number of large
8
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customer contracts and tend to occur sporadically. Direct sales generally
increase when software upgrades become available.
COMPARISON OF THREE AND SIX MONTHS ENDED JUNE 30, 1997 TO 1996
Revenues for the three months ended June 30, 1997 were $819,000, an
increase of $328,000, or 67%, compared to $491,000 for the same period in
1996. Revenues for the first six months of 1997 were $1,356,000, an increase
of $353,000, or 35%, compared to $1,003,000 for the same period in 1996.
Sales to software distributors and resellers, together with direct sales were
$558,000 and $827,000, representing 68% and 61% of revenues in the three and
six months ended June 30, 1997, compared to $260,000 and $724,000 which
represented 53% and 72% of revenues for the same period in 1996. OEM sales of
$261,000 and $529,000 represented 32% and 39% in the three and six months
ended June 30, 1997, respectively. OEM sales of $230,000 and $278,000
represented 47% and 28% in the three and six months ended June 30, 1996,
respectively. International sales accounted for 9% and 22% of the Company's
revenues for the three and six months ended June 30, 1997 and accounted for
24% and 16% for the same periods in 1996. The increase in revenues was
primarily the consequence of four new OEM product introductions during the
first half of 1997 resulting in the signing of twelve new OEM contracts
during the same period. Higher distributor and reseller sales were due to the
release of one new music product and the upgrade of the Company's legacy
studio product.
Gross profit for the three months ended June 30, 1997 was $475,000, an
increase of $375,000, or 375%, compared to $100,000 for the same period the
prior year. Gross profit for the six months ended June 30, 1997 was $684,000,
an increase of $493,000, or 258%, compared to $191,000 for the same period
the prior year. As a percentage of revenues, gross profit increased to 58%
in the three months ended June 30, 1997 from 20% in 1996. As a percentage of
revenues, gross profit increased to 50% in the six months ended June 30, 1997
from 19% in 1996. Gross profits, in general, are affected by the mix of OEM
licensing revenue versus application products revenue as well as the mix
within application products. The improvement in gross margin as a percentage
of revenues reflects the strengthening of OEM sales achieved during the three
months ended June 30, 1997. Direct costs were lower in the second quarter of
1997 compared with the same quarter last year due the distribution of more
products via CD-ROM media, lower amortization costs and reduced labor costs.
Software amortization costs for the three months ended June 30, 1997 fell to
$150,000 as compared with $219,000 for the same period during 1996. Software
amortization costs for the six months ended June 30, 1997 were $310,000, a
decrease of $173,000, compared with $483,000 for the same period during 1996.
These assets are expected to be completely amortized by October, 1997.
Sales and marketing expenses for the three months ended June 30, 1997
were $428,000, a reduction of $648,000, compared to $1,076,000 for the same
period in the prior year. Sales and marketing expenses for the six months
ended June 30, 1997 were $966,000, a reduction of $770,000, compared to
$1,736,000 for the same period in the prior year. As a percentage of
revenues, sales and marketing expenses decreased to 52% in the three months
ended June 30, 1997 from 219% for the same period in 1996. As a percentage of
revenues, sales and marketing expenses decreased to 71% in the six months
ended June 30, 1997 from 173% for the same period in 1996. The comparative
reduction in expenses is due in part to higher advertising and promotional
expenditures incurred in 1996 to launch new retail products during the second
quarter of that year. 1997 expenses reflect a reduction of marketing
personnel and a change in product marketing strategy.
General and administrative expenses for the three months ended June 30,
1997 were $420,000, a decrease of $217,000, compared to $637,000 for the same
period of the prior year. General and administrative expenses for the six
months ended June 30, 1997 were $790,000, a decrease of $430,000, compared to
$1,220,000 for the same period of the prior year. As a percentage of
revenues, these expenses for the three months ended June 30, 1997 decreased
to 51% in 1997 from 130% for the same period in 1996. As a percentage of
revenues, these expenses for the six months ended June 30, 1997 decreased to
58% in 1997 from 122% for the same period in 1996. The current expense
reflects a reduction of personnel in the Company's general and administrative
departments and the reduction of legal costs pertaining to the shareholder
class action suit which the Company incurred in the same period in 1996.
Research and development expenses for the three months ended June 30,
1997 were $255,000, an increase of $51,000, compared to $204,000 for the same
period the prior year. As a percentage of revenues, research and development
expenses decreased to 31% in the three months ended June 30, 1997 from 41%
for the
9
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same period in 1996. Research and development expenses for the six months
ended June 30, 1997 were $521,000, an increase of $99,000, compared to
$422,000 for the same period the prior year. As a percentage of revenues,
research and development expenses decreased to 38% in the six months ended
June 30, 1997 from 42% for the same period in 1996. The increase in research
and development costs during the first six months of 1997 reflects the
expansion of the Company's engineering staff and related costs required to
support its continued emphasis on developing new products and enhancing
existing products.
Interest and other income/(expense) for the three months ended June 30,
1997 was $25,000 compared to $33,000 for the same period the prior year.
Interest and other income for the six months ended June 30, 1997 was $32,000
compared to $78,000 for the same period the prior year. The change in the
three and six month periods reflects a decrease in the amount of cash
available for investments due to use of cash in operations.
As of June 30, 1997, the Company employed 37 employees. Of these, 10
are employed in administration, 13 in product development and 14 in sales and
marketing. All of the employees are covered by confidentiality agreements,
and no employee has an employment contract. None of the Company's employees
are represented by a union or other bargaining group. The Company believes
it maintains good employee relations.
No income taxes are payable at June 30, 1997, the result of the
Company's year-to-date loss and the result of Federal net operating losses at
December 31, 1996 of approximately $18,100,000. The net operating losses
will reduce taxes due in future periods and begin to expire in 2008.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company's principal sources of liquidity
included cash and cash equivalents of $66,000 and net accounts receivable of
$605,000. This compares to cash, cash equivalents and short term investments
of $709,000 and net accounts receivable of $1,282,000 at December 31, 1996.
The decline in liquidity and capital resources is the result of negative cash
flow from operations as the Company continues to make significant investments
in development of its software products and expansion of distribution
channels, including products and distribution strategies targeted for the OEM
and emerging Internet markets.
The Company's current liabilities at June 30, 1997 were $1,584,000
compared to $1,816,000 at December 31, 1996. As of June 30, 1997, working
capital totaled $215,000.
The Company has a $400,000 line of credit with a bank. The borrowings
under the line of credit bear interest at 1% over the bank's prime rate and
are secured by accounts receivable, inventory and general intangibles of the
Company. Among other requirements, the loan agreement requires the Company
to maintain minimum levels of tangible net worth, as defined in the
agreement. The Company is not in compliance with certain of the covenants in
the agreement, but has received a waiver from the bank. As of June 30, 1997,
$360,000 had been borrowed on the facility.
To date, the Company has financed its operations principally through the
net proceeds from its two public offerings and other equity transactions.
The Company expects to complete a private offering in August, 1997 and that
the funds received from this offering, along with cash generated from the
sale of products and collections of accounts receivable, will be sufficient
to meet the Company's capital requirements for at least the next 12 months.
The Company will continue to pursue other financing arrangements, as needed,
to increase its cash reserves in 1997. There can be no assurance the Company
will be capable of raising additional capital or that the terms upon which
such capital will be available to the Company will be acceptable.
The Company is dependent to a material degree on OEM sales. OEM sales
accounted for 39% of revenue recognized during the six months ended June 30,
1997 as compared with 28% for the same period in 1996. The increase in OEM
sales is attributable to increased efforts by the Company to develop products
marketable to computer chip and PC manufacturers and the Company's execution
of 12 new OEM contracts during the six months ended June 30, 1997.
The Company's operating activities used cash of $1,000,000 for the six
month period ended June 30, 1997, reflecting a decrease of $668,000 compared
with the same period in 1996. During the second quarter of 1997, the
Company's net operating activities used cash of $339,000, a decrease of
$713,000, compared with the same period the prior year.
10
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SUBSEQUENT EVENTS
NASDAQ Hearing:
On July 31, 1997 the Company had a hearing before a Panel authorized by
the National Association of Securities Dealers, Inc. Board of Governors. The
meeting included a discussion of Midisoft's failure to meet certain
requirements as set forth in NASD Marketplace Rule 4450(a)(3) as well as a
presentation of Midisoft's proposal to achieve compliance. The Company
anticipates that certain of the items presented, including information
regarding its continued efforts towards completing the Private Offering noted
above, will enable it to cure the noncompliance issues and maintain its
current listing on the NASDAQ National Market.
RISKS RELATED TO FORWARD LOOKING STATEMENTS
This report contains and incorporates by reference certain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include the plans and
objectives of management for future operations, including plans and
objectives relating to (i) the development of new music and strategic
software products, (ii) the expansion of domestic and international
marketing, sales and distribution programs, (iii) the development and
maintenance of software license arrangements with hardware manufacturers,
(iv) the continued protection of proprietary technologies and (v) the ability
to fund continued operations out of existing working capital, additional
capital infusion and cash flow from future operations. The forward-looking
statements included herein are based on current expectations that involve a
number of risks and uncertainties. These forward-looking statements are
based on assumptions that the Company will continue to develop and introduce
new music and strategic software products on a timely basis, that rapid
changes in technology will not make the Company's products obsolete or
otherwise reduce their ability to compete in the marketplace, that
competitive conditions within the industry will not change materially or
adversely, that the use of multimedia PCs in homes and small offices will
continue to grow, that management's decision to re-focus the Company's
resources on music and sound products will reduce certain expenses from the
levels which were experienced in 1995 and 1996, and that there will be no
material adverse change in the Company's operations or business. Assumptions
relating to the foregoing involve judgments with respect to, among other
things, future economic, competitive and market conditions, and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although
the Company believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate, and
there can be no assurance that the forward-looking information will prove to
be accurate. In addition, the business and operations are subject to
substantial risks that increase the uncertainty inherent in such
forward-looking statements. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
11
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -
On or about May 9, 1997, Ask Me Multimedia Corporation ("AMM") served a
Demand for Arbitration (the "Arbitration") on the Company. The Arbitration
was filed with the American Arbitration Association in Seattle, Washington.
The Arbitration alleges that in connection with the Company's purchase of
assets of AMM in early 1995, the Company breached certain of the
representations, warranties and covenants made to AMM. The Arbitration seeks
damages in excess of $1.1 million for, among other things, breach of
contract. The Company intends to vigorously defend the Arbitration and to
assert all available counterclaims against AMM. The Company believes it has
certain valid defenses and counterclaims to the Arbitration, however, the
Company cannot predict the outcome of the Arbitration. Given the Company's
limited working capital, a significant damage award against the Company could
have a material adverse affect on future operations. In addition, the
existence of the Arbitration may adversely affect the Company's ability to
raise additional capital.
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 16, 1997, the Company held its Annual Meeting of Shareholders.
Shareholders of record on June 2, 1997, the record date, holding a total of
5,957,549 shares were eligible to vote on the two items presented. A total
of 4,210,192 shares voted, equal to 71% of the shares outstanding on the
record date shown below:
Item No. 1 Election of Director voted as follows:
John Bauer 3,299,706 voted for; 910,486 withheld
--------- -------
Item No. 2 Amendment to add 300,000 shares of common stock to the
Company's 1989 Stock Option Plan:
1,030,184 voted for; 1,124,394 voted against; 41,163 abstained
--------- --------- ------
ITEM 5. OTHER INFORMATION. - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. - None
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MIDISOFT CORPORATION
(Registrant)
Date: August 12, 1997
BY: /s/ Melinda A. Bryden
------------------------------------
Melinda A. Bryden, Vice President of
Finance and Chief Financial Officer
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MIDISOFT CORPORATION
(Registrant)
Date: August 12, 1997
BY:
------------------------------------
Melinda A. Bryden, Vice President of
Finance and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
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0
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