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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
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SONIC FOUNDRY, INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number including area code)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer |
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| Accelerated filer |
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| Smaller reporting company |
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| Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
State the number of shares outstanding of each of the issuer’s common equity as of the last practicable date:
| Class |
| Outstanding July 24, 2023 |
| Common Stock, $0.01 par value |
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The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. For a more complete discussion of accounting policies and certain other information, refer to the Company’s annual report filed on Form 10-K for the fiscal year ended September 30, 2022.
Condensed Consolidated Balance Sheets
(in thousands, except for share data)
(Unaudited)
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net of allowances of $ & $ | ||||||||
| Inventories | ||||||||
| Investment in sales-type lease, current | ||||||||
| Capitalized commissions, current | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Leasehold improvements | ||||||||
| Computer equipment | ||||||||
| Furniture and fixtures | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation and amortization | ||||||||
| Property and equipment, net | ||||||||
| Other assets: | ||||||||
| Software development costs, net of accumulated amortization and impairment | ||||||||
| Investment in sales-type lease, long-term | ||||||||
| Capitalized commissions, long-term | ||||||||
| Right-of-use assets under operating leases | ||||||||
| Deferred tax asset | ||||||||
| Hardware receivable, long-term | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders’ equity (deficit) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of unearned revenue | ||||||||
| Current portion of finance lease obligations | ||||||||
| Current portion of operating lease obligations | ||||||||
| Current portion of notes payable and warrant debt, net of discounts | ||||||||
| Current portion of notes payable due to related parties | ||||||||
| Total current liabilities | ||||||||
| Long-term portion of unearned revenue | ||||||||
| Long-term portion of finance lease obligations | ||||||||
| Long-term portion of operating lease obligations | ||||||||
| Long-term portion of notes payable and warrant debt, net of discounts | ||||||||
| Long-term portion of notes payable due to related parties | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Preferred stock, $ par value, authorized shares; issued | ||||||||
| % Preferred stock, Series A, voting, cumulative, convertible, $ par value (liquidation preference of $ per share), authorized shares; issued | ||||||||
| % Preferred stock, Series B, voting, cumulative, convertible, $ par value (liquidation preference at par), authorized shares, issued | ||||||||
| Common stock, $ par value, authorized shares; and shares issued, respectively and and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Treasury stock, at cost, shares | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Operations
(in thousands, except for share and per share data)
(Unaudited)
| Three Months Ended June 30, |
Nine Months Ended June 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Revenue: |
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| Product and other |
$ | $ | $ | $ | ||||||||||||
| Services |
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| Total revenue |
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| Cost of revenue: |
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| Product and other |
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| Services |
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| Total cost of revenue |
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| Gross margin |
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| Operating expenses: |
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| Selling and marketing |
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| General and administrative |
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| Product development |
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| Impairment of capitalized software development |
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| Total operating expenses |
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| Loss from operations |
( |
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) | ( |
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| Non-operating income (expenses): |
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| Interest expense, net |
( |
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) | ( |
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| Other income (expense), net |
( |
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| Total non-operating income (expense) |
( |
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) | ( |
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| Loss before income taxes |
( |
) | ( |
) | ( |
) | ( |
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| Income tax benefit (expense) |
( |
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| Net loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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| Loss per common share |
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| – basic |
$ | ( |
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) | $ | ( |
) | $ | ( |
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| – diluted |
$ | ( |
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| Weighted average common shares |
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| – basic |
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| – diluted |
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See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(Unaudited)
| Three Months Ended June 30, |
Nine Months Ended June 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Net loss |
$ | ( |
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) | $ | ( |
) | $ | ( |
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| Other comprehensive loss |
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| Foreign currency translation adjustment |
$ | ( |
) | $ | ( |
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| Comprehensive loss |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
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See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Stockholders' Equity (Deficit)
(in thousands)
(Unaudited)
| Accumulated |
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| Additional |
other |
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| Preferred |
Common |
paid-in |
Accumulated |
comprehensive |
Treasury |
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| stock |
stock |
capital |
deficit |
loss |
stock |
Total |
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| Balance, September 30, 2021 |
$ | $ | $ | $ | ( |
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| Stock compensation |
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| Issuance of common stock |
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| Stock option exercise |
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| Foreign currency translation adjustment |
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| Net loss |
( |
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| Balance, June 30, 2022 |
$ | $ | $ | $ | ( |
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) | $ | |||||||||||||||
| Accumulated |
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| Additional |
other |
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| Preferred |
Common |
paid-in |
Accumulated |
comprehensive |
Treasury |
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| stock |
stock |
capital |
deficit |
loss |
stock |
Total |
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| Balance, March 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Stock compensation |
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| Issuance of common stock |
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| Foreign currency translation adjustment |
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| Net loss |
( |
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| Balance, June 30, 2022 |
$ | $ | $ | $ | ( |
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) | $ | ( |
) | $ | |||||||||||||||
| Accumulated |
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| Additional |
other |
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| Preferred |
Common |
paid-in |
Accumulated |
comprehensive |
Treasury |
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| stock |
stock |
capital |
deficit |
loss |
stock |
Total |
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| Balance, September 30, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Stock compensation |
$ | |||||||||||||||||||||||||||
| Issuance of common stock and warrants |
$ | |||||||||||||||||||||||||||
| Stock option exercise |
$ | |||||||||||||||||||||||||||
| Foreign currency translation adjustment |
$ | |||||||||||||||||||||||||||
| Net loss |
( |
) | $ | ( |
) | |||||||||||||||||||||||
| Balance, June 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Accumulated |
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| Additional |
other |
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| Preferred | Common | paid-in | Accumulated | comprehensive | Treasury | |||||||||||||||||||||||
| stock |
stock |
capital |
deficit |
loss |
stock |
Total |
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| Balance, March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
| Stock compensation |
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| Issuance of common stock and warrants |
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| Foreign currency translation adjustment |
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| Net loss |
( |
) | ( |
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| Balance, June 30, 2023 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||||||||||||
See accompanying notes to the condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended |
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| June 30, |
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| 2023 |
2022 |
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| Operating activities |
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| Net (loss) |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net (loss) to net cash used in operating activities: |
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| Amortization of software development costs |
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| Amortization of warrant debt, debt discount and debt issuance costs |
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| Depreciation and amortization of property and equipment |
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| Impairment of capitalized software development |
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| Deferred income taxes |
( |
) | ||||||
| Loss on sale of fixed assets |
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| Provision for doubtful accounts |
( |
) | ( |
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| Stock-based compensation expense related to stock options |
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| Stock issued for board of director fees |
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| Remeasurement (gain) on derivative liability |
( |
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| Changes in operating assets and liabilities: |
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| Accounts receivable |
( |
) | ||||||
| Inventories |
( |
) | ( |
) | ||||
| Investment in sales-type lease |
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| Capitalized commissions |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ( |
) | ||||
| Right-of-use assets under operating leases |
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| Operating lease obligations |
( |
) | ( |
) | ||||
| Hardware receivable, long-term |
( |
) | ||||||
| Other long-term assets |
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| Accounts payable and accrued liabilities |
( |
) | ||||||
| Other long-term liabilities |
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| Unearned revenue |
( |
) | ||||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Investing activities |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Capitalization of software development costs |
( |
) | ( |
) | ||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Financing activities |
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| Proceeds from notes payable |
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| Proceeds from notes payable due to related parties |
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| Payments on notes payable |
( |
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| Payment on debt issuance costs |
( |
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| Proceeds from issuance of common stock and warrants |
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| Proceeds from exercise of common stock options |
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| Payments on finance lease obligations |
( |
) | ( |
) | ||||
| Net cash provided by financing activities |
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| Changes in cash and cash equivalents due to changes in foreign currency |
( |
) | ( |
) | ||||
| Net decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
| Cash and cash equivalents at beginning of year |
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| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental cash flow information: |
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| Interest paid |
$ | $ | ||||||
| Income taxes paid, foreign |
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| Non-cash financing and investing activities: |
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| Equity warrant issued in conjunction with notes payable due to related parties |
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| Property and equipment financed by finance lease or accounts payable |
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See accompanying notes to the condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
June 30, 2023
(Unaudited)
| 1. | Basis of Presentation and Significant Accounting Policies |
Business
Sonic Foundry, Inc. (the "Company") is the global leader for video capture, management, and streaming solutions as well as virtual and hybrid events. Trusted by thousands of educational institutions, corporations, health organizations and government entities in over 65 countries with solutions that transform communication, training, and learning. Sonic Foundry’s brands include Mediasite®, Mediasite Connect, Vidable® and Global Learning Exchange™.
On November 16, 2022, the Company entered into two agreements for a total of $
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. In fiscal year 2023 to date, the Company incurred a net loss of $
However, management has considered its plans to continue the Company as a going concern and believes substantial doubt is alleviated. Management developed a plan to improve liquidity in its operations through reductions in expenses, incentives to accelerate cash collections, monetization of excess inventory, utilization of the final $
Financial Statements
The accompanying condensed consolidated financial statements are unaudited and have been prepared on a basis substantially consistent with the Company's audited financial statements as of and for the year ended September 30, 2022 included in the Company's Annual Report on Form 10-K.
In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. Operating results for the nine month period ended June 30, 2023 are not necessarily indicative of the results that might be expected for the year ending September 30, 2023. The September 30, 2022 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States.
Restructuring and exit activities
The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an on-going benefit arrangement or under a -time benefit arrangement. The Company accounts for on-going benefit arrangements, such as those documented by employment agreements, in accordance with Accounting Standards Codification 712 ("ASC 712") Nonretirement Postemployment Benefits. Under ASC 712, liabilities for postemployment benefits are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company accounts for -time employment benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations. When applicable, the Company records such costs into operating expense.
For the three and nine months ended June 30, 2023, the Company expensed involuntary termination benefits of $
Investment in Sales-Type Lease
The Company has entered into sales-type lease arrangements with certain customers, consisting of recorders leased with terms ranging from 3-5 years.
Investment in sales-type leases consists of the following (in thousands) as of June 30, 2023:
| Investment in sales-type lease, gross: | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Gross investment in sales-type lease | ||||
| Less: Unearned income | ||||
| Total investment in sales-type lease | $ | |||
| Current portion of total investment in sales-type lease | $ | |||
| Long-term portion of total investment in sales-type lease | ||||
| $ |
Inventory
Inventory consists of raw materials and supplies used in the assembly of Mediasite recorders and finished units. Inventory of completed units and spare parts are carried at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. An obsolescence reserve has been established to account for slow moving inventory.
Inventory consists of the following (in thousands):
| June 30, | September 30, | |||||||
| 2023 | 2022 | |||||||
| Raw materials and supplies | $ | $ | ||||||
| Finished goods | ||||||||
| Less: Obsolescence reserve | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Hardware Receivable
Hardware receivables result from multiyear hardware purchase agreements wherein the customer receives hardware at the beginning of the agreement and subsequently makes payments over a period of time, typically four yours, to satisfy their obligation. Historically the company has sold a variation of this type of sale where the customer receives the hardware after fulfilling their multiyear payment obligation, at which point this activity is recorded in the company's deferred revenue. As of June 30, 2023, and September 30, 2022, the Company has recorded $
Asset Retirement Obligation
An asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset is recognized as a liability in the period in which it is incurred or becomes determinable, with an associated increase in the carrying amount of the related long-term asset. The cost of the tangible asset, including the initially recognized asset retirement cost, is depreciated over the useful life of the asset. As of June 30, 2023 and September 30, 2022, the Company has recorded a liability of $
Fair Value of Financial Instruments
In determining the fair value of financial assets and liabilities, the Company currently utilizes market data or other assumptions that it believes market participants would use in pricing the asset or liability in the principal or most advantageous market and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:
Level 1 Inputs: Unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible to the Company at the measurement date.
Level 2 Inputs: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.
The hierarchy gives the highest priority to Level 1, as this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3.
Financial Liabilities Measured at Fair Value on Recurring Basis
The fair value of the bifurcated conversion feature represented by the warrant derivative liability associated with the PFG V debt (See Note 4) is measured at fair value on a recurring basis based on a Black Scholes option pricing model with assumptions for stock price, exercise price, volatility, expected term, risk free interest rate and dividend yield similar to those described for share-based compensation which were generally observable (Level 2).
Financial liabilities measured at fair value on a recurring basis are summarized below (in thousands):
| June 30, 2023 | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
| September 30, 2022 | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
| Derivative liability | $ | $ | $ | $ | ||||||||||||
The gain or loss related to the fair value remeasurement on the derivative liability is included in the other expense line on the condensed consolidated statements of operations. The remeasurement gain on the derivative liability during the three and nine months ended June 30, 2023, was $
Financial Liabilities Measured at Fair Value on a Non-Recurring Basis
The initial fair values of PFG V debt and warrant debt (see Note 4) were based on the present value of expected future cash flows and assumptions about current interest rates and the creditworthiness of the Company (Level 3).
Financial Instruments Not Measured at Fair Value
The Company's other financial instruments consist primarily of cash and cash equivalents, accounts receivable, investment in sales-type lease, accounts payable, debt instruments and lease obligations. The book values of cash and cash equivalents, accounts receivable, investment in sales-type lease, and accounts payable are considered to be representative of their respective fair values due to their short-term nature. The carrying value of debt, including the current portion, approximates fair market value as the variable and fixed rate approximates the current market rate of interest available to the Company.
Legal Contingencies
When legal proceedings are brought or claims are made against the Company and the outcome is uncertain, we are required to determine whether it is probable that an asset has been impaired or a liability has been incurred. If such impairment or liability is probable and the amount of loss can be reasonably estimated, the loss must be charged to earnings.
No legal contingencies were recorded or were required to be disclosed for the three or nine months ended June 30, 2023 or 2022.
Software Development Cost
Software development costs incurred in conjunction with product development are charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs are capitalized and reported at cost, subject to impairment. Until the first fiscal quarter of 2022, the period between achieving technological feasibility of the Company’s products and the general availability of the products has been short. During the three and nine months ended June 30, 2023, the Company capitalized approximately $
During the quarter ended June 30, 2023, the Company made a strategic decision to shift its Vidable development efforts toward events related analytics, access and dynamic content to better serve the needs of event promoters, sponsors, and attendees. As a result of the product shift, the Company evaluated its capitalized software development costs for impairment by comparing the product’s total unamortized cost to its net realizable value. The Company concluded that the Vidable product’s net realizable value (NRV) was less than the carrying value of the capitalized software and was deemed to be fully impaired. Therefore, an impairment charge of $
Stock Based Compensation
The Company uses a lattice valuation model to account for all employee stock options granted. The lattice valuation model is a more flexible analysis to value options because of its ability to incorporate inputs that change over time, such as actual exercise behavior of option holders. The Company uses historical data to estimate the option exercise and employee departure behavior in the lattice valuation model. Expected volatility is based on historical volatility of the Company’s stock. The Company considers all employees to have similar exercise behavior and therefore has not identified separate homogeneous groups for valuation. The expected term of options granted is derived from the output of the option pricing model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods the options are expected to be outstanding is based on the U.S. Treasury yields in effect at the time of grant. Forfeitures are based on actual behavior patterns. The expected exercise factor and forfeiture rates are calculated using historical exercise and forfeiture activity for the previous three years.
The fair value of each option grant is estimated using the assumptions in the following table:
| Nine Months Ended | ||||||||
| June 30, | ||||||||
| 2023 | 2022 | |||||||
| Expected life (in years) | ||||||||
| Risk-free interest rate | | |||||||
| Expected volatility | ||||||||
| Expected forfeiture rate | | |||||||
| Expected exercise factor | ||||||||
| Expected dividend yield | | | ||||||
A summary of option activity at June 30, 2023 and changes during the nine months then ended is presented below:
| Weighted- | Weighted-Average | |||||||||||
| Average | Remaining Contractual | |||||||||||
| Options | Exercise Price | Period in Years | ||||||||||
| Outstanding at October 1, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Forfeited and cancelled | ( | ) | — | |||||||||
| Outstanding at June 30, 2023 | $ | |||||||||||
| Exercisable at June 30, 2023 | $ | |||||||||||
A summary of the status of the Company’s non-vested options and changes during the nine month period ended June 30, 2023 is presented below:
| Weighted-Average | ||||||||
| Grant Date Fair | ||||||||
| Non-vested Options | Options | Value | ||||||
| Non-vested at October 1, 2022 | $ | |||||||
| Granted | | |||||||
| Vested | ( | ) | ||||||
| Forfeited | ( | ) | ||||||
| Non-vested at June 30, 2023 | $ | | ||||||
The weighted average grant date fair value of options granted during the nine months ended June 30, 2023was $
Stock-based compensation expense for stock options recorded in the three and nine months ended June 30, 2023 was $
The Company also has an Employee Stock Purchase Plan ("Purchase Plan") under which an aggregate of
On April 5, 2023, the Company issued
Preferred Stock and Dividends
No shares of Preferred Stock, Series A or Series B, were issued and outstanding as of June 30, 2023 or September 30, 2022.
Common Stock Transactions
On April 13, 2022, the Company announced an underwritten public offering of
The Company also issued Underwriters' Warrants that grant the underwriter the right to purchase an aggregate of 6% of the shares of common stock issued in the offering or a total of
On April 19, 2022, the public offering closed. Gross proceeds from the sale of
On November 16, 2022, the Company entered into a Subscription Agreement with Mark Burish ("Burish"), Chairman of the Company's Board of Directors, and a Warrant whereby Burish purchased $
The total warrants outstanding as of June 30, 2023 are as follows:
| Warrants Outstanding | Wtd Ave. | |||||||||||
| Issued in Connection | Amount | Exercise Price | Life in Yrs. | |||||||||
| Capital Raise | $ | |||||||||||
| Vendor Agreement | $ | |||||||||||
| $ | ||||||||||||
Correspondence with Nasdaq
On January 24, 2022, the Company announced that the Nasdaq Stock Market LLC (“Nasdaq”) had approved its application for uplisting the Company’s common stock to the Nasdaq Capital Market. Sonic Foundry’s common stock commenced trading on the Nasdaq Capital Market at the opening of the market on Tuesday, January 25, 2022, under the Company’s former ticker symbol “SOFO.” On August 10, 2022, the Company received notice that as a result of the resignation of a board member, that we no longer meet the requirement that there be a minimum of three independent directors on the audit committee, nor that we had a majority of independent directors on the board. We believe we are now in compliance with these requirements. On January 6, 2023, we received notice from Nasdaq that the closing bid price of our common stock was below the $1 minimum requirement for 30 straight business days. The rules provide a period of 180 calendar days to regain compliance if the common stock trades above the minimum $1 bid price for at least ten days. We may also be eligible for an additional 180-day period in which to regain compliance. To qualify for the additional 180-day period, the Company will be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.
On February 14, 2023, the Company was notified by Nasdaq that it is not in compliance with the requirement to maintain a minimum of $
On July 6, 2023, the Company was notified by Nasdaq that it had not regained compliance with the Listing Rule 5550(a)(2) as the closing bid price of our common stock had not been above the $1 minimum for at least 11 straight business days and is not eligible for a second 180 day period. The Company appealed the determination to a Hearings Panel, pursuant to the procedures set forth in the Nasdaq Listing Rule 5800 Series, by submitting an electronic request on July 13, 2023, and a hearing has been scheduled for September 14, 2023. A hearing request stays the suspension of the Company's common stock and the filing of the Form 25-NSE pending the Panel's decision.
Increase in Authorized Shares of Common Stock
On February 2, 2022, the Company's Board of Directors approved a resolution to increase the authorized number of shares of common stock of the Company, par value $.
Per Share Computation
Basic earnings (loss) per share have been computed using the weighted-average number of shares of common stock outstanding during the period and excludes any dilutive effects of options and warrants. In periods where the Company reports net income, diluted net income per share is computed using common equivalent shares related to outstanding options and warrants to purchase common stock. The numerator for the calculation of basic and diluted earnings per share is net income (loss). The following table sets forth the computation of basic and diluted weighted average shares used in the earnings per share calculations:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Denominator for basic net income (loss) per share - weighted average common shares | ||||||||||||||||
| Effect of dilutive options and warrants (treasury method) | ||||||||||||||||
| Denominator for diluted net income (loss) per share - adjusted weighted average common shares | ||||||||||||||||
| Options, warrants and convertible shares outstanding during each period, but not included in the computation of diluted net loss per share because they are antidilutive | ||||||||||||||||
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", ("ASU 2016-13"). The amendments in this ASU affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments are effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendment is permitted, including adoption in any interim periods for which financial statement have not yet issued. The Company is currently evaluating the guidance and its impact to the financial statements.
Accounting standards that have been issued but are not yet effective by the FASB or other standards-setting bodies that do not require adoption until a future date, which are not discussed above, are not expected to have a material impact on the Company’s financial statements upon adoption.
2. Related Party Transactions
During the three and nine months ended June 30, 2023, the Company incurred $
On November 16, 2022, the Company entered into a Loan and Security Agreement with Neltjeberg Bay Enterprises, LLC (“NBE”) whereby NBE loaned the Company $
Simultaneously with the closing above, the Company closed a Security Agreement and Promissory Note with Mark Burish (“Burish”) for $
The Company entered into an Amendment to Loan and Security Agreement with NBE effective May 18, 2023 which provides for deferral of regular monthly principal payments. The Company will make monthly $
On May 31, 2023, the Company entered into an Amendment to Security Agreement and Promissory Note (the Burish Amendment”) with Mark Burish which provides for deferral of regular monthly principal payments. The Company will make monthly $
The Burish Amendment further provides for an increase to the original principal amount of $
Mr. Burish beneficially owns 40% of the Company’s common stock. Mr. Burish also serves as the Chairman of the Board of Directors.
All transactions with Mr. Burish and NBE were unanimously approved by the Board of Directors.
3. Commitments
Purchase Commitments
The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product for hardware inventory, as well as services to support our hosting environment, which are not recorded on the Company's condensed consolidated balance sheet. At June 30, 2023, the Company had an obligation to purchase $
Leases
The Company has operating leases for corporate office space with various expiration dates. Our leases have remaining lease terms of up to years, some of which include escalation clauses, renewal options for up to years or termination options within year.
We determine if an arrangement is a lease upon contract inception. The Company has both operating and finance leases. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments according to the arrangement.
A contract contains a lease if the contract conveys the right to control the use of the identified property, plant or equipment for a period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the Company is a lessor, based on their terms.
Lease right-of-use assets and lease liabilities are recognized as of the commencement date based on the present value of the lease payments over the lease term. The lease right-of use asset is reduced for tenant incentives and includes any initial direct costs incurred. We use the implicit interest rate when it is readily determinable. Otherwise, the present value of future minimum lease payments is determined using the Company's incremental borrowing rate. The incremental borrowing rate is based on the interest rate of the Company's most recent borrowing.
The lease term we use for the valuation of our right-of-use assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense is recognized on a straight-line basis over the expected lease term for operating leases. Amortization expense of the right-of-use asset for finance leases is recognized on a straight-line basis over the lease term and interest expense for finance leases is recognized based on the incremental interest rate. As of June 30, 2023, two unexercised renewal options for operating leases have been recognized into the respective ROU asset and lease liability.
Right-of-use assets and lease liabilities are recognized for our leases. Right-of-use assets under finance leases are included in property and equipment on the condensed consolidated balance sheets and have a net carrying value of $
We have operating lease arrangements with lease and non-lease components. The non-lease components in our arrangements are not significant when compared to the lease components. For all operating leases, we account for the lease and non-lease components as a single component.
As of June 30, 2023, future maturities of operating and finance lease liabilities for the fiscal years ended September 30 are as follows (in thousands):
| Operating Leases | Finance Leases | |||||||
| 2023 (remaining) | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Thereafter | ||||||||
| Total | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Supplemental information related to leases is as follows (in thousands, except lease term and discount rate):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||