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 June
30, 2000
[ ] 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)
(952) 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 August 1, 2000, there were 6,427,004 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 Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- --------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 730,403 $ 1,345,599
Short-term investments 778,677 608,600
Accounts Receivable 323,893 484,515
Inventories 228,941 200,242
Other current assets 117,829 119,480
-------------- --------------
Total current assets 2,179,743 2,758,436
EQUIPMENT, FURNITURE AND FIXTURES 956,226 249,660
SOFTWARE INSTALLATION IN PROGRESS (Note 2) - 200,000
REPERTOIRE DEVELOPMENT COSTS 430,071 486,891
PREPAID ROYALTIES 203,485 192,490
OTHER ASSETS 126,883 99,527
-------------- --------------
$ 3,896,408 $ 3,987,004
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities on long-term debt (Note 3) $ 77,013 -
Accounts payable 342,533 619,944
Reserve for product returns 202,841 210,858
Accrued expenses 479,676 548,444
Deferred revenue 72,310 89,548
-------------- --------------
Total current liabilities 1,174,373 1,468,794
LONG-TERM DEBT, less current maturities (Note 3) 154,970 -
SHAREHOLDERS' EQUITY
Common Stock 14,060,578 13,726,491
Accumulated (Deficit) (11,493,513) (11,208,281)
-------------- --------------
Total Shareholders' Equity 2,567,065 2,518,210
-------------- --------------
$ 3,896,408 $ 3,987,004
============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
Coda Music Technology, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
------------------------ -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 1,056,946 $ 955,785 $ 2,869,257 $ 2,172,142
COST OF SALES 159,142 120,914 398,258 281,742
------------- ------------ ------------- -------------
GROSS PROFIT 897,804 834,871 2,470,999 1,890,400
------------- ------------ ------------- -------------
OPERATING EXPENSES:
Sales and marketing 375,378 433,026 973,653 866,573
Product development 359,990 370,143 718,491 723,622
General and administrative 520,601 578,471 1,097,260 1,142,017
------------- ------------ ------------- -------------
Total operating expenses 1,255,969 1,381,640 2,789,404 2,732,212
------------- ------------ ------------- -------------
LOSS FROM OPERATIONS (358,165) (546,769) (318,405) (841,812)
Interest Income, net 12,896 15,396 33,173 35,149
------------- ------------ ------------- -------------
NET LOSS $ (345,269) $ (531,373) $ (285,232) $ (806,663)
============= ============ ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 6,387,318 6,194,732 6,337,710 6,194,732
============= ============ ============= =============
BASIC AND DILUTED NET LOSS
PER SHARE $ (.05) $ (.09) $ (.05) $ (.13)
============= ============ ============= =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
Coda Music Technology, Inc.
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (285,232) $ (806,663)
Adjustments to reconcile net loss to net cash used in operating
activities-
Depreciation and amortization 245,127 259,007
Change in current assets and liabilities:
Accounts receivable 160,622 185,517
Inventories (28,699) (25,715)
Prepaid royalties (10,995) 973
Other current assets 1,651 16,671
Accounts payable (277,411) 109,647
Reserve for product returns (8,017) 83,090
Accrued expenses (68,768) (73,623)
Deferred revenue (17,238) 19,006
------------ -------------
Net cash used in operating activities (288,960) (232,090)
------------ -------------
INVESTING ACTIVITIES:
Purchases of equipment, furniture and fixtures (611,149) (68,196)
Capitalized repertoire development cost (65,796) (85,667)
Other assets, principally patents and trademarks (45,284) (12,649)
------------ -------------
Net cash used in investing activities (722,229) (166,512)
------------ -------------
FINANCING ACTIVITIES:
Proceeds from stock options & warrants exercised 334,087 -
Payments on long-term debt (18,017)
Proceeds on long-term debt 250,000 -
Net cash provided by financing activities 566,070 -
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (445,119) (398,602)
CASH AND SHORT-TERM INVESTMENTS, beginning of period 1,954,199 1,975,105
------------ -------------
CASH AND SHORT-TERM INVESTMENTS, end of period $ 1,509,080 $ 1,576,503
============ =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
Coda Music Technology, Inc.
Notes to Consolidated 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 six months ended June 30,
2000 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. Certain amounts as presented in the 1999 quarterly financial
statement have been reclassified to conform to the presentation in
2000.
Note 2 Fixed Assets. In June 2000 the Company implemented a new financial
and operation software system at a cost of $665,652.
Note 3 Long-term Debt. March 1, 2000 the Company entered into a $250,000
three year installment loan with an interest rate of 10%. The
installment loan reduces the line of credit to $250,000 and the Company
has a certificate of deposit for $100,000 which has been pledged
against the loan.
Note 4 Net Loss Per Common Share. Basic and diluted net loss per common
share was computed by dividing the net loss by the weighted average
number of shares of Common Stock. Common stock equivalents have been
excluded from the calculations of net loss per share as their effective
would be antidilutive.
Note 5 Income Tax Expense. Because of net operating losses the Company has
not incurred income tax expense. At December 31, 1999 the Company had
approximately $10,000,000 in operating loss carryforwards and $488,000
in research and development credits which may be used to offset
otherwise future taxable income.
Note 6 Acquisition of Net4Music SA. Coda signed a definitive agreement on
August 11, 2000 to acquire 82% the shares of Net4Music in consideration
for shares of Coda common stock. The transaction will be treated as a
purchase with the Coda shareholders owning, on a fully diluted basis,
approximately one-third of the combined company. Net4Music SA is an
international Internet leader with over 50,000 music titles in digital
format and they recently acquired the digital print rights to the EMI
catalog, the single largest music catalog in the world.
<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.
The Company has incurred losses from operations since inception and has an
accumulated deficit of $11,493,515 as of June 30, 2000.
Results of operations
For the periods ended June 30, 2000 compared to the periods ended June 30, 1999
Net Sales. Net sales of $1,056,946 for the quarter ended June 30, 2000
increased $101,161, or 11%, over the quarter ended June 30, 1999. The increase
in net sales between the two periods reflects a 21% increase in sales of Finale
music notation software product partially offset by a decrease in net sales from
the SmartMusic Studio (formerly Vivace Intelligent Accompaniment(R)) products.
Net sales for the six months ended June 30, 2000 were $2,869,257, a
$697,115 or 32% increase over net sales for the six months ended June 30, 1999.
Finale, PrintMusic and Allegro product sales represented 80%, 9% and 11% of the
increase respectively, offset by decreases in SmartMusic product sales. The
Finale sales increase in both the quarter and six months ended June 30, 2000 is
due to new consumer acceptance of the latest release and what it offers to the
user. Sales of PrintMusic!, introduced in March 1999, are up 161% and 374% for
the quarter and six months, respectively.
Net sales dollars and units for SmartMusic products decreased on a
quarterly comparison with the same periods in 1999. Comparative unit sales
information for the periods is represented in the table below:
Quarter Ended Six Months Ended
--------------------- -----------------------
6/30/00 6/30/99 6/30/00 6/30/99
Applications 311 331 1,282 997
Accompaniments 2,646 4,963 12,328 12,992
(Repertoires)
Both application and accompaniment sales are down due to the transition
from a dealer to a direct sales program during the second quarter of 1998.
Management continues to have confidence in the product line, but is also
evaluating current distribution strategies, including on-line deployment of
accompaniments and additional music exercises.
<PAGE>
Gross profit. The gross profit of $897,804 for the quarter ended June 30,
2000 increased by $62,933, or 7% from the second quarter of 1998 due to higher
sales levels. The gross profit of $2,470,999 for the six months ended June 30,
2000 increased by $580,599 or 31% also due to higher sales levels described
above.
Sales and marketing expenses. For the quarter ended June 30, 2000 sales and
marketing expenses of $375,378 were $57,648, or 13% lower than for the quarter
ended June 30, 1999. Sales and marketing expenses of $973,653 for the first six
months of 2000, were $107,080 or 12% higher than for the six months ended June
30, 1999. The change in the second quarter is related to the timing of
advertising and direct mail costs relating to various projects. Another reason
for the decrease over a year ago is the leveraging of package and collateral
design investments made in all products as well as introduction of PrintMusic,
and repositioning of Finale in 1999. The increase in the six month period is
related to trade show and travel costs resulting from the company's attendance
at more trade shows; material design costs related to the release of Intonation
trainer; higher direct mail costs related to additional product mailings; and
increased personnel costs in customer service and post sale technical support
related to higher sales levels.
Product development expenses. Product development expenses of $359,990 for
the quarter ended June 30, 2000 were $10,154 or 3% lower than for the quarter
ended June 30, 1999. For the six months ended June 30, 2000, product development
expenses of $718,491 were $5,131 or 1% lower than for the six months ended June
30, 1999. The major reason for the decrease in expense in both periods is
related to decreased staffing and outside contractor costs, partially offset by
higher amortization rates of previously capitalized development costs.
General and Administrative Expenses. General and administrative expenses
for the second quarter of 2000 were $520,601, or 10% lower than for the second
quarter ended June 30, 1999. General and administrative expenses of $1,097,260
for the six months ended June 30, 2000 decreased $44,757 or 4% over the six
months ended June 30, 1999. The decrease in both periods relates to the decrease
in exploration of e-commerce and Internet opportunities including consulting
expenses spent with US Web/CKS.
Interest Income, Net. The Company had interest income of $12,896, net of
$6,240 interest expense for the quarter ended June 30, 2000. Net interest income
decreased $2,500 or 19% when compared to the quarter ended June 30, 1999. For
the first six months of 2000, the Company had interest income of $33,173, down
$1,976 or 6% when compared to the first six months of 1999. The lower interest
income is attributable to the Company's lower average cash and investment
balances in 2000 compared to 1999. The Company's financing is discussed further
under the caption "Liquidity and Capital Resources".
Net loss. The net loss of $345,268 for the quarter ended June 30, 2000 is
$186,106 or 35% improved over the $531,373 loss in the quarter ended June 30,
1999. For the six months ended June 30, 2000, the Company's loss of $285,232 is
favorable to the loss of $806,663 for the six months ended June 30, 1999.
<PAGE>
Liquidity and Capital Resources
The Company has a $500,000 line of credit with a bank available to
finance its working capital requirements. Effective March 1, 2000, $250,000 of
the line was converted into a $250,000 installment note payable over three years
which limits the line of credit availability to $250,000. A $100,000 certificate
of deposit is pledged against the loan. The borrowings under the line of credit
are limited to 75% of eligible accounts receivable plus 25% of eligible
inventories, as defined, 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. As of June 30, 2000 there were no borrowings under
the line of credit other than the installment note.
Net cash used in operating activities totaled $288,960 for the six months
ended June 30, 2000. In addition, the Company made capital expenditures for
furniture, equipment and fixtures of $611,149 and repertoire development costs
of $65,796 in the six months ended June 30, 2000. During the six months ended
June 30, 1999, the Company used cash for operating activities of $232,090, and
made capital expenditures for furniture, equipment and fixtures of $68,196 and
repertoire development of $85,667.
The Company anticipates that additional capital expenditures for 2000 will
approximate $50,000. 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 the next 12 months. Management expects that cash in
excess of current requirements will continue to be invested in investment grade
interest-bearing securities.
Cautionary Statements
Coda Music Technology, Inc. develops and markets proprietary music
technology products, including Finale music notation software products and the
SmartMusic Intelligent Accompaniment products, a comprehensive system that makes
practicing music fun and productive.
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. Forward-looking statements provide current expectations or forecasts
of future events and can be identified by the use of terminology such as
"believe," "estimate," "expect," "intend," "may," "could," "will" and similar
words or expressions. The Company's forward-looking statements generally relate
to its growth strategy, financial results, product development and sales
efforts. Forward-looking statements cannot be guaranteed and actual results may
vary materially due to the uncertainties and risks, known and unknown,
associated with such statements. The Company undertakes no obligation to update
<PAGE>
any forward-looking statements. The Company has a limited operating history from
which investors might judge its ability to market at a profit its SmartMusic
Studio products. Investors should also consider: expenditures for the Company's
Internet strategy; the possibility that the transaction with Net4Music is not
completed; the risks associated with integrating the Net4Music operations, which
also has risks, if the transaction with Net4Music is completed; sales and
distribution issues, the potential need for additional capital; additional
development work required for new products; dependence on accompaniment sales
and development; competition; dependence on suppliers; and dependence on
proprietary technology. Investors are advised to consult any further disclosures
by the Company on this subject in its filings with the SEC. For a more complete
description, see "Cautionary Statements" under Item 1 of the Company's Form
10-KSB for the year ended December 31, 1999. The Company notes these factors as
permitted by the Private Securities Litigation Reform Act of 1995. It is not
possible to foresee or identify all factors that could cause actual results to
differ from expected or historic results. As such, investors should not consider
any list of such factors to be an exhaustive statement of all risks,
uncertainties or potentially inaccurate assumptions.
<PAGE>
PART 2. OTHER INFORMATION
Item 5. Acquisition of Net4Music SA - On August 11, 2000, the Company filed
a Registration Statement Form S-4 on the Net4Music SA acquisition.
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: On June 21, 2000, the Company filed a
Current Report on Form 8-K in order to file its press release
relating to a proposed merger with Net4Music S.A.
<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: August 14, 2000 CODA MUSIC TECHNOLOGY, INC.
By: s/ John W. Paulson
John W. Paulson, Chairman of the Board
and Chief Executive Officer
And: s/ Barbara S. Remley
Barbara S. Remley,
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
FORM 10-QSB
For the Quarter Ended
June 30, 2000
Exhibit
Number Description
------ -----------
27 Financial Data Schedule (filed in electronic format only)
