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, 1997
[ ] 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 12, 1997, there were 4,327,035 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
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,003,349 $1,174,293
Accounts receivable 439,496 596,946
Inventories 813,645 983,375
Prepaid royalties 118,985 118,470
Other current assets 44,382 53,102
---------- ---------
Total current assets 2,419,857 2,926,186
EQUIPMENT, FURNITURE AND FIXTURES 447,021 494,811
REPERTOIRE DEVELOPMENT COSTS 517,967 476,921
OTHER ASSETS 184,241 183,916
---------- ---------
$3,569,086 $4,081,834
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 228,036 $ 366,271
Accrued expenses 308,251 516,146
Deferred revenue 182,285 201,927
--------- ---------
Total current liabilities 718,572 1,084,344
SHAREHOLDERS' EQUITY 2,850,514 2,997,490
--------- ---------
$3,569,086 $4,081,834
========= =========
See accompanying notes to financial statements
</TABLE>
<PAGE>
Coda Music Technology, Inc.
Condensed Statements of Operations
For the Quarter Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
NET REVENUES $1,617,473 $1,254,579
COST OF SALES 458,249 301,082
--------- ---------
GROSS PROFIT 1,159,224 953,497
--------- ---------
OPERATING EXPENSES:
Sales and marketing 541,907 864,356
Product development 333,884 322,476
General and administrative 441,938 372,001
--------- ---------
Total operating expenses 1,317,729 1,558,833
--------- ---------
LOSS FROM OPERATIONS (158,505) (605,336)
INTEREST INCOME, net 11,529 45,363
--------- ---------
Net loss $ (146,976) $ (559,973)
========= =========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING
4,327,035 4,267,084
========= =========
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE
$ (0.03) $ (0.13)
========= =========
See accompanying notes to financial statements
</TABLE>
<PAGE>
Coda Music Technology, Inc.
Condensed Statements of Cash Flows
For the Quarter Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (146,976) $ (559,973)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 115,268 79,860
Change in current assets and liabilities:
Accounts receivable 157,450 19,726
Inventories 169,730 (9,975)
Prepaid royalties (515) (11,600)
Other current assets 8,720 6,283
Accounts payable (138,235) 15,892
Accrued expenses (207,895) (145,135)
Deferred revenue (19,642) 9,528
-------- ---------
Net cash used in operating activities (62,095) (595,394)
-------- ---------
INVESTING ACTIVITIES:
Purchases of equipment, furniture and fixtures (25,077) (132,710)
Capitalized repertoire development cost (76,435) (132,639)
Capitalized patents and trademarks (7,337) (9,057)
-------- ---------
Net cash used in investing activities (108,849) (274,406)
-------- ---------
FINANCING ACTIVITIES:
Proceeds from stock options and warrants exercise - 24,801
Repayment of long-term debt - (3,838)
-------- ---------
Net cash provided by financing activities - 20,963
-------- ---------
NET DECREASE IN CASH AND SHORT-TERM INVESMENTS (170,944) (848,837)
CASH AND SHORT-TERM INVESTMENTS, beginning of period 1,174,293 3,960,274
--------- ---------
CASH AND SHORT-TERM INVESTMENTS, end of period $1,003,349 $3,111,437
========= =========
See accompanying notes to financial statements
</TABLE>
<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, 1997 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 Subsequent Event. The Company has initiated a private placement of
its common stock. Under the proposed terms of the private offering, a
minimum of 1,153,846 shares of common stock and a maximum of
1,730,769 shares of common stock will be offered at a price of $1.30
per share. In addition, the Company will issue to purchasers of the
Shares warrants to purchase, for $2.00 per share (subject to
adjustment), one share of Common Stock for every two Shares
purchased. The offering is scheduled to close on May 29, 1997,
subject to extension by the Company for up to 60 days.
Note 3 New Accounting Pronouncement. The Company will adopt in the fiscal
year ending December 31, 1997, Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (SFAS No. 128), which requires
disclosure of basic earnings per share (EPS) and diluted EPS. The
Company anticipates that adoption of this standard will not have a
material impact on previously reported EPS.
<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. 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.
The Company has incurred losses from operations since inception and has an
accumulated deficit of $8,602,953 as of March 31, 1997. In the spring of 1996,
the Company released new configurations of the Vivace product at lower suggested
retail prices together with upgraded features. The Company does not anticipate a
similar release in the second quarter of 1997. As a result, second quarter 1997
Vivace revenues may be lower than second quarter 1996 Vivace revenues. The
Company does anticipate the release of upgrades to the Finale product in the
third quarter. In November 1996, the Company reduced its headcount by 17
positions to align fixed operating expenses with current revenues.
Results of operations
For the period ended March 31, 1997 compared to the period ended March 31, 1996
Net Revenues. Revenues of $1,617,473 for the quarter ended March 31, 1997
were 29% greater than for the quarter ended March 31, 1996. Of this increase,
approximately $220,000 is due to an increase in Finale product revenues related
to a difference in the timing of the release of upgrades. Revenues from the
Vivace product totaled approximately $432,000 in the quarter ended March 31,
1997 compared to $291,000 in the quarter ended March 31, 1996. Comparative unit
sales information for the periods is represented in the table below:
<PAGE>
For the Quarter Ended March 31,
1997 1996 Increase
Applications 417 186 124%
Repertoire Cartridges 5,247 4,373 20%
The increase in revenue between the periods is principally due to the increase
in the number of units sold.
Gross profit. The gross profit of $1,159,224 for the quarter ended March
31, 1997 represented a gross profit margin of 71%. For the first quarter ended
March 31, 1996, the gross profit margin was 76%. The decrease is attributable to
lower Vivace margins associated with promotional pricing and also because the
lower margin Vivace product comprises 27% of total revenue in 1997 compared to
23% of total revenue in 1996.
Sales and marketing expenses. For the quarter ended March 31, 1996, sales
and marketing expenses of $541,907 are 37% lower than for the quarter ended
March 31, 1996. Of this amount, approximately $140,000 is associated with a
reduction in trade show and travel expenses, $60,000 is associated with the
reduction in personnel costs, and the remainder is due to timing of promotional
expenditures.
Product development expenses. Product development expenses of $333,884 for
the quarter ended March 31, 1997 were $11,408 higher than for the quarter ended
March 31, 1996.
General and Administrative Expenses. General and administrative expenses
for the first quarter of 1997 were $441,938 compared to $372,001 for the first
quarter of 1996. This increase in expenses on a comparative basis with the first
quarter of 1996 is due to that quarter having been abnormally low as adjustments
related to employee termination costs were recorded in the first quarter of
1996.
Interest Income, net. The Company had net interest income of $11,529 for
the quarter ended March 31, 1997 compared to $45,363 for the quarter ended March
31, 1996 due to lower cash and short-term investments in 1997 compared to 1996.
The Company's financing is discussed further under the caption "Liquidity and
Capital Resources".
Net loss. The net loss of $146,976 or $.03 per share for the quarter ended
March 31, 1997 is favorable to the $559,973 or $.13 per share loss in the
quarter ended March 31, 1996. This decrease 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.
<PAGE>
The Company has a $500,000 line of credit with a bank. 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 minimum levels of tangible net worth, 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, 1997, there were no borrowings under the
line of credit.
Net cash used in operating activities totaled $62,095 for the quarter ended
March 31, 1997. In addition, the Company made capital expenditures for
furniture, equipment and fixtures of $25,077 and repertoire development costs of
$76,435 in the first quarter of 1997. The Company used cash for operating
activities of $595,394 and made capital expenditures for furniture, equipment
and fixtures of $132,710 and repertoire development costs of $132,639 during the
three months ended March 31, 1996.
The Company anticipates that capital expenditures for 1997 will approximate
$150,000. Management believes existing cash and proceeds from line of credit
borrowings, together with funds generated from the sale of products will be
sufficient to fund its capital expenditure, product development and working
capital requirements through 1997. However, to assure adequate availability of
resources to promote planned product announcements, the Company has initiated a
private placement of its common stock. Under the proposed terms of the private
offering, a minimum of 1,153,846 Shares of common stock and a maximum of
1,730,769 shares of common stock will be offered at a price of $1.30 per share.
In addition, the Company will issue to purchasers of the Shares warrants to
purchase, for $2.00 per share (subject to adjustment), one share of Common Stock
for every two Shares purchased. The offering is scheduled to close on May 29,
1997, subject to extension by the Company for up to 60 days.
Cautionary Statements
The Company cautions investors that actual results of future operations may
differ from those anticipated in forward looking statements due to a number of
factors including market acceptance of the Company's Vivace products, the
potential need for additional capital, the need for additional product and
repertoire development work, dependence on suppliers, 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, 1996.
<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, 1997.
(b) At the Annual Meeting a proposal to set the number of
directors at six was adopted by a vote of 3,780,922 shares
in favor, with 78,288 shares against, 15,750 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:
<TABLE>
<CAPTION>
Nominee Number of Votes For Number of Votes Withheld
<S> <C> <C>
John W. Paulson 3,782,156 92,804
Ronald B. Raup 3,784,156 90,804
David A. Henderson 3,786,956 88,004
Gordon R. Stofer 3,786,956 88,004
Larry A. Pape 3,786,956 88,004
Karl T. Bruhn 3,786,956 88,004
</TABLE>
(d) At the Annual Meeting the shareholders approved a 200,000
share increase in the number of shares reserved for issuance
under the Company's 1992 Stock Option Plan by a vote of
3,525,308 shares in favor, with 293,812 shares against,
46,937 shares abstaining and 8,903 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, 1997.
<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 12, 1997 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, 1997
Exhibit
Number Description
27 Financial Data Schedule (filed in electronic format only)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,003,349
<SECURITIES> 0
<RECEIVABLES> 439,496
<ALLOWANCES> 0
<INVENTORY> 813,645
<CURRENT-ASSETS> 2,419,857
<PP&E> 447,021
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,569,086
<CURRENT-LIABILITIES> 718,572
<BONDS> 0
0
0
<COMMON> 11,453,467
<OTHER-SE> (8,602,953)
<TOTAL-LIABILITY-AND-EQUITY> 3,569,086
<SALES> 1,617,473
<TOTAL-REVENUES> 1,617,473
<CGS> 458,249
<TOTAL-COSTS> 458,249
<OTHER-EXPENSES> 1,317,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (146,976)
<INCOME-TAX> 0
<INCOME-CONTINUING> (146,976)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (146,976)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
