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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, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating lease costs | $ | $ | $ | $ | ||||||||||||
| Variable operating lease costs | ||||||||||||||||
| Total operating lease cost | $ | $ | $ | $ | ||||||||||||
| Finance lease cost: | ||||||||||||||||
| Amortization of right-of-use assets | $ | $ | $ | $ | ||||||||||||
| Interest on lease liabilities | ||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | ||||||||||||
Variable lease costs include operating costs for U.S. office lease based on square footage and Consumer Price Index ("CPI") rent escalation and related VAT for office lease in the Netherlands, and COVID-19 rent credit.
Supplemental cash flow information related to operating and finance leases were as follows (in thousands):
| Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash outflows for operating leases | $ | $ | ||||||
| Operating cash outflows for finance leases | ||||||||
| Financing cash outflows for finance leases | ||||||||
Other information related to leases was as follows:
| June 30, 2023 | June 30, 2022 | |||||||
| Weighted average remaining lease term (in years) | ||||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted average discount rate | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
4. Credit Arrangements
Partners for Growth V, L.P.
On May 11, 2018, Sonic Foundry, Inc. entered into a Loan and Security Agreement (the “2018 Loan and Security Agreement”) with Partners for Growth V, L.P. (“PFG V”).
The 2018 Loan and Security Agreement provided for a Term Loan ("Term Loan") in the amount of $
Coincident with execution of the 2018 Loan and Security Agreement, the Company entered into a Warrant Agreement (“Warrant”) with PFG V. Pursuant to the terms of the Warrant, the Company issued to PFG V a warrant to purchase up to
At June 30, 2023, and September 30, 2022, the estimated fair value of the derivative liability associated with the Warrant issued in connection with the 2018 Loan and Security Agreement, was $
The proceeds from the 2018 Loan and Security Agreement were allocated between the PFG V debt and the warrant debt (inclusive of its conversion feature) based on their relative fair value on the date of issuance which resulted in carrying values of $
Line of Credit dated July 28, 2021
The Company entered into a Revolving Credit Agreement (the “Credit Agreement”) with U.S. Bank National Association (the “Bank”) on July 28, 2021. Under the Credit Agreement the Company could borrow the lesser of $
The Credit Agreement had a maturity date of March 31, 2023, and was secured by all assets of the Company and accrued interest equal to the one-month LIBOR rate plus
In connection with the Credit Agreement, the Company entered into the Stock Pledge Agreement with the Bank, as a condition of the Credit Loan. Upon default, the Bank had the right to transfer and claim the securities of the subsidiaries, Sonic Foundry International B.V. in Netherland and Mediasite K.K. in Japan.
Amendment to Line of Credit dated March 30, 2022
The Company entered into an amendment to the Credit Agreement with U.S. Bank National Association on March 30, 2022. Under the Credit Agreement, the Company could borrow from the Bank, for general and working capital purposes, an aggregate amount outstanding at any one time of $
In connection with the Credit Agreement, the Company was also required to maintain a collateral account with the Bank in the name of the Company but under the sole control of the Bank. As a condition to drawing on the Revolving Credit Loan, the Company had to deposit into the Collateral Account funds in an amount equal to the amount of principal the Company wishes to draw on the Revolving Credit Loan. Previous covenants and borrowing base requirements were removed as part of this amendment.
Termination of Line of Credit dated November 14, 2022
On November 14, 2022, Sonic Foundry, Inc. (the “Company”) terminated its Revolving Credit Agreement with U.S. Bank National Association.
Loan and Security Agreement with Neltjeberg Bay Enterprises, LLC dated November 16, 2022
On November 16, 2022, the Company entered into a Loan and Security Agreement with Neltjeberg Bay Enterprises, LLC (“NBE”) whereby NBE loaned the Company $
Security Agreement and Promissory Note with Mark Burish dated November 16, 2022
Subscription Agreement and Warrant with Mark Burish dated November 16, 2022
The Company entered into a Subscription Agreement with Burish and Warrant whereby Burish purchased $
Amendment to Loan Agreement with Neltjeberg Bay Enterprises, LLC dated May 18, 2023
The Company entered into an Amendment to Loan and Security Agreement (the "NBE Amendment") with Neltjeberg Bay Enterprises, LLC and effective May 18, 2023 whereby the NBE Amendment provides for deferral of regular monthly principal payments. The Company will make monthly $
Amendment to Loan Agreement with Mark Burish dated May 31, 2023
On May 31, 2023, the Company entered into an Amendment to Security Agreement and Promissory Note (the Burish Amendment”) with Mark Burish. The Burish Amendment 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 $
Other Indebtedness
On August 20, 2020, Mediasite K.K. and Sumitomo Mitsui Banking Corporation entered into a $
On March 24, 2023, Mediasite K.K.and the Japanese Finance Corporation entered into a $
On September 30, 2022, Mediasite K.K. and Resona Bank, Ltd. entered into a $
The annual principal payments on the outstanding notes payable, notes payable due to related parties, and warrant debt are as follows:
| Fiscal Year (in thousands) | ||||
| 2023 (remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Add: Discount on Notes Payable & Debt Issuance Costs & Loan Premium | ||||
| Total principal payments | $ |
5. Income Taxes
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had
The Company’s tax rate differs from the expected tax rate each reporting period as a result of permanent differences, the valuation allowance, and international tax items. The Company's income tax expense for the three and nine months ended June 30, 2023 and 2022 primarily consists of income tax expense/benefit at its foreign subsidiaries. The Company has net operating losses (NOL) carried over from previous years.
Valuation allowance for net deferred tax assets
Deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
We make judgments regarding the realizability of our deferred tax assets. The balance sheet carrying value of our net deferred tax assets is based on whether we believe that it is more likely than not that we will generate sufficient future taxable income to realize these deferred tax assets after consideration of all available evidence. We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. Generally, cumulative losses in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed.
As of September 30, 2022, valuation allowances had been established for all U.S. and for certain foreign deferred tax assets which we believe do not meet the “more likely than not” criteria for recognition. As of June 30, 2023 the Company has a full valuation allowance established as the Company
If we are subsequently able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then we will be required to recognize these deferred tax assets through the reduction of the valuation allowance, which could result in a material benefit to our results of operations in the period in which the benefit is determined.
6. Revenue
Disaggregation of Revenues
The following tables summarize revenues from contracts with customers for the three and nine months ended June 30, 2023 and 2022, (in thousands) by subsidiary, which includes the parent (SOFO), our Netherlands location (SFI) and our Japanese location (MSKK):
| Three months ended June 30, 2023 | ||||||||||||||||||||
| SOFO | SFI | MSKK | Eliminations | Total | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Hardware | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Software | ( | ) | ||||||||||||||||||
| Shipping | ||||||||||||||||||||
| Product and other total | ( | ) | ||||||||||||||||||
| Support | ( | ) | ||||||||||||||||||
| Hosting | ( | ) | ||||||||||||||||||
| Events | ||||||||||||||||||||
| Installs, training & other | ( | ) | ||||||||||||||||||
| Services total | ( | ) | ||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Nine Months Ended June 30, 2023 | ||||||||||||||||||||
| SOFO | SFI | MSKK | Eliminations | Total | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Hardware | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Software | ( | ) | ||||||||||||||||||
| Shipping | ||||||||||||||||||||
| Product and other total | ( | ) | ||||||||||||||||||
| Support | ( | ) | ||||||||||||||||||
| Hosting | ( | ) | ||||||||||||||||||
| Events | ||||||||||||||||||||
| Installs, training & other | ( | ) | ||||||||||||||||||
| Services total | ( | ) | ||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Three months ended June 30, 2022 | ||||||||||||||||||||
| SOFO | SFI | MSKK | Eliminations | Total | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Hardware | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Software | ( | ) | ||||||||||||||||||
| Shipping | ||||||||||||||||||||
| Product and other total | ( | ) | ||||||||||||||||||
| Support | ( | ) | ||||||||||||||||||
| Hosting | ( | ) | ||||||||||||||||||
| Events | ||||||||||||||||||||
| Installs, training & other | ||||||||||||||||||||
| Services total | ( | ) | ||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Nine Months Ended June 30, 2022 | ||||||||||||||||||||
| SOFO | SFI | MSKK | Eliminations | Total | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Hardware | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Software | ( | ) | ||||||||||||||||||
| Shipping | ||||||||||||||||||||
| Product and other total | ( | ) | ||||||||||||||||||
| Support | ( | ) | ||||||||||||||||||
| Hosting | ( | ) | ||||||||||||||||||
| Events | ||||||||||||||||||||
| Installs, training & other | ||||||||||||||||||||
| Services total | ( | ) | ||||||||||||||||||
| Total revenue | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
Transaction price allocated to future performance obligations
As of June 30, 2023, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $
Disclosures related to our contracts with customers
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers. We record assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. These liabilities are classified as current and non-current unearned revenue.
Unearned revenues
Unearned revenues represent our obligation to transfer products or services to our client for which we have received consideration, or an amount of consideration is due, from the client. During the three and nine months ended June 30, 2023, revenues recognized related to the amount included in the unearned revenues balance at the beginning of the period was $
Assets recognized from the costs to obtain our contracts with customers
We recognize an asset for the incremental costs of obtaining a contract with a customer. We amortize these deferred costs, primarily capitalized commissions, proportionate with related revenues over the period of the contract. During the three and nine months ended June 30, 2023, amortization expense related to the amount included in the capitalized commissions at the beginning of the period was $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report includes estimates, projections, statements relating to our business plans, objectives, expected operating results and other statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout this report, including the following sections: the notes to the condensed consolidated financial statements and "Management’s Discussion and Analysis." These forward-looking statements generally are identified by the words "believe," "project," "expect," "anticipate," "estimate," "intend," "strategy," "future," "opportunity," "plan," "may," "should," "will," "would," "will be," "will continue," "will likely result," and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially. These statements are based upon our current plans and strategies and reflect our current assessment of the risks and uncertainties related to our business and are made as of the date of this report. These statements are inherently subject to known and unknown risks and uncertainties. There may be events in the future that we are not able to accurately predict or control and our actual results may differ materially from the expectations we describe in our forward-looking statements. Factors that could cause actual results to differ materially from those currently anticipated include the following:
| ● |
Uncertainties relating to our ability to successfully implement our evolving business strategy in new lines of business; |
| ● |
The impact of competition, customer adoption of our products and services, and the importance of video; |
| ● |
Our capital needs, ability to raise capital in the future and ability to meet debt covenants; |
| ● |
The ongoing effect and impact of public health crises, such as the coronavirus ("COVID-19") pandemic in particular as it impacts our events business; |
| ● |
The impact of global economic conditions, currency exchange rates, supply chain and other geopolitical developments on our business; |
| ● |
The effect of competition in the markets for our products; |
| ● |
Our financial condition and liquidity; |
| ● |
The occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems and the efforts to transition our leased data centers to the public cloud; |
| ● |
Potential long-lived asset impairments; and |
|
| ● |
Uncertainty over our ability to successfully implement management's plan to improve liquidity, including the ability to implement and the effect on our business of cost containment measures and our ability to reach agreements to extend existing debt or secure new debt financing on terms acceptable to us. |
All forward statements should be considered in the context of the risks and other factors described above and in "Risk Factors" (Part I, Item 1A of the Company’s Annual Report on Form 10-K for the Fiscal Year ended September 30, 2022), "Quantitative and Qualitative Disclosures about Market Risk" (Part II, Item 7A of the Company’s Annual Report on Form 10-K for the Fiscal Year ended September 30, 2022), and "Management’s Discussion and Analysis" (Part I, Item 2 of this Form 10-Q). We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
Overview
Sonic Foundry, Inc. 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™.
Restructuring and exit activities
Evolving Strategy on Growth Initiatives
While the Company continues to work at steadily improving results of its Mediasite business, we recognized growth constraints in our existing business, and, therefore, we are shifting our focus toward building our runway in adjacent markets for future growth strategies as follows:
| • | First, we are expanding our cloud capabilities to better support our customers’ video needs. This is an important step in moving Sonic Foundry from primarily a hardware provider to a SaaS service provider with recurring revenue streams. | |
| • | Second, we are building a library of AI -enabled video solutions that can deliver instant, comprehensive, and automated video enhancement at scale. We believe the market for this technology is compelling. | |
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•
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The third key component of our growth strategy is aimed at democratizing global higher education. U.S. and U.K. universities are being increasingly challenged with lower enrollment and are looking for ways to expand into new growth markets. In close collaboration with several university clients, we have identified a global supply-demand imbalance. There are many students worldwide that can afford a higher education yet do not have access to it for a variety of reasons—geo/political instability; international travel restrictions; and inadequate infrastructure. Our innovative solution will allow students to have an in-person experience in locally supported, affordable, community-centric environments that offer aggregated educational content through our Mediasite platform. This is essentially master classes taught by top professors that encourage students to engage with one another in a collaborative and supported setting that bridges the educational gap and offers education opportunities in economically disadvantaged regions. |
This transformation from focusing solely on our Mediasite business to investing substantially, not only in our current space, but in these adjacent markets began in fiscal 2022. While we expect modest revenue in fiscal 2023 from these growth initiatives, we intend to continue to aggressively invest in them with the expectation that they will ultimately result in greater revenue than our Mediasite business. Managing a business with a combination of mature and start-up brands is challenging and will likely require constant adjustment in the allocation of resources within the brands, particularly in the current weak economic environment. Such adjustments may delay expected growth in one or more brands or make retention of customers or employees more challenging. Any such changes will negatively impact our business.
RESULTS OF OPERATIONS
Revenue
Revenue from our business includes the sale of Mediasite recorders and server software products and related services contracts, such as customer support, installation, customization services, training, content hosting and event services. We market our products to educational institutions, corporations and government agencies that need to deploy, manage, index and distribute video content on Internet-based networks. We reach both our domestic and international markets through reseller networks, a direct sales effort and partnerships with system integrators.
Q3-2023 compared to Q3-2022
Q3-2023 revenue of $5.8 million decreased 11% compared to Q3-2022 revenue of $6.5 million. Revenue consisted of the following:
| • |
Product and other revenue from sale of Mediasite recorder units and server software Q3-2023 revenue of $1.5 million decreased $0.7 million or 31% compared to Q3-2022 revenue of $2.2 million due to a shift from our customer base from hardware devices to other means of video capture. |
|
| • | Service revenue represents the portion of fees charged for Mediasite customer support contracts amortized over the length of the contract, typically 12 months, as well as training, installation, events and content hosting services. Service revenue of $4.2 million in Q3-2023 increased $5 thousand compared to $4.2 million in Q3-2022. Increased training, installation and other revenue was offset by decreased events and support revenue. | |
| • | At June 30, 2023, $10.3 million of revenue was deferred, of which we expect to recognize $8.7 million in the next twelve months, including approximately $3.0 million in the quarter ending September 30, 2023. At June 30, 2022, $8.7 million of revenue was deferred. | |
| • | Other revenue relates to freight charges and economic impact fees billed separately to our customers. |
YTD-2023 (nine months) compared to YTD-2022 (nine months)
YTD-2023 revenue of $16.5 million decreased 21% compared to YTD-2022 revenue of $21.0 million. Revenue consisted of the following:
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Product and other revenue from sale of Mediasite recorder units and server software YTD-2023 revenue of $4.0 million decreased $2.4 million or 37% compared to YTD-2022 revenue of $6.4 million due to a shift from our customer base from hardware devices to other means of video capture. |
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| • | Service revenue represents the portion of fees charged for Mediasite customer support contracts amortized over the length of the contract, typically 12 months, as well as training, installation, events and content hosting services. Service revenue decreased $1.7 million or 14% from $14.5 million YTD-2022 to $12.5 million YTD-2023, related to decreasing recorder purchases, foreign currency impact on our Japanese operations, a reduction in the number and size of events as customers go back to in person events, and a lower base of deferred revenue at the start of the year. | |
| • | Other revenue relates to freight charges and economic impact fees billed separately to our customers. |
Gross Margin
Q3-2023 compared to Q3-2022
Gross margin for Q3-2023 was $3.3 million or 57% of revenue compared to Q3-2022 gross margin of $4.6 million or 71% of revenue. The significant components of cost of revenue include:
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Product costs. Product costs consist of costs associated with our Mediasite recorder hardware, freight, labor and certain allocated costs. These costs were $873 thousand in Q3-2023 and $657 thousand in Q3-2022, resulting in gross margin on products of 44% and 71% respectively. The decrease is driven by $170 thousand of inventory scrap in Q3-2023 and decreased product revenue compared to Q3-2022. |
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Services costs. Service costs consist of staff wages for tech support, hosting and events, operating costs for events and hosting, as well as accelerated depreciation expense for hosting infrastructure and other transition costs as we migrate to the public cloud. These costs were $1.6 million in Q3-2023 and $1.3 million in Q3-2022, resulting in gross margin on services of 62% and 70% respectively. Short-term transition costs related to our move to a public cloud environment of $0.3 million account for the increased services costs. |
YTD-2023 (nine months) compared to YTD-2022 (nine months)
Gross margin for YTD-2023 was $9.6 million or 58% of revenue compared to YTD-2022 gross margin of $14.9 million or 71%. The significant components of cost of revenue include:
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Product costs. Product costs consist of costs associated with our Mediasite recorder hardware, freight, labor and certain allocated costs. These costs were $2.0 million in 2023 and $2.3 million in 2022, resulting in gross margin on products of 51% and 65% respectively. The decrease is driven by $170 thousand of inventory scrap YTD-2023 and decreased product revenue compared to YTD-2022. |
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Services costs. Service costs consist of staff wages for tech support, hosting and events, operating costs for events and hosting, as well as depreciation expense for hosting infrastructure. These costs were $4.9 million in 2023 and $3.8 million in 2022, resulting in gross margin on services of 61% and 74% respectively. Short-term transition costs related to our move to a public cloud environment amount to $0.8 million YTD-2023. In addition, there has been an increase of $0.3 million YTD-2023 to support more resources allocated to events delivery. |
Operating Expenses
Selling and Marketing Expenses
Selling and marketing expenses include wages and commissions for sales, marketing and business development personnel, print advertising and various promotional expenses for our products. Timing of these costs may vary greatly depending on introduction of new products and services or entrance into new markets, or participation in major tradeshows.
Q3-2023 compared to Q3-2022
Selling and marketing expenses were $2.9 million in Q3-2022 and decreased $253 thousand to $2.6 million in Q3-2023. Expenses in the major categories include:
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Cost directly related to launching Global Learning Exchange increased $181 thousand. These costs include consulting cost, corporate salaries and wages, travel, and local partner operation fees.
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Mediasite advertising and tradeshows costs decreased $90 thousand related to attending a lower number of tradeshows and decreasing Mediasite internet advertising. | |
| • | Mediasite contributions and sponsorships increased $110 thousand related to sponsorships at customer events, while Mediasite travel and related expenses decreased $31 thousand. | |
| • | There was a $235 thousand decrease in G&A allocation due to a lower base of allocable G&A cost. | |
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Selling and marketing expenses for Mediasite KK accounted for a decrease of $178 thousand from Q3-2022. |
YTD-2023 (nine months) compared to YTD-2022 (nine months)
Selling and marketing expenses were $9.2 million in YTD-2022 and decreased $986 thousand to $8.2 million in YTD-2023. Expenses in the major categories include:
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Cost directly related to launching Global Learning Exchange increased $927 thousand. These costs include consulting cost, corporate salaries and wages, travel, and local partner operation fees. | |
| • | Mediasite people costs decreased $429 thousand. These costs include salary and benefits, outside consultants, and commissions. | |
| • | Mediasite advertising and tradeshows costs decreased $160 thousand related to attending a lower number of tradeshows and decreasing Mediasite internet advertising. | |
| • | There was a $533 thousand decrease in G&A allocation related to a lower base of G&A cost in 2023. |
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Selling and marketing expenses for Sonic Foundry International and Mediasite KK accounted for a decrease of $55 thousand and $751 thousand, respectively, an aggregate decrease of $806 thousand from YTD-2022. |
General and Administrative Expenses
General and administrative (“G&A”) expenses consist of personnel and related costs associated with the facilities, finance, legal, human resource and information technology departments, as well as other expenses not fully allocated to functional areas.
Q3-2023 compared to Q3-2022
G&A expenses decreased $334 thousand or 23% from $1.4 million in Q3-2022 to $1.1 million in Q3-2023. Differences in the major categories include
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Decrease of $485 thousand related to salaries, bonus, benefits, and recruiting costs due to reduced headcount. | |
| • | Decrease of $127 thousand in professional services related to decreases in accounting costs, legal costs, and investor relations costs. | |
| • | Increase of $152 thousand in bad debt expense and an increase of $147 thousand in depreciation related to acceleration of hosting assets. | |
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There was $93 thousand less allocated out of G&A due to lower headcount compared to prior year. This shows as an increase in G&A cost. | |
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G&A expenses for Mediasite KK accounted for a decrease of $66 thousand from Q3-2022. |
YTD-2023 (nine months) compared to YTD-2022 (nine months)
G&A expenses decreased $762 thousand or 17% from $4.5 million in YTD-2022 to $3.7 million in YTD-2023. Differences in the major categories include
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Decrease of $864 thousand related to salaries, bonus, benefits, and recruiting costs due to reduced headcount. |
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Decrease of $226 thousand in professional services related to decreases in accounting costs, legal costs, and investor relations costs. | |
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Increase of $323 thousand related to a swing in bad debt expense. | |
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There was $215 thousand less allocated out of G&A due to lower headcount compared to prior year. This shows as an increase in G&A cost. | |
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G&A expenses for Mediasite KK accounted for a decrease of $246 thousand from YTD-2022. |
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.
Q3-2023 compared to Q3-2022
Product development expenses increased $1.2 million or 59% from $1.9 million in Q3-2022 to $3.1 million in Q3-2023. Differences in the major categories include:
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Salaries, bonus, benefits and outside consultant cost increased $840 thousand primarily due to not capitalizing software development costs in Q3-2023. $727 thousand was capitalized in Q3-2022. | |
| • | Supplies costs increased $96 thousand due to increased software costs. | |
| • | G&A allocation increased $142 thousand due to increased time spent supporting Vidable compared to prior year. | |
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Product development expense for Sonic Foundry International and Mediasite KK accounted for an increase of $19 thousand and $2 thousand, respectively, an aggregate increase of $21 thousand compared to Q3-2022. |
YTD-2023 (nine months) compared to YTD-2022 (nine months)
Product development expenses increased $2.6 million or 46% from $5.6 million in YTD-2022 to $8.2 million in YTD-2023. Differences in the major categories include:
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People costs increased $1.8 million primarily related to increased investment in Vidable and not capitalizing software development costs in Q3-2023. | |
| • | Supplies costs increased $400 thousand due to increased software costs. | |
| • | Travel & related expenses increased $94 thousand due to increased headcount supporting Vidable compared to prior year. | |
| • | G&A allocation increased $344 thousand due to increased time spent supporting Vidable compared to prior year. | |
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Product development expense for Sonic Foundry International and Mediasite KK accounted for a decrease of $48 thousand and $46 thousand, respectively, an aggregate decrease of $94 thousand compared to YTD-2022. |
Impairment of Intangible Assets
The Company recorded an impairment loss of $3.8 million for capitalized software development in the quarter ended June 30, 2023. This non-cash loss was primarily due to a strategic shift in the Vidable development to better align with the events business.
Other Income and Expense, Net
Interest expense for the three and nine months ended June 30, 2023 was $493 thousand and $1.1 million compared to interest expense of $9 thousand and $22 thousand for the same periods last year. The increase in interest expense is driven by monthly interest payments related to the Loan and Security Agreement and subsequent amendment with NBE as well as the Security Agreement and Promissory Note and subsequent amendment with Mark Burish.
During the three and nine months ended June 30, 2023, no gain in fair value was recorded related to the fair value remeasurement on the derivative liability associated with the Loan and Security Agreement and Warrant Debt with PFG V compared to a gain in fair value of $21 thousand and $51 thousand during the three and nine months ended June 30, 2022. The fair value of the derivative liability is measured at fair value 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.
Foreign Currency
The Company's wholly-owned subsidiaries operate in Japan and the Netherlands, and utilize the Japanese Yen and Euro, respectively, as their functional currency. Assets and liabilities of the Company's foreign operations are translated into US dollars at period end exchange rates while revenues and expenses are translated using average rates for the period. Gains and losses from the translation are deferred and included in accumulated other comprehensive loss in the consolidated statements of operations.
For the three and nine months ended June 30, 2023, the Company's foreign currency translation adjustment was a gain of $35 thousand and gain of $79 thousand, respectively, compared to losses $130 thousand and $310 thousand for the three and nine months ended June 30, 2022.
During the three and nine months ended June 30, 2023 the Company recorded an aggregate transaction loss of $1 thousand and $12 thousand, respectively, compared to a loss of $1 thousand and $23 thousand for the three and nine months ended June 30, 2022. The aggregate transaction gain or loss is included in the other expense line of the condensed consolidated statements of operations.
Liquidity and Capital Resources
The Company’s primary sources of liquidity are from debt and equity transactions discussed below.
At June 30, 2023, the Company's cash and cash equivalents amounted to $2.1 million. Approximately $1.1 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.
On November 16, 2022 the Company entered into two agreements for a total of $8.5 million debt at a rate of 12% interest per annum due in 30 equal installments beginning on June 1, 2023. On November 16, 2022 the Company also entered into a subscription agreement with Mark Burish for a total of $1.2 million of common stock along with an attached warrant.
On May 31, 2023 the Company entered into an amendment with Mark Burish which provided an increase to the original principal amount of $3 million by up to an additional $2 million and permits the Company to request to borrow such additional amounts in one or more tranches. At June 30, 2023, the balance of the note was $4,500,000.
At June 30, 2023, the Company had $11.0 million outstanding, net of warrant debt and debt discounts, related to notes payable with PFG V, NBE, and Mark Burish as well as the Mediasite KK term debt and notes payable with Resona Bank and the Japanese Finance Corporation.
The Company was provided $11.0 million of cash from financing activities during the first nine months of fiscal 2023. Payments on debt issuance costs of $193 thousand and payments on notes payable of $367 thousand were offset by proceeds from notes payable due to related parties of $10.0 million, proceeds from notes payable of $338 thousand and common stock issuance of $1.2 million. For the same period in fiscal 2022, the Company was provided $4.0 million for financing activities.
During the first nine months of fiscal 2023, the Company used $10.2 million cash for operating activities, compared with $5.1 cash used by operating activities in the same period of fiscal 2022. The primary factors affecting the $10.2 million cash used by operating activities include the $15.6 million YTD net loss as a result of investments in the Company's new Vidable® and Global Learning Exchange businesses, $1.1 million inventory increase associated with larger, long-range purchase commitments to account for global supply chain delays and a $425 thousand change in prepaid expense and other current assets due to a large purchase commitment with the Global Learning Exchange business. Operating cash use was partially offset by $3.8 million impairment of capitalized software development resulting from a shift in strategic focus of the Vidable® products, $1.6 million change in depreciation and amortization of property and equipment due to accelerated depreciation of our hosting assets during our move to a public cloud environment, $290 thousand change in deferred tax assets as a result of recognizing a full valuation allowance for our foreign operations, $504 thousand change in stock based compensation expense related to stock options, and $463 thousand change in unearned revenue as the business focused on customer retention and contract renewal.
Capital expenditures were $369 thousand in the first nine months of fiscal 2023 compared to $2.3 million in the same period in fiscal 2022 reflecting our reduction of hosted asset purchases as we move our datacenters to a public cloud.
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 $500,000 tranche available under its credit agreement with Mark Burish, as well as his anticipated further financial support, and evaluation of other strategic alternatives. The Company believes it will be successful in such initiatives and will be able to continue as a going concern through at least the next twelve months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on evaluations at June 30, 2023, our principal executive officer and principal financial officer, with the participation of our management team, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Securities Exchange Act). Disclosure controls and procedures ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that material information relating to the Company is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2023.
Changes in Internal Controls
During the period covered by the quarterly report on Form 10-Q, the Company has not made any changes to its internal control over financial reporting (as referred to in Paragraph 4(b) of the Certifications of the Company's principal executive officer and principal financial officer included as exhibits to the report) that have materially affected or are reasonably likely to affect the Company's internal control over financial reporting.
OTHER INFORMATION
None.
There have been no material changes in our risk factors from those disclosed in our Form 10-K for the fiscal year ended September 30, 2022 filed with the SEC.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
| 10.1 | Amendment to Loan and Security Agreement between Registrant and Neltjeberg Bay Enterprise LLC dated May 18, 22023, filed herewith | |
| 10.2 | Secured Promissory Note between Registrant and Mark Burish dated November 12, 2022, filed herewith | |
| 10.3 | Amendment to Secured Promissory Note between Registrant and Mark Burish dated May 31, 2023, filed herewith | |
| 10.4 | First Amendment to Warrant between Registrant and Mark Burish dated April 27, 2023, filed herewith | |
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Section 906 Certification of Chief Executive Officer and Chief Financial Officer |
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The following materials from the Sonic Foundry, Inc. Form 10-Q for the quarter ended June 30, 2023 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statement of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Stockholders' Deficit, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
Registrant will furnish upon request to the Securities and Exchange Commission a copy of all exhibits, annexes and schedules attached to each contract referenced in item 10.
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
| August 10, 2023 | By: |
/s/ Joe Mozden, Jr. |
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Joe Mozden, Jr. |
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Chief Executive Officer |
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| August 10, 2023 | By: |
/s/ Kenneth A. Minor |
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Kenneth A. Minor |
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Chief Financial Officer |
Exhibit 10.1
AMENDMENT TO LOAN AND SECURITY AGREEMENT
This AMENDMENT TO LOAN AND SECURITY AGREEMENT (the “Amendment”), dated as of May 18, 2023, is by and between Neltjeberg Bay Enterprises LLC (“NBE”) and Sonic Foundry, Inc. (“Borrower”).
RECITALS
WHEREAS, NBE and Borrower are parties to that certain Loan and Security Agreement dated as of November 16, 2022, as modified by (i) that certain letter agreement of the same date, and (ii) that certain letter agreement of December 29, 2022 (collectively, the “Loan Agreement”);
WHEREAS, NBE and Borrower wish to amend the Loan Agreement as provided herein; and
WHEREAS, capitalized terms used and not specifically defined herein shall have the meanings provided in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, NBE and Borrower hereby agree as follows:
AGREEMENTS
1. Amendments. NBE and Borrower agree to the following amendments to the Loan Agreement:
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The following new Section 4.2.1 is added to the Loan Agreement: |
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4.2.1. |
Remittance of Proceeds from Sale Closing. So long as the Loan remains due and owing, proceeds arising from any sale, assignment, or Transfer of all, or substantially all, of Borrower’s assets shall be delivered to NBE concurrently with the closing of any such sale, assignment, or Transfer (hereinafter a “Sale Closing”). Said proceeds shall be applied first to the balance due and owing to NBE with respect to the Loan as of the Sale Closing (including, but not limited to, any fees, costs or other amounts payable to NBE under the Loan Documents). Any excess proceeds from the Sale Closing after such balance is paid in full to NBE shall be immediately delivered to, and may be retained by, Borrower. |
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The following text (in italics) is added to the beginning of Section 4.6(b)(i): “enter into (i) any transaction outside the ordinary course of business with a value in excess of $50,000 (which non-ordinary course transactions shall include any sale, assignment, or Transfer of all, or substantially all, of Borrower’s assets, mergers, amalgamations; or consolidations in respect of any Borrower or other Group Member)…” |
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The following text (in italics) is added to the beginning of Section 5.3: “On the Maturity Date, the Sale Closing, or on any earlier effective date of termination…” |
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The following text is added to Section 1 (“LOAN”) of the Schedule to the Loan Agreement in between the “Repayment” and “Prepayment” sections: |
Alternatively, Borrower may defer making regular principal payments on the Loan as described in the foregoing sub-section entitled “Repayment” (hereinafter a “Regular Monthly Payment”) and instead pay to NBE a monthly fee in the amount of $20,000 (the “Deferral Fee”) beginning on June 1, 2023 and continuing on the same day of each month thereafter until the Maturity Date or a Deferral Fee Cancellation Notice, whichever comes first. Borrower may pay the Deferral Fee to NBE in lieu of the Regular Monthly Payments provided that (a) Borrower continues to pay, and remains current on, all interest-only payments to NBE, and (b) no Event of Default has occurred under the Loan Documents. The Deferral Fee will be retained by NBE and will not be applied to any Obligations, with any such Obligations continuing to accrue and remain outstanding despite Borrower’s voluntary election to pay the Deferral Fee instead of Regular Monthly Payments. For the avoidance of doubt, interest-only payments to NBE, including those paid during the period Borrower is paying a Deferral Fee in lieu of Regular Monthly Payments, shall continue to be applied to the Obligations.
At any time after September 1, 2023, regardless of whether an Event of Default has occurred, NBE may issue a notice in writing to Borrower (a “Deferral Fee Cancellation Notice”) on or before the 15th day of the preceding month that the Deferral Fee will no longer be accepted and that the full Regular Monthly Payment will be due on the first day of the month immediately following said notice. In the Deferral Fee Cancellation Notice, NBE will advise Borrower of the new amount of the Regular Monthly Payment that will be due and owed by Borrower so that the full balance of the Loan will be paid in full by the Maturity Date. If no Deferral Fee Cancellation Notice is issued prior to the Maturity Date, then the full unpaid balance of the Loan will be due and payable on the Maturity Date in a single balloon payment, without further notice or demand.
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The following text (in italics) is added to Section 4 (“Maturity Date”) of the Schedule to the Loan Agreement: “December 1, 2025, or a Sale Closing.” |
2. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall not be effective unless and until each of the following conditions shall have been satisfied in NBE’s sole discretion or waived by NBE, for whose sole benefit such conditions exist:
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Documentation. On or before May 19, 2023 (the “Delivery Date”), Borrower shall have delivered, each duly executed and in form and substance satisfactory to NBE, an original executed counterpart of this Amendment and such other documents as NBE may reasonably request. |
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No Default. As of the Delivery Date, no Event of Default has occurred under the Loan Documents. |
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Representations and Warranties. On or before the Delivery Date, the representations and warranties set forth in the Loan Agreement, as amended by this Amendment, and the other Loan Documents, shall be true and correct as though made on and as of the date hereof. |
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Payment of NBE’s Fees and Expenses. On or before the Delivery Date, Borrower shall pay NBE’s attorneys’ fees relating to this Amendment. |
3. Ratification; Cross-Default and Cross-Collateralization. Borrower:
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Acknowledges and agrees that this Amendment constitutes a “Loan Document” as such term is defined in the Loan Agreement. |
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Ratifies, confirms, and reaffirms all the terms and conditions of the Loan Agreement and the other Loan Documents and acknowledges and agrees that the Loan Agreement and the other Loan Documents remain in full force and effect. |
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Ratifies, confirms, and reaffirms that (i) the obligations secured by the Loan Agreement and the other Loan Documents include, without limitation, the Obligations, and any future modifications, amendments, substitutions or renewals thereof, (ii) all collateral, whether now existing or hereafter acquired, granted to NBE pursuant to the Loan Agreement and the other Loan Documents or otherwise, shall secure all of the Obligations until full and final payment of the Obligations, except as otherwise expressly stated therein; and (iii) a breach of any term or condition of this Amendment shall, subject to any applicable grace or cure period, without any further action of any party, constitute an Event of Default under the Loan Agreement and the other Loan Documents, it being the express intent of the Borrower that all of the Obligations be fully cross-defaulted and, except as may be expressly set forth in the Loan Agreement or other Loan Document, fully cross-collateralized. |
4. No Set-Off; Waiver and Release. Borrower acknowledges and agrees there exists no right of set off or recoupment, claim, counterclaim, or defense of any nature whatsoever (hereinafter “Claims”) relating to payment or performance of the Obligations or otherwise against NBE, and that if Borrower now has, or ever did have, any Claims against NBE, any Affiliate of NBE, or any of their agents, servants, attorneys, advisors, officers, directors, employees, affiliates, representatives, investors, partners, members, managers, predecessors, successors, and assigns (collectively, the “NBE Parties”), whether known or unknown, at law or in equity, from the beginning of the world through the date of execution of this Amendment, that and all of such Claims are hereby expressly waived against the NBE Parties and Borrower releases the NBE Parties for any liability therefor.
MISCELLANEOUS
5. No Other Amendments. Except as specifically amended hereby, the Loan Agreement and the other Loan Documents remain in full force and effect. This Amendment, together with any other Loan Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth herein. No alteration of or amendment to this Amendment shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
6. Reservation of Rights; No Waiver. NBE has not waived, is not by this Amendment waiving, and has no intention of waiving, any defaults which occurred prior to this Amendment, or which may exist at the time of this Amendment, or which may occur after this Amendment. NBE has not agreed to forbear with respect to any of its rights or remedies concerning any Events of Default. Except as expressly set forth in this Amendment, NBE reserves all of its respective rights and remedies under the Loan Documents, at law or in equity, and at such times as NBE from time to time may elect.
7. Binding Effect. This Amendment shall be binding upon the parties hereto and their respective successors and assigns.
8. Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or affecting the validity or enforceability of such provision in any other jurisdiction.
9. Authorization and Execution. The execution, delivery, and performance by Borrower in connection with this Amendment has been duly authorized by all requisite action by or on behalf of Borrower, and this Amendment has been duly executed and delivered on behalf of Borrower.
10. Counterparts. This Amendment may be executed in any number of counterparts, all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page. Receipt of an executed signature page to this Amendment by facsimile or other electronic transmission shall constitute effective delivery thereof.
[Signatures on Next Page]
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by its duly authorized officers as of the day and year first above written.
NELTJEBERG BAY ENTERPRISES LLC
By: /s/ Frederick H. Kopko, Jr
Frederick H. Kopko, Jr., Managing Director
SONIC FOUNDRY, INC.
By: /s/ Ken Minor
Ken Minor, Chief Financial Officer
Signature Page to Amendment to Loan and Security Agreement
Exhibit 10.2
SECURED PROMISSORY NOTE
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Borrower: |
Sonic Foundry, Inc. |
Lender: |
Mark Burish C/O Hurley Burish, S.C. 33 E Main St. Madison, WI 53701 |
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Principal Amount: $3,000,000.00 |
Date of Note: November 16, 2022 |
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FOR VALUE RECEIVED, and subject to the terms and conditions set forth herein, Sonic Foundry, Inc., a Maryland corporation the (“Borrower”), hereby unconditionally promises to pay to the order of Mark Burish (the “Lender,” and together with the Borrower, the “Parties”), in lawful money of the United States of America, the original principal amount of Three Million U.S. Dollars ($3,000,000.00), plus accrued and unpaid interest thereon, as provided in this Secured Promissory Note (this “Note”).
Section 1 Definitions; Interpretation.
1.1 Definitions. Capitalized terms used herein shall have the meanings set forth in this Section 1.
“Affiliate” as to any Person, means any other Person that, directly or indirectly through one or more intermediaries, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower from time to time concerning or relating to bribery or corruption, including the United States Foreign Corrupt Practices Act of 1977.
“Applicable Rate” means the rate equal to 12.0% per annum.
“Borrower” has the meaning set forth in the introductory paragraph hereof.
“Business Day” means a day other than a Saturday, Sunday, or other day on which commercial banks in New York City, New York are authorized or required by law to close.
“Debt” of the Borrower or any of its Subsidiaries, means all (a) indebtedness for borrowed money; (b) obligations for the deferred purchase price of property or services, except trade payables arising in the ordinary course of business; (c) obligations evidenced by notes, bonds, debentures, or other similar instruments; (d) obligations as lessee under capital leases; (e) obligations in respect of any interest rate swaps, currency exchange agreements, commodity swaps, caps, collar agreements, or similar arrangements entered into by the Borrower or such Subsidiary (as the case may be) providing for protection against fluctuations in interest rates, currency exchange rates, or commodity prices, or the exchange of nominal interest obligations, either generally or under specific contingencies; (f) obligations under acceptance facilities and letters of credit; (g) guaranties, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss, in each case, in respect of indebtedness set out in clauses (a) through (f) of a Person other than the Borrower or such Subsidiary (as the case may be); (h) indebtedness set out in clauses (a) through (g) of any Person other than Borrower or such Subsidiary (as the case may be) secured by any Lien on any asset of the Borrower or such Subsidiary (as the case may be), whether or not such indebtedness has been assumed by the Borrower or such Subsidiary (as the case may be), and (i) indebtedness of any partnership, unlimited liability company, or unincorporated joint venture in which the Borrower or such Subsidiary (as the case may be) is a general partner, member, or a joint venturer, respectively (unless such Debt is expressly made non-recourse to the Borrower or such Subsidiary (as the case may be)).
“Default Rate” means the Applicable Rate plus 5.0% per annum.
“Event of Default” has the meaning set forth in Section 8.
“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.
“Governmental Authority” means the government of any nation or any political subdivision thereof, whether at the national, state, territorial, provincial, municipal or any other level, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government.
“Interest Payment Date” means the first day of each month commencing on the first such date to occur after the execution of this Note.
“Law” as to any Person, means the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law (including common law), statute, ordinance, treaty, rule, regulation, order, decree, judgment, writ, injunction, settlement agreement, requirement or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“Lender” has the meaning set forth in the introductory paragraph hereof.
“Lien” means any mortgage, pledge, hypothecation, encumbrance, lien (statutory or other), charge, or other security interest.
“Loan” means Three Million U.S. Dollars ($3,000,000.00).
“Material Adverse Effect” means a material adverse effect on (a) the business, assets, properties, liabilities (actual or contingent), operations, condition (financial or otherwise), or prospects of the Borrower; (b) the validity or enforceability of this Note; (c) the rights or remedies of the Lender hereunder; or (d) the Borrower’s ability to perform any of its material obligations hereunder.
“Maturity Date” means the earlier of (a) December 1, 2025 and (b) the date on which all amounts under this Note shall become due and payable pursuant to Section 10.
“Maximum Lawful Rate” has the meaning set forth in Section 4.5(a).
“Note” has the meaning set forth in the introductory paragraph hereof.
“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“Parties” has the meaning set forth in the introductory paragraph hereof.
“PATRIOT Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56, signed into law October 26, 2001).
“Permitted Debt” means Debt (a) existing or arising under this Note and any refinancing thereof; (b) existing as of the date of this Note and set out in Schedule A hereto; (c) the NBE Loan (as defined in the Security Agreement); (d) which may be deemed to exist with respect to swap contracts; (e) owed in respect of any netting services, overdrafts, and related liabilities arising from treasury, depository, and cash management services in connection with any automated clearinghouse transfers of funds; and (f) unsecured insurance premiums owing in the ordinary course of business.
“Person” means any individual, corporation, limited liability company, trust, joint venture, association, company, limited or general partnership, unincorporated organization, Governmental Authority, or other entity.
“Sanctioned Country” means, at any time, a country or territory which is itself the subject or target of any comprehensive or country-wide Sanctions.
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by a Sanctions Authority; (b) any Person operating, organized, or resident in a Sanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b), or (d) any Person that is the subject or target of any Sanctions.
“Sanctions” mean all economic or financial sanctions or trade embargoes imposed, administered, or enforced from time to time by a Sanctions Authority.
“Sanctions Authority” means OFAC, the U.S. Department of State, the United Nations Security Council, the European Union or other relevant sanctions authority.
“Security Agreement” means the Security Agreement, dated as of the date hereof, by and between the Borrower and the Lender.
“Stated Rate” has the meaning set forth in Section 4.5(b).
“Subsidiary” means as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such person or entity. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Note shall refer to a Subsidiary or Subsidiaries of the Borrower.
1.2 Interpretation. For purposes of this Note (a) the words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Note as a whole. The definitions given for any defined terms in this Note shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. Unless the context otherwise requires, references herein to: (x) Schedules (if any), Exhibits (if any), and Sections mean the Schedules, Exhibits, and Sections of this Note, respectively; (y) an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time to the extent permitted by the provisions thereof; and (z) a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Note shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.
Section 2 Payment Dates; Optional Prepayments.
2.1 Payment Dates. The aggregate principal amount of the Loan shall be due in monthly installments of $100,000.00 beginning June 1, 2023. All accrued and unpaid interest, Loan Premium and other amounts payable under this Note, shall be due and payable by the Borrower to the Lender on the Maturity Date, unless otherwise provided in Section 10.
2.2 Optional Prepayments.
(a) At any time or from time to time without penalty or premium, the Borrower may, upon at least five (5) Business Days' irrevocable notice to the Lender stating the proposed date and principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the Loan in whole or in part, with accrued interest thereon to the date of such prepayment. No prepaid amount of the Loan may be reborrowed.
(b) If the Lender shall notify the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any Governmental Authority asserts that it is unlawful, for the Lender to maintain the Loan, upon demand by the Lender the Borrower shall forthwith prepay in full the Loan, with accrued interest thereon to the date of such prepayment and all other amounts payable by the Borrower hereunder.
Section 3 Security Agreement. The Borrower’s performance of its obligation hereunder is secured by a second priority security interest in the collateral specified in the Security Agreement, subordinate to the NBE Loan.
Section 4 Interest and Fees.
4.1 Interest Rate. Except as otherwise provided herein, the outstanding principal amount of the Loan made hereunder shall bear interest at the Applicable Rate from the date the Loan was made until the Loan is paid in full, whether at maturity, by prepayment or otherwise.
4.2 Interest Payment Dates. Interest shall be payable monthly in arrears to the Lender on each Interest Payment Date.
4.3 Default Interest. If any amount payable hereunder is not paid when due (without regard to any applicable grace periods), whether at stated maturity or otherwise, such overdue amount shall bear interest at the Default Rate from the date of such non-payment until such amount is paid in full.
4.4 Computation of Interest. All computations of interest hereunder shall be made on a 365/360 basis, that is, on the basis of a year of 360 days for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable.
4.5 Interest Rate Limitation.
(a) Notwithstanding anything to the contrary in this Note or any other document related hereto, in no event shall this Note or any such other document require the payment or permit the collection of interest in excess of the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Lawful Rate”). If under any circumstance whatsoever, any provision of this Note or of any other document pertaining hereto, shall provide for the payment or collection of interest in excess of the Maximum Lawful Rate, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstances the Lender shall ever receive anything of value as interest or deemed interest by applicable Law under this Note or any other document pertaining hereto or otherwise an amount that would exceed the Maximum Lawful Rate, such amount that would be excessive interest shall be applied to the reduction of the principal amount owing under this Note or on account of any other indebtedness of the Borrower to the Lender, and not to the payment of interest, or if such excessive interest exceeds the unpaid balance of principal of this Note and such other indebtedness, such excess shall be refunded to the Borrower. In determining whether or not the interest paid or payable with respect to any indebtedness of the Borrower to the Lender, under any specified contingency, exceeds the Maximum Lawful Rate, the Borrower and the Lender shall, to the fullest extent permitted by applicable Law, (a) characterize any non-principal payment as an expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects thereof, (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the full term of such indebtedness so that interest thereon does not exceed the maximum amount permitted by applicable Law, and (d) allocate interest between portions of such indebtedness, to the end that no such portion shall bear interest at a rate greater than that permitted by applicable Law.
(b) If at any time the interest rate hereunder (the “Stated Rate”) exceeds the Maximum Lawful Rate, then the rate at which interest shall accrue hereunder shall automatically be limited to the Maximum Lawful Rate, and shall remain at the Maximum Lawful Rate until the total amount of interest accrued hereunder equals the total amount of interest that would have accrued but for the operation of this sentence. Thereafter, interest shall accrue at the Stated Rate unless and until the Stated Rate again exceeds the Maximum Lawful Rate, in which case the immediately preceding sentence shall apply.
4.6 Loan Commitment Fee. A commitment fee equal to $60,000 will be fully earned upon the date the loan is made and deducted from the loan proceeds.
4.7 Loan Premium. A premium on the Loan (the “Loan Premium”) shall be payable by Borrower as part of the Obligations equal to a maximum of 20% of the Loan amount specified in Section 1, such Loan Premium to be earned monthly based on the number of months the Loan remains outstanding. The Loan Premium will be due at Maturity (or if repaid prior to the stated Maturity Date, on the date of such repayment). For example, if the Loan were repaid in full twelve (12) months from the Effective Date, a Loan Premium of $200,000 would be due ($3.0MM *.20x) / 36 * 12 = $200,000). The Loan Premium shall be prorated for any partial month.
Section 5 Payment Mechanics.
5.1 Manner of Payments. All payments of interest, principal and fees shall be made in lawful money of the United States of America no later than 6:00 PM CST on the date on which such payment is due by cashier’s check, certified check, or by wire transfer of immediately available funds to the Lender’s account at a bank specified by the Lender in writing to the Borrower from time to time.
5.2 Application of Payments. All payments made under this Note shall be applied first to the payment of any fees or charges outstanding hereunder, second to accrued interest, and third to the payment of the principal amount outstanding under this Note.
5.3 Business Day Convention. Whenever any payment to be made hereunder shall be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension shall in such case be included in the computation of payment of interest; provided, however, if such extension would cause such payment to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.
5.4 Rescission of Payments. If at any time any payment made by the Borrower under this Note is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, or reorganization of the Borrower or otherwise, the Borrower’s obligation to make such payment shall be reinstated as though such payment had not been made.
Section 6 Representations and Warranties. The Borrower hereby represents and warrants to the Lender on the date hereof as follows:
6.1 Existence; Power and Authority; Compliance with Laws. The Borrower (a) is a corporation duly incorporated, validly existing, and in good standing under the laws of the state of its jurisdiction of organization, (b) has the requisite power and authority, and the legal right, to own, lease, and operate its properties and assets and to conduct its business as it is now being conducted, to execute and deliver this Note and the Security Agreement, and to perform its obligations hereunder and thereunder, and (c) is in compliance with all Laws except to the extent that the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
6.2 Authorization; Execution and Delivery. The execution and delivery of this Note and the Security Agreement by the Borrower and the performance of its obligations hereunder and thereunder have been duly authorized by all necessary corporate action in accordance with all applicable Laws, and the authorization, execution and delivery of this Note has been approved by a committee of disinterested directors and such approval complies in all respects with the requirements set forth in the Maryland Code Corporations and Associations, including but not limited to Section 2-419(b) thereof, relating to interested director transactions. The Borrower has duly executed and delivered this Note and the Security Agreement.
6.3 No Approvals. No consent or authorization of, filing with, notice to, or other act by, or in respect of, any Governmental Authority or any other Person is required in order for the Borrower to execute, deliver, or perform any of its obligations under this Note or the Security Agreement.
6.4 No Violations. The execution and delivery of this Note and the Security Agreement and the consummation by the Borrower of the transactions contemplated hereby and thereby do not and will not (a) violate any Law applicable to the Borrower or by which any of its properties or assets may be bound; or (b) constitute a default under any material agreement or contract by which the Borrower may be bound.
6.5 Enforceability. Each of this Note and the Security Agreement is a valid, legal, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms.
6.6 No Litigation. No action, suit, litigation, investigation, or proceeding of, or before, any arbitrator or Governmental Authority is pending or threatened by or against the Borrower, any of its Subsidiaries or any of their property or assets (a) with respect to this Note, the Security Agreement or any of the transactions contemplated hereby or thereby or (b) that could be expected to materially adversely affect the financial condition or operations of the Borrower or any Subsidiary or which purports to affect the legality, validity or enforceability of the obligations under this Note or the Security Agreement.
6.7 PATRIOT Act; Anti-Money Laundering. The Borrower is, and to the knowledge of the Borrower, its directors, officers, employees, and agents are, in compliance in all material respects with the PATRIOT Act, and any other applicable terrorism and money laundering laws, rules, regulations, and orders.
6.8 Anti-Corruption Laws and Sanctions.
(a) The Borrower has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower and its directors, officers, employees, and agents with Anti-Corruption Laws and applicable Sanctions and the Borrower is, and to the knowledge of the Borrower, its directors, officers, employees, and agents are, in compliance with Anti-Corruption Laws and applicable Sanctions.
(b) The Borrower is not, and no director, officer, employee of the Borrower, or any agent of the Borrower that will act in any capacity in connection with or benefit from the Loan, is a Sanctioned Person.
(c) No use of proceeds of the Loan or other transaction contemplated by this Note will violate any Anti-Corruption Law or applicable Sanctions.
Section 7 Affirmative Covenants. Until all amounts outstanding under this Note have been paid in full, the Borrower shall:
7.1 Maintenance of Existence. (a) Preserve, renew, and maintain in full force and effect its corporate or organizational existence and (b) take all reasonable action to maintain all rights, privileges, and franchises necessary or desirable in the normal conduct of its business, except, in each case, where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
7.2 Compliance. (a) Comply with all Laws applicable to it and its business and its obligations under its material contracts and agreements, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect and (b) maintain in effect and enforce policies and procedures designed to achieve compliance in all material respects by the Borrower and its directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
7.3 Payment Obligations. Pay, discharge, or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings, and reserves in conformity with GAAP with respect thereto have been provided on its books.
7.4 Notice of Events of Default. As soon as possible and in any event within three (3) Business Days after it becomes aware that an Event of Default has occurred, notify the Lender in writing of the nature and extent of such Event of Default and the action, if any, it has taken or proposes to take with respect to such Event of Default.
7.5 Further Assurances. Upon the request of the Lender, promptly execute and deliver such further instruments and do or cause to be done such further acts as may be necessary or advisable to carry out the intent and purposes of this Note and the Security Agreement.
Section 8 Negative Covenants. Until all amounts outstanding under this Note have been paid in full, the Borrower shall not:
8.1 Indebtedness. Incur, create, or assume any Debt, other than Permitted Debt.
8.2 Liens. Incur, create, assume, or suffer to exist any Lien on any of its property or assets, whether now owned or hereafter acquired, except for (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Borrower in conformity with GAAP; and (b) non-consensual Liens arising by operation of law, arising in the ordinary course of business, and for amounts which are not overdue for a period of more than thirty (30) days or that are being contested in good faith by appropriate proceedings; and (c) Liens created pursuant to the Security Agreement.
8.3 Line of Business. Enter into any business, directly or indirectly, except for those businesses in which the Borrower is engaged on the date of this Note or that are reasonably related thereto.
Section 9 Events of Default. The occurrence and continuance of any of the following shall constitute an Event of Default hereunder:
9.1 Failure to Pay. The Borrower fails to pay (a) any principal amount of the Loan when due or (b) interest or any other amount when due, and such failure continues for five (5) days.
9.2 Breach of Representations and Warranties. Any representation or warranty made or furnished to the Lender by the Borrower (or any of its officers) under or in connection with this Note or the Security Agreement, or that is contained in any certificate, document or financial or other statement furnished by the Borrower (or any of its officers) at any time under or in connection with this Note or the Security Agreement, is incorrect, false or misleading in any material respect on the date as of which such representation or warranty was made or furnished.
9.3 Breach of Covenants. The Borrower fails to observe or perform (a) any term, covenant, condition, or agreement contained in Section 7.4 or (b) any other term, covenant, obligation, condition, or agreement contained in this Note or the Security Agreement, other than those specified in the foregoing clause (a) and Section 9.1, and such failure continues for ten (10) calendar days.
9.4 Cross-Defaults. The Borrower or any of its Subsidiaries fails to pay any principal of or premium or interest on any Debt of the Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure continues after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event occurs or condition exists under any agreement or instrument relating to any such Debt and continues after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt is declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt is required to be made, in each case prior to the stated maturity thereof.
9.5 Insolvency. The Borrower or any of its Subsidiaries is generally not able to pay its debts as such debts become due, or admits in writing its inability to pay its debts generally, or makes a general assignment for the benefit of creditors; or any proceeding is instituted by or against the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding remains undismissed or unstayed for a period of thirty (30) calendar days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) occurs; or the Borrower or any of its Subsidiaries take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the actions set forth above in this Section 9.5.
9.6 Judgments. Any judgment or decree is rendered against the Borrower or any of its Subsidiaries and either (a) enforcement proceedings have been commenced by any creditor upon such judgment or order or (b) there has been a period of ten (10) consecutive calendar days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, is not in effect.
9.7 Adverse Change. A material adverse change occurs in the business, condition (financial or otherwise), property, operations or prospects of the Borrower or any of its Subsidiaries, or the Lender believes the prospect of payment or performance of this Note is impaired.
9.8 Insecurity. The Lender believes, in good faith, itself insecure.
Section 10 Remedies. Upon the occurrence of any Event of Default and at any time thereafter during the continuance of such Event of Default, the Lender may, at its option, by notice to the Borrower declare all outstanding principal of this Note (and all accrued and unpaid interest thereon) and all other amounts owing under this Note to be forthwith due and payable, whereupon all outstanding principal of this Note, all such accrued and unpaid interest and all such other amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower or any of its Subsidiaries under the United States Bankruptcy Code, all outstanding principal of this Note, all accrued and unpaid interest thereon and all other amounts owing under this Note shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.
Section 11 Miscellaneous.
11.1 Notices.
(a) All notices, requests, or other communications required or permitted to be delivered hereunder shall be delivered in writing, in each case to the address specified below or to such other address as such Party may from time to time specify in writing in compliance with this provision:
(i) If to the Borrower:
Sonic Foundry, Inc.
222 W. Washington Avenue
Madison, WI 53703
U.S.A.
Attn: Ken Minor, CFO
Telephone: (608)443-1600
Email: ken.minor@sonicfoundry.com
(ii) If to the Lender:
Mark Burish
C/O Hurley Burish, S.C.
33 E Main St.
Madison, WI 53701
mburish@hurleyburish.com
(b) Notices if (i) mailed by certified or registered mail or sent by hand or overnight courier service shall be deemed to have been given when received; and (ii) sent by email shall be deemed received upon the sender’s receipt of an acknowledgment from the intended recipient (such as by the “return receipt requested” function, as available, return email, or other written acknowledgment).
11.2 Costs and Expenses. The Borrower shall reimburse the Lender on demand for all reasonable out-of-pocket costs, expenses, and fees (including, but not limited to, fees and expenses of counsel for the Lender) incurred by the Lender in connection with the transactions contemplated hereby, including, but not limited to, the negotiation, documentation and execution of this Note and the Security Agreement and the enforcement of the Lender’s rights hereunder and thereunder. The Borrower further agrees to pay on demand all losses, costs and expenses, if any (including, but not limited to, reasonable fees and expenses of counsel for the Lender), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Note, the Security Agreement and any other instruments and documents delivered in connection herewith and therewith, including, without limitation, reasonable fees and expenses of counsel for the Lender in connection with the enforcement of rights under this Section 11.2. In addition, the Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Note, the Security Agreement and any other instruments and documents delivered in connection herewith and therewith and agrees to save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes.
11.3 Right to Set-off. If an Event of Default shall have occurred and be continuing, the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Note or the Security Agreement, whether or not the Lender shall have made any demand under this Note or the Security Agreement and although such obligations may be unmatured. The Lender agrees promptly to notify the Borrower after any such set‑off and application, provided that the failure to give such notice shall not affect the validity of such set‑off and application. The rights of the Lender under this Section 11.3 are in addition to other rights and remedies (including, without limitation, other rights of set‑off) which the Lender may have.
11.4 No Waiver; Cumulative Remedies. No failure to exercise, and no delay in exercising on the part of the Lender, of any right, remedy, power, or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. The rights, remedies, powers, and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers, and privileges provided by law.
11.5 Governing Law. This Note, the Security Agreement and any claim, controversy, dispute, or cause of action (whether in contract or tort or otherwise) based upon, arising out of, or relating to this Note, the Security Agreement and the transactions contemplated hereby and thereby shall be governed by the laws of the State of Wisconsin, without regard to its conflicts of law provisions.
11.6 Submission to Jurisdiction.
(a) The Borrower hereby irrevocably and unconditionally (i) agrees that any legal action, suit, or proceeding arising out of or relating to this Note or the Security Agreement may be brought in the courts of the state of Wisconsin and (ii) submits to the exclusive jurisdiction of any such court in any such action, suit, or proceeding. Final judgment against the Borrower in any action, suit, or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment.
(b) Nothing in this Section 11.6 shall affect the right of the Lender to (i) commence legal proceedings or otherwise sue the Borrower in any other court having jurisdiction over the Borrower or (ii) serve process upon the Borrower in any manner authorized by the laws of any such jurisdiction.
11.7 Venue. The Borrower irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Note or the Security Agreement in any court referred to in Section 11.6 and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
11.8 Waiver of Jury Trial. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS NOTE, THE SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY.
11.9 Successors and Assigns. This Note may be assigned or transferred by the Lender to any Person. The Borrower may not assign or transfer this Note or any of its rights hereunder without the prior written consent of the Lender. This Note shall inure to the benefit of, and be binding upon, the Parties and their permitted assigns.
11.10 Waiver of Notice. The Borrower hereby waives demand for payment, presentment for payment, protest, notice of payment, notice of dishonor, notice of nonpayment, notice of acceleration of maturity and diligence in taking any action to collect sums owing hereunder.
11.11 Headings. The headings of the various Sections and subsections herein are for reference only and shall not define, modify, expand, or limit any of the terms or provisions hereof.
11.12 Severability. If any term or provision of this Note or the Security Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Note or the Security Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the Parties shall negotiate in good faith to modify this Note so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.
11.13 Amendments, Etc. No amendment or waiver of any provision of this Note, nor consent to any departure by the Borrower herefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
11.14 Entire Agreement. This Note and the Security Agreement constitute the final, entire contract between the Parties with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto.
11.15 Electronic Execution. The words “execution,” “signed,” “signature,” and words of similar import in this Note shall be deemed to include electronic or digital signatures or electronic records, each of which shall be of the same effect, validity, and enforceability as manually executed signatures or a paper-based record-keeping system, as the case may be, to the extent and as provided for under applicable law, including the Electronic Signatures in Global and National Commerce Act of 2000 (15 U.S.C. §§ 7001 to 7031) and the Uniform Electronic Transactions Act (or any U.S. state or territorial law based thereon).
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed by its officer thereunto duly authorized, as of the date first above written.
BORROWER:
Sonic Foundry, Inc.
By: /s/ Ken Minor
Name: Ken Minor
Title: Chief Financial Officer
Acknowledged and accepted by:
LENDER:
Mark Burish
By: /s/ Mark Burish
Name: Mark Burish
EXHIBIT A
EXISTING DEBT OF THE BORROWER
Resona Bank, as lender to Mediasite K.K. Bank loan, 7 years, 1.475% due 9/30/29 $431,654
Sumitomo Mitsui Banking, lender to MSKK Bank loan, .46% due 9/30/23 $379,000
Exhibit 10.3
AMENDMENT TO SECURED PROMISSORY NOTE
This AMENDMENT TO SECURED PROMISSORY (the “Amendment”), dated as of May 31, 2023, is by and between Mark Burish (“Lender”) and Sonic Foundry, Inc. (“Borrower”).
RECITALS
WHEREAS, Lender and Borrower are parties to that certain Secured Promissory Note dated as of November 16, 2022 (the “Note”) along with that certain Security Agreement dated as of November 16, 2022, as amended (“Security Agreement”);
WHEREAS, Lender and Borrower wish to amend the Note as provided herein; and
WHEREAS, capitalized terms used and not specifically defined herein shall have the meanings provided in the Note or Security Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower hereby agree as follows:
AGREEMENTS
1. Amendments to Note. Lender and Borrower agree to the following amendments to the Note:
|
a. |
The Principal Amount as set forth on the face of the Note is hereby amended and restated in its entirety to read as follows: |
Principal Amount: $3,000,000, plus the principal amount of any Advances made hereunder up to a maximum principal amount of $2,000,000.
|
b. |
The introductory paragraph of the Note is hereby amended and restated in its entirety to read as follows: |
FOR VALUE RECEIVED, and subject to the terms and conditions set forth herein, Sonic Foundry, Inc., a Maryland corporation (the “Borrower”), hereby unconditionally promises to pay to the order of Mark Burish (the “Lender”, and together with the Borrower , the “Parties”), in lawful money of the United States of America, the original principal amount of Three Million U.S. Dollars ($3,000,000) (“Initial Loan Amount”), plus the principal amount of all Advances made hereunder up to a maximum additional principal amount of $2,000,000 (“Additional Loan Amount”), plus accrued and unpaid interest thereon, as provided in this Secured Promissory Note (this “Note”).
|
c. |
The Definition of “Loan” in Section 1.1 of the Note is hereby amended and restated in its entirety to read as follows: |
“Loan” means the Initial Loan Amount of Three Million U.S. Dollars ($3,000,000), plus the amount of any Advances (as hereinafter defined).
|
d. |
Section 1.3 is added to the Note and shall read as follows: |
1.3 Advances. Borrower shall have the right, at any time or from time to time prior to the Maturity Date to request advances from the Lender (individually an “Advance” and collectively, the “Advances”) up to a maximum amount of Two Million U.S. Dollars ($2,000,000). Each such Advance shall be reflected on Exhibit B to this Note and initialed as received by an officer or director of Borrower. The Lender shall not be under any obligation to make advances under this Note beyond the Two Million U.S. Dollar maximum amount. The amount of all Advances shall be added to the Principal Amount of the Loan.
|
e. |
The following text is added to the end of Section 2.1 of the Note: |
Notwithstanding, Borrower may defer making regular principal payments on the Loan as described above (hereinafter a “Regular Monthly Payment”) and instead pay to Lender a monthly fee in the amount of $10,909 (the “Deferral Fee”) beginning on June 1, 2023 and continuing on the same day of each month thereafter until the Maturity Date or a Deferral Fee Cancellation Notice, whichever comes first. Borrower may pay the Deferral Fee to Lender in lieu of the Regular Monthly Payments provided that (a) Borrower continues to pay, and remains current on, all interest-only payments to Lender, and (b) no Event of Default has occurred under the Loan Documents. The Deferral Fee will be retained by Lender and will not be applied to any principal or interest obligations under the Loan, with any such obligations continuing to accrue and remain outstanding despite Borrower’s voluntary election to pay the Deferral Fee instead of Regular Monthly Payments. For the avoidance of doubt, interest-only payments to Lender, including those paid during the period Borrower is paying a Deferral Fee in lieu of Regular Monthly Payments, shall continue to be applied to such interest obligations under the Loan.
At any time after September 1, 2023, regardless of whether an Event of Default has occurred, Lender may issue a notice in writing to Borrower (a “Deferral Fee Cancellation Notice”) on or before the 15th day of the preceding month that the Deferral Fee will no longer be accepted and that the full Regular Monthly Payment will be due on the first day of the month immediately following said notice. In the Deferral Fee Cancellation Notice, Lender will advise Borrower of the new amount of the Regular Monthly Payment that will be due and owed by Borrower so that the full balance of the Loan will be paid in full by the Maturity Date. If no Deferral Fee Cancellation Notice is issued prior to the Maturity Date, then the full unpaid balance of the Loan will be due and payable on the Maturity Date in a single balloon payment, without further notice or demand.
|
f. |
Section 4.7 of the Note is hereby amended and restated in its entirety to read as follows: |
4.7 Loan Premium. A premium on the Initial Loan Amount (the “Loan Premium”) shall be payable by Borrower as part of the Obligations equal to a maximum of 20% of the Initial Loan Amount, such Loan Premium to be earned monthly based on the number of months the Loan remains outstanding. The Loan Premium will be due at Maturity (or if repaid prior to the stated Maturity Date, on the date of such repayment). For example, if the Loan were repaid in full twelve (12) months from the Effective Date, a Loan Premium of $200,000 would be due ($3.0MM*.20x)/36*12=$200,000). The Loan Premium shall be prorated for any partial month.
2. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall not be effective unless and until each of the following conditions shall have been satisfied in Lender’s sole discretion or waived by Lender, for whose sole benefit such conditions exist:
|
a. |
Documentation. On or before May 30, 2023 (the “Delivery Date”), Borrower shall have delivered, each duly executed and in form and substance satisfactory to Lender, an original executed counterpart of this Amendment, an amendment to the Security Agreement and such other documents as Lender may reasonably request. |
|
b. |
No Default. As of the Delivery Date, no Event of Default has occurred under the Loan Documents. |
|
c. |
Representations and Warranties. On or before the Delivery Date, the representations and warranties set forth in the Loan Documents shall be true and correct as though made on and as of the date hereof. |
|
d. |
Payment of Lender’s Fees and Expenses. On or before the Delivery Date, Borrower shall pay Lender’s attorneys’ fees relating to this Amendment. |
3. Ratification. Borrower:
|
a. |
Acknowledges and agrees that this Amendment constitutes a “Loan Document” as such term is defined in the certain Security Agreement. |
|
b. |
Ratifies, confirms, and reaffirms all the terms and conditions of the Note and the other Loan Documents and acknowledges and agrees that the Note and the other Loan Documents remain in full force and effect. |
MISCELLANEOUS
4. No Other Amendments. Except as specifically amended hereby, the Note and the other Loan Documents remain in full force and effect. This Amendment, together with any other Loan Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth herein. No alteration of or amendment to this Amendment shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
5. Reservation of Rights; No Waiver. Lender has not waived, is not by this Amendment waiving, and has no intention of waiving, any defaults which occurred prior to this Amendment, or which may exist at the time of this Amendment, or which may occur after this Amendment. Lender has not agreed to forbear with respect to any of its rights or remedies concerning any Events of Default. Except as expressly set forth in this Amendment, Lender reserves all of its respective rights and remedies under the Loan Documents, at law or in equity, and at such times as Lender from time to time may elect.
6. Binding Effect. This Amendment shall be binding upon the parties hereto and their respective successors and assigns.
7. Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or affecting the validity or enforceability of such provision in any other jurisdiction.
8. Authorization and Execution. The execution, delivery, and performance by Borrower in connection with this Amendment has been duly authorized by all requisite action by or on behalf of Borrower, and this Amendment has been duly executed and delivered on behalf of Borrower.
9. Counterparts. This Amendment may be executed in any number of counterparts, all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page. Receipt of an executed signature page to this Amendment by facsimile or other electronic transmission shall constitute effective delivery thereof.
[Signatures on Next Page]
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by its duly authorized officers as of the day and year first above written.
MARK BURISH
/s/ Mark Burish
SONIC FOUNDRY, INC.
By: /s/ Ken Minor
Ken Minor, Chief Financial Officer
Signature Page to Amendment to Secured Promissory Note
AMENDMENT TO SECURITY AGREEMENT
This AMENDMENT TO SECURITY AGREEMENT (the “Amendment”), dated as of May 31, 2023, is by and between Mark Burish (“Secured Party”) and Sonic Foundry, Inc. (“Grantor”).
RECITALS
WHEREAS, Secured Party and Grantor are parties to that certain Security Agreement dated as of November 16, 2022 (the “Security Agreement”);
WHEREAS, Secured Party and Grantor wish to amend the Security Agreement as provided herein; and
WHEREAS, capitalized terms used and not specifically defined herein shall have the meanings provided in the Security Agreement.
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Secured Party and Grantor hereby agree as follows:
AGREEMENTS
1. Amendments to Security Agreement. Secured Party and Grantor agree to the following amendments to the Security Agreement:
|
a. |
The first recital of the Security Agreement is hereby amended and restated in its entirety to read as follows: |
WHEREAS, on the date hereof, the Secured Party has made a loan to the Grantor comprising an initial principal amount of Three Million U.S. Dollars ($3,000,000) (“Initial Loan Amount”) and made available the principal sum of up to a maximum of Two Million U.S. Dollars ($2,000,000), or such lesser amount as may be borrowed by the Maker as Advances under this Agreement (“Additional Loan Amount”) (the Initial Loan Amount and Additional Loan Amount are collectively referred to herein as the “Loan”), evidenced by that certain Secured Promissory Note of even date herewith (as amended, restated, supplemented and/or otherwise modified from time to time, the “Note”) made by the Grantor and payable to the order of the Secured Party; and
|
b. |
Section 1(c) of the Security Agreement is hereby amended to add the following definition: |
“Advances” has the meaning as set forth in the Note.
2. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall not be effective unless and until each of the following conditions shall have been satisfied in Grantor’s sole discretion or waived by Grantor, for whose sole benefit such conditions exist:
|
a. |
Documentation. On or before May 30, 2023 (the “Delivery Date”), Grantor shall have delivered, each duly executed and in form and substance satisfactory to Grantor, an original executed counterpart of this Amendment, and amendment to that certain Secured Promissory Note and such other documents as Secured Party may reasonably request. |
|
b. |
No Default. As of the Delivery Date, no Event of Default has occurred under the Loan Documents. |
|
c. |
Representations and Warranties. On or before the Delivery Date, the representations and warranties set forth in the Security Agreement, as amended by this Amendment, and the other Loan Documents, shall be true and correct as though made on and as of the date hereof. |
|
d. |
Payment of Secured Party’s Fees and Expenses. On or before the Delivery Date, Grantor shall pay Secured Party’s attorneys’ fees relating to this Amendment. |
3. Ratification; Cross-Default and Cross-Collateralization. Grantor:
|
a. |
Acknowledges and agrees that this Amendment constitutes a “Loan Document” as such term is defined in the Security Agreement. |
|
b. |
Ratifies, confirms, and reaffirms all the terms and conditions of the Security Agreement and the other Loan Documents and acknowledges and agrees that the Security Agreement and the other Loan Documents remain in full force and effect. |
|
c. |
Ratifies, confirms, and reaffirms that (i) the obligations secured by the Security Agreement and the other Loan Documents include, without limitation, the Obligations, and any future modifications, amendments, substitutions or renewals thereof, (ii) all collateral, whether now existing or hereafter acquired, granted to Secured Party pursuant to the Security Agreement and the other Loan Documents or otherwise, shall secure all of the Obligations until full and final payment of the Obligations, except as otherwise expressly stated therein; and (iii) a breach of any term or condition of this Amendment shall, subject to any applicable grace or cure period, without any further action of any party, constitute an Event of Default under the Security Agreement and the other Loan Documents, it being the express intent of the Grantor that all of the Obligations be fully cross-defaulted and, except as may be expressly set forth in the Security Agreement or other Loan Document, fully cross-collateralized. |
4. No Set-Off; Waiver and Release. Grantor acknowledges and agrees there exists no right of set off or recoupment, claim, counterclaim, or defense of any nature whatsoever (hereinafter “Claims”) relating to payment or performance of the Obligations or otherwise against Secured Party, and that if Secured Party now has, or ever did have, any Claims against Secured Party, any Affiliate of Secured Party, or any of their agents, servants, attorneys, advisors, officers, directors, employees, affiliates, representatives, investors, partners, members, managers, predecessors, successors, and assigns (collectively, the “Released Parties”), whether known or unknown, at law or in equity, from the beginning of the world through the date of execution of this Amendment, that and all of such Claims are hereby expressly waived against the Released Parties and Grantor releases the Released Parties for any liability therefor.
MISCELLANEOUS
5. No Other Amendments. Except as specifically amended hereby, the Security Agreement and the other Loan Documents remain in full force and effect. This Amendment, together with any other Loan Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth herein. No alteration of or amendment to this Amendment shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment.
6. Reservation of Rights; No Waiver. Secured Party has not waived, is not by this Amendment waiving, and has no intention of waiving, any defaults which occurred prior to this Amendment, or which may exist at the time of this Amendment, or which may occur after this Amendment. Secured Party has not agreed to forbear with respect to any of its rights or remedies concerning any Events of Default. Except as expressly set forth in this Amendment, Secured Party reserves all of its respective rights and remedies under the Loan Documents, at law or in equity, and at such times as Secured Party from time to time may elect.
7. Binding Effect. This Amendment shall be binding upon the parties hereto and their respective successors and assigns.
8. Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Amendment or affecting the validity or enforceability of such provision in any other jurisdiction.
9. Authorization and Execution. The execution, delivery, and performance by Grantor in connection with this Amendment has been duly authorized by all requisite action by or on behalf of Grantor, and this Amendment has been duly executed and delivered on behalf of Grantor.
10. Counterparts. This Amendment may be executed in any number of counterparts, all of which shall be taken to be one and the same instrument, for the same effect as if all parties hereto had signed the same signature page. Receipt of an executed signature page to this Amendment by facsimile or other electronic transmission shall constitute effective delivery thereof.
[Signatures on Next Page]
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed and delivered by its duly authorized officers as of the day and year first above written.
MARK BURISH
/s/ Mark Burish
SONIC FOUNDRY, INC.
By: /s/ Ken Minor
Ken Minor, Chief Financial Officer
Signature Page to Amendment to Security Agreement
Exhibit 10.4
FIRST AMENDMENT TO WARRANT
This First Amendment to Warrant (“Amendment”) is dated as of this 27 day of April, 2023 (“Effective Date”), by and between Sonic Foundry, Inc., a Maryland corporation (the “Company”) and Mark Burish (“Holder”).
RECITALS:
WHEREAS, the Company and Holder are parties to a certain Warrant dated as of November 16, 2022 (the “Warrant”) pursuant to which the Company granted Holder the right to purchase the Warrant Shares in accordance with the terms set forth therein; and
WHEREAS, the Company and Holder desire to amend the Warrant to: i) require shareholder approval as a condition precedent to Holder exercising the Warrant, and ii) make such other amendments as are set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
|
1. |
Exercise of Warrant. Holder hereby agrees that, notwithstanding anything set forth in the Warrant to the contrary, Holder shall not exercise Holder’s purchase rights as evidenced thereby, in whole or in part, until Holder first obtains the approval of shareholders of the Company holding at least a majority of the then outstanding shares of common stock of the Company (“Shareholder Approval”). Shareholder Approval may be obtained by a vote at a duly called and convened meeting of the shareholders of the Company or by written consent of shareholders holding at least a majority of the then outstanding shares of common stock of the Company, without a meeting. |
|
2. |
Defined Terms. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Warrant. |
|
3. |
Effect on Warrant. Except as specifically amended hereby, all terms, provisions and conditions of the Warrant shall remain in full force and effect. |
|
4. |
Counterparts. The parties may execute this Amendment in multiple counterparts, each of which constitutes an original, and all of which, collectively, constitute only one document. The signatures of all of the parties need not appear on the same counterpart, and delivery of an executed counterpart signature page by facsimile, e‑mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com), or other means of electronic transmission is as effective as executing and delivering this Amendment in the presence of the other party hereto. |
[signatures on following page]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the Effective Date.
COMPANY:
Sonic Foundry, Inc.
a Maryland corporation
By: /s/ Ken Minor
Name: Ken Minor
Title: CFO
Address: 222 W. Washington Ave., Suite 100
Madison, WI 53703
E‑mail: ken.minor@sonicfoundry.com
Attention: Ken Minor
HOLDER:
Mark Burish
/s/ Mark Burish
Address: C/O Hurley Burish, S.C.
33 E Main St, Suite 400
Madison, WI 53703
E‑mail: mburish@hurleyburish.com
Attention: Mark Burish
Exhibit 31.1
CERTIFICATIONS
I, Joe Mozden, Jr., the CEO of Sonic Foundry, Inc., certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Sonic Foundry, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 10, 2023
|
By: |
/s/ Joe Mozden, Jr. |
||
|
By: |
Joe Mozden, Jr. | ||
|
Title: |
CEO |
Exhibit 31.2
I, Ken Minor, the CFO of Sonic Foundry, Inc., certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Sonic Foundry, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and
|
5. |
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 10, 2023
|
By: |
/s/ Kenneth A. Minor |
||
|
By: |
Kenneth A. Minor |
||
|
Title: |
Chief Financial Officer |
SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
Exhibit 32
Statement
Solely for the purposes of complying with 18 U.S.C.§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and the Chief Financial Officer of Sonic Foundry, Inc. (the “Company”), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: August 10, 2023
|
By: |
/s/ Joe Mozden, Jr. |
||
|
By: |
Joe Mozden, Jr. |
||
|
Title: |
Chief Executive Officer |
||
|
|
|
||
|
By: |
/s/ Kenneth A. Minor |
||
|
By: |
Kenneth A. Minor |
||
|
Title: |
Chief Financial Officer |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Revenue: | ||||
| Revenue | $ 5,782 | $ 6,465 | $ 16,534 | $ 20,961 |
| Cost of revenue: | ||||
| Cost of revenue | 2,475 | 1,907 | 6,907 | 6,091 |
| Gross margin | 3,307 | 4,558 | 9,627 | 14,870 |
| Operating expenses: | ||||
| Selling and marketing | 2,612 | 2,865 | 8,203 | 9,189 |
| General and administrative | 1,105 | 1,439 | 3,743 | 4,505 |
| Product development | 3,058 | 1,924 | 8,223 | 5,616 |
| Impairment of capitalized software development | 3,769 | 0 | 3,769 | 0 |
| Total operating expenses | 10,544 | 6,228 | 23,938 | 19,310 |
| Loss from operations | (7,237) | (1,670) | (14,311) | (4,440) |
| Non-operating income (expenses): | ||||
| Interest expense, net | (493) | (9) | (1,133) | (22) |
| Other income (expense), net | (155) | (161) | 41 | (189) |
| Total non-operating income (expense) | (648) | (170) | (1,092) | (211) |
| Loss before income taxes | (7,885) | (1,840) | (15,403) | (4,651) |
| Income tax benefit (expense) | 20 | 337 | (229) | 284 |
| Net loss | $ (7,865) | $ (1,503) | $ (15,632) | $ (4,367) |
| Loss per common share | ||||
| – basic (in dollars per share) | $ (0.65) | $ (0.14) | $ (1.31) | $ (0.46) |
| – diluted (in dollars per share) | $ (0.65) | $ (0.14) | $ (1.31) | $ (0.46) |
| Weighted average common shares | ||||
| – basic (in shares) | 12,121,460 | 10,528,156 | 11,891,008 | 9,573,231 |
| – diluted (in shares) | 12,121,460 | 10,528,156 | 11,891,008 | 9,573,231 |
| Product and Other [Member] | ||||
| Revenue: | ||||
| Revenue | $ 1,549 | $ 2,238 | $ 4,034 | $ 6,409 |
| Cost of revenue: | ||||
| Cost of revenue | 875 | 657 | 1,984 | 2,266 |
| Service [Member] | ||||
| Revenue: | ||||
| Revenue | 4,233 | 4,227 | 12,500 | 14,552 |
| Cost of revenue: | ||||
| Cost of revenue | $ 1,600 | $ 1,250 | $ 4,923 | $ 3,825 |
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Net loss | $ (7,865) | $ (1,503) | $ (15,632) | $ (4,367) |
| Other comprehensive loss | ||||
| Foreign currency translation adjustment | 35 | (133) | 79 | (310) |
| Comprehensive loss | $ (7,830) | $ (1,636) | $ (15,553) | $ (4,677) |
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands |
Preferred Stock [Member] |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
AOCI Attributable to Parent [Member] |
Treasury Stock, Common [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Balance at Sep. 30, 2021 | $ 0 | $ 91 | $ 213,278 | $ (206,442) | $ (618) | $ (169) | $ 6,140 |
| Stock compensation | 0 | 0 | 609 | 0 | 0 | 0 | 609 |
| Issuance of common stock | 0 | 17 | 3,981 | 0 | 0 | 0 | 3,998 |
| Stock option exercise | 0 | 1 | 106 | 0 | 0 | 0 | 107 |
| Foreign currency translation adjustment | 0 | 0 | 0 | 0 | (310) | 0 | (310) |
| Net Income (loss) | 0 | 0 | 0 | (4,367) | 0 | 0 | (4,367) |
| Balance at Jun. 30, 2022 | 0 | 109 | 217,973 | (210,809) | (928) | (169) | 6,176 |
| Balance at Mar. 31, 2022 | 0 | 91 | 213,812 | (209,306) | (795) | (169) | 3,633 |
| Stock compensation | 0 | 0 | 200 | 0 | 0 | 0 | 200 |
| Issuance of common stock | 0 | 17 | 3,961 | 0 | 0 | 0 | 3,978 |
| Foreign currency translation adjustment | 0 | 0 | 0 | 0 | (133) | 0 | (133) |
| Net Income (loss) | 0 | 0 | 0 | (1,503) | 0 | 0 | (1,503) |
| Balance at Jun. 30, 2022 | 0 | 109 | 217,973 | (210,809) | (928) | (169) | 6,176 |
| Balance at Sep. 30, 2022 | 0 | 109 | 218,145 | (213,525) | (982) | (169) | 3,578 |
| Stock compensation | 0 | 0 | 504 | 0 | 0 | 0 | 504 |
| Issuance of common stock | 0 | 12 | 1,396 | 0 | 0 | 0 | 1,408 |
| Stock option exercise | 2 | 2 | |||||
| Foreign currency translation adjustment | 0 | 0 | 0 | 0 | 79 | 0 | 79 |
| Net Income (loss) | 0 | 0 | 0 | (15,632) | 0 | 0 | (15,632) |
| Balance at Jun. 30, 2023 | 0 | 121 | 220,047 | (229,157) | (903) | (169) | (10,061) |
| Balance at Mar. 31, 2023 | 0 | 121 | 219,931 | (221,292) | (938) | (169) | (2,347) |
| Stock compensation | 0 | 0 | 74 | 0 | 0 | 0 | 74 |
| Issuance of common stock | 0 | 0 | 42 | 0 | 0 | 0 | 42 |
| Foreign currency translation adjustment | 0 | 0 | 0 | 0 | 35 | 0 | 35 |
| Net Income (loss) | 0 | 0 | 0 | (7,865) | 0 | 0 | (7,865) |
| Balance at Jun. 30, 2023 | $ 0 | $ 121 | $ 220,047 | $ (229,157) | $ (903) | $ (169) | $ (10,061) |
Note 1 - Basis of Presentation and Significant Accounting Policies |
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| Basis of Presentation and Significant Accounting Policies [Text Block] |
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 $8.5 million debt at a rate of 12% interest per annum due in 30 equal installments beginning on June 1, 2023, including an agreement with Mark Burish, Chairman of the Company's Board of Directors for $3.0 million of such debt and agreement with an affiliate of a former director for the remaining $5.5 million of such debt. On November 16, 2022, the Company also entered into a subscription agreement with Mark Burish for a total of $1.2 million of common stock along with an attached warrant.
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 $15.6 million compared to a net loss of $4.4 million in fiscal year 2022 and has a deficit in stockholders’ equity at June 30, 2023, of $10.1 million. The Company currently does not have access to capital through a line of credit nor other readily available sources of capital, other than available additional advances up to $500 thousand under a Security Agreement and Promissory Note with Mark Burish. Together, these factors raise the need to consider the Company’s ability to continue as a going concern.
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 $500,000 tranche available under its credit agreement with Mark Burish, as well as his anticipated further financial support, and evaluation of other strategic alternatives. The Company believes it will be successful in such initiatives and will be able to continue as a going concern through at least the next twelve months.
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
For the three and nine months ended June 30, 2023, the Company expensed involuntary termination benefits of $2 thousand and $475 thousand respectively, under ASC 420 compared to $54 thousand and $73 thousand expenses incurred during the same periods last year.
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:
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):
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 $265 thousand and $0, respectively, in hardware receivable.
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 $78 thousand and $77 thousand, respectively, for retirement obligations associated with returning the MSKK leased property to the respective lessors upon the termination of the lease arrangement.
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):
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 $0 for both periods compared to remeasurement gain of $21 thousand and $51 thousand during the three and nine months ended June 30, 2022, respectively.
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 $0 and $1.5 million in software development costs related to new products in its Vidable business, and this was included in software development, net of amortization on the balance sheet. During the three and nine months ended June 30, 2022 the Company capitalized approximately $727 thousand and $1.7 million, respectively, in software development costs. During the three and nine months ended June 30, 2023, the Company amortized approximately $11 thousand and $28 thousand, in software development costs related to new products that became widely available to customers during the first quarter of 2023, compared to $0 during the three and nine months ended June 30, 2022.
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 $3.8 million was recognized as a non-cash expense in the current quarter and reflected in operating expense. As a result, the capitalized software development costs, net of accumulated amortization were approximately $142 thousand as of June 30, 2023, and relate to internally developed business software.
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:
A summary of option activity at June 30, 2023 and changes during the nine months then ended is presented below:
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:
The weighted average grant date fair value of options granted during the nine months ended June 30, 2023was $0.41. As of June 30, 2023, there was $475 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation cost of $390 thousand. The cost is expected to be recognized over a weighted-average remaining life of 1.72 years.
Stock-based compensation expense for stock options recorded in the three and nine months ended June 30, 2023 was $74 thousand and $504 thousand, respectively. Stock-based compensation expense recorded in the three and nine months ended June 30, 2022 was $197 thousand and $601 thousand, respectively.There was $0 thousand and $2 thousand in cash received from transactions under all stock option plans during the three and nine months ended June 30, 2023, respectively, and less than $1 thousand and $107 thousand during three and nine months ended June 30, 2022.There were no tax benefits realized for tax deductions from option exercises in either of the three months ended June 30, 2023 or 2022. The Company currently expects to satisfy share-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. A total of 59,617 shares are available to be issued under the plan at June 30, 2023. The Company recorded $0 and $3 thousand stock compensation expense under this plan for three and nine months ended June 30, 2023 compared to $2 thousand and $8 thousand for three and nine months ended June 30, 2022.Cash received for the issuance of shares under the Purchase Plan, net of refund, in the three and nine months ended June 30, 2023 was $0 and $3 thousand, respectively, compared to $0 thousand and $19 thousand for three and nine months ended June 30, 2022.
On April 5, 2023, the Company issued 46,703 shares of common stock for Board of Directors fees at a price of $0.91 per share.
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 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. None of the options were exercised and the 45-day option period has expired.
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 102,000 shares. The Underwriters’ Warrants are exercisable, in whole or in part, commencing October 10, 2022, and expiring on October 10, 2027, 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 finders fees, underwriting fees, legal fees, accounting service fees, and transfer agent closing fees.
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 $1,200,000 of common stock at a price equal to the average closing bid price on the five days preceding the date of close (1,176,471 shares) and received a warrant to purchase 511,765 shares of common stock at a price of $1.02. The warrant matures on November 16, 2027. The Warrant was amended on April 27, 2023, to require that approval of holders of a majority of the outstanding shares of common stock be obtained before the Warrant may be exercised.
The total warrants outstanding as of June 30, 2023 are as follows:
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 $2,500,000 in stockholders’ equity for continued listing. Since its Form 10-Q for the period ended December 31, 2022, reported stockholders’ equity of $922,000, and as of February 10, 2023, the Company does not meet the alternatives of market value of listed securities or net income, as set forth in Nasdaq Listing Rule 5550(b)(1), the Company no longer complies with the Rule. On April 28, 2023, Nasdaq granted the Company an extension until July 14, 2023, to comply with Nasdaq Listing Rule 5550(b)(1).
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 $.01 per share, from 15,000,000 to
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:
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.
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Note 2 - Related-party Transactions |
9 Months Ended |
|---|---|
Jun. 30, 2023 | |
| Notes to Financial Statements | |
| Related Party Transactions Disclosure [Text Block] |
2. Related Party Transactions
During the three and nine months ended June 30, 2023, the Company incurred $0 thousand and $10 thousand, respectively, as legal expense to a law firm, where Frederick H. Kopko, Jr. is a Partner. Mr. Kopko was a member of the Company’s Board of Directors until his resignation on November 15, 2022. The Company incurred similar fees of $46 thousand and $103 thousand during the three and nine months ended June 30, 2022 respectively. The Company had accrued liabilities for services to the same law firm of $25 thousand at September 30, 2022.
On November 16, 2022, the Company entered into a Loan and Security Agreement with Neltjeberg Bay Enterprises, LLC (“NBE”) whereby NBE loaned the Company $5,500,000 at a rate of 12% interest per annum due in 30 equal installments beginning on June 1, 2023. The facility also includes a 2% facility fee and a loan premium due at maturity equal to 20% of the amount loaned which is earned monthly based on the number of months the loan remains outstanding. The loan is secured by all assets of the Company and carries certain restrictions and financial covenants including 1) a debt coverage ratio of cash and accounts receivable to the NBE loan of not less than 2) trailing six-month billings requirement of at least $12,000,000 for the September and December 2022 quarters, $11,000,000 for the March and June 2023 quarters and $12,000,000 for the September 2023 quarter and 3) a trailing six-month EBITDA burn requirement of less than $6,000,000 for the quarter ended September 2022, $6,500,000 for the quarter ending December 2022 and $7,000,000 for each of the quarters ending March, June and September 2023. The Managing Director of NBE is Frederick H. Kopko, Jr., a former member of the Company’s Board of Directors.
Simultaneously with the closing above, the Company closed a Security Agreement and Promissory Note with Mark Burish (“Burish”) for $3,000,000. The note carries the same interest rate and fees as the note with NBE and is subordinate to the NBE Loan and Security Agreement. On November 16, 2022, the Company entered into a Subscription Agreement with Burish whereby Burish purchased $1,200,000 of common stock at a price equal to the average closing bid price on the five days preceding the date of close (1,176,471 shares). In addition, on November 16, 2022, the Company entered into a Warrant whereby Burish received a warrant to purchase 511,765 shares of common stock at a price of $1.02. The warrant matures on November 16, 2027. On April 27, 2023, the Warrant was amended to require shareholder approval as a condition to exercising the warrant.
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 $20 thousand deferral fee payments, beginning June 1, 2023, for as long as regular monthly principal payments are deferred. The deferral fee is in addition to any other fees, expenses, interest or principal subject to the Loan and Security Agreement, as amended. At any time after September 1, 2023, regardless of whether an event of default has occurred, NBE may issue a notice in writing to the Company at any time after the 15th day of the preceding month that the deferral fee will no longer be accepted, and that the full regular monthly principal payment will be due on the first day of the month immediately following said notice. Such regular monthly principal payments will be recalculated based on the remaining months until the maturity date. The loan will be due in full on the earlier of the maturity date of December 1, 2025, or the closing of a sale, assignment or transfer of all or substantially all of the Company's assets.
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 $10,909 deferral fee payments, beginning June 1, 2023, for as long as regular monthly principal payments are deferred. The deferral fee is in addition to any other fees, expenses, interest or principal subject to the Security Agreement and Promissory Note, as amended. At any time after September 1, 2023, regardless of whether an event of default has occurred, Burish may issue a notice in writing to the Company at any time after the 15th day of the preceding month that the deferral fee will no longer be accepted, and that the full regular monthly principal payment will be due on the first day of the month immediately following said notice.
The Burish Amendment further provides for an increase to the original principal amount of $3,000,000 by up to an additional $2,000,000 and permits the Company to request to borrow such additional amounts in one or more tranches. Such additional borrowings are subject to the same 12% rate of interest per annum. Regular monthly payment when resumed will be recalculated based on the remaining months until the maturity date and the final principal amount. At June 30, 2023, the balance of the note was $4,500,000.
At June 30, 2023
, Mr. Burish held warrants to purchase a total of 562,441 shares of common stock. The Warrant to purchase 511,765 shares was amended on April 27, 2023, to require the approval of holders of a majority of the outstanding shares of common stock to be obtained before the Warrant may be exercised.
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.
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Note 3 - Commitments |
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| Commitments Disclosure [Text Block] |
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 $1.2 million of Mediasite product from its hardware vendor. At June 30, 2023, the Company had an obligation to purchase $151 thousand of services during fiscal 2023, $500 thousand of services during fiscal 2024, and $417 thousand of services during fiscal 2025.
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 $19 thousand at September 30, 2022, and$14 thousand at June 30, 2023.
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):
Supplemental information related to leases is as follows (in thousands, except lease term and discount rate):
Variable lease costs include operating costs for U.S. office lease based on square footage and Consumer Price Index ("CPI") rent escalation and related VAT for office lease in the Netherlands, and COVID-19 rent credit.
Supplemental cash flow information related to operating and finance leases were as follows (in thousands):
Other information related to leases was as follows:
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Note 4 - Credit Arrangements |
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| Debt Disclosure [Text Block] |
4. Credit Arrangements
Partners for Growth V, L.P.
On May 11, 2018, Sonic Foundry, Inc. entered into a Loan and Security Agreement (the “2018 Loan and Security Agreement”) with Partners for Growth V, L.P. (“PFG V”).
The 2018 Loan and Security Agreement provided for a Term Loan ("Term Loan") in the amount of $2,500,000, which was disbursed in two (2) Tranches as follows: Tranche 1 was disbursed on May 14, 2018, in the amount of and Tranche 2 in the amount of $500,000, was disbursed on November 8, 2018. Each tranche of the Term Loan accrued interest at 10.75% per annum. Tranche 1 of the Term Loan was payable interest only until November 30, 2018. Thereafter, principal was due in 30 equal monthly principal installments, plus accrued interest, beginning December 1, 2018, and continuing until May 1, 2021, when the principal balance was due in full. Tranche 2 of the Term Loan was payable using the same repayment schedule as Tranche 1. Upon maturity, Sonic Foundry was required to pay PFG V a cash fee of $150,000. The principal of the Term Loan may have been prepaid at any time without penalty as of May 14, 2019. The Term Loan was collateralized by substantially all the Company’s assets, including intellectual property. Both tranches and the $150,000 fee were paid off in May 2021.
Coincident with execution of the 2018 Loan and Security Agreement, the Company entered into a Warrant Agreement (“Warrant”) with PFG V. Pursuant to the terms of the Warrant, the Company issued to PFG V a warrant to purchase up to 66,000 shares of common stock of the Company at an exercise price of $2.57 per share, subject to certain adjustments. Pursuant to the Warrant, PFG V is also entitled, under certain conditions, to require the Company to exchange the Warrant for the sum of $250,000. The Warrant issued to PFG V expired on May 11, 2023, and as of June 30, 2023, the Company owes a remainder of $230 thousand under the Warrant.
At June 30, 2023, and September 30, 2022, the estimated fair value of the derivative liability associated with the Warrant issued in connection with the 2018 Loan and Security Agreement, was $0. Included in other expense, the remeasurement gain on the derivative liability during the three and nine months ended June 30, 2023, was $0 for both periods compared to remeasurement gain of $21 thousand and $51 thousand during the three and nine months ended June 30, 2022, respectively.
The proceeds from the 2018 Loan and Security Agreement were allocated between the PFG V debt and the warrant debt (inclusive of its conversion feature) based on their relative fair value on the date of issuance which resulted in carrying values of $2.3 million and $156 thousand, respectively. The warrant debt is treated together as a debt discount on the PFG V debt and is being accreted to interest expense under the effective interest method over the -year term of the PFG V debt and the -year term of the warrant debt. During the three and nine months ended June 30, 2023, the Company recorded accretion of discount expense associated with the Warrant issued with the PFG V loan of $4 thousand and $21 thousand, respectively, compared to $8 thousand and $23 thousand in the same periods last year. The carrying balance of the warrant debt at June 30, 2023, and September 30, 2022, was $230 thousand and $229 thousand, respectively.
Line of Credit dated July 28, 2021
The Credit Agreement had a maturity date of March 31, 2023, and was secured by all assets of the Company and accrued interest equal to the one-month LIBOR rate plus 1.35% per annum, paid monthly. The Credit Agreement required compliance with typical warranties and covenants including financial covenants of (1) Fixed Charge Coverage Ratio, as defined in the agreement, of at least at the end of each quarter and (2) Senior Cash Flow Coverage Ratio, as defined in the agreement, of no more than for each fiscal quarter, until these provisions were removed with the March 30, 2022, amendment. There was $0 outstanding on the line of credit at September 30, 2022.
In connection with the Credit Agreement, the Company entered into the Stock Pledge Agreement with the Bank, as a condition of the Credit Loan. Upon default, the Bank had the right to transfer and claim the securities of the subsidiaries, Sonic Foundry International B.V. in Netherland and Mediasite K.K. in Japan.
Amendment to Line of Credit dated March 30, 2022
The Company entered into an amendment to the Credit Agreement with U.S. Bank National Association on March 30, 2022. Under the Credit Agreement, the Company could borrow from the Bank, for general and working capital purposes, an aggregate amount outstanding at any one time of $3,000,000 at an annual rate equal to 1.45% plus the greater of (i) zero percent (0.0%) and (ii) the one-month forward-looking term rate based on SOFR quoted by Bank from the Term SOFR Administrator’s Website. The Amendment also, among other things, extended the maturity date from July 28, 2022, to March 31, 2023.
In connection with the Credit Agreement, the Company was also required to maintain a collateral account with the Bank in the name of the Company but under the sole control of the Bank. As a condition to drawing on the Revolving Credit Loan, the Company had to deposit into the Collateral Account funds in an amount equal to the amount of principal the Company wishes to draw on the Revolving Credit Loan. Previous covenants and borrowing base requirements were removed as part of this amendment.
Termination of Line of Credit dated November 14, 2022
On November 14, 2022, Sonic Foundry, Inc. (the “Company”) terminated its Revolving Credit Agreement with U.S. Bank National Association.
Loan and Security Agreement with Neltjeberg Bay Enterprises, LLC dated November 16, 2022
On November 16, 2022, the Company entered into a Loan and Security Agreement with Neltjeberg Bay Enterprises, LLC (“NBE”) whereby NBE loaned the Company $5,500,000 at a rate of 12% interest per annum due in 30 equal installments beginning on June 1, 2023. The facility also includes a 2% facility fee and a loan premium due at maturity equal to 20% of the amount loaned which is earned monthly based on the number of months the loan remains outstanding. The loan is secured by all assets of the Company and carries certain restrictions and financial covenants including 1) a debt coverage ratio of cash and accounts receivable to the NBE loan of not less than 2) trailing six-month billings requirement of at least $12,000,000 for the September and December 2022 quarters, $11,000,000 for the March and June 2023 quarters and $12,000,000 for the September 2023 quarter and 3) a trailing six-month EBITDA burn requirement of less than $6,000,000 for the quarter ended September 2022, $6,500,000 for the quarter ending December 2022 and $7,000,000 for each of the quarters ending March, June and September 2023. As of June 30, 2023, $2.0 million is included in the current portion of notes payable due to related parties.
Security Agreement and Promissory Note with Mark Burish dated November 16, 2022
Simultaneously with the closing above, the Company closed a Security Agreement and Promissory Note with Mark Burish (“Burish”), Chairman of the
Company's Board of Directors, for $3,000,000. The note carries the same interest rate and fees as the note with NBE and is subordinate to the NBE Loan and Security Agreement.
As of
June 30, 2023
, $1.7 million is included in the current portion of notes payable due to related parties.
Subscription Agreement and Warrant with Mark Burish dated November 16, 2022
The Company entered into a Subscription Agreement with Burish and Warrant whereby Burish purchased $1,200,000 of common stock at a price equal to the average closing bid price on the five days preceding the date of close (1,176,471 shares) and received a Warrant to purchase 511,765 shares of common stock at a price of $1.02. The warrant matures on November 16, 2027. The Warrant was amended on April 27, 2023, to require that the approval of holders of a majority of the outstanding shares of common stock be obtained before the Warrant may be exercised.
Amendment to Loan Agreement with Neltjeberg Bay Enterprises, LLC dated May 18, 2023
The Company entered into an Amendment to Loan and Security Agreement (the "NBE Amendment") with Neltjeberg Bay Enterprises, LLC and effective May 18, 2023 whereby the NBE Amendment provides for deferral of regular monthly principal payments. The Company will make monthly $20 thousand deferral fee payments, beginning June 1, 2023, for as long as regular monthly principal payments are deferred. The deferral fee is in addition to any other fees, expenses, interest or principal subject to the Loan and Security Agreement, as amended. At any time after September 1, 2023, regardless of whether an event of default has occurred, NBE may issue a notice in writing to the Company at any time after the 15th day of the preceding month that the deferral fee will no longer be accepted and that the full regular monthly principal payment will be due on the first day of the month immediately following said notice. Such regular monthly principal payments will be recalculated based on the remaining months until the maturity date.
Amendment to Loan Agreement with Mark Burish dated May 31, 2023
On May 31, 2023, the Company entered into an Amendment to Security Agreement and Promissory Note (the Burish Amendment”) with Mark Burish. The Burish Amendment provides for deferral of regular monthly principal payments. The Company will make monthly $10,909 deferral fee payments, beginning June 1, 2023, for as long as regular monthly principal payments are deferred. The deferral fee is in addition to any other fees, expenses, interest or principal subject to the Security Agreement and Promissory Note, as amended. At any time after September 1, 2023, regardless of whether an event of default has occurred, Burish may issue a notice in writing to the Company at any time after the 15th day of the preceding month that the deferral fee will no longer be accepted and that the full regular monthly principal payment will be due on the first day of the month immediately following said notice.
The Burish Amendment further provides for an increase to the original principal amount of $3,000,000 by up to an additional $2,000,000 and permits the Company to request to borrow such additional amounts in one or more tranches. Such additional borrowings are subject to the same 12% rate of interest per annum. Regular monthly principal payments when resumed will be recalculated based on the remaining months until the maturity date and the final principal amount. At June 30, 2023, the balance of the note was $4,500,000.
Other Indebtedness
On August 20, 2020, Mediasite K.K. and Sumitomo Mitsui Banking Corporation entered into a $379 thousand Promissory Note under an initiative by the Japanese Finance Corporation government institution in response to the Cabinet Decision entitled "Emergency Economic Measures to Cope With COVID-19." Extending financial relief to organizations impacted by COVID-19, the loan had a term of years and carried a fixed interest rate of 0.46% per annum. Government subsidies provided through the Japanese Finance Corporations provide interest relief throughout the term of the loan. In addition, the loan agreement included a -year grace period with principal payments deferred through the end of the loan, which was September 30, 2023. On March 24, 2023, Mediasite K.K. repaid this loan in full.
On March 24, 2023, Mediasite K.K.and the Japanese Finance Corporation entered into a $336 thousand Promissory Note under an initiative by the Japanese Finance Corporation government institution. Extending financial relief to organizations that continue to be impacted by COVID-19, the loan has a term of years and carries a fixed interest rate of 0.5% per annum for the first three years and a fixed interest rate of 1.4% per annum for the remaining years. The loan agreement includes a one-year grace period with principal payments deferred through February 29, 2024. As of June 30, 2023, $18 thousand is included in the current portion notes payable.
On September 30, 2022, Mediasite K.K. and Resona Bank, Ltd. entered into a $415 thousand loan agreement. The loan has a term of 7 years and carries a fixed rate of 1.475% per annum. The loan will be repaid via monthly installments of $5 thousand from October 31, 2022, through September 28, 2029. As of June 30, 2023, $59 thousand is included in the current portion of notes payable.
The annual principal payments on the outstanding notes payable, notes payable due to related parties, and warrant debt are as follows:
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Note 5 - Income Taxes |
9 Months Ended |
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Jun. 30, 2023 | |
| Notes to Financial Statements | |
| Income Tax Disclosure [Text Block] |
5. Income Taxes
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accruals for interest and penalties on the Company’s Condensed Consolidated Balance Sheets at June 30, 2023 or September 30, 2022, and has recognized any interest or penalties in the Condensed Consolidated Statements of Operations for either of the three or nine months ended June 30, 2023 or 2022.
The Company’s tax rate differs from the expected tax rate each reporting period as a result of permanent differences, the valuation allowance, and international tax items. The Company's income tax expense for the three and nine months ended June 30, 2023 and 2022 primarily consists of income tax expense/benefit at its foreign subsidiaries. The Company has net operating losses (NOL) carried over from previous years.
Valuation allowance for net deferred tax assets
Deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
We make judgments regarding the realizability of our deferred tax assets. The balance sheet carrying value of our net deferred tax assets is based on whether we believe that it is more likely than not that we will generate sufficient future taxable income to realize these deferred tax assets after consideration of all available evidence. We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh objective negative evidence of recent financial reporting losses. Generally, cumulative losses in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed.
As of September 30, 2022, valuation allowances had been established for all U.S. and for certain foreign deferred tax assets which we believe do not meet the “more likely than not” criteria for recognition. As of June 30, 2023 the Company has a full valuation allowance established as the Company no longer believes it is "more likely than not" that the prior deferred tax asset amount recorded can be realized. As of September 30, 2022, the Company recorded a deferred tax asset in the amount of $275 thousand, relating to foreign net operating losses that the Company believed was "more likely than not" to be realized before expiration of the foreign net operating loss income tax benefit.
If we are subsequently able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then we will be required to recognize these deferred tax assets through the reduction of the valuation allowance, which could result in a material benefit to our results of operations in the period in which the benefit is determined.
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Note 6 - Revenue |
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| Revenue from Contract with Customer [Text Block] |
6. Revenue
Disaggregation of Revenues
The following tables summarize revenues from contracts with customers for the three and nine months ended June 30, 2023 and 2022, (in thousands) by subsidiary, which includes the parent (SOFO), our Netherlands location (SFI) and our Japanese location (MSKK):
Transaction price allocated to future performance obligations
As of June 30, 2023, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $8.7 million in the next months of which $3.0 million is in the next months and $1.5 million
Disclosures related to our contracts with customers
Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers. We record assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. These liabilities are classified as current and non-current unearned revenue.
Unearned revenues
Unearned revenues represent our obligation to transfer products or services to our client for which we have received consideration, or an amount of consideration is due, from the client. During the three and nine months ended June 30, 2023, revenues recognized related to the amount included in the unearned revenues balance at the beginning of the period was $2.3 million and $7.8 million compared to $2.0 million and $8.5 million recognized during the three and nine months ended June 30, 2022.
Assets recognized from the costs to obtain our contracts with customers
We recognize an asset for the incremental costs of obtaining a contract with a customer. We amortize these deferred costs, primarily capitalized commissions, proportionate with related revenues over the period of the contract. During the three and nine months ended June 30, 2023, amortization expense related to the amount included in the capitalized commissions at the beginning of the period was $46 thousand and $205 thousand compared to $85 thousand and $346 thousand recognized during the three and nine months ended June 30, 2022.
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Significant Accounting Policies (Policies) |
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| Costs Associated with Exit or Disposal Activity or Restructuring [Policy Text Block] | Restructuring and exit activities
For the three and nine months ended June 30, 2023, the Company expensed involuntary termination benefits of $2 thousand and $475 thousand respectively, under ASC 420 compared to $54 thousand and $73 thousand expenses incurred during the same periods last year.
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| Lessor, Leases [Policy Text Block] | 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:
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| Inventory, Policy [Policy Text Block] | 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):
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| Hardware Receivable [Policy Text Block] | 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 $265 thousand and $0, respectively, in hardware receivable.
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| Asset Retirement Obligation [Policy Text Block] | 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 $78 thousand and $77 thousand, respectively, for retirement obligations associated with returning the MSKK leased property to the respective lessors upon the termination of the lease arrangement.
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| Fair Value of Financial Instruments, Policy [Policy Text Block] | 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):
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 $0 for both periods compared to remeasurement gain of $21 thousand and $51 thousand during the three and nine months ended June 30, 2022, respectively.
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.
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| Legal Costs, Policy [Policy Text Block] | 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.
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| Research, Development, and Computer Software, Policy [Policy Text Block] | 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 $0 and $1.5 million in software development costs related to new products in its Vidable business, and this was included in software development, net of amortization on the balance sheet. During the three and nine months ended June 30, 2022 the Company capitalized approximately $727 thousand and $1.7 million, respectively, in software development costs. During the three and nine months ended June 30, 2023, the Company amortized approximately $11 thousand and $28 thousand, in software development costs related to new products that became widely available to customers during the first quarter of 2023, compared to $0 during the three and nine months ended June 30, 2022.
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 $3.8 million was recognized as a non-cash expense in the current quarter and reflected in operating expense. As a result, the capitalized software development costs, net of accumulated amortization were approximately $142 thousand as of June 30, 2023, and relate to internally developed business software.
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| Share-Based Payment Arrangement [Policy Text Block] | 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:
A summary of option activity at June 30, 2023 and changes during the nine months then ended is presented below:
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:
The weighted average grant date fair value of options granted during the nine months ended June 30, 2023was $0.41. As of June 30, 2023, there was $475 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation cost of $390 thousand. The cost is expected to be recognized over a weighted-average remaining life of 1.72 years.
Stock-based compensation expense for stock options recorded in the three and nine months ended June 30, 2023 was $74 thousand and $504 thousand, respectively. Stock-based compensation expense recorded in the three and nine months ended June 30, 2022 was $197 thousand and $601 thousand, respectively.There was $0 thousand and $2 thousand in cash received from transactions under all stock option plans during the three and nine months ended June 30, 2023, respectively, and less than $1 thousand and $107 thousand during three and nine months ended June 30, 2022.There were no tax benefits realized for tax deductions from option exercises in either of the three months ended June 30, 2023 or 2022. The Company currently expects to satisfy share-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. A total of 59,617 shares are available to be issued under the plan at June 30, 2023. The Company recorded $0 and $3 thousand stock compensation expense under this plan for three and nine months ended June 30, 2023 compared to $2 thousand and $8 thousand for three and nine months ended June 30, 2022.Cash received for the issuance of shares under the Purchase Plan, net of refund, in the three and nine months ended June 30, 2023 was $0 and $3 thousand, respectively, compared to $0 thousand and $19 thousand for three and nine months ended June 30, 2022.
On April 5, 2023, the Company issued 46,703 shares of common stock for Board of Directors fees at a price of $0.91 per share.
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| Preferred Stock and Dividends [Policy Text Block] | 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.
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| Stockholders' Equity, Policy [Policy Text Block] | Common Stock Transactions
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. None of the options were exercised and the 45-day option period has expired.
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 102,000 shares. The Underwriters’ Warrants are exercisable, in whole or in part, commencing October 10, 2022, and expiring on October 10, 2027, 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 finders fees, underwriting fees, legal fees, accounting service fees, and transfer agent closing fees.
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 $1,200,000 of common stock at a price equal to the average closing bid price on the five days preceding the date of close (1,176,471 shares) and received a warrant to purchase 511,765 shares of common stock at a price of $1.02. The warrant matures on November 16, 2027. The Warrant was amended on April 27, 2023, to require that approval of holders of a majority of the outstanding shares of common stock be obtained before the Warrant may be exercised.
The total warrants outstanding as of June 30, 2023 are as follows:
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 $2,500,000 in stockholders’ equity for continued listing. Since its Form 10-Q for the period ended December 31, 2022, reported stockholders’ equity of $922,000, and as of February 10, 2023, the Company does not meet the alternatives of market value of listed securities or net income, as set forth in Nasdaq Listing Rule 5550(b)(1), the Company no longer complies with the Rule. On April 28, 2023, Nasdaq granted the Company an extension until July 14, 2023, to comply with Nasdaq Listing Rule 5550(b)(1).
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 $.01 per share, from 15,000,000 to
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| Earnings Per Share, Policy [Policy Text Block] | 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:
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| New Accounting Pronouncements, Policy [Policy Text Block] | 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. |
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Note 1 - Basis of Presentation and Significant Accounting Policies (Tables) |
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| Schedule of Inventory, Current [Table Text Block] |
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| Schedule of Share-Based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions [Table Text Block] |
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| Schedule of Nonvested Share Activity [Table Text Block] |
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| Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] |
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| Schedule of Weighted Average Number of Shares [Table Text Block] |
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Note 3 - Commitments (Tables) |
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Note 4 - Credit Arrangements (Tables) |
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| Schedule of Maturities of Long-Term Debt [Table Text Block] |
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Note 6 - Revenue (Tables) |
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| Disaggregation of Revenue [Table Text Block] |
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Note 1 - Basis of Presentation and Significant Accounting Policies - Investment in Sales-type Leases (Details) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| 2023 | $ 124 | |
| 2024 | 157 | |
| 2025 | 64 | |
| Gross investment in sales-type lease | 345 | |
| Less: Unearned income | 0 | |
| Total investment in sales-type lease | 345 | |
| Current portion of total investment in sales-type lease | 250 | $ 281 |
| Long-term portion of total investment in sales-type lease | 95 | $ 221 |
| Net Investment in Lease, before Allowance for Credit Loss | $ 345 |
Note 1 - Basis of Presentation and Significant Accounting Policies - Inventory (Details) - USD ($) $ in Thousands |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Raw materials and supplies | $ 519 | $ 507 |
| Finished goods | 2,108 | 1,062 |
| Less: Obsolescence reserve | (101) | (107) |
| Inventory, Net | $ 2,526 | $ 1,462 |
Note 1 - Basis of Presentation and Significant Accounting Policies - Financial Liabilities Measured at Fair Value on Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands |
Jun. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Derivative liability | $ 0 | $ 0 |
| Fair Value, Inputs, Level 1 [Member] | ||
| Derivative liability | 0 | 0 |
| Fair Value, Inputs, Level 2 [Member] | ||
| Derivative liability | 0 | 0 |
| Fair Value, Inputs, Level 3 [Member] | ||
| Derivative liability | $ 0 | $ 0 |
Note 1 - Basis of Presentation and Significant Accounting Policies - Fair Value Assumptions for Stock Options Granted (Details) |
9 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
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| Expected exercise factor | 2.02% | |
| Expected dividend yield | 0.00% | 0.00% |
| Minimum [Member] | ||
| Expected life (in years) (Year) | 5 years 7 months 6 days | 5 years |
| Risk-free interest rate | 3.57% | 1.07% |
| Expected volatility | 67.61% | 64.83% |
| Expected forfeiture rate | 9.70% | 14.65% |
| Expected exercise factor | 1.88% | |
| Maximum [Member] | ||
| Expected life (in years) (Year) | 5 years 8 months 12 days | 5 years 3 months 18 days |
| Risk-free interest rate | 4.20% | 2.79% |
| Expected volatility | 68.34% | 66.31% |
| Expected forfeiture rate | 9.87% | 18.15% |
| Expected exercise factor | 2.01% | |
Note 1 - Basis of Presentation and Significant Accounting Policies - Summary of Status of Company's Non-vested Shares (Details) - $ / shares |
6 Months Ended | 9 Months Ended |
|---|---|---|
Mar. 31, 2023 |
Jun. 30, 2023 |
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| Non-vested options (in shares) | 931,718 | 931,718 |
| Weighted-Average Grant Date Fair Value, Non-vested Balance (in dollars per share) | $ 1.57 | $ 1.57 |
| Options, Granted (in shares) | 599,850 | |
| Weighted-Average Grant Date Fair Value, Non-vested granted (in dollars per share) | $ 0.41 | $ 0.41 |
| Non-vested options, vested (in shares) | (479,371) | |
| Weighted-Average Grant Date Fair Value, vested (in dollars per share) | $ 1.30 | |
| Non-vested options, forfeited (in shares) | (80,673) | |
| Weighted-Average Grant Date Fair Value, forfeited (in dollars per share) | $ 0.89 | |
| Non-vested options (in shares) | 971,524 | |
| Weighted-Average Grant Date Fair Value, Non-vested Balance (in dollars per share) | $ 0.95 |
Note 1 - Basis of Presentation and Significant Accounting Policies - Schedule of Stockholders' Equity Note, Warrants or Rights (Details) |
Jun. 30, 2023
$ / shares
shares
|
|---|---|
| Warrants, outstanding (in shares) | shares | 988,215 |
| Warrants, exercise price (in dollars per share) | $ / shares | $ 2.22 |
| Warrants, term (Year) | 3 years 6 months |
| Warrants Issued in Connection With Capital Raise [Member] | |
| Warrants, outstanding (in shares) | shares | 886,215 |
| Warrants, exercise price (in dollars per share) | $ / shares | $ 2.13 |
| Warrants, term (Year) | 3 years 6 months |
| Warrants Issued in Connection with Vendor Agreements [Member] | |
| Warrants, outstanding (in shares) | shares | 102,000 |
| Warrants, exercise price (in dollars per share) | $ / shares | $ 3.06 |
| Warrants, term (Year) | 3 years 9 months 18 days |
Note 1 - Basis of Presentation and Significant Accounting Policies - Computation of Basic and Diluted Weighted Average Shares Used in Earnings Per Share Calculations (Details) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| – basic (in shares) | 12,121,460 | 10,528,156 | 11,891,008 | 9,573,231 |
| Effect of dilutive options and warrants (treasury method) (in shares) | 0 | 0 | 0 | 0 |
| – diluted (in shares) | 12,121,460 | 10,528,156 | 11,891,008 | 9,573,231 |
| 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 (in shares) | 3,483,508 | 2,697,330 | 3,483,508 | 2,697,330 |
Note 3 - Commitments (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Sep. 30, 2022 |
|
| Recorded Unconditional Purchase Obligation | $ 1,200 | |
| Recorded Unconditional Purchase Obligation, to be Paid, Year One | 151 | |
| Recorded Unconditional Purchase Obligation, to be Paid, Year Two | 500 | |
| Recorded Unconditional Purchase Obligation, to be Paid, Year Three | 417 | |
| Property and Equipment [Member] | ||
| Finance Lease, Right-of-Use Asset, after Accumulated Amortization | $ 14 | $ 19 |
| Maximum [Member] | ||
| Lessee, Operating Lease, Remaining Lease Term (Year) | 10 years | |
| Lessee, Operating Lease, Renewal Term (Year) | 12 years | |
| Lessee, Operating Lease, Termination Term (Year) | 1 year |
Note 3 - Commitments - Maturities of Operating and Finance Lease (Details) $ in Thousands |
Jun. 30, 2023
USD ($)
|
|---|---|
| 2023 (remaining), operating lease | $ 306 |
| 2023 (remaining), finance lease | 2 |
| 2024, operating lease | 1,023 |
| 2024, finance lease | 8 |
| 2025, operating lease | 506 |
| 2025, finance lease | 4 |
| 2026, operating lease | 119 |
| 2026, finance lease | 4 |
| 2027, operating lease | 84 |
| 2027, finance lease | 0 |
| Thereafter, operating lease | 36 |
| Thereafter, finance lease | 0 |
| Total, operating lease | 2,074 |
| Total, finance lease | 18 |
| Less: imputed interest, operating lease | (108) |
| Less: imputed interest, finance lease | (1) |
| Total, operating lease | 1,966 |
| Total, finance lease | $ 17 |
Note 3 - Commitments - Supplement Information Related to Leases (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Operating lease costs | $ 328 | $ 308 | $ 948 | $ 1,072 |
| Variable operating lease costs | 13 | 2 | 13 | 23 |
| Total operating lease cost | 341 | 310 | 961 | 1,095 |
| Amortization of right-of-use assets | 3 | 19 | 6 | 59 |
| Interest on lease liabilities | 0 | 0 | 0 | 3 |
| Total finance lease cost | $ 3 | $ 19 | $ 6 | $ 62 |
Note 3 - Commitments - Supplement Cash Flow Information (Details) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Operating cash outflows for operating leases | $ 914 | $ 984 |
| Operating cash outflows for finance leases | 0 | 3 |
| Financing cash outflows for finance leases | $ 9 | $ 62 |
| Operating leases (Year) | 2 years 6 months | 2 years 2 months 12 days |
| Finance leases (Year) | 2 years 7 months 6 days | 2 years 3 months 18 days |
| Operating leases | 3.92% | 2.11% |
| Finance leases | 2.40% | 4.52% |
Note 4 - Credit Arrangements - Annual Principal Payments (Details) $ in Thousands |
Jun. 30, 2023
USD ($)
|
|---|---|
| 2023 (remaining) | $ 615 |
| 2024 | 4,535 |
| 2025 | 4,557 |
| 2026 | 854 |
| 2027 | 113 |
| Thereafter | 239 |
| Add: Discount on Notes Payable & Debt Issuance Costs & Loan Premium | 81 |
| Total principal payments | $ 10,994 |
Note 5 - Income Taxes (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
Sep. 30, 2022 |
|
| Income Tax Examination, Penalties and Interest Accrued | $ 0 | $ 0 | $ 0 | ||
| Income Tax Examination, Penalties and Interest Expense | 0 | $ 0 | 0 | $ 0 | |
| Deferred Income Tax Assets, Net | $ 0 | $ 0 | $ 275 | ||
Note 6 - Revenue 1 (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2023 |
Jun. 30, 2022 |
Jun. 30, 2023 |
Jun. 30, 2022 |
|
| Contract with Customer, Liability, Revenue Recognized | $ 2,300 | $ 2,000 | $ 7,800 | $ 8,500 |
| Capitalized Contract Cost, Amortization | $ 46 | $ 85 | $ 205 | $ 346 |