##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 0-26192
(Commission File Number)
 MAKEMUSIC, INC.
  Minnesota
    
    41-1716250(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 
  
  
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company þ
 o þ




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##### 



MakeMusic, Inc.
 INDEX
 Page No.PART
I. FINANCIAL INFORMATIONItem 1
    
    Condensed Financial Statements
    
    3Condensed Balance Sheets March 31,
2010 and December 31, 2009
    
    3Condensed Statements of Operations Three-month
periods ended March 31, 2010 and 2009
    
    4Condensed Statements of Cash Flows Three-month
periods ended March 31, 2010 and 2009
    
    5Notes to Condensed Financial Statements
    
    6Item 2
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    9Item 4T
    
    Controls and Procedures
    
    16PART
II. OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    17Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    17Item 3
    
    Defaults Upon Senior Securities
    
    17Item 4
    
    (Removed and Reserved)
    
    17Item 5
    
    Other Information
    
    17Item 6
    
    Exhibits
    
    17Signatures
    
    18Exhibit Index
    
    19EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Condensed Financial Statements.
 MakeMusic, Inc.
 
 Condensed Balance Sheets
 (In thousands of U.S. dollars, except share data)
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    8,076
    
    
    $
    8,943Accounts
receivable (net of allowance of $38 and $33 in 2010 and 2009, respectively)
    
    
    1,375
    
    
    
    1,277Inventories
    
    
    287
    
    
    
    386Deferred income taxes, net
    
    
    1,587
    
    
    
    1,587Prepaid expenses and other current assets
    
    
    401
    
    
    
    294Total current assets
    
    
    11,726
    
    
    
    12,487Property and equipment, net
    
    
    512
    
    
    
    533Capitalized software products, net
    
    
    2,583
    
    
    
    2,645Goodwill
    
    
    3,630
    
    
    
    3,630Long term deferred income taxes, net
    
    
    1,075
    
    
    
    977Other non-current assets
    
    
    5
    
    
    
    6Total assets
    
    $
    19,531
    
    
    $
    20,278Liabilities and Shareholders EquityCurrent liabilities:Current portion of capital lease obligations
    
    
    62
    
    
    $
    61Accounts payable
    
    
    444
    
    
    
    726Accrued compensation
    
    
    737
    
    
    
    1,167Other accrued liabilities
    
    
    305
    
    
    
    297Post contract support
    
    
    132
    
    
    
    132Reserve for product returns
    
    
    534
    
    
    
    414Deferred revenue
    
    
    2,724
    
    
    
    2,913Total current liabilities
    
    
    4,938
    
    
    
    5,710Capital lease obligations, net of current portion
    
    
    14
    
    
    
    30Other long term liabilities
    
    
    
    
    
    
    8Shareholders equity:Common stock, $0.01 par value:Authorized shares  10,000,000Issued and outstanding shares  4,815,324
and 4,756,891 in 2010 and 2009, respectively
    
    
    48
    
    
    
    48Additional paid-in capital
    
    
    66,146
    
    
    
    65,980Accumulated deficit
    
    
    (51,615
    )
    
    
    (51,498
    )Total shareholders equity
    
    
    14,579
    
    
    
    14,530Total liabilities and shareholders equity
    
    $
    19,531
    
    
    $
    20,278
  3




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##### Table of Contents



MakeMusic, Inc.
 
 Condensed Statements of Operations
 (In thousands of U.S. dollars, except share and per share data)
 3 MonthsEnded March 31,2010
    
    
    2009Notation revenue
    
    $
    2,568
    
    
    $
    2,617SmartMusic revenue
    
    
    1,432
    
    
    
    1,225NET REVENUE
    
    
    4,000
    
    
    
    3,842COST OF REVENUES
    
    
    651
    
    
    
    557GROSS PROFIT
    
    
    3,349
    
    
    
    3,285OPERATING EXPENSES:Development expenses
    
    
    1,322
    
    
    
    1,279Selling and marketing expenses
    
    
    1,199
    
    
    
    1,131General and administrative expenses
    
    
    1,038
    
    
    
    1,032Total operating expenses
    
    
    3,559
    
    
    
    3,442LOSS FROM OPERATIONS
    
    
    (210
    )
    
    
    (157
    )Other, net
    
    
    26
    
    
    
    14Net loss before income tax
    
    
    (184
    )
    
    
    (143
    )Income tax expense (benefit)
    
    
    (67
    )
    
    
    2Net loss
    
    
    ($117
    )
    
    
    ($145
    )Loss per common share:Basic and diluted
    
    
    ($0.02
    )
    
    
    ($0.03
    )Weighted average common shares outstanding:Basic and diluted
    
    
    4,768,095
    
    
    
    4,644,410
  4




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##### Table of Contents



MakeMusic, Inc.
 
 Condensed Statements of Cash Flows
 (In thousands of U.S. dollars)
 3 MonthsEnded March 31,2010
    
    
    2009Cash flows from operating activitiesNet loss
    
    
    ($117
    )
    
    
    ($145
    )Adjustments to reconcile net loss to net cash used by operating activities:Depreciation and amortization
    
    
    256
    
    
    
    237Deferred income taxes, net
    
    
    (98
    )
    
    
    Share based compensation
    
    
    160
    
    
    
    158Net changes in operating assets and liabilities:Accounts receivable
    
    
    (98
    )
    
    
    (120
    )Inventories
    
    
    99
    
    
    
    39Prepaid expenses and other current assets
    
    
    (107
    )
    
    
    (75
    )Accounts payable
    
    
    (282
    )
    
    
    78Accrued liabilities and product returns
    
    
    (310
    )
    
    
    (178
    )Deferred revenue
    
    
    (188
    )
    
    
    (161
    )Net cash used by operating activities
    
    
    (685
    )
    
    
    (167
    )Cash flows from investing activitiesPurchases of property and equipment
    
    
    (68
    )
    
    
    (126
    )Capitalized development and other intangibles
    
    
    (105
    )
    
    
    (173
    )Net cash used in investing activities
    
    
    (173
    )
    
    
    (299
    )Cash flows from financing activitiesPayments on capital leases
    
    
    (15
    )
    
    
    (15
    )Proceeds from exercise of options
    
    
    6
    
    
    
    0Net cash used in financing activities
    
    
    (9
    )
    
    
    (15
    )Net decrease in cash and cash equivalents
    
    
    (867
    )
    
    
    (481
    )Cash and cash equivalents, beginning of period
    
    
    8,943
    
    
    
    6,592Cash and cash equivalents, end of period
    
    $
    8,076
    
    
    $
    6,111Supplemental disclosure of cash flow informationInterest paid
    
    $
    2
    
    
    $
    3Income taxes paid
    
    
    97
    
    
    
    2
  5




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##### Table of Contents



MakeMusic, Inc.
 
 Notes to Condensed Financial Statements
  Note 1
    

    Accounting Policies.The information
furnished in this report is unaudited but reflects all adjustments
that are necessary, in the opinion of management, for a fair
statement of the results for the interim period. The operating
results for three months ended March 31, 2010 are not necessarily
indicative of the operating results to be expected for the full
fiscal year. In preparing the accompanying financial statements,
management has evaluated subsequent events and has determined no
events have occurred that require disclosure. The Company believes
that although the disclosures contained herein are adequate to
prevent the information presented from being misleading, these
statements should be read in conjunction with the Companys most
recent Form 10-K.
 Note 2
    

    Net Loss Per Share.Net loss per share was calculated by dividing
the net loss by the weighted average number of shares outstanding
during the period. The effect of options and warrants are excluded
for the three-month periods ended March 31, 2010 and 2009 because
the effect is anti-dilutive.
 Note 3
    

    Income Tax Expense.We account for income taxes using the asset
and liability method. We estimate our income taxes in each of the
jurisdictions in which we operate and account for income taxes
payable as part of the preparation of our financial statements.
This process involves estimating our actual current tax expense as
well as assessing temporary differences resulting from differing
treatment of items, such as depreciation and amortization, for
financial and tax reporting purposes. These differences result in
deferred tax assets and liabilities, which are included in our
balance sheet to the extent deemed realizable. We assess the
likelihood that, and the extent to which, our deferred tax assets
will be realized and establish a valuation allowance to reduce
deferred tax assets to an amount for which realization is more
likely than not. If we increase or decrease a valuation allowance
in a given period, then we must increase or decrease the tax
provision in our statements of income.
 As of December 31, 2009, we had U.S. net operating loss (NOL)
carry-forwards of approximately $17,824,000, Minnesota net
operating loss carry-forwards of $6,392,000, and research and
development tax credits of $1,069,000. The losses and tax credits
are carried forward for federal and state corporate income taxes
and may be used to reduce future taxes.
 Significant management judgment is required in determining any
valuation allowance recorded against our net deferred tax assets.
Prior to the fourth quarter of 2009, we remained uncertain on how
economic conditions would impact our back to school selling cycle
and annual financial results. Based upon our strong performance in
the fourth quarter of 2009, our operating results in recent years
and an assessment of our expected future results of operations, we
determined in 2009 that it had become more likely than not that we
would realize a portion of our net deferred tax assets. As a
result, during the fourth quarter of 2009, we reduced our valuation
allowance by $2,564,000, representing the approximate estimated tax
on three years of forecasted net income. Due to uncertainties
related to our ability to utilize the balance of our deferred tax
assets, as of March 31, 2010 we have maintained a valuation
allowance of $5,690,000. As of March 31, 2009, we had established a
valuation allowance offsetting all of our deferred tax assets.
Should the remaining $5,690,000 valuation allowance be reversed in
the future, a liability of $3,009,000 would have to be established
for uncertain tax positions.
 We recognize the financial statement benefit of a tax position only after determining
that the relevant tax authority would more likely than not sustain the position following an
audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized
in the financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. We
recorded a benefit for income taxes of $98,000 for the three months ended March 31, 2010. We
did not record a benefit for income taxes for the three months ended March 31, 2009.
 In addition, future utilization of NOL carry-forwards is subject to certain limitations
under Section 382 of the Internal Revenue Code. This section generally relates to a 50
percent change in ownership of a company over a three-year period. The acquisition of
additional shares by a greater than 5% shareholder in January 2007 resulted in an ownership
change under Section 382. Accordingly, our ability to use NOLs in the future may be
limited.
 6




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As of March 31, 2010 and March 31, 2009, there are no open positions for which the
unrecognized tax benefits will significantly increase or decrease during the next twelve
months. Additionally, tax years still open for examination by Federal and major state
agencies as of March 31, 2010 are 2005-2009.
 Note 4
    

    Stock-Based Compensation.The MakeMusic, Inc. 2003 Equity Incentive Plan (the 2003 Plan),
as amended, reserves a total of 1,500,000 shares of our common stock for issuance under stock
options, restricted stock, performance awards and stock appreciation rights. The 2003 Plan is
administered by the Compensation Committee of the Board of Directors, which recommends to the
Board persons eligible to receive awards and the number of shares and/or options subject to
each award, the terms, conditions, performance measures, and other provisions of the award.
Readers should refer to Note 5 of our financial statements on Form 10-K for the fiscal year
ended December 31, 2009 for additional information related to our stock-based compensation
plans.
 We measure stock-based compensation cost at the grant date based on the fair value of the
award and recognize the compensation expense over the requisite service period, which is
generally the vesting period. For the three months ended March 31, 2010 and 2009, we
recognized $108,000 and $106,000, respectively, of expense related to stock based
compensation.
 Stock Options
 We use the Black-Scholes option pricing model to estimate the fair value of stock-based
awards with the weighted average assumptions noted in the following table.
 March 31,
    
    
    March 31,2010
    
    
    2009Black-Scholes Model:Risk-free interest rate
    
    
    1.98
    %
    
    
    1.06
    %Expected life, in years
    
    
    4.4
    
    
    
    4.1Expected volatility
    
    
    79.30
    %
    
    
    75.40
    %Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
 Expected volatility is based on the historical volatility of our share price in the period
prior to option grant equivalent to the expected life of the options. The expected term is
based on managements estimate of when the option will be exercised which is generally
consistent with the vesting period. The risk-free interest rate for periods within the
contractual life of the option is based on the U.S. Treasury yield curve in effect at the
time of grant.
 7




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##### Table of Contents



Equity Award Activity
 The following table represents stock option and restricted stock activity under the 2003
Plan for the three months ended March 31, 2010:
 WeightedAverage
    
    
    WeightedShares
    
    
    
    
    
    
    
    
    
    
    Option
    
    
    AverageReserved for
    
    
    2003 Plan
    
    
    Plan Option
    
    
    Exercise
    
    
    RemainingFuture Grant
    
    
    Restricted Shares
    
    
    Shares
    
    
    Price
    
    
    Contract LifeAt December 31, 2009
    
    
    586,047
    
    
    
    24,116
    
    
    
    445,755
    
    
    $
    5.09Authorized
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    (234,433
    )
    
    
    55,933
    
    
    
    178,500
    
    
    $
    4.60Expired
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    (2,500
    )
    
    $
    2.35At March 31, 2010
    
    
    351,614
    
    
    
    80,049
    
    
    
    621,755
    
    
    $
    4.96
    
    
    3.8 YearsOutstanding
Exercisable at
March 31, 2010
    
    
    
    
    
    
    
    
    
    
    311,755
    
    
    $
    5.12
    
    
    1.9 Years
 At March 31, 2010 the aggregate intrinsic value of options outstanding was $752,000,
and the aggregate intrinsic value of options exercisable was $396,000.
 At March 31, 2010 there was $558,000 of unrecognized compensation cost related to nonvested
share-based option payments which is expected to be recognized over a weighted-average
period of 2.1 years. At March 31, 2010 there was $200,000 of unrecognized compensation cost
related to the issuance of restricted stock which is expected to be recognized over a
weighted-average period of 2.3 years.
 Note 5
    
    Segment Reporting.
 MakeMusic reports results of operations by two unique reportable segments, Notation and
SmartMusic.
 The Notation segment includes the design, development and sales and marketing of music
notation software in the Finale family of products.
 The SmartMusic segment includes the design, development, amortization of capitalized song
title development and sales and marketing of the subscription-based SmartMusic product line
and related accessories.
 The remaining activities are included in Other. These are unallocated expenses which
include costs related to general and administrative and business systems functions that are
not directly attributable to a particular segment. Unallocated expenses are reported in the
reconciliation of the segment totals to consolidated totals as Other items.
 Segment assets or other balance sheet information are not prepared or presented to
management. Therefore, information relating to segment assets is not presented.
 8




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For the 3 Months Ended March 31, 2010
    
    
    For the 3 Months Ended March 31, 2009(In thousands)
    
    
    
    
    
    
    
    
    
    
    (In thousands)Notation
    
    
    SmartMusic
    
    
    Other
    
    
    Total
    
    
    Notation
    
    
    SmartMusic
    
    
    Other
    
    
    TotalNET REVENUE
    
    $
    2,568
    
    
    $
    1,432
    
    
    $
    0
    
    
    $
    4,000
    
    
    $
    2,617
    
    
    $
    1,225
    
    
    $
    0
    
    
    $
    3,842COST OF REVENUES
    
    
    214
    
    
    
    437
    
    
    
    0
    
    
    
    651
    
    
    
    182
    
    
    
    375
    
    
    
    0
    
    
    
    557GROSS PROFIT
    
    
    2,354
    
    
    
    995
    
    
    
    0
    
    
    
    3,349
    
    
    
    2,435
    
    
    
    850
    
    
    
    0
    
    
    
    3,285Percentage of Net Revenue
    
    
    92
    %
    
    
    69
    %
    
    
    0
    %
    
    
    84
    %
    
    
    93
    %
    
    
    69
    %
    
    
    0
    %
    
    
    86
    %OPERATING EXPENSES:Development expenses
    
    
    536
    
    
    
    533
    
    
    
    253
    
    
    
    1,322
    
    
    
    488
    
    
    
    482
    
    
    
    309
    
    
    
    1,279Selling and marketing expenses
    
    
    503
    
    
    
    459
    
    
    
    237
    
    
    
    1,199
    
    
    
    481
    
    
    
    457
    
    
    
    193
    
    
    
    1,131General and administrative
expenses
    
    
    18
    
    
    
    17
    
    
    
    1003
    
    
    
    1,038
    
    
    
    19
    
    
    
    15
    
    
    
    998
    
    
    
    1,032Total Operating Expenses
    
    
    1,057
    
    
    
    1,009
    
    
    
    1,493
    
    
    
    3,559
    
    
    
    988
    
    
    
    954
    
    
    
    1,500
    
    
    
    3,442Income/(Loss) from Operations
    
    
    1,297
    
    
    
    (14
    )
    
    
    (1,493
    )
    
    
    (210
    )
    
    
    1,447
    
    
    
    (104
    )
    
    
    (1,500
    )
    
    
    (157
    )Other Income/(Expense)
    
    
    0
    
    
    
    0
    
    
    
    93
    
    
    
    93
    
    
    
    0
    
    
    
    0
    
    
    
    12
    
    
    
    12NET INCOME/(LOSS)
    
    $
    1,297
    
    
    
    ($14
    )
    
    
    ($1,400
    )
    
    
    ($117
    )
    
    $
    1,447
    
    
    
    ($104
    )
    
    
    ($1,488
    )
    
    
    ($145
    )
 Note 6
    
    Goodwill.
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Executive Overview
  
    
    Providing integrated technology, content and web services to enhance and expand how
music is taught, learned and prepared for performance.
    
    Providing music education content developers with a technology-enriched publishing
platform that leverages their copyrighted assets while simultaneously increasing the
content and value of the SmartMusic library.
    
    Offering software solutions for engraving and electronically distributing sheet
music.
 ® ®
  9




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
    Mar-09
    
    
    Jun-09
    
    
    Sep-09
    
    
    Dec-09
    
    
    Mar-10Total Subscriptions
    
    
    110,318
    
    
    
    111,059
    
    
    
    122,577
    
    
    
    133,782
    
    
    
    139,363Educator Accounts
    
    
    9,091
    
    
    
    8,616
    
    
    
    9,003
    
    
    
    9,269
    
    
    
    9,368Educators who have issued
assignments*
    
    
    1,874
    
    
    
    1,994
    
    
    
    1,178
    
    
    
    1,857
    
    
    
    2,340Gradebook Teachers *
    
    
    829
    
    
    
    874
    
    
    
    453
    
    
    
    886
    
    
    
    1,156Site Licenses
    
    
    208
    
    
    
    203
    
    
    
    236
    
    
    
    322
    
    
    
    356Site License Educator Subscriptions
    
    
    1,461
    
    
    
    1,417
    
    
    
    1,762
    
    
    
    2,181
    
    
    
    2,458
 
 *
    
    Annual statistics that restart on July 1 of each year reflecting the start of the school-year cycle  10




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##### Table of Contents



QuarterlyBeginning
    
    
    
    
    
    Renewed
    
    
    
    
    
    
    
    
    
    Quarter End
    
    Net NewQuarter End Date
    
    Subscriptions
    
    New Subscriptions
    
    Subscriptions
    
    Renewal Rate
    
    Subscriptions Ended
    
    Subscriptions
    
    Subscriptions3/31/2009
    
    
    106,584
    
    
    
    10,609
    
    
    
    12,241
    
    
    
    64
    %
    
    
    19,116
    
    
    
    110,318
    
    
    
    3,7346/30/2009
    
    
    110,318
    
    
    
    5,256
    
    
    
    11,350
    
    
    
    72
    %
    
    
    15,865
    
    
    
    111,059
    
    
    
    7419/30/2009
    
    
    111,059
    
    
    
    24,456
    
    
    
    29,585
    
    
    
    70
    %
    
    
    42,523
    
    
    
    122,577
    
    
    
    11,51812/31/2009
    
    
    122,577
    
    
    
    20,122
    
    
    
    26,402
    
    
    
    75
    %
    
    
    35,319
    
    
    
    133,782
    
    
    
    11,2053/31/2010
    
    
    133,782
    
    
    
    11,590
    
    
    
    15,330
    
    
    
    72
    %
    
    
    21,339
    
    
    
    139,363
    
    
    
    5,581
    11




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##### Table of Contents



Results of Operations
 Comparison of the three-month period ended March 31, 2010 to the three-month period ended March 31,
2009
 Net Revenue
 3 Months Ended March 31,($ in thousands)2010
    
    
    2009
    
    
    Incr (Decr)
    
    
    % ChangeNotation
    
    $
    2,568
    
    
    $
    2,617
    
    
    ($
    49
    )
    
    
    -2
    %SmartMusic
    
    
    1,432
    
    
    
    1,225
    
    
    
    207
    
    
    
    17
    %Total
    
    $
    4,000
    
    
    $
    3,842
    
    
    $
    158
    
    
    
    4
    %
       12




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##### Table of Contents



Gross Profit
 3 Months Ended March 31,($ in thousands)2010
    
    
    2009
    
    
    Incr (Decr)
    
    
    %Notation
    
    $
    2,354
    
    
    $
    2,435
    
    
    ($
    81
    )
    
    
    -3
    %SmartMusic
    
    
    995
    
    
    
    850
    
    
    
    145
    
    
    
    17
    %Total
    
    $
    3,349
    
    
    $
    3,285
    
    
    $
    64
    
    
    
    2
    %
  Development expense
 3 Months Ended March 31,($ in thousands)2010
    
    
    2009
    
    
    Incr (Decr)
    
    
    % ChangeNotation
    
    $
    536
    
    
    $
    488
    
    
    $
    48
    
    
    
    10
    %SmartMusic
    
    
    533
    
    
    
    482
    
    
    
    51
    
    
    
    11
    %Other
    
    
    253
    
    
    
    309
    
    
    
    (56
    )
    
    
    -18
    %Total
    
    $
    1,322
    
    
    $
    1,279
    
    
    $
    43
    
    
    
    3
    %
  Selling and marketing expense
 3 Months Ended March 31,($ in thousands)2010
    
    
    2009
    
    
    Incr
    
    
    % ChangeNotation
    
    $
    503
    
    
    $
    481
    
    
    $
    22
    
    
    
    5
    %SmartMusic
    
    
    459
    
    
    
    457
    
    
    
    2
    
    
    
    0
    %Other
    
    
    237
    
    
    
    193
    
    
    
    44
    
    
    
    23
    %Total
    
    $
    1,199
    
    
    $
    1,131
    
    
    $
    68
    
    
    
    6
    %
  13




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##### Table of Contents



General and administrative expense
 3 Months Ended March 31,($ in thousands)2010
    
    
    2009
    
    
    Incr (Decr)
    
    
    % ChangeNotation
    
    $
    18
    
    
    $
    19
    
    
    ($
    1
    )
    
    
    -5
    %SmartMusic
    
    
    17
    
    
    
    15
    
    
    
    2
    
    
    
    13
    %Other
    
    
    1,003
    
    
    
    998
    
    
    
    5
    
    
    
    1
    %Total
    
    $
    1,038
    
    
    $
    1,032
    
    
    $
    6
    
    
    
    1
    %
  Loss from operations
 3 Months Ended March 31,($ in thousands)2010
    
    
    2009
    
    
    Incr (Decr)
    
    
    % ChangeNotation
    
    $
    1,297
    
    
    $
    1,447
    
    
    ($
    150
    )
    
    
    -10
    %SmartMusic
    
    
    (14
    )
    
    
    (104
    )
    
    
    90
    
    
    
    87
    %Other
    
    
    (1,493
    )
    
    
    (1,500
    )
    
    
    7
    
    
    
    0
    %Total
    
    ($
    210
    )
    
    ($
    157
    )
    
    ($
    53
    )
    
    
    34
    %
   Net Loss
  Liquidity and capital resources
   14




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##### Table of Contents



15




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##### Table of Contents



Item 4T. Controls and Procedures
 Evaluation of disclosure controls and procedures
 Changes in internal controls
 Forward Looking and Cautionary Statements
 The preceding discussion and analysis should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report. Managements Discussion and Analysis may
contain forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. 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, anticipate, and similar words or expressions. The forward-looking
statements in this report generally relate to: our expectations relating to the synergies that
exist between our two product lines, future operating results, cash flows from operations and
revenue growth from new SmartMusic subscriptions; our anticipated product release dates; our
expectations regarding our target business model and future subscription growth for SmartMusic; our
intent to expand SmartMusic repertoire, particularly with respect to solo literature; our plans
relating to marketing and sales efforts; our belief that updates to the SmartMusic and Gradebook
interface will result in subscription growth and higher retention rates; our expectation that
amortization will increase; our beliefs relating to adequacy of capital resources; and our beliefs
relating to the sufficiency of managements contingency plans. 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. MakeMusic cautions investors that many important factors
have affected, and in the future could affect our actual results of operations and cause such
results to differ materially from those anticipated in forward-looking statements made in this
release and elsewhere by MakeMusic or on its behalf. These factors include, but are not limited to:
unforeseen capital demands; the market acceptance of Finale, SmartMusic, SmartMusic Gradebook and
other products; the success of our direct sales efforts; the success of our initiatives to improve
the user interface of our products; the maintenance of strategic partnerships and customer
relationships; our ability to license titles from music publishers; the effectiveness of, and our
ability to implement, our target business model; the limited and fluctuating sales of certain of
our products; the intense competition that we face; the rapid technological changes and
obsolescence in software industry; our dependence on key personnel and the proprietary nature of
our technology; other general business and economic conditions (including changes to discretionary
spending by schools and students); and those factors described from time to time in our reports to
the Securities and Exchange Commission (including our Annual Report on Form 10-K). 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 of the risks, uncertainties or potentially inaccurate assumptions that
investors should take into account when making investment decisions. Shareholders and other readers
are cautioned not to place undue reliance on forward-looking statements, which speak only as of the
date on which they are made. We do not intend to update publicly or revise any forward-looking
statements.
 16




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. (Removed and Reserved)
 
 Item 5. Other Information
    
 Item 6. Exhibits
  17




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##### Table of Contents



SIGNATURES
  MAKEMUSIC, INC.Date: May 7, 2010
    By:
    /s/ Ronald RaupRonald Raup,Chief Executive Officer
(Principal Executive Officer)And:
    /s/ Karen L. VanDerBoschKaren L.VanDerBosch,Chief Financial Officer
(Principal Financial Officer) 18




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##### Table of Contents



EXHIBIT INDEX
 Form 10-Q
 Three months ended March 31, 2010
 Exhibit No.
    
    Description10.1*
    
    Form of Restricted Stock Agreement under the MakeMusic 2003 Equity
Incentive Plan, as amended March 15, 2010.10.2
    
    Agreement dated March 2, 2010 among MakeMusic, Inc., Launch Equity Partners, LLC
and Launch Equity Acquisition Partners, LLC - Designated
 Series Education Partners- incorporated by reference to Exhibit 10.1 to the Registrants 8-K filed March 3, 2010.31.1*
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith. 19