SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
Commission file number 0-26192
Coda Music Technology, Inc.
(Exact Name of Small Business Issuer as Specified in its Charter)
Minnesota 41-1716250
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6210 Bury Drive
Eden Prairie, Minnesota 55346-1718
(Address of Principal Executive Offices)
(612) 937-9611
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
As of May 8, 1996, there were 4,273,705 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
Part 1. Financial Information
Item 1. Financial Statements
Coda Music Technology, Inc.
Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and short-term investments $3,111,437 $3,960,274
Accounts receivable 385,802 405,528
Inventories 573,716 563,741
Prepaid royalties 102,717 91,117
Other current assets 118,393 124,676
Total current assets 4,292,065 5,145,336
EQUIPMENT, FURNITURE AND FIXTURES 519,442 466,592
REPERTOIRE DEVELOPMENT COSTS 132,639 -
PATENTS AND TRADEMARKS 102,583 93,526
$5,046,729 $5,705,454
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt - 3,838
Accounts payable 355,446 339,554
Accrued expenses 437,263 582,398
Deferred revenue 132,220 122,692
Total current liabilities 924,929 1,048,482
SHAREHOLDERS' EQUITY 4,121,800 4,656,972
$5,046,729 $5,705,454
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
Coda Music Technology, Inc.
Condensed Statements of Operations
For the Quarter Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
NET REVENUES $1,254,579 $1,366,281
COST OF SALES 301,082 309,387
GROSS PROFIT 953,497 1,056,894
OPERATING EXPENSES:
Sales and marketing 864,356 564,964
Product development 322,476 330,322
General and administrative 372,001 392,789
Total operating expenses 1,558,833 1,288,075
LOSS FROM OPERATIONS (605,336) (231,181)
INTEREST INCOME (EXPENSE), net 45,363 (20,590)
Net loss $ (559,973) $ (251,771)
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE $ (0.13) $ (0.08)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,267,084 3,291,429
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
Coda Music Technology, Inc.
Condensed Statements of Cash Flows
For the Quarter Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (559,973) $ (251,771)
Adjustments to reconcile net loss
to net cash used in operating
activities-
Depreciation and amortization 79,860 69,435
Change in current assets and liabilities:
Accounts receivable 19,726 52,601
Inventories (9,975) 1,164
Prepaid royalties (11,600) (7,420)
Other current assets 6,283 20,570
Accounts payable 15,892 (408,198)
Accrued expenses (145,135) (24,057)
Deferred revenue 9,528 (60,462)
Net cash used in operating activities (595,394) (608,138)
INVESTING ACTIVITIES:
Purchases of equipment, furniture
and fixtures (132,710) (16,385)
Capitalized repertoire development cost (132,639) -
Capitalized patents and trademarks (9,057) -
Net cash used in investing activities (274,406) (16,385)
FINANCING ACTIVITIES:
Proceeds from stock options and warrants
exercise 24,801 -
Proceeds from subordinated debt - 700,000
Repayment of short-term borrowings - (300,000)
Repayment of long-term debt (3,838) (7,858)
Net cash provided by financing activities 20,963 392,142
NET DECREASE IN CASH AND SHORT-TERM
INVESTMENTS (848,837) (232,381)
CASH AND SHORT-TERM INVESTMENTS,
beginning of period 3,960,274 684,727
CASH AND SHORT-TERM INVESTMENTS,
end of period $3,111,437 $ 452,346
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
Coda Music Technology, Inc.
Notes to Financial Statements
(Unaudited)
Note 1 Accounting Policies. The information furnished in this report is
unaudited but reflects all adjustments which are necessary, in the
opinion of management, for a fair statement of the results for the
interim period. The operating results for the three months ended March
31, 1996 are not necessarily indicative of the operating results to be
expected for the full fiscal year. These statements should be read in
conjunction with the Company's most recent Annual Report on Form
10-KSB.
Note 2 Repertoire Development Costs. During the first quarter of
1996, the Company capitalized $132,639 of costs incurred in the
development of repertoire. Such costs had previously been charged
to expense as incurred due to uncertainties surrounding their
ultimate realizability. These costs will be amortized using the
straight line method over the economic lives of the assets, not
to exceed 5 years, beginning when the repertoire products are
released.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company develops and markets proprietary music technology products that
enhance music learning and composition, increase productivity and make
practicing and performing music fun.
Through 1994, the primary business of the Company consisted of enhancing,
marketing and selling Finale(R) products while developing Vivace(R) products. In
June 1994, the first test markets of the Vivace product were launched. After
receiving an encouraging response from music educators and music students the
Company began the process of building a dealer network commencing in January
1995. The Company anticipates that revenues from the Vivace product will
increase as the dealer network expands and gains experience, as well as with the
introduction of stronger and more focused marketing efforts by the Company. In
December 1995, the Company announced new configurations of the Vivace product at
lower suggested retail prices together with upgraded features which now include
an application for vocalists. These configurations will begin shipping in the
second quarter of 1996. With a long-term objective of penetrating the amateur
music making market, the Company intends to continue to adapt its product to
technologies with lower cost and to expand the amount of repertoire available
for use with the Vivace product.
Outlook
The Company has incurred losses from operations since inception and has an
accumulated deficit of $7,244,904 as of March 31, 1996. Due to the significance
of the marketing efforts associated with the introduction of Vivace products as
a music education tool, together with rapid expansion in the development of
Vivace repertoire offerings, the Company's management believes that the Company
will continue to operate at a net loss at least through the second quarter of
1996.
<PAGE>
Results of operations
For the period ended March 31, 1996 compared to the period ended March 31,
1995
Net Revenues. Revenues of $1,254,579 for the quarter ended March 31, 1996 were
$111,702 less than for the quarter ended March 31, 1995. Approximately $35,000
of the revenue decrease between the periods is due to a decrease in Finale
product revenues, principally related to the release of upgrades earlier in the
1995 year compared to the 1994 year. Revenues from the Vivace product totaled
approximately $291,000 in the quarter ended March 31, 1996 and included revenue
from the shipment of approximately 190 modular systems and 4,400 repertoire
cartridges. In the first quarter of 1995, the Company sold 215 modular systems
and 1,200 repertoire cartridges resulting in total Vivace related revenue in the
period ended March 31, 1995 of approximately $367,000. The decrease in revenue
between the periods is principally due to the reduction in the retail price of
the unit as well as a higher relative percentage of units sold through
distributors.
Gross profit. The gross profit of $953,497 for the quarter ended March 31, 1996
represented a gross profit margin of 76%. For the fist quarter ended March 31,
1995, the gross profit margin was 77%. The decrease principally relates to lower
Vivace margins associated with price reductions which were announced in December
1995. It is expected that the gross profit percentage will continue to decline
as introductory promotions on Vivace hardware constitute a higher percentage of
total revenues of the Company.
Sales and marketing expenses. For the quarter ended March 31, 1996, sales and
marketing expenses of $864,356 are 53% higher than for the quarter ended March
31, 1995. Approximately $125,000 of this increase relates to attendance at 25
trade shows in the first quarter of 1996 compared to 19 in the first quarter of
1995. In addition, the Company provided training at its headquarters for 60
specialists employed by our dealer network to sell the Vivace product.
Product development expenses. Product development expenses of $322,476 for the
quarter ended March 31, 1996 were approximately 2% lower than for the quarter
ended March 31, 1995 as the Company capitalized repertoire development expenses
of $132,639 during the quarter ended March 31, 1996. The total expenses related
to the development of application and repertoire products increased as the
Company invested in developing new configurations of the Vivace product, with
expanded features, including vocal accompaniment. In addition, the Company has
accelerated the development of repertoire and broadened the types (vocal as well
as instrumental) and genres being offered (classical, jazz, musical theatre and
pop).
General and Administrative Expenses. General and administrative expenses for the
first quarter of 1996 were $372,001 compared to $392,789 for the first quarter
of 1995. This decrease in expenses is due to incurring lower than expected
employee termination costs. This decrease was partially offset by increased
stockholder relation expenses.
<PAGE>
Interest Income (Expense), Net. The Company had net interest income of $45,363
for the quarter ended March 31, 1996 as the proceeds from the initial public
offering of common stock were invested in short-term securities upon its
completion in July 1995. During the first quarter of 1995, the Company had net
interest expense. The Company's financing is discussed further under the caption
"Liquidity and Capital Resources".
Net loss. The net loss of $559,973 for the quarter ended March 31, 1996 is an
unfavorable variance from the $251,771 loss in the quarter ended March 31, 1995.
This increase in the loss is attributable to the changes in revenues and costs
described above.
Liquidity and Capital Resources
In July 1995, the Company received net proceeds of $5,891,725 from the initial
public offering of 1,135,000 shares of its common stock. The proceeds were used
to repay subordinated debt and accrued interest totaling $1,262,592, and the
remainder was invested in short-term securities.
The Company has a $500,000 line of credit with a bank which has been used to
finance its working capital requirements and which will expire on February 16,
1997 if not renewed. During 1995, the Company borrowed up to $300,000 under this
line of credit, which balance was repaid in February 1995. The borrowings under
the line of credit bear interest at 1% over the bank's reference rate and are
collateralized by all of the accounts receivable, inventory and general
intangibles of the Company. Among other requirements, the loan agreement
requires the Company to maintain tangible net worth of $3,000,000 as defined in
the agreement. While the agreement is in effect, the Company may not incur
additional indebtedness, liquidate or merge the Company, pay dividends or
acquire any other entity without the prior approval of the lender. Further, a
25% or more change in ownership of the Company constitutes an event of default
under the agreement. As of March 31,1996, there were no borrowings under the
line of credit.
Net cash used in operating activities totaled $595,394 for the quarter ended
March 31, 1996. In addition, the Company made capital expenditures for
furniture, equipment and fixtures of $132,710 and repertoire development costs
of $132,639 in the first quarter of 1996. The Company used cash for operating
activities of $608,138 and made capital expenditures of $16,385 during the three
months ended March 31, 1995.
The Company anticipates that capital expenditures for 1996 will approximate
$250,000 and that increased working capital will be required to support planned
revenue growth. Management believes existing cash and short-term investments
together with funds generated from the sale of products will be sufficient to
fund its capital expenditure, product development and working capital
requirements through 1996.
<PAGE>
Cautionary Statements
As provided for under the Private Securities Litigation Reform Act of 1995, the
Company wishes to caution investors that the following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results of operations and cause such results to differ materially from
those anticipated in forward-looking statements made in this document and
elsewhere by or on behalf of the Company.
The Company's initial Vivace product was introduced in 1994 and new Vivace
products are being introduced in 1996. The Company thus has a limited operating
history from which investors might judge its ability to market at a profit its
Vivace products. The success of the Company will be highly dependent on market
acceptance of these products and the success of its distribution arrangements.
The uncertainty of market acceptance of the Company's Vivace products;
additional development work required for new products; dependence on repertoire
sales and development; the Company's dependence on sales to schools and key
customers; fluctuations in operating results; competition; dependence on
supplies; and dependence on proprietary technology. For a more complete
description of such factors see "Cautionary Statements" under Item 1 of the
Company's Form 10-KSB for the year ended December 31, 1995.
<PAGE>
PART 2. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of the Registrant's shareholders was held on April 23,
1996.
(b) At the Annual Meeting a proposal to set the number of directors at six was
adopted by a vote of 3,693,115 shares in favor, with 16,887 shares against,
49,310 shares abstaining and 0 shares represented by broker nonvotes.
(c) Proxies for the Annual Meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934, there was no solicitation in
opposition to management's nominees, and the following persons were elected
directors of the Registrant to serve until the next annual meeting of
shareholders and until their successors shall have been duly elected and
qualified:
Nominee Number of Votes For Number of Votes Withheld
John W. Paulson 3,754,329 4,983
Ronald B. Raup 3,754,329 4,983
David A. Henderson 3,754,329 4,983
Gordon R. Stofer 3,754,329 4,983
Larry A. Pape 3,754,329 4,983
Karl T. Bruhn 3,754,329 4,983
(d) At the Annual Meeting the shareholders approved a 300,000 share increase in
the number of shares reserved for issuance under the Company's 1992 Stock
Option Plan by a vote of 2,787,335 shares in favor, with 165,048 shares
against, 38,030 shares abstaining and 768,899 shares represented by broker
nonvotes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: See Exhibit Index on page following Signature page.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the registrant
during the quarter ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 8, 1996 CODA MUSIC TECHNOLOGY, INC.
By:/s/ Ronald B. Raup
Ronald B. Raup, President and
Chief Operating Officer
And:/s/ Joan K. Berg
Joan K. Berg, Chief Financial Officer
<PAGE>
EXHIBIT INDEX
FORM 10-QSB
For the Quarter Ended
March 31, 1996
Exhibit
Number Description
11 Statement re: computation of earnings per share
27 Financial Data Schedule
EXHIBIT 11
CODA MUSIC TECHNOLOGY, INC.
COMPUTATION OF EARNINGS PER SHARE
For the Quarter Ended March 31,
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
NET LOSS $ (559,973) $ (251,771)
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Common Shares Outstanding (1) 4,267,084 2,900,264
Common Stock Equivalents calculated
pursuant to Securities and Exchange
Commission Staff Bulletin No. 83 (2) - 391,165
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 4,267,084 3,291,429
NET LOSS PER COMMON AND COMMON EQUIVALENT
SHARE $ (0.13) $ (0.08)
</TABLE>
1 Reflects the effect of conversion of Series A and Series B Convertible
Preferred Stock to common stock and a 1-for-2 reverse stock split for all
periods presented.
2 Reflects the issuance of Series B Convertible Preferred Stock, issuance of
common stock for services, stock options granted, warrants issued to
purchase Series B Convertible Preferred Stock and warrants issued to
purchase common stock within the twelve month period prior to the Company's
initial public offering at a price less than the public offering price.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,111,437
<SECURITIES> 0
<RECEIVABLES> 385,802
<ALLOWANCES> 0
<INVENTORY> 573,716
<CURRENT-ASSETS> 4,292,065
<PP&E> 519,442
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,046,729
<CURRENT-LIABILITIES> 924,929
<BONDS> 0
0
0
<COMMON> 11,341,903
<OTHER-SE> (7,244,904)
<TOTAL-LIABILITY-AND-EQUITY> 5,046,729
<SALES> 1,254,579
<TOTAL-REVENUES> 1,254,579
<CGS> 301,082
<TOTAL-COSTS> 301,082
<OTHER-EXPENSES> 1,558,833
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (559,973)
<INCOME-TAX> 0
<INCOME-CONTINUING> (559,973)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (559,973)
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
