Note 5 - Stockholders' Equity (Deficit)

12 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Shareholders' Equity and Share-Based Payments [Text Block]

5. Stockholders' Equity

Stock Options and Employee Stock Purchase Plan

On January 28, 2021, Stockholders approved adoption of the 2020 Equity Incentive Plan, (the “2020 Plan”) which replaced our 2009 Stock Incentive Plan (the "2009 Plan"). The 2009 Plan terminated coincident with the effectiveness of the 2020 Plan. The Company maintains a directors’ stock option plan under which options may be issued to purchase up to an aggregate of 150,000 shares of common stock. Each non-employee director, who is re-elected or who continues as a member of the board of directors on each annual meeting date and on each subsequent meeting of Stockholders, will be granted options to purchase 2,000 shares of common stock under the directors’ plan, or at other times or amounts at the discretion of the Board of Directors. See Note 9 - Related Party Transactions for more details on the affiliated party.

Each option entitles the holder to purchase one share of common stock at the specified option price. The exercise price of each option granted under the plans was set at the fair market value of the Company’s common stock at the respective grant date. Options vest at various intervals and expire at the earlier of termination of employment, discontinuance of service on the board of directors, ten years from the grant date or at such times as are set by the Company at the date of grant.

The Company has applied a graded (tranche-by-tranche) attribution method and expenses share-based compensation on an accelerated basis over the vesting period of the share award, net of estimated forfeitures.

The number of shares available for grant under these stockholder approved plans at September 30, is as follows:

	Qualified
	Employee			Director
	Stock Option			Stock Option
	Plans			Plan
Shares available for grant at September 30, 2020		911,617			55,500
Shareholder approval of 2020 Equity Incentive Stock Option Plan		1,000,000			—
Options granted		(550,467	)		(28,000	)
Options forfeited		258,448			46,500
Shares available for grant at September 30, 2021		1,619,598			74,000
Remaining 2009 Plan shares cancelled		(1,060,524	)		—
Approval of additional 1 million shares Equity Incentive Stock Option Plan		1,000,000			—
Options granted		(877,250	)		(13,500	)
Options forfeited, cancelled, and expired		479,593			3,000
Shares available for grant at September 30, 2022		1,161,417			63,500

The following table summarizes information with respect to outstanding stock options under all plans:

	Years Ended September 30,
	2022					2021
				Weighted					Weighted
				Average					Average
				Exercise					Exercise
	Options			Price		Options			Price
Outstanding at beginning of year		1,853,479		$	4.44		1,707,515		$	5.09
Granted		890,750			3.17		578,467			3.42
Exercised		(166,098	)		1.98		(127,555	)		2.14
Forfeited, cancelled, and expired		(482,593	)		5.99		(304,948	)		6.89
Outstanding at end of year		2,095,538		$	3.74		1,853,479		$	4.44
Exercisable at end of year		1,163,820		$	4.15		1,269,854
Weighted average fair value of options granted during the year	$	1.48				$	1.57

The weighted-average remaining contractual life of exercisable shares is 6.0 years.

The options outstanding at September 30, 2022 have been segregated into four ranges for additional disclosure as follows:

	Options Outstanding						Options Exercisable
	Options		Weighted
	Outstanding		Average		Weighted		Options		Weighted
	at		Remaining		Average		Exercisable at		Average
	September 30,		Contractual		Exercise		September 30,		Exercise
Exercise Prices	2022		Life		Price		2022		Price
$0.66 to $2.49		377,032		6.46	$	1.57		311,612	$	1.60
$2.61 to $4.81		1,455,838		8.52	$	3.44		589,874	$	3.55
$5.08 to $8.92		155,558		1.71	$	7.44		155,224	$	7.44
$9.08 to $10.92		107,110		1.65	$	10.09		107,110	$	10.09
		2,095,538						1,163,820

As of September 30, 2022, there was $1.1 million of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation costs of $720 thousand. The cost is expected to be recognized over a weighted-average life of 2.0 years. As of September 30, 2021, there was $551 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation costs of $409 thousand.

A summary of the status of the Company’s non-vested shares under all plans at September 30, 2022 and for the year then ended is presented below:

				Weighted Average
				Grant Date
	Options			Fair Value
Non-vested options at October 1, 2020		339,897		$	0.60
Granted		578,467			1.57
Vested		(283,741	)		0.98
Forfeited		(51,165	)		1.09
Non-vested options at September 30, 2021		583,458			1.43
Granted		890,750			1.48
Vested		(456,174	)		1.19
Forfeited		(86,316	)		1.21
Non-vested options at September 30, 2022		931,718		$	1.57

Stock-based compensation recorded in the year ended September 30, 2022 was $747 thousand. Stock-based compensation recorded in the year ended September 30, 2021 was $487 thousand. Cash received from exercises under all stock option plans and warrants for the years ended September 30, 2022 and 2021 was $122 thousand and $263 thousand, respectively. There were no tax benefits realized for tax deductions from option exercises for the years ended September 30, 2022 or 2021. The Company currently expects to satisfy stock-based awards with registered shares available to be issued.

The Company also has an Employee Stock Purchase Plan (Purchase Plan) under which an aggregate of 300,000 common shares may be issued. All employees who have completed 90 days of employment with the Company on the first day of each offering period and customarily work 20 hours per week or more are eligible to participate in the Purchase Plan. An employee who, after the grant of an option to purchase, would hold common stock and/or hold outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of the Company will not be eligible to participate. Eligible employees may make contributions through payroll deductions of up to 10% of their compensation. No participant in the Purchase Plan is permitted to purchase common stock under the Purchase Plan if such option would permit his or her rights to purchase stock under the Purchase Plan to accrue at a rate that exceeds $25,000 of the fair market value of such shares, or that exceeds 1,000 shares, for each calendar year. The Company makes a bi-annual offering to eligible employees of options to purchase shares of common stock under the Purchase Plan on the first trading day of January and July. Each offering period is for a period of 6 months from the date of the offering, and each eligible employee as of the date of offering is entitled to purchase shares of common stock at a purchase price equal to the lower of 85% of the fair market value of common stock on the first or last trading day of the offering period. A total of 80,314 shares are available to be issued under the plan at September 30, 2022.

There were 19,353 and 9,773 shares purchased by employees during fiscal 2022 and 2021, respectively. The Company recorded stock compensation expense under this plan of $10 thousand and $9 thousand during fiscal 2022 and 2021, respectively. Cash received from issuance of stock under this plan was $37 thousand and $31 thousand during fiscal 2022 and 2021, respectively.

Common Stock Warrants

On April 16, 2018, the Company issued 232,558 shares of common stock to an affiliated party. The shares were issued at a price of $2.15 per share, representing the closing price on April 13, 2018. The affiliated party also received warrants to purchase 232,558 shares of common stock at an exercise price of $2.50 per share, which expire on April 16, 2025.

On July 27, 2021, the Company and investors entered in to warrant agreements pursuant to which the investors have the right to purchase 141,892 shares at a price of $5.50 per share on or before July 20, 2026. One of these warrants was issued to Mr. Burish for the right to purchase 50,676 shares, see Note 9 - Related Party Transactions for more details. 

On April 19, 2022, the Company and its underwriter entered into warrant agreement pursuant to which the underwriter has the right to purchase an aggregate of 6% of the shares of common stock issued in the offering or total of 102,000 shares, at an initial price of $3.06 per share, before April 19, 2027.

Preferred stock and dividends

In May 2017, the Company created a new series of preferred stock entitled "9% Cumulative Voting Convertible Preferred Stock, Series A" (the "Preferred Stock, Series A"). As of September 30, 2022 and 2021, an aggregate total of 4,500 shares were authorized, respectively. Holders of the Preferred Stock, Series A will receive monthly dividends at an annual rate of 9%, payable in additional shares of Preferred Stock, Series A. Dividends declared on the preferred stock were earned monthly as additional shares and accounted for as a reduction to paid-in capital since the Company is currently in an accumulated deficit position. Each share of Preferred Stock, Series A was convertible into that number of shares of common stock determined by dividing $4.23 into the liquidation amount.

The Company considered relevant guidance when accounting for the issuance of preferred stock and determined that the preferred shares meet the criteria for equity classification. Dividends accrued on preferred shares have been shown as a reduction to net income (or an increase in net loss) for purposes of calculating earnings per share.

No shares of Preferred Stock, Series A were issued and outstanding as of September 30, 2022 or 2021. 

Common Stock Transactions

On  July 20, 2021, the Company entered into a transaction with four investors on identical terms pursuant to which they agreed to purchase, and the Company agreed to issue and sell, an aggregate of 945,946 shares at a price of $3.70 per share (total of $3,500,000). The Company closed on the issuance and sale on  July 27, 2021. The Company and the investors also entered into (i) warrant agreements pursuant to which the investors have the right to purchase 141,892 shares at a price of $5.50 per share on or before  July 20, 2026 and, (ii) registration rights agreements (“Rights Agreement”) whereby the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission (the “Commission”) within six months after the effective date of the Rights Agreement and further agreed to use its commercially reasonable efforts to have the registration statement declared effective and to ensure that the registration statement remains effective throughout the term of the Rights Agreement.

The investors above included Mr. Mark Burish, the Company’s chairman and largest shareholder who purchased $1,250,000 of common stock for a total of 337,838 shares and 50,676 warrants. The Company’s special committee of disinterested directors met several times to discuss and negotiate the terms of the above transactions, including the participation of Mr. Burish. The special committee unanimously approved such terms.

On April 13, 2022, the Company announced an underwritten public offering of 1,700,000 shares of its common stock at a public offering price of $2.55 per share. The company granted the underwriter a 45-day option to purchase up to an additional 255,000 shares of common stock at the public offering price, less underwriting discounts and commissions. 

The option to purchase additional shares was not exercised and the 45-day option period has expired. The Company also issued Underwriter Warrants that grants the underwriter the right to purchase an aggregate of 6% of the shares of common stock issued in the offering or total of 102,000 shares. 

The Underwriters Warrants shall be exercisable, in whole or in part, commencing 181 days after April 13, 2022, and expiring on the five-year anniversary of the date on which the Underwriters Warrants first become exercisable, at an initial exercise price of $3.06 per share. 

On April 19, 2022, the public offering closed. Gross proceeds from the sale of 1,700,000 shares before deducting underwriting discounts and commissions and other offering expenses were approximately $4.3 million. Cost associated with the offering was $406 thousand consisting of finder's fees, underwriting fees, legal fees, accounting service fees, and transfer agent closing fees.

Uplisting to Nasdaq Capital Market

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.”

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 $.01 per share, from 15,000,000 to 25,000,000.