##### 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 September 30, 2009
 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 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
September 30, 2009 and December 31, 2008
    
    3Condensed Statements of Operations
Three- and nine-month periods ended September 30, 2009 and 2008
    
    4Condensed Statements of Cash Flows
Nine-month periods ended September 30, 2009 and 2008
    
    5Notes to Condensed Financial Statements
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    10Item 4T Controls and Procedures
    
    17PART II. OTHER INFORMATIONItem 1 Legal Proceedings
    
    18Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    18Item 3 Defaults Upon Senior Securities
    
    18Item 4 Submission of Matters to a Vote of Security Holders
    
    18Item 5 Other Information
    
    18Item 6 Exhibits
    
    18Signatures
    
    19Exhibit Index
    
    20EX-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 and per share data)
 September 30,2009
    
    
    December 31,(Unaudited)
    
    
    2008AssetsCurrent assets:Cash and cash equivalents
    
    $
    7,530
    
    
    $
    6,592Accounts receivable (net of allowance of $31 and $44 in 2009 and 2008, respectively)
    
    
    1,277
    
    
    
    1,397Inventories
    
    
    571
    
    
    
    465Prepaid expenses and other current assets
    
    
    338
    
    
    
    293Total current assets
    
    
    9,716
    
    
    
    8,747Property and equipment, net
    
    
    614
    
    
    
    673Capitalized software products, net
    
    
    2,674
    
    
    
    2,631Goodwill
    
    
    3,630
    
    
    
    3,630Other non-current assets
    
    
    7
    
    
    
    10Total assets
    
    $
    16,641
    
    
    $
    15,691Liabilities and Shareholders EquityCurrent liabilities:Current portion of capital lease obligations
    
    $
    60
    
    
    $
    56Accounts payable
    
    
    561
    
    
    
    373Accrued compensation
    
    
    1,231
    
    
    
    1,170Other accrued liabilities
    
    
    209
    
    
    
    272Post contract support
    
    
    146
    
    
    
    146Reserve for product returns
    
    
    320
    
    
    
    382Current portion of deferred rent
    
    
    31
    
    
    
    30Deferred revenue
    
    
    2,561
    
    
    
    2,336Total current liabilities
    
    
    5,119
    
    
    
    4,765Capital lease obligations, net of current portion
    
    
    46
    
    
    
    76Deferred rent, net of current portion
    
    
    16
    
    
    
    39Shareholders equity:Common stock, $0.01 par value:Authorized shares  10,000,000Issued and outstanding shares  4,708,599 and 4,635,529
in 2009 and 2008, respectively
    
    
    47
    
    
    
    46Additional paid-in capital
    
    
    66,021
    
    
    
    65,716Accumulated deficit
    
    
    (54,608
    )
    
    
    (54,951
    )Total shareholders equity
    
    
    11,460
    
    
    
    10,811Total liabilities and shareholders equity
    
    $
    16,641
    
    
    $
    15,691
  3




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MakeMusic, Inc.
 
 Condensed Statements of Operations  (In thousands of U.S. dollars, except share and per share data)
 3 Months
    
    
    9 MonthsEnded September 30,
    
    
    Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Notation revenue
    
    $
    2,687
    
    
    $
    3,361
    
    
    $
    7,507
    
    
    $
    7,542SmartMusic revenue
    
    
    1,385
    
    
    
    1,133
    
    
    
    3,592
    
    
    
    2,874Other revenue
    
    
    274
    
    
    
    271
    
    
    
    562
    
    
    
    572NET REVENUE
    
    
    4,346
    
    
    
    4,765
    
    
    
    11,661
    
    
    
    10,988COST OF REVENUES
    
    
    729
    
    
    
    726
    
    
    
    1,760
    
    
    
    1,675GROSS PROFIT
    
    
    3,617
    
    
    
    4,039
    
    
    
    9,901
    
    
    
    9,313OPERATING EXPENSES:Development expenses
    
    
    1,220
    
    
    
    1,182
    
    
    
    3,728
    
    
    
    3,466Selling and marketing expenses
    
    
    1,024
    
    
    
    1,225
    
    
    
    3,174
    
    
    
    3,365General and administrative expenses
    
    
    814
    
    
    
    675
    
    
    
    2,706
    
    
    
    2,515Total operating expenses
    
    
    3,058
    
    
    
    3,082
    
    
    
    9,608
    
    
    
    9,346INCOME (LOSS) FROM OPERATIONS
    
    
    559
    
    
    
    957
    
    
    
    293
    
    
    
    (33
    )Other, net
    
    
    23
    
    
    
    14
    
    
    
    55
    
    
    
    50Net income before income tax
    
    
    582
    
    
    
    971
    
    
    
    348
    
    
    
    17Income tax expense
    
    
    3
    
    
    
    0
    
    
    
    5
    
    
    
    6Net Income
    
    $
    579
    
    
    $
    971
    
    
    $
    343
    
    
    $
    11Income per common share:Basic
    
    $
    0.12
    
    
    $
    0.21
    
    
    $
    0.07
    
    
    $
    0.00Diluted
    
    $
    0.12
    
    
    $
    0.20
    
    
    $
    0.07
    
    
    $
    0.00Weighted average common shares outstanding:Basic
    
    
    4,698,562
    
    
    
    4,634,768
    
    
    
    4,668,497
    
    
    
    4,615,655Diluted
    
    
    4,794,315
    
    
    
    4,939,271
    
    
    
    4,766,535
    
    
    
    4,983,017
  4




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MakeMusic, Inc.
 
 Condensed Statements of Cash Flows  (In thousands of U.S. dollars)
 9 MonthsEnded September 30,2009
    
    
    2008Cash flows from operating activitiesNet income
    
    $
    343
    
    
    $
    11Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    702
    
    
    
    631Gain on disposal of assets
    
    
    (7
    )
    
    
    Stock based compensation
    
    
    242
    
    
    
    318Net changes in assets and liabilities:Accounts receivable
    
    
    120
    
    
    
    (30
    )Inventories
    
    
    (106
    )
    
    
    (163
    )Prepaid expenses and other current assets
    
    
    (45
    )
    
    
    (101
    )Accounts payable
    
    
    166
    
    
    
    174Accrued liabilities and product returns
    
    
    (108
    )
    
    
    (49
    )Deferred revenue
    
    
    225
    
    
    
    361Net cash provided by operating activities
    
    
    1,532
    
    
    
    1,152Cash flows from investing activitiesPurchases of property and equipment
    
    
    (196
    )
    
    
    (328
    )Proceeds from disposal of property and equipment
    
    
    9
    
    
    
    Capitalized development and other intangibles
    
    
    (448
    )
    
    
    (1,379
    )Net cash used in investing activities
    
    
    (635
    )
    
    
    (1,707
    )Cash flows from financing activitiesProceeds from stock options and warrants exercised
    
    
    86
    
    
    
    299Payments on capital leases
    
    
    (45
    )
    
    
    (42
    )Net cash provided by financing activities
    
    
    41
    
    
    
    257Net increase (decrease) in cash and cash equivalents
    
    
    938
    
    
    
    (298
    )Cash and cash equivalents, beginning of period
    
    
    6,592
    
    
    
    6,041Cash and cash equivalents, end of period
    
    $
    7,530
    
    
    $
    5,743Supplemental disclosure of cash flow informationInterest paid
    
    $
    8
    
    
    $
    11Income taxes paid
    
    
    5
    
    
    
    0Other non-cash investment and financing activitiesEquipment acquired under capital lease
    
    
    19
    
    
    
    0Equipment addition included in accounts payable
    
    
    22
    
    
    
    0Accrued liabilities associated with shares repurchased
    
    
    22
    
    
    
    0
  5




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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 and nine months ended September 30,
2009 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
through November 4, 2009 (the financial statement issue date). 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 Annual Report on Form 10-K.
 Note 2
    
    Net Income Per Share.Net income per share was calculated by dividing the net income by
the weighted average number of shares outstanding during the
period. The following table summarizes the shares of stock included
in calculating earnings per share for the three-month and
nine-month periods ended September 30, 2009 and 2008:
 Three Months Ended
    
    
    Nine Months EndedSeptember 30
    
    
    September 302009
    
    
    2008
    
    
    2009
    
    
    2008Weighted-average
common shares
outstanding
    
    
    4,698,562
    
    
    
    4,634,768
    
    
    
    4,668,497
    
    
    
    4,615,655Dilutive effect of
stock options and
warrants
    
    
    95,753
    
    
    
    304,503
    
    
    
    98,038
    
    
    
    367,362Equivalent average
common shares
outstanding 
diluted
    
    
    4,794,315
    
    
    
    4,939,271
    
    
    
    4,766,535
    
    
    
    4,983,017
 Note 3
    
    Income Tax Expense.We did not record a provision for income tax in the three and nine
months ended September 30, 2009 and 2008 as the provision was
offset by a decrease in the deferred tax asset valuation allowance.
Due to the uncertainty regarding the realization of our federal
deferred income tax assets and specifically the net operating loss
carry-forwards, we have recorded a valuation allowance against our
deferred income tax assets for 2009 and 2008.As of September 30, 2009 and September 30, 2008, the company had recognized no liability
related to interest or penalties on any uncertain tax positions. The total amount of
unrecognized tax benefits that, if recognized, would affect our effective tax rate is zero,
because we currently have a full reserve against our unrecognized tax benefits.As of September 30, 2009 the uncertainty for income tax positions reserve included within
the deferred tax valuation allowance was $3,142,000. There was no change to this uncertain
for income tax positions reserve recorded in the nine months ended September 30, 2009.As of September 30, 2009 and September 30, 2008, 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 September 30, 2009 are 2004-2008.
 6




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##### Table of Contents



Note 4
    
    Stock-Based Compensation.The MakeMusic, Inc. 2003 Equity Incentive Plan, as amended (the
2003 Plan), 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 in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008 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 September 30, 2009 and 2008, we
recognized $57,000 and $87,000, respectively, and for the nine months ended September 30,
2009 and 2008, we recognized $190,000 and $318,000, respectively, of expense related to
stock based compensation.Stock OptionsWe 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.
 September 30,
    
    September 30,2009
    
    2008Black-Scholes Model:Risk-free interest rate
    
    
    1.3
    %
    
    
    3.0
    %Expected life, in years
    
    
    4.2
    
    
    
    3.5Expected volatility
    
    
    76.6
    %
    
    
    67.2
    %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 ActivityThe following table represents stock option and restricted stock activity under the 2003
Plan for the nine months ended September 30, 2009:
 Weighted Average
    
    
    Weighted AverageShares Reserved
    
    
    2003 Plan
    
    
    2003 Plan Option
    
    
    Option Exercise
    
    
    Remaining Contractfor Grant
    
    
    Restricted Shares
    
    
    Shares
    
    
    Price
    
    
    LifeAt December 31, 2008
    
    
    635,663
    
    
    
    
    
    
    
    659,855
    
    
    $
    4.50AuthorizedGranted
    
    
    (136,644
    )
    
    
    26,644
    
    
    
    110,000
    
    
    $
    3.39Expired
    
    
    
    
    
    
    
    
    
    
    (15,800
    )
    
    $
    4.88Cancelled
    
    
    34,528
    
    
    
    (2,528
    )
    
    
    (32,000
    )
    
    $
    5.83Exercised
    
    
    
    
    
    
    
    
    
    
    (77,800
    )
    
    $
    2.27At September 30, 2009
    
    
    533,547
    
    
    
    24,116
    
    
    
    644,255
    
    
    $
    4.51
    
    
    2.4 YearsOutstanding
Exercisable at
September 30, 2009
    
    
    
    
    
    
    
    
    
    
    436,255
    
    
    $
    4.28
    
    
    1.3 Years
 At September 30, 2009, the intrinsic value of options outstanding was $283,000, and the
aggregate intrinsic value of options exercisable was $267,000.At September 30, 2009, there was $277,000 of unrecognized compensation cost related to
nonvested share-based option payments which is expected to be recognized over a
weighted-average period of 1.7 years. At September 30, 2009, there was $70,000 of
unrecognized compensation cost related to the issuance of restricted stock which is expected
to be recognized over a weighted-average period of 2.25 years.
 Note 5
    
    New Accounting Pronouncements.
  Business Combinations
 8




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##### Table of Contents



Note 6
    
    Segment Reporting.
 Effective January 1, 2009, MakeMusic began reporting results of operations by two unique
reportable segments, Notation and SmartMusic. Historically, net revenue has been reported
separately for these two product lines. However, direct and operating costs had not been
previously assessed or reported by segment and therefore prior year comparative costs are
not reported.The Notation segment includes the design, development and sales and marketing for the Finale
family of music notation software 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.Unallocated expenses are reported in the reconciliation of the segment totals to
consolidated totals as Other items. These expenses include costs related to general and
administrative and business systems functions performed that are not directly attributable
to a particular segment.MakeMusic does not allocate its balance sheet assets by segment because such information is
not available nor is it used by the chief operating decision maker. Therefore, information
relating to segment assets is not presented.The following table presents results of operations by reportable segment (in thousands):
 For the 3 Months Ended September 30, 2009
    
    
    For the 9 Months Ended September 30, 2009Notation
    
    
    SmartMusic
    
    
    Other
    
    
    Total
    
    
    Notation
    
    
    SmartMusic
    
    
    Other
    
    
    TotalNET REVENUE
    
    $
    2,822
    
    
    $
    1,524
    
    
    $
    0
    
    
    $
    4,346
    
    
    $
    7,831
    
    
    $
    3,830
    
    
    $
    0
    
    
    $
    11,661COST OF REVENUES
    
    
    243
    
    
    
    486
    
    
    
    0
    
    
    
    729
    
    
    
    620
    
    
    
    1140
    
    
    
    0
    
    
    
    1,760GROSS PROFIT
    
    
    2,579
    
    
    
    1,038
    
    
    
    0
    
    
    
    3,617
    
    
    
    7,211
    
    
    
    2,690
    
    
    
    0
    
    
    
    9,901OPERATING EXPENSES:Development expenses
    
    
    444
    
    
    
    465
    
    
    
    311
    
    
    
    1,220
    
    
    
    1,420
    
    
    
    1,388
    
    
    
    920
    
    
    
    3,728Selling and marketing expenses
    
    
    457
    
    
    
    438
    
    
    
    129
    
    
    
    1,024
    
    
    
    1,394
    
    
    
    1,244
    
    
    
    536
    
    
    
    3,174General and administrative
expenses
    
    
    14
    
    
    
    22
    
    
    
    778
    
    
    
    814
    
    
    
    59
    
    
    
    47
    
    
    
    2,600
    
    
    
    2,706Total Operating Expenses
    
    
    915
    
    
    
    925
    
    
    
    1,218
    
    
    
    3,058
    
    
    
    2,873
    
    
    
    2,679
    
    
    
    4,056
    
    
    
    9,608Income/(Loss) from Operations
    
    
    1,664
    
    
    
    113
    
    
    
    (1,218
    )
    
    
    559
    
    
    
    4,338
    
    
    
    11
    
    
    
    (4,056
    )
    
    
    293Other Income/(Expense)
    
    
    0
    
    
    
    0
    
    
    
    20
    
    
    
    20
    
    
    
    0
    
    
    
    0
    
    
    
    50
    
    
    
    50NET INCOME/(LOSS)
    
    $
    1,664
    
    
    $
    113
    
    
    $
    (1,198
    )
    
    $
    579
    
    
    $
    4,338
    
    
    $
    11
    
    
    $
    (4,006
    )
    
    $
    343
 Note 7
    
    Goodwill.
  9




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##### Table of Contents



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.
 ® ®
    ® 
 10




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Sep-08
    
    
    Dec-08
    
    
    Mar-09
    
    
    Jun-09
    
    
    Sep-09Total Subscriptions
    
    
    98,119
    
    
    
    106,584
    
    
    
    110,318
    
    
    
    111,059
    
    
    
    122,577Educator Accounts
    
    
    9,165
    
    
    
    9,185
    
    
    
    9,091
    
    
    
    8,616
    
    
    
    9,003Educators who have issued assignments*
    
    
    827
    
    
    
    1,436
    
    
    
    1,874
    
    
    
    1,994
    
    
    
    1,178Gradebook Teachers *
    
    
    247
    
    
    
    601
    
    
    
    829
    
    
    
    874
    
    
    
    453Site Licenses
    
    
    178
    
    
    
    203
    
    
    
    208
    
    
    
    203
    
    
    
    236Site License Educator Subscriptions
    
    
    1,145
    
    
    
    1,341
    
    
    
    1,461
    
    
    
    1,417
    
    
    
    1,762
 
 *
    
    Annual statistics that restart on July 1 of each year reflecting the start of the school-year cycle     11




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##### Table of Contents



QuarterlyQuarter End

    
    Beginning

    
    New

    
    Renewed

    
    Subscriptions

    
    Quarter End

    
    Net NewDate

    
    Subscriptions

    
    Subscriptions

    
    Subscriptions

    
    Ended

    
    Subscriptions

    
    Subscriptions9/30/2008

    
    95,632

    
    20,347

    
    20,017

    
    37,877

    
    98,119

    
    2,48712/31/2008

    
    98,119

    
    17,907

    
    17,942

    
    27,384

    
    106,584

    
    8,4653/31/2009

    
    106,584

    
    10,609

    
    12,241

    
    19,116

    
    110,318

    
    3,7346/30/2009

    
    110,318

    
    5,256

    
    11,350

    
    15,865

    
    111,059

    
    7419/30/2009

    
    111,059

    
    24,456

    
    29,585

    
    42,523

    
    122,577

    
    11,518
    Critical Accounting Policies
  12




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##### Table of Contents



Results of Operations
  3 Months Ended September 30,
    
    
    
    
    
    
    
    
    

    9 Months Ended September 30,2009
    
    
    2008
    
    
    Incr (Decr)
    
    
    %
    
    
    2009
    
    
    2008
    
    
    Incr (Decr)
    
    
    %($ in thousands)Notation revenue
    
    $
    2,687
    
    
    $
    3,361
    
    
    $
    (674
    )
    
    
    -20
    %
    
    $
    7,507
    
    
    $
    7,542
    
    
    $
    (35
    )
    
    
    0
    %SmartMusic revenue
    
    
    1,385
    
    
    
    1,133
    
    
    
    252
    
    
    
    22
    %
    
    
    3,592
    
    
    
    2,874
    
    
    
    718
    
    
    
    25
    %Other revenue
    
    
    274
    
    
    
    271
    
    
    
    3
    
    
    
    1
    %
    
    
    562
    
    
    
    572
    
    
    
    (10
    )
    
    
    -2
    %Net revenue
    
    
    4,346
    
    
    
    4,765
    
    
    
    (419
    )
    
    
    -9
    %
    
    
    11,661
    
    
    
    10,988
    
    
    
    673
    
    
    
    6
    %Cost of revenues
    
    
    729
    
    
    
    726
    
    
    
    3
    
    
    
    0
    %
    
    
    1,760
    
    
    
    1,675
    
    
    
    85
    
    
    
    5
    %Gross profit
    
    
    3,617
    
    
    
    4,039
    
    
    
    (422
    )
    
    
    -10
    %
    
    
    9,901
    
    
    
    9,313
    
    
    
    588
    
    
    
    6
    %Percentage of net
revenue
    
    
    83
    %
    
    
    85
    %
    
    
    
    
    
    
    
    
    
    
    85
    %
    
    
    85
    %Development expense
    
    
    1,220
    
    
    
    1,182
    
    
    
    38
    
    
    
    3
    %
    
    
    3,728
    
    
    
    3,466
    
    
    
    262
    
    
    
    8
    %Selling and marketing
    
    
    1,024
    
    
    
    1,225
    
    
    
    (201
    )
    
    
    -16
    %
    
    
    3,174
    
    
    
    3,365
    
    
    
    (191
    )
    
    
    -6
    %General administrative
    
    
    814
    
    
    
    675
    
    
    
    139
    
    
    
    21
    %
    
    
    2,706
    
    
    
    2,515
    
    
    
    191
    
    
    
    8
    %Total operating expense
    
    
    3,058
    
    
    
    3,082
    
    
    
    (24
    )
    
    
    -1
    %
    
    
    9,608
    
    
    
    9,346
    
    
    
    262
    
    
    
    3
    %Operating income (loss)
    
    
    559
    
    
    
    957
    
    
    
    (398
    )
    
    
    -42
    %
    
    
    293
    
    
    
    (33
    )
    
    
    326
    
    
    
    988
    %Other income
    
    
    23
    
    
    
    14
    
    
    
    9
    
    
    
    64
    %
    
    
    55
    
    
    
    50
    
    
    
    5
    
    
    
    10
    %Net income before taxes
    
    $
    582
    
    
    $
    971
    
    
    $
    (389
    )
    
    
    -40
    %
    
    $
    348
    
    
    $
    17
    
    
    $
    331
    
    
    
    1947
    %Income tax provision
    
    
    (3
    )
    
    
    0
    
    
    
    (3
    )
    
    
    0
    %
    
    
    (5
    )
    
    
    (6
    )
    
    
    1
    
    
    
    17
    %Net income
    
    $
    579
    
    
    $
    971
    
    
    $
    (392
    )
    
    
    -40
    %
    
    $
    343
    
    
    $
    11
    
    
    $
    332
    
    
    
    3018
    %
 Comparison of the three- and nine-month periods ended September 30, 2009 to the three- and nine-month periods ended September 30, 2008
 Net revenue.
 ®
   13




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Gross profit.
  Development expense.
 14




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Selling and marketing expense.
 General and administrative expense.
 Operating income.
  Net income
 Liquidity and capital resources.
 15




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16




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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 and our expectations relating to repertoire development
spending; our plans relating to marketing and sales efforts; our anticipated development costs and
sales and marketing expenses; 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 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 risks 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.
 17




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PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
 None.
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 There were no sales of unregistered equity securities during the quarter ended
September 30, 2009.
 
 Item 3.
    
    Defaults Upon Senior Securities
 None.
 
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
 None.
 
 Item 5.
    
    Other Information
 None.
 
 Item 6.
    
    Exhibits
 See the attached exhibit index.
 18




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SIGNATURES
  Date: November 6, 2009
    MAKEMUSIC, INC.By:
    /s/ Ronald B. RaupRonald B. Raup, Chief Executive Officer(Principal Executive Officer)And:
    /s/ Karen L. VanDerBoschKaren L.VanDerBosch, Chief Financial Officer(Principal Financial Officer) 19




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EXHIBIT INDEX
 Form 10-Q
 The quarterly period ended September 30, 2009
 Exhibit No.
    
    Description31.1*
    
    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. 20