March 15, 2019 (September 30, 2018) Date of Report (Date of earliest event reported) | ||||
Sonic Foundry, Inc. (Exact name of registrant as specified in its charter) | ||||
Maryland (State or other jurisdiction of incorporation) | 000-30407 (Commission File Number) | 39-1783372 (IRS Employer Identification No.) |
222 W. Washington Ave Madison, WI 53703 (Address of principal executive offices) | (608) 443-1600 (Registrant's telephone number) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
(a) | Exhibits |
99.1 | Press release concerning financial results for the fiscal quarter and year ended September 30, 2018. |
By: | /s/ Kenneth A. Minor | |
By: | Kenneth A. Minor | |
Title: | Chief Financial Officer | |
• | Billings totaled $9.9 million in the fourth quarter of 2018, an increase of 5 percent, compared to the same period last year |
• | Total revenues of $8.5 million compared to $8.3 million in the fourth quarter of 2017 |
• | Gross margin was $6.1 million, or 72 percent of sales, compared to $6.1 million, or 74 percent of sales, in the fourth quarter of 2017 |
• | Non-cash expense of $11.8 million related to impairment of goodwill and intangible assets recorded in fourth quarter of 2018 compared to $600,000 related to impairment of goodwill recorded in fourth quarter of 2017 |
• | Deferred tax liability write-off of the portion related to goodwill and intangible assets recorded in fourth quarter of 2018 which offsets impact of impairment by $2.4 million |
• | Net loss of $(10) million, or $(2.01) per share, compared to $(1.6) million, or $(0.37) per share, in the fourth quarter of 2017; net loss, net of the one-time impairment charges and the benefit from the write-off of the related deferred tax liability, was $(1.2) million in the fourth quarter of 2018 compared to $(985,000) in the fourth quarter of 2017 |
• | Net loss in the fourth quarter of 2018 improved by $640,000 from preliminary results released on December 20, 2018 as a result of a final tax adjustment |
• | Adjusted EBITDA was $(547,000) compared to $(236,000) in the fourth quarter of 2017 |
• | Unearned revenue was $13.3 million as of September 30, 2018, down $966,000 from September 30, 2017. |
September 30, | |||||||
2018 | 2017 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 1,189 | $ | 1,211 | |||
Accounts receivable, net of allowances of $524 and $375 | 7,418 | 7,903 | |||||
Financing receivables, current, net of allowances of $526 and $200 | 100 | 925 | |||||
Inventories | 1,027 | 986 | |||||
Investment in sales-type lease, current | 150 | 148 | |||||
Prepaid expenses and other current assets | 941 | 1,085 | |||||
Total current assets | 10,825 | 12,258 | |||||
Property and equipment: | |||||||
Leasehold improvements | 1,105 | 1,041 | |||||
Computer equipment | 5,718 | 6,101 | |||||
Furniture and fixtures | 1,099 | 789 | |||||
Total property and equipment | 7,922 | 7,931 | |||||
Less accumulated depreciation and amortization | 6,009 | 6,181 | |||||
Property and equipment, net | 1,913 | 1,750 | |||||
Other assets: | |||||||
Goodwill | — | 10,455 | |||||
Customer relationships, net of amortization of $1,256 and $990 | — | 1,505 | |||||
Product rights, net of amortization of $534 and $411 | — | 261 | |||||
Financing receivables, long-term | 181 | 1,310 | |||||
Investment in sales-type lease, long-term | 249 | 407 | |||||
Other long-term assets | 415 | 410 | |||||
Total assets | $ | 13,583 | $ | 28,356 | |||
Liabilities and stockholders’ equity (deficit) | |||||||
Current liabilities: | |||||||
Revolving lines of credit | $ | 885 | $ | 2,065 | |||
Accounts payable | 1,610 | 1,314 | |||||
Accrued liabilities | 1,609 | 1,387 | |||||
Unearned revenue | 11,645 | 11,332 | |||||
Current portion of capital lease and financing arrangements | 248 | 256 | |||||
Current portion of notes payable and warrant debt, net of discounts | 593 | 737 | |||||
Total current liabilities | 16,590 | 17,091 | |||||
Long-term portion of unearned revenue | 1,691 | 2,970 | |||||
Long-term portion of capital lease and financing arrangements | 187 | 244 | |||||
Long-term portion of notes payable and warrant debt, net of discounts | 1,357 | 123 | |||||
Derivative liability, at fair value | 14 | 12 | |||||
Other liabilities | 202 | 372 | |||||
Deferred tax liability | — | 4,426 | |||||
Total liabilities | 20,041 | 25,238 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity (deficit): | |||||||
Preferred stock, $.01 par value, authorized 500,000 shares; none issued | — | — | |||||
9% Preferred stock, Series A, voting, cumulative, convertible, $.01 par value (liquidation preference of $1,000 per share), authorized 4,500 shares; 2,678 and 1,510 shares issued and outstanding, respectively, at amounts paid in | 1,651 | 1,280 | |||||
5% Preferred stock, Series B, voting, cumulative, convertible, $.01 par value (liquidation preference at par), authorized 1,000,000 shares, none issued | — | — | |||||
Common stock, $.01 par value, authorized 10,000,000 shares; 5,113,400 and 4,470,791 shares issued and 5,100,684 and 4,458,075 shares outstanding | 51 | 45 |
Additional paid-in capital | 200,130 | 197,836 | |||||
Accumulated deficit | (207,419 | ) | (195,253 | ) | |||
Accumulated other comprehensive loss | (676 | ) | (595 | ) | |||
Receivable for common stock issued | (26 | ) | (26 | ) | |||
Treasury stock, at cost, 12,716 shares | (169 | ) | (169 | ) | |||
Total stockholders’ equity (deficit) | (6,458 | ) | 3,118 | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 13,583 | $ | 28,356 |
Quarters Ended September 30, | Years Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue: | |||||||||||||||
Product and other | $ | 3,384 | $ | 3,340 | $ | 12,311 | $ | 14,883 | |||||||
Services | 5,106 | 4,960 | 22,233 | 21,117 | |||||||||||
Total revenue | 8,490 | 8,300 | 34,544 | 36,000 | |||||||||||
Cost of revenue: | |||||||||||||||
Product and other | 1,416 | 1,368 | 5,231 | 6,097 | |||||||||||
Services | 979 | 819 | 4,425 | 3,770 | |||||||||||
Total cost of revenue | 2,395 | 2,187 | 9,656 | 9,867 | |||||||||||
Gross margin | 6,095 | 6,113 | 24,888 | 26,133 | |||||||||||
Operating expenses: | |||||||||||||||
Selling and marketing | 3,764 | 3,726 | 15,622 | 16,912 | |||||||||||
General and administrative | 1,641 | 1,541 | 6,354 | 5,941 | |||||||||||
Product development | 1,781 | 1,657 | 7,142 | 7,238 | |||||||||||
Impairment of goodwill and intangible assets | 11,809 | 600 | 11,809 | 600 | |||||||||||
Total operating expenses | 18,995 | 7,524 | 40,927 | 30,691 | |||||||||||
Loss from operations | (12,900 | ) | (1,411 | ) | (16,039 | ) | (4,558 | ) | |||||||
Non-operating income (expenses): | |||||||||||||||
Interest expense, net | (140 | ) | (99 | ) | (601 | ) | (495 | ) | |||||||
Other income (expense), net | 44 | (22 | ) | 142 | (65 | ) | |||||||||
Total non-operating expenses | (96 | ) | (121 | ) | (459 | ) | (560 | ) | |||||||
Loss before income taxes | (12,996 | ) | (1,532 | ) | (16,498 | ) | (5,118 | ) | |||||||
Benefit (provision) for income taxes | 2,978 | (53 | ) | 4,332 | 79 | ||||||||||
Net loss | (10,018 | ) | (1,585 | ) | $ | (12,166 | ) | $ | (5,039 | ) | |||||
Dividends on preferred stock | (70 | ) | (94 | ) | (257 | ) | (169 | ) | |||||||
Net loss attributable to common stockholders | $ | (10,088 | ) | $ | (1,679 | ) | $ | (12,423 | ) | $ | (5,208 | ) | |||
Loss per common share: | |||||||||||||||
– basic | $ | (2.01 | ) | $ | (0.37 | ) | (2.67 | ) | (1.17 | ) | |||||
– diluted | $ | (2.01 | ) | $ | (0.37 | ) | (2.67 | ) | (1.17 | ) | |||||
Weighted average common shares | |||||||||||||||
– basic | 4,989,544 | 4,458,075 | 4,655,520 | 4,436,333 | |||||||||||
– diluted | 4,989,544 | 4,458,075 | 4,655,520 | 4,436,333 |
Years Ended September 30, | |||||||
2018 | 2017 | ||||||
Operating activities | |||||||
Net loss | $ | (12,166 | ) | $ | (5,039 | ) | |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||
Amortization of other intangibles | 621 | 555 | |||||
Depreciation and amortization of property and equipment | 1,118 | 1,422 | |||||
Impairment of goodwill and intangible assets | 11,809 | 600 | |||||
Loss on sale of fixed assets | — | 8 | |||||
Provision for doubtful accounts - including financing receivables | 475 | 349 | |||||
Deferred taxes | (4,450 | ) | (103 | ) | |||
Stock-based compensation expense related to stock options and warrants | 476 | 622 | |||||
Conversion of accrued interest to preferred stock | 31 | — | |||||
Beneficial conversion feature recognized on debt converted to preferred stock | 70 | — | |||||
Remeasurement gain on subordinated debt | — | (6 | ) | ||||
Remeasurement gain on derivative liability | (28 | ) | (55 | ) | |||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 348 | 1,613 | |||||
Financing receivables | 1,630 | (558 | ) | ||||
Inventories | (41 | ) | 904 | ||||
Prepaid expenses and other current assets | 290 | 89 | |||||
Accounts payable and accrued liabilities | 268 | (109 | ) | ||||
Other long-term liabilities | (169 | ) | 129 | ||||
Unearned revenue | (920 | ) | 250 | ||||
Net cash provided by (used in) operating activities | (638 | ) | 671 | ||||
Investing activities | |||||||
Purchases of property and equipment | (840 | ) | (839 | ) | |||
Net cash used in investing activities | (840 | ) | (839 | ) | |||
Financing activities | |||||||
Proceeds from notes payable | 3,000 | — | |||||
Proceeds from lines of credit | 22,236 | 23,257 | |||||
Payments on notes payable | (815 | ) | (1,727 | ) | |||
Payments on lines of credit | (23,422 | ) | (22,928 | ) | |||
Payments of debt issuance costs | (97 | ) | (26 | ) | |||
Payments to settle put on term debt | (200 | ) | — | ||||
Proceeds from issuance of preferred stock and common stock | 1,094 | 1,298 | |||||
Payments on capital lease and financing arrangements | (298 | ) | (348 | ) | |||
Net cash provided by (used in) financing activities | 1,498 | (474 | ) | ||||
Changes in cash and cash equivalents due to changes in foreign currency | (42 | ) | 59 | ||||
Net decrease in cash and cash equivalents | (22 | ) | (583 | ) | |||
Cash and cash equivalents at beginning of year | 1,211 | 1,794 | |||||
Cash and cash equivalents at end of year | $ | 1,189 | $ | 1,211 | |||
Supplemental cash flow information: | |||||||
Interest paid | $ | 409 | $ | 505 | |||
Income taxes paid, foreign | 370 | 111 | |||||
Non-cash financing and investing activities: | |||||||
Property and equipment financed by capital lease or accounts payable | 460 | 341 | |||||
Debt discount | 127 | — | |||||
Stock issued for board of director's fees | — | 133 | |||||
Deemed dividend for beneficial conversion feature of preferred stock | 28 | 139 | |||||
Preferred stock dividend paid in additional shares | 230 | 30 |
Subordinated note payable converted to preferred stock | 1,000 | — |
Quarters Ended September 30, | Years Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net loss | $ | (10,018 | ) | $ | (1,585 | ) | $ | (12,166 | ) | $ | (5,039 | ) | |||
Add: | |||||||||||||||
Depreciation and amortization | 415 | 461 | 1,576 | 1,907 | |||||||||||
Income tax expense (benefit) | (2,978 | ) | 53 | (4,331 | ) | (79 | ) | ||||||||
Interest expense | 140 | 100 | 602 | 498 | |||||||||||
Stock-based compensation expense | 85 | 135 | 477 | 622 | |||||||||||
Impairment of goodwill and intangible asset | 11,809 | 600 | 11,809 | 600 | |||||||||||
Adjusted EBITDA | $ | (547 | ) | $ | (236 | ) | $ | (2,033 | ) | $ | (1,491 | ) | |||