<PAGE>
- --------------------------------------------------------------------------------
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 MARCH 31, 1998
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; shares outstanding;
6,298,005 as of May 11, 1998
- --------------------------------------------------------------------------------
<PAGE>
MIDISOFT CORPORATION
INDEX TO FORM 10-QSB
PAGE
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . 3
a) Balance Sheets - March 31, 1998 and December 31, 1997
b) Statements of Operations - For the Three Months Ended
March 31, 1998 and 1997
c) Statements of Cash Flows - For the Three Months Ended
March 31, 1998 and 1997
d) Notes to Financial Statements - For the Three Months Ended
March 31, 1998 and 1997
Item 2. Management's Discussion and Analysis of Financial Condition or
Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . .11
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . .11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . .11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . .11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . .11
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
MIDISOFT CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS (Unaudited) (Audited)
At March 31, At December 31,
1998 1997
------------ ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 394,000 $ 90,000
Accounts receivable - net of allowances of
$354,000 in 1998 and $493,000 in 1997 406,000 574,000
Inventories 239,000 222,000
Prepaid expenses and other receivable 183,000 82,000
------------ ------------
Total current assets 1,222,000 968,000
Long-term receivable 195,000 195,000
Property & equipment, net of depreciation 200,000 239,000
Other assets 100,000 50,000
------------ ------------
Total assets $ 1,717,000 $ 1,452,000
------------ ------------
------------ ------------
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 964,000 $ 969,000
Current portion of long-term debt 250,000 250,000
Accrued wages & payroll taxes 108,000 100,000
Other accrued expenses 305,000 329,000
Deferred revenue 31,000 30,000
------------ ------------
Total current liabilities 1,658,000 1,678,000
Long-term debt, net of discount 1,550,000 802,000
Warrant obligations 81,000 81,000
------------ ------------
Total liabilities $ 3,289,000 $ 2,561,000
------------ ------------
------------ ------------
Shareholders' (deficit) equity
Common stock, no par value; 10,000,000 shares authorized,
6,451,000 issued and outstanding in 1998 and
6,359,000 issued and outstanding in 1997 20,165,000 20,165,000
Additional paid-in capital 2,245,000 1,245,000
Notes receivable from shareholders (191,000) (191,000)
Retained deficit (23,791,000) (22,328,000)
------------ ------------
Total shareholders' (deficit) equity (1,572,000) (1,109,000)
------------ ------------
Total liabilities and shareholders' equity $ 1,717,000 $ 1,452,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
MIDISOFT CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
--------------------------------
<S> <C> <C>
1998 1997
------------ -----------
Revenues $ 365,000 $ 537,000
Cost of revenues 140,000 327,000
----------- ----------
Gross profit 225,000 210,000
Operating expenses:
Sales and marketing 310,000 539,000
General and administrative 377,000 370,000
Research and development 225,000 265,000
----------- ----------
Total operating expenses 912,000 1,174,000
Operating loss (687,000) (964,000)
Interest (expense) (765,000) (14,000)
Other (expense) income (11,000) 6,000
----------- ----------
Net loss $(1,463,000) $ (972,000)
----------- ----------
----------- ----------
Net loss per share (basic) $ (0.23) $ (0.18)
----------- ----------
----------- ----------
Net loss per share (diluted)* $ (0.23) $ (0.18)
----------- ----------
----------- ----------
* Common stock equivalents not included, as it would be anti-diluitve
Weighted average shares outstanding 6,298,005 5,535,000
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
MIDISOFT CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
March 31,
--------------------------------
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net loss $ (1,463,000) $ (972,000)
------------ ------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation & amortization 53,000 207,000
Non-cash interest expense to APIC 722,000 -
Interest paid through Common Stock - 15,000
(INCREASE) DECREASE IN ASSETS:
Accounts receivable, net 168,000 668,000
Inventories (17,000) 56,000
Prepaid expenses & other assets (159,000) (120,000)
INCREASE (DECREASE) IN LIABILITIES:
Trade accounts payable (6,000) (167,000)
Accrued wages & payroll taxes 8,000 (24,000)
Other accrued expenses (86,000) 70,000
Deferred revenue 1,000 (379,000)
------------ ------------
Total adjustments 684,000 326,000
------------ ------------
Net cash (used) for operations (779,000) (646,000)
------------ ------------
CASH FROM/(USED FOR) INVESTMENTS:
Additions to plant & equipment (5,000) -
------------ ------------
Net cash from/(used for) investments (5,000) -
------------ ------------
CASH FLOWS FROM FINANCING:
Proceeds from issuance of long-term debt and warrants,
net of debt issue costs 1,088,000 -
------------ ------------
Net cash provided by financing 1,088,000 -
------------ ------------
Net change in cash and cash equivalents 304,000 (646,000)
Cash and cash equivalents, beginning of year 90,000 709,000
------------ ------------
Cash and cash equivalents, end of period $ 394,000 $ 63,000
------------ ------------
------------ ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Common Stock issued in payment of interest $ - $ 15,000
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
MIDISOFT CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
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 1997 audited financial statements included in its Annual Report on
Form 10-KSB/A2 filed April 30, 1998.
The results of operations for the three months ended March 31, 1998 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:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
OEM $ 139,000 $ 137,000
Resellers and other 621,000 930,000
---------- ----------
Subtotal 760,000 1,067,000
Less: Allowance for doubtful accounts (191,000) (260,000)
Allowance for sales returns (163,000) (233,000)
---------- ----------
Total accounts receivable $ 406,000 $ 574,000
---------- ----------
---------- ----------
</TABLE>
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 quarterly installments. At March 31, 1998, OEM accounts
receivable amounts not yet due were $2,000, equal to 1% of total OEM receivables
compared to $16,000, equal to 12% at December 31, 1997. Reseller payment terms
typically are standardized and similar to those given software distributors. At
March 31, 1998, reseller accounts receivable amounts not yet due were $205,000,
equal to 33% of total reseller receivables compared to $425,000, equal to 46% at
December 31, 1997.
The Company's primary credit concentrations involve domestic and foreign
OEM and reseller customers. Foreign customers are primarily located in
Western Europe, Taiwan, Singapore, Korea and Japan. Domestic customers
comprised $626,000 of accounts receivable at March 31, 1998, compared to
$1,054,000 at December 31, 1997. Foreign customers comprised $134,000 of
accounts receivable at March 31, 1998 compared to $13,000 at December 31,
1997.
INCOME TAXES
No income taxes are payable at March 31, 1998, the result of the
Company's year-to-date loss and the result of Federal net operating losses
through December 31, 1997 of approximately $22.7 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
6
<PAGE>
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. An
investor who owns $2,000,000 in principal amount of convertible debentures
and associated warrants outstanding, has the right to purchase an additional
$1,000,000 of convertible debentures in June, 1998 and an additional
$1,000,000 of convertible debentures in June, 1999. If the debenture holder
were to exercise all its warrants and convert all the debt it holds and has a
right to acquire, a change in control of the Company could result.
INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Raw materials $136,000 $212,000
Finished goods 145,000 75,000
Less: Allowance for obsolescence (42,000) (65,000)
-------- --------
Total inventory $239,000 $222,000
-------- --------
-------- --------
</TABLE>
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 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 12 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. 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, and (iii) end users, catalog companies, and businesses and (iv)
on-line Internet sales.
Sales to software distributors and resellers, together with direct sales,
represented 79% of revenues in the three months ended March 31, 1998, and OEM
sales represented 21% during the same period. International sales accounted for
15% of the Company's revenues during the three months ended March 31, 1998.
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 March 31, 1998, two software distributors individually accounted for more
than 10% of the Company's total revenues and together represented 26% of net
revenues for the period.
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
7
<PAGE>
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 costs and has
expensed all of these costs since 1996.
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. 97-2 "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.
ACQUISITIONS
On January 28, 1998, the Company announced it had signed a letter of
intent to acquire Passport Designs, Inc., a privately held company in Foster
City, California. Subsequently, the parties discontinued negotiations and the
Company ceased activity related to acquisition of Passport Designs, Inc.
although the Company may explore other opportunities to acquire the
technology.
SEASONALITY
Sales to distributors tend to be greater in the fourth quarter as consumers
buy software to supplement their holiday computer hardware purchases. OEM sales
are concentrated in a small number of large customer contracts and tend to occur
sporadically. Direct sales generally increase when software upgrades become
available.
NEW PRODUCTS
In May, 1998 the Company announced the free beta release of Internet
Media Player 3.0 in concert with Microsoft's release of the public beta for
its NetShow 3.0. The Company plans to ship the product later this summer
after receiving feedback on the beta releases from OEM's, developers and end
users.
The Company will be releasing upgrades to two of its music products in
mid-June, 1998. Studio Recording Session 2.0 and Desktop Sheet Music 2.0 will
provide new features and added functionality that will benefit both
professional musicians and serious amateurs.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND 1997
This table provides comparative results of the quarters ending March 31,
1998 and 1997. A general discussion of these results follow.
<TABLE>
<CAPTION>
Quarters ending March 31,
1998 1997
% of Revenue % of Revenue
------------ ------------
<S> <C> <C>
Net Sales Revenue 100% 100%
Gross Profit 62% 39%
Research & Development 62% 49%
Sales & Marketing Expense 85% 100%
General & Administrative Expense 103% 69%
Total Operating Expenses 250% 218%
Net Operating Income (Loss) (188%) (179%)
Other (Income) Expense 213% 1%
Net Income (Loss) (401%) (181%)
</TABLE>
8
<PAGE>
Revenues for the three months ended March 31, 1998 were $365,000, a
decrease of $172,000, compared to $537,000 for the same period in 1997. Sales to
software distributors and resellers, together with direct sales were $287,000,
representing 79% of revenues in the three months ended March 31, 1998, compared
to $269,000 which represented 50% of revenues for the same period in 1997. OEM
sales were $78,000 and $268,000 representing 21% and 50% for the same periods
respectively. International sales accounted for 15% of the Company's revenues
for the three months ended March 31, 1998 and 33% in 1997. The Company
believes that the decline in OEM sales is substantially related to
significant industry-wide reductions in PC prices which began in the fourth
quarter of 1997. It appears that these pricing pressures increased during
the first quarter of 1998 as a result of excess industry-wide PC
inventories. Subsequent actions by the Company's OEM customers to reduce
their costs and number of suppliers appears to have adversely affected the
Company's OEM sales during the first quarter of 1998.
Gross profit for the three months ended March 31, 1998 was $225,000, an
increase of $15,000, compared to $210,000 for the same period the prior year. As
a percentage of revenues, gross profit increased to 62% in the three months
ended March 31, 1998 from 39% in 1997. 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. Software development costs were fully amortized in 1997,
therefore there were no software amortization costs for the three months ended
March 31, 1998 as compared with $154,000 for the same period during 1997.
Without the amortization expense, the gross margin for the first quarter of 1997
would have been 68%, as compared with 62% for the same period in 1998.
Sales and marketing expenses for the three months ended March 31, 1998 were
$310,000, a reduction of $229,000, compared to $539,000 for the same period in
the prior year. As a percentage of revenues, sales and marketing expenses
decreased to 85% in the three months ended March 31, 1998 from 100% for the same
period in 1997. This reduction was a consequence of improved direction and
focus of the Company's marketing and selling resources.
General and administrative expenses for the three months ended March 31,
1998 were $377,000, an increase of $7,000, compared to $370,000 for the same
period of the prior year. As a percentage of revenues, these expenses for the
three months ended March 31, 1998 increased to 103% from 69% for the same period
in 1997.
Research and development expenses for the three months ended March 31, 1998
were $225,000, a decrease of $40,000, compared to $265,000 for the same period
the prior year. As a percentage of revenues, research and development expenses
increased to 62% in the three months ended March 31, 1998 from 49% for the same
period in 1997.
Interest and other income for the three months ended March 31, 1998 was
$7,000, compared to $6,000 for the same period the prior year. Interest expense
for the three months ended March 31, 1998 was $765,000 compared to $14,000 for
the same period in 1997, an increase of $751,000. $722,000 of this increase was
a one time non-cash charge relating to amortization of the $1,000,000 of
convertible debentures issued in January, 1998. The balance of the increase
totaling $29,000 represents accrued interest on the Company's debt.
No income taxes are payable at March 31, 1998, the result of the Company's
year-to-date loss and the result of Federal net operating losses at December 31,
1997 of approximately $22,676,000. The net operating losses will reduce taxes
due in future periods and begin to expire in 2008.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company's principal sources of liquidity included
cash and cash equivalents of $394,000 and net accounts receivable of $406,000.
This compares to cash, cash equivalents and short term investments of $90,000
and net accounts receivable of $574,000 at December 31, 1997. The change in
liquidity and capital resources is the result of the proceeds from the sale of
$1,000,000 of 1% convertible debentures in January, 1998 reduced by negative
cash flow from operations during the first quarter.
The Company's current liabilities at March 31, 1998 were $1,658,000
compared to $1,678,000 at December 31, 1997. As of March 31, 1998, working
capital totaled a negative $436,000. The Company's operating activities used
cash of $779,000 for the period due primarily to operating losses of $687,000
net of non-cash charges. This use of cash of $779,000 for the three month
period ended March 31, 1998, is an increase of $133,000 from the first
quarter of 1997 and a $237,000 increase from the fourth quarter of 1997.
These increases result from lower revenues in the current period.
The Company sold $500,000 of debentures on each of January 9, 1998 and
January 28, 1998, in accordance with the Securities Purchase Agreement
discussed in the Company's 10-KSB/A2 filed with the SEC on April 30, 1998.
The debentures bear interest at the rate of 1% per annum payable in cash or,
at the Company's option, in shares of common stock. Additionally, the
debenture holder has the right to purchase an additional $1,000,000 of
convertible debentures in June, 1998 and again in June, 1999. On May 14, 1998
the debenture
9
<PAGE>
holder and the Company agreed to continue discussion regarding the Company's
capital resource needs. In this respect, the Company granted to the debenture
holder a waiver of the Company's right to 30 day notice for funding or not
funding the June 1998 tranch. If the debenture holder, without funding the
June 1998 and June 1999 tranches, were to exercise all its warrants and
convert all the debt it holds and has a right to acquire, a change in control
of the Company could result.
To date, the Company has financed its operations principally through net
proceeds from two public offerings and private placements of debt and equity.
Cash on hand, along with cash generated from the sale of products and
collections of accounts receivable, will not be sufficient to meet the
Company's requirements for the next 3 months. The Company's ability to fund
continued operations depends on raising additional capital. Should the
Company be unable to raise additional capital, the Company will be required
to significantly reduce operations, reduce expenses and may find it
necessary to file for protection under the bankruptcy code. Such steps would
likely have a material adverse effect on the Company's ability to establish
profitable operations in the future. The Company will continue to pursue
other financing arrangements to increase its cash reserves. 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.
TRADE DEBT AND OTHER MATTERS
As of March 31, 1998, the Company had $297,000 of accounts payable that
were current, $55,000 extended to between 31 and 60 days and $612,000
extended over 60 days. The level of extended accounts payable results from
the Company's negative operating cash. The Company has entered into plans to
extend payments beyond due dates in the original purchase orders. While the
Company believes that payment plans will continue to be accepted, there is
no certainty that the Company will be able to continue to meet extended
payment terms. The Company has received demand letters from certain vendors
requesting immediate payment of amounts owing them totaling approximately
$248,000. Five of these vendors have initiated litigation and received
judgments totaling approximately $85,000. Some vendors have refused to make
sales to the Company and others have required cash on delivery terms. The
Company has not yet failed to meet delivery commitments due to supply
problems from its vendors.
10
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -
In 1997, an entity which sold substantially all of its assets to the
Company in 1995 demanded that the Company arbitrate certain claims
arising from the sale. The claims aggregate in excess of $1 million.
The Company has denied the allegations and has asserted counterclaims.
The arbitration hearing was set for April 22, 1998, but has been
postponed until the week of July 6, 1998. The ultimate outcome of this
matter cannot be determined at this time; however, the Company
believes it has defenses and intends to defend the matter vigorously.
On April 3, 1997 the Company began arbitration proceedings against a
former customer. On September 24, 1997, the Company was awarded
$194,983.37 against the former customer. The amount of the award
represents the sum of 1) $160,000.00, the unpaid portion of the base
annual license royalty under the Company's OEM License Agreement and
2) $34,983.37, representing interest on the unpaid installments from
their respective due dates through the date of the award computed at
12% per annum. The Company obtained a judgment in January, 1998 and is
awaiting the results of an appeal.
The company has received demand letters from certain vendors
requesting immediate payment of amounts owing them totaling
approximately $248,000. Five of these vendors have initiated
litigation and received judgements totaling approximately $85,000.
The Company has entered into payment plans with some of these
vendors and is pursuing payment plans with others. However, if the
Company is unable to arrange payment plans satisfactory to the
vendors, or meet its obligations under the plans arranged, further
litigation may ensue.
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company is in technical default of certain provisions of
$2,000,000 of debentures. The Lender has granted forbearance of this
default through December 31, 1998. Under the Securities Purchase
Agreement the Company is required to maintain sufficient authorized
and unissued shares as may be reasonably necessary to effect the
conversion of the debentures, including the $2 million of debentures
the Lender has a right to purchase in June, 1998 and June, 1999. The
Company does not currently have sufficient authorized and unissued
shares to satisfy this requirement. The Company's Board of Directors
has approved an increase in the number of authorized shares from 10
million to 25 million shares of Common Stock, subject to shareholder
approval at the next annual meeting.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -None
ITEM 5. OTHER INFORMATION. - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) EXHIBITS - No. 27 Financial Data Schedule
b) REPORTS ON FORM 8-K:
Report filed on January 15, 1998 concerning engagement of
Price Waterhouse LLP as auditors of the Company.
11
<PAGE>
SIGNATURE
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: May 14, 1998
BY: /s/ Gary M. Cully
------------------------------
Gary M. Cully, Vice President of Finance
and Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET DATED MARCH 31, 1998 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1998, FOUND ON PAGES 3 AND 4 OF THE COMPANY'S 10-QSB FOR THE
YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 394
<SECURITIES> 0
<RECEIVABLES> 760
<ALLOWANCES> 191
<INVENTORY> 239
<CURRENT-ASSETS> 1,222
<PP&E> 1,053
<DEPRECIATION> 853
<TOTAL-ASSETS> 1,717
<CURRENT-LIABILITIES> 1,658
<BONDS> 1,631
0
0
<COMMON> 20,165
<OTHER-SE> (21,737)
<TOTAL-LIABILITY-AND-EQUITY> 1,717
<SALES> 365
<TOTAL-REVENUES> 365
<CGS> 140
<TOTAL-COSTS> 912
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 765
<INCOME-PRETAX> (1,463)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,463)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,463)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
