-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R2sDKSRnhAyzDYB42F9XjFAdBmchkho6vDT/rEbHUypNl0INq9IlvQLcvYT21icI t1Jj2AaH7/a2ovWdY2Xphw== 0000950131-00-001250.txt : 20000225 0000950131-00-001250.hdr.sgml : 20000225 ACCESSION NUMBER: 0000950131-00-001250 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000214 DATE AS OF CHANGE: 20000223 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONIC FOUNDRY INC CENTRAL INDEX KEY: 0001029744 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 391783372 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14007 FILM NUMBER: 544470 BUSINESS ADDRESS: STREET 1: 754 WILLIAMSON ST CITY: MADISON STATE: WI ZIP: 53703 BUSINESS PHONE: 6082563133 MAIL ADDRESS: STREET 1: 754 WILLIAMSON ST CITY: MADISON STATE: WI ZIP: 53703 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended December 31, 1999 ------------------ OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-14007 ------- SONIC FOUNDRY, INC. ------------------- (Exact name of registrant as specified in its charter) MARYLAND 39-1783372 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 754 Williamson Street, Madison, WI 53703 ---------------------------------------- (Address of principal executive offices) (608)256-3133 ------------- (Registrant's telephone number including area code) 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 Yes X No . ----- ----- State the number of shares outstanding of each of the issuer's common equity as of the last practicable date: Outstanding Class February 8, 2000 ----- ---------------- Common Stock, $0.01 par value 8,071,054 SONIC FOUNDRY, INC. QUARTERLY REPORT ON FORM 10-Q QUARTER ENDED DECEMBER 31, 1999 TABLE OF CONTENTS
PAGE NO. ------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - December 31, 1999 (Unaudited) and September 30, 1999................................................3 Statements of Operations (Unaudited) - three-months ended December 31, 1999 and 1998........................................5 Statements of Cash Flows (Unaudited) - three-months ended December 31, 1999 and 1998..................................6 Notes to Financial Statements (Unaudited).........................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...............................9 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................14 PART II OTHER INFORMATION Item 1. Legal Proceedings................................................15 Item 2. Changes in Securities and Use of Proceeds........................15 Item 3. Defaults upon Senior Securities..................................16 Item 4. Submission of Matters to a Vote of Security Holders..............16 Item 5. Other Information................................................16 Item 6. Exhibits and Reports on Form 8-K.................................16
2 Sonic Foundry, Inc. Balance Sheets
December 31 September 30 1999 1999 ------------------------------- Assets (Unaudited) Current assets: Cash and cash equivalents $ 2,825,652 $ 5,889,107 Marketable securities Accounts receivable, net of allowances of $1,059,581 and 4,762,984 3,760,720 $1,314,750 at December 31, 1999 and September 30, 1999, respectively Inventories 1,356,254 1,040,927 Prepaid expenses and other current assets 1,452,135 880,123 ------------------------------- Total current assets 10,397,025 11,570,877 Property and equipment: Land 95,000 190,000 Buildings and improvements 1,501,056 1,737,962 Equipment 3,361,565 2,218,113 Furniture and fixtures 239,918 202,187 ------------------------------- 5,197,539 4,348,262 Less accumulated depreciation 1,116,527 923,051 ------------------------------- Net property and equipment 4,081,012 3,425,211 Other assets: Capitalized software development costs, net 519,083 643,220 Long term investment 513,787 513,787 Other assets 845,693 556,165 ------------------------------- Total other assets 1,878,563 1,713,172 ------------------------------- Total assets $16,356,600 $16,709,260 ===============================
See accompanying notes. 3 Sonic Foundry, Inc. Balance Sheets
December 31 September 30 1999 1999 ------------------------------- Liabilities and stockholders' equity (Unaudited) Current liabilities: Accounts payable $ 2,937,707 $ 1,866,821 Accrued liabilities 837,795 812,401 Current portion of long-term obligations 110,785 48,569 ------------------------------ Total current liabilities 3,886,287 2,727,791 Long-term obligations 2,187,454 5,234,525 Stockholders' equity: Preferred Stock, $.01 par value, authorized 5,000,000 - - shares; none issued and outstanding 5% preferred stock, Series B, voting, cumulative, - - convertible, $.01 par value (liquidation preference at par), authorized 10,000,000 shares, none issued and outstanding Common stock, $.01 par value, authorized 20,000,000 shares; 69,743 64,973 6,974,231 and 6,497,249 shares issued and outstanding at December 31, 1999 and September 30, 1999 Common stock warrants and options 1,827,375 1,011,375 Additional paid-in capital 18,229,850 15,336,252 Accumulated deficit (9,669,108) (7,465,656) Unearned compensation (175,001) (200,000) ------------------------------ Total stockholders' equity 10,282,859 8,746,944 ------------------------------ Total liabilities and stockholders' equity $16,356,600 $16,709,260 ==============================
See accompanying notes. 4 Sonic Foundry, Inc. Statements of Operations (Unaudited)
Three Months Ended December 31, 1999 1998 ------------------------------- Net revenues: Software license fees $ 5,067,348 $ 2,755,567 Services 36,204 - ------------------------------- Total net revenues 5,103,552 2,755,567 Cost of revenues: Cost of software license fees 1,054,641 820,422 Cost of services 103,394 - ------------------------------- 1,158,035 820,422 ------------------------------- Gross profit 3,945,517 1,935,145 Selling and marketing expenses 4,055,983 2,072,391 General and administrative expenses 1,452,232 774,896 Product development expenses 1,190,500 557,634 ------------------------------- 6,698,715 3,404,921 ------------------------------- Loss from operations (2,753,198) (1,469,776) Other income (expense): Interest expense (166,466) (3,595) Interest and other income 716,212 91,581 ------------------------------- 549,746 87,986 ------------------------------- Loss before income taxes (2,203,452) (1,381,790) Income tax expense - ------------------------------- Net Loss $(2,203,452) $(1,381,790) =============================== Loss per common share: Basic $ (0.33) $ (0.52) =============================== Diluted $ (0.33) $ (0.52) ===============================
See accompanying notes. 5 Sonic Foundry, Inc. Statements of Cash Flows (Unaudited)
Three months ended December 31, 1999 1998 --------------------------------- Operating activities Net loss $(2,203,452) $(1,381,790) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 193,476 106,875 Amortization of capitalized software development costs 124,137 66,431 Noncash charge for common stock warrants 181,347 16,500 Amortization of debt discount and debt issuance costs 80,390 - Amortization of unearned compensation 24,999 - Gain on sale of assets and investments (649,763) - Changes in operating assets and liabilities: Accounts receivable (1,002,264) (893,986) Inventories (315,327) (209,690) Prepaid expenses and other assets 27,988 41,334 Accounts payable and accrued liabilities 1,147,479 6,323 --------------------------------- Total adjustments (157,538) (866,213) --------------------------------- Net cash used in operating activities (2,390,990) (2,248,003) Investing activities Purchases of property and equipment (1,199,513) (339,877) Sales of property and equipment 400,000 - --------------------------------- Net cash used in investing activities (799,513) (339,877) Financing activities Proceeds from sale of common stock, net of issuance costs 8,400 - Proceeds from long-term debt 140,797 - Payments on long-term debt (22,149) (612,552) --------------------------------- Net cash provided by (used) in financing activities 127,048 (612,552) --------------------------------- Net decrease in cash (3,063,455) (3,200,432) Cash and cash equivalents at beginning of period 5,889,107 6,939,533 --------------------------------- Cash and cash equivalents at end of period $ 2,825,652 $ 3,739,101 ================================= Supplemental cash flow information: Interest paid $ 14,266 $ 3,595 Noncash transactions - Issuance of Warrants 696,000 Conversion of subordinated debt and associated debt issuance costs and accrued interest into common stock 2,889,968 -
See accompanying notes. 6 1. Basis of Presentation and Significant Accounting Policies Interim Financial Data The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company's annual report filed on Form 10- K for the fiscal year ended September 30, 1999. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the results of operations have been included. Operating results for the three-month period ended December 31, 1999 are not necessarily indicative of the results that might be expected for the year ended September 30, 2000. Net Loss Per Share The following table sets forth the computation of basic and diluted loss per share:
Three Months Ended December 31, 1999 1998 ---------------------- Denominator Denominator for basic and diluted loss per share - weighted average common shares 6,698,390 2,665,935 ====================== Securities that could potentially dilute basic earnings per share in the future that are not included in the computation of diluted loss per share as their impact is antidilutive (treasury stock method) Options and warrants 543,453 491,404 Convertible debt 155,642 - Convertible Series B Preferred Stock - 3,611,860
7 2. Subsequent Events In February 2000, the Company issued a Notice of Redemption to holders of its public warrants and fixed February 21, 2000 as the redemption date. Each public warrant is exercisable to purchase one share of common stock at a price of $11.25 until 5:30 p.m. Eastern Standard Time on February 18, 2000. If the warrants are not exercised by such time, the warrant holders of record shall be entitled only to payment of the redemption price of $0.10 per warrant upon surrender of the warrant. Any warrants not surrendered will not be entitled to payment. The Company anticipates proceeds of nearly $13 million from the exercise of warrants. In January 2000, the remaining convertible debt obligation of $1.6 million and the associated accrued interest was converted into common stock. The conversion resulted in the issuance of 156,996 shares of common stock. In February 2000, the Company issued 500,000 shares of common stock to a group of institutional investors. The Company received proceeds of approximately $24 million, before payment of commissions and other related expenses. 3. Contingencies In June 1998 the Board of Directors approved the issuance of guarantees of certain obligations of certain officers of the Company. The guarantees were executed in June and July of 1998 to a bank in order to facilitate the issuance of loans to the officers. The guarantees carry an aggregate maximum limit of approximately $375,000. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and notes thereto included elsewhere in this form 10-Q and the Company's annual report filed on form 10-K for the fiscal year ended September 30, 1999. In addition to historical information, this discussion contains forward-looking statements such as statements of the Company's expectations, plans, objectives and beliefs. These statements use such words as "may", "will", "expect", "anticipate", "believe", "plan", and other similar terminology. Actual results could differ materially due to changes in the market acceptance of Sonic Foundry's products, market introduction or product development delays, global and local business conditions, legislation and governmental regulations, competition, the Company's ability to effectively maintain and update its product portfolio, shifts in technology, political or economic instability in local markets, and currency and exchange rates. Overview Background We began shipment of Sound Forge, a Windows based audio editing software program developed by one of our founders, in 1993. By 1996, we had released Sound Forge versions 3.0 and 4.0, which significantly expanded the effects and processes available in our audio editor, thereby meeting the needs of professional musicians and audio engineers. At that time, we expanded the product line to include Sound Forge XP, a scaled down version of Sound Forge, as well as various plug-in products whose functions include noise reduction, spectrum analysis and batch conversion. In June 1997, we released CD Architect, an audio mastering software product and in May 1998, we released a music creation software product called ACID. ACID allows musicians, media professionals, Internet developers and others to compose royalty free, loop based music. Additionally, in October 1998, we introduced consumer versions of ACID for home entertainment use. Both ACID products are supported by loop library CD's which offer professionals and consumers a variety of music genres to choose from when composing music. In May 1999 we introduced our first product targeted to an office environment, Audio Anywhere, which combines existing products, ACID and Sound Forge XP, to produce multimedia content for use with Microsoft Office 2000. We released Vegas Pro in July 1999 as a multi-track digital audio editor developed for professional audio and video users. In September 1999, we released Stream Anywhere, a software tool that allows website developers to translate or encode audio and video media in either the Microsoft Windows Media Technologies or RealNetworks' RealSystem G2 streaming format. We also released Siren in a beta form in September 1999 and began licensing for versions of it to hardware manufacturers such as Hewlett Packard for CD recordable drives. Siren is a comprehensive digital music management system that allows PC users to locate and download digital music from the Internet, record music from their personal CD collection to their PC hard drive, and manage the music in multiple play list arrangements on their PC. In addition, Siren provides seamless transfer to portable digital players and traditional CD players. In October 1999, we announced the formation of and significant investment in a media services division - a new business unit designed specifically to offer complete encoding services to the music, film, broadcast, and corporate markets. 9 Revenues Revenues consist of fees charged for the licensing of Windows based software products. Prior to June 1997 we generated revenues primarily from sales of our Sound Forge family of products. Since June 1997, we have generated revenues from sales of our expanded product line that includes Sound Forge, Sound Forge XP, CD Architect, Acoustic Mirror, Soft Encode, ACID, Stream Anywhere, Audio Anywhere, Vegas, Siren and various plug-in products and music libraries. To date, we have recorded limited revenues from our media services division. We recognize revenues upon delivery, net of allowances for estimated returns, provided that we have no significant obligations remaining and collection of the resulting receivable is deemed probable. We recognize revenues from software license agreements with OEMs when the following conditions are met: the software product has been delivered to the OEM, our fee is fixed and/or determinable, and collectibility is probable. Additionally, revenues include fees recorded pursuant to long-term contracts, using the percentage of completion method of accounting, when significant customization or modification is required. Efforts to develop further OEM transactions and enter new markets and distribution channels have resulted in and are expected to continue to result in significant quarter to quarter variability in revenues. Cost of Revenues Cost of revenues include product material costs, contracted and internal assembly labor, freight, royalties on third party technology or intellectual content and amortization of previously capitalized product development costs. We have experienced wide fluctuations in costs of revenues as a percentage of revenues due to variations in product mix. We have sold our software products bundled with purchased third party hardware, which results in higher costs as a percentage of revenue. We incur no costs of revenues in connection with OEM sales where our customers bundle our software products with their hardware. Selling and Marketing Expenses Selling and marketing expenses include wages and commissions for sales, marketing and technical support personnel, as well as advertising, direct mail, trade show and various promotional expenses and product rebates. Timing of these costs vary greatly depending on introduction of new products or entrance into new markets. For example, during the quarter ended December 31, 1998, we initiated a marketing campaign for our consumer products, ACID Music, ACID DJ and ACID Rock. Additionally, in June 1999, we took part in a series of promotional programs, including rebates, store demos, fliers, and end-cap displays to promote our Audio Anywhere product in conjunction with the introduction of Microsoft Office 2000. We believe that our success depends largely on developing brand recognition early in a product's life cycle. Accordingly, we expect selling and marketing costs to increase in the near future, especially in periods of new product or market introductions. 10 General and Administrative Expenses General and administrative expenses consist of costs associated with facilities, finance, legal, management information systems and various employee benefits not fully allocated to functional areas. Product Development Expenses Product development expenses include salaries and wages of the software research and development staff and an allocation of benefits, facility and administrative expenses, net of product development expenses capitalized pursuant to SFAS No. 86, "Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed." We believe that continued investment in research and development is critical to attaining our strategic objectives and, as a result, we expect research and development expenses to increase significantly. 11 Results of Operations Three Months Ended December 31, 1999 and 1998 Net revenues increased by $2,348,000 to $5,104,000 for the three-month period ended December 31, 1999 from $2,756,000 during the three-month period ended December 31, 1998. The increase in revenues is primarily attributed to growth in sales from OEM partners, consumer retail sales and direct. Increased OEM sales resulted from ongoing royalties associated with the bundling of ACID with Hewlett Packard recordable CD drives. Both the retail and direct channels were driven by the recent introduction of new products, such as Vegas, Siren Jukebox, the enhanced ACID version 2.0 family of products as well as localized ACID in three languages. An aggressive marketing campaign consisting of radio and TV ads and a product catalog mailing to over one million potential buyers further drove sales of new and existing products. Net revenues from international customers accounted for 13% and 15% of total net revenues for the three-month periods ended December 31, 1999 and 1998, respectively. Cost of net revenues increased by $338,000 to $1,158,000 for the three-month period ended December 31, 1999 from $820,000 during the three-month period ended December 31, 1998 and were 23% and 30% of net revenues during the 1999 and 1998 periods, respectively. The increase in absolute dollars resulted primarily from depreciation and personnel costs associated with the establishment of our new Media Services facility as well as an increase in the volume of software products sold during the period. The decrease as a percentage of net revenues is the result of an increase in OEM sales as well as an increase in the number of downloadable products being sold from our website. Selling and marketing expenses increased by $1,984,000 to $4,056,000 during the three-month period ended December 31, 1999 from $2,072,000 during the three- month period ended December 31, 1998. Selling and marketing expenses as a percentage of net revenues were 79% and 75% for the 1999 and 1998 periods, respectively. Nearly half of the increase resulted from the acquisition of targeted mailing lists and the development and distribution of approximately one million product catalogs. Another significant component of the increase in selling and marketing expenses resulted from increased consumer marketing during the holiday season consisting of radio and TV advertising, special promotions, print ads and other marketing programs. The remaining increase related to personnel costs to support the growth in historical revenues and initial marketing efforts for the new Media Services division. General and administrative expenses increased by $677,000 to $1,452,000 during the three-month period ended December 31, 1999 from $775,000 during the three- month period ended December 31, 1998. General and administrative expenses as a percentage of net revenues were 28% during both the 1999 and 1998 periods. The increase in absolute dollars related to increases in wages and related recruitment and benefit costs, professional fees, depreciation, and other expenses required to build an infrastructure to support current and future products. 12 Product development expenses increased by $632,000 to $1,190,000 during the three-month period ended December 31, 1999 from $558,000 during the three-month period ended December 31, 1998. Product development expenses as a percentage of net revenues were 23% and 20% for the 1999 and 1998 periods, respectively. In accordance with SFAS Number 86, the Company capitalizes the cost of development of software products that have reached the level of technological feasibility. No development costs were capitalized during either of the three-month periods ended December 31, 1999 or 1998. The addition of software engineers to accelerate development of the Company's expanding line of software products, as well as efforts expended to establish our Media Services division and add to a host of internally used filtering algorithms, caused the increase in product development costs between the two periods. Other interest and income increased by $624,631 to $716,212 during the three- month period ended December 31, 1999 from $91,581 during the three-month period ended December 31, 1998. The increase is due to a gain on sale of real estate no longer needed by the Company and a gain on the sale of stock from an investment that was made in a company that develops high speed networking products. No Federal or State tax expense was recorded during either of the quarters ended December 31, 1999 or 1998 due to the Company's Federal and State net operating loss position. No deferred tax benefit was recorded in the quarter ended December 31, 1999 as the Company continues to record a valuation allowance equal to the balance of net deferred tax assets. Liquidity and Capital Resources Cash was used in operating activities of $2,391,000 and $2,248,000 for the three-month periods ended December 31, 1999 and 1998, respectively. Promotional activities associated with gaining consumer recognition of the Company's products contributed to a loss and use of cash, of $2,203,000 and $1,382,000 in 1999 and 1998, respectively. Additional investments in accounts receivable, inventory and other assets of $1,290,000 and $1,065,000 also impacted cash used in operations for the three-month periods ended December 31, 1999 and 1998, respectively. Cash invested in such assets for the three-month periods ended December 31, 1999 and 1998 were partially offset by additional credit obtained from trade creditors of $1,147,000 and $6,000, respectively. The impact of noncash charges such as depreciation, amortization, issuance of common stock warrants and gains on sale for the three-month periods ended December 31, 1999 and 1998 totaled $(45,000) and $190,000, respectively. Cash used in investing activities of $800,000 and $340,000 for the three-month periods ended December 31, 1999 and 1998, respectively, included purchases of fixed assets of $1,200,000 and $340,000, respectively. Fixed asset additions including network, storage and media acquisition equipment for the new Media Services division drove expenditures during 1999 while leasehold expenditures for the company's administrative and engineering offices impacted 1998 in addition to purchases of computers, furniture and other assets necessary to outfit the growth in employees. Cash used in investing activities in 1999 was partially offset by the December 1999 sale of real estate no longer needed in the Company's operations. 13 Cash provided by financing activities of $127,000 for the three-month period ended December 31, 1999 included the proceeds from capital lease transactions for equipment needed to establish the Company's Media Services operations. Cash used in financing activities of $613,000 for the three-month period ended December 31, 1998 was impacted by the repayment of a mortgage. We expect to experience significant growth in operating expenses, particularly research and development and sales and marketing expenses, for the foreseeable future in order to execute our business plan. As a result, we anticipate that such operating expenses, as well as planned capital expenditures, will constitute a material use of our cash resources. In addition, we may utilize cash resources to fund acquisitions or investments in complementary businesses, technologies or product lines. Management believes that the net proceeds from the exercise of public and private warrants occuring in January and February, 2000 together with proceeds received from a private placement of restricted common stock occurring in February 2000, will enable it to meet its operational and capital requirements for at least the next 12 months. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Because our cash equivalents consist of overnight investments in money market funds, we will not experience decreases in principal value associated with a decline in interest rates. Although we license our software to customers overseas in U.S. dollars, we have exposure to foreign currency fluctuations associated with liabilities, bank accounts and other assets maintained by our office in the Netherlands. We currently do not hedge our exposure to foreign currency fluctuations, which have historically been immaterial. 14 PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS We are not involved in any material legal proceedings. Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) None (b) None (c) Between October 1, 1999 and December 31, 1999, the Company issued unregistered securities as follows: (1) The issuance of 207,500 warrants to consultants in December 1999. These issuances of warrants were made in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act, relating to sales by an issuer not involving a public offering. Based on a discussion with such investors, the Registrant reasonably believes that such investors were accredited and sophisticated investors. By virtue of their relation to the Registrant, these investors had access to information on the Registrant necessary to make an informed investment decision. No underwriters were engaged in connection with these issuances. Consideration received by the registrant consisted of consulting and public relation services. (2) The issuance of 167,000 options granted to employees. These issuances of options were made in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act, relating to sales by an issuer not involving a public offering. Based on a close working relationship with such optionees, along with various discussions with such optionees, the Registrant reasonably believes that such optionees were accredited and/or sophisticated investors. By virtue of their relation to the Registrant, these employees had access to information on the Registrant necessary to make an informed decision. (d) Use of Proceeds The company's registration statement under the Securities Act for its initial public offering became effective on April 22, 1998 (Registration No. 333-46005). Offering proceeds, net of aggregate expenses of approximately $2.6 million, were approximately $13.3 million. The company has used all of the net offering proceeds. Of the net offering proceeds, $8.9 million was used for product development, selling and marketing, expansion of internal operations, working capital and general corporate purposes. In addition, the company repaid debt of $1.7 million with a portion of the proceeds and invested $2.7 million in facilities and other capital equipment. None of the net offering proceeds were paid directly or indirectly to directors or officers of the company, persons owning 10% or more of the company's securities, or affiliates of the company. 15 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 AND REPORTS ON FORM 8-K (a) Exhibits (see exhibit list) (b) Reports on Form 8-K - None 16
ITEM 6(a) EXHIBIT LIST NUMBER DESCRIPTION - - ----------- ------------------------------------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation of the Registrant, filed as Exhibit No. 3.1 to the Registration Statement, and hereby incorporated by reference. 3.2 Amended and Restated By-Laws of the Registrant, filed as Exhibit No. 3.2 to the Registration Statement, and hereby incorporated by reference. 4.1 Specimen Common Stock Certificate, filed as Exhibit No. 4.1 to the Registration Statement, and hereby incorporated by reference. 4.2 Form of Warrant Agreement, including Warrant Certificate, filed as Exhibit No. 4.2 to the Registration Statement, and hereby incorporated by reference. 4.3 Form of Representatives' Warrant Agreement, including Specimen Representatives' Warrant Certificate, filed as Exhibit No. 4.3 to the Registration Statement, and hereby incorporated by reference. 10.1 Registrant's 1995 Stock Option Plan, filed as Exhibit No. 10.1 to the Registration Statement, and hereby incorporated by reference. 10.2 Registrant's Non-Employee Directors' Stock Option Plan, filed as Exhibit No. 10.2 to the Registration Statement, and hereby incorporated by reference. 10.3 Commercial Lease between Registrant and The Williamson Center, LLC regarding 740 and 744 Williamson Street, Madison, Wisconsin dated January 20, 1998, filed as Exhibit No. 10.3 to the Registration Statement, and hereby incorporated by reference. 10.4 Employment Agreement between Registrant and Rimas Buinevicius dated as of November 30, 1997 and effective as of January 1, 1997, filed as Exhibit No. 10.4 to the Registration Statement, and hereby incorporated by reference. 10.5 Employment Agreement between Registrant and Monty R. Schmidt dated as of November 30, 1997 and effective as of January 1, 1997, filed as Exhibit No. 10.5 to the Registration Statement, and hereby incorporated by reference. 10.6 Employment Agreement between Registrant and Curtis J. Palmer dated as of November 30, 1997 and effective as of January 1, 1997, filed as Exhibit No. 10.6 to the Registration Statement, and hereby incorporated by reference. 10.7 Digital Audio System License Agreement between Registrant and Dolby Laboratories Licensing Corporation dated July 28, 1997, filed as Exhibit No. 10.7 to the Registration Statement, and hereby incorporated by reference. 10.8 Digital Audio System License Agreement between Registrant and Dolby Laboratories Licensing Corporation dated July 28, 1997, filed as Exhibit No. 10.8 to the Registration Statement, and hereby incorporated by reference.
17 10.9 Start-up Agreement between Registrant and Ingram Micro Inc. dated October 16, 1997, filed as Exhibit No. 10.9 to the Registration Statement, and hereby incorporated by reference. 10.10 Form of Lock-up Agreement between Registrant and all directors, officers, and non-selling stockholders, filed as Exhibit No. 10.10 to the Registration Statement, and hereby incorporated by reference. 10.11 Form of Lock-up Agreement between Registrant and all selling stockholders, filed as Exhibit No. 10.11 to the Registration Statement, and hereby incorporated by reference. 10.12 Software License Agreement, effective as of September 29, 1998, between Registrant and Hewlett-Packard Company - CONFIDENTIAL MATERIAL FILED SEPARATELY 10.13 Commercial Lease between Registrant and Seven J's, Inc. regarding 627 Williamson Street, Madison, Wisconsin dated March 26, 1999, filed as Exhibit No. 10.13 to the Quarterly Report on form 10-QSB for the period ended March 31, 1999, and hereby incorporated by reference. 10.14 Loan Agreement, dated March 3, 1999 between Registrant and Associated Bank South Central, filed as Exhibit No. 10.14 to the Quarterly Report on form 10-QSB for the period ended March 31, 1999, and hereby incorporated by reference. 10.15 Business Note Agreement, dated March 3, 1999 between Registrant and Associated Bank South Central, filed as Exhibit No. 10.15 to the Quarterly Report on form 10-QSB for the period ended March 31, 1999, and hereby incorporated by reference. 10.16 Termination Statement between Registrant and Associated Bank South Central, effective June 30, 1999, filed as Exhibit No. 10.16 to the Quarterly Report on form 10-QSB for the period ended June 30, 1999, and hereby incorporated by reference. 10.17 Convertible Debenture Purchase Agreement dated September 13, 1999 between Purchasers and the Registrant filed as Exhibit No. 10.17 to the Current Report on form 8-K filed on September 24, 1999, and hereby incorporated by reference. 10.18 Commercial Lease between Registrant and Tenney Place Development, LLC regarding 1617 Sherman Ave., Madison, Wisconsin dated October 1, 1999, filed as Exhibit No. 10.18 to the Annual Report on form 10-K for the period ended September 30, 1999 and hereby incorporated by reference. 27.1 Financial Data Schedule.
18 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Sonic Foundry, Inc. ------------------- (Registrant) February 14, 2000 By: /s/ Rimas P. Buinevicius ------------------------ Rimas P. Buinevicius Chairman and Chief Executive Officer February 14, 2000 By: /s/ Kenneth A. Minor -------------------- Kenneth A. Minor Chief Financial Officer February 14, 2000 By: /s/ Frederick Kopko ------------------- Frederick Kopko Secretary 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from 12/31/99 10Q and is qualified in its entirety by reference to such financial statements. 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 2,825,652 0 5,822,565 1,059,581 1,356,254 10,397,025 5,197,539 1,116,527 16,356,600 3,886,287 2,187,454 0 0 69,743 10,213,116 16,356,600 5,103,552 5,103,552 1,158,035 1,158,035 6,698,715 0 166,466 (2,203,452) 0 (2,203,452) 0 0 0 (2,203,452) $(.33) $(.33)
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