REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders, Audit Committee and Board of Directors
Sonic Foundry, Inc. and Subsidiaries
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Sonic Foundry, Inc. and Subsidiaries (the "Company") as of September 30, 2018, the related consolidated statements of operations, comprehensive loss, stockholders' deficit, and cash flows for the year ended September 30, 2018, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2018, and the results of its operations and its cash flows for the year ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BAKER TILLY VIRCHOW KRAUSE, LLP
We served as the Company's auditor from 2014 to 2018.
Madison, Wisconsin
March 15, 2019
Sonic Foundry, Inc.
Consolidated Balance Sheets
(in thousands, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
Assets
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
4,295
|
|
|
$
|
1,189
|
|
|
Accounts receivable, net of allowances of $135 and $524
|
6,532
|
|
|
7,418
|
|
|
Financing receivables, current, net of allowances of $526
|
—
|
|
|
100
|
|
|
Inventories
|
558
|
|
|
1,027
|
|
|
Investment in sales-type lease, current
|
163
|
|
|
150
|
|
|
Capitalized commissions, current
|
464
|
|
|
—
|
|
|
Prepaid expenses and other current assets
|
972
|
|
|
941
|
|
|
Total current assets
|
12,984
|
|
|
10,825
|
|
|
Property and equipment:
|
|
|
|
|
Leasehold improvements
|
1,121
|
|
|
1,105
|
|
|
Computer equipment
|
5,610
|
|
|
5,718
|
|
|
Furniture and fixtures
|
1,233
|
|
|
1,099
|
|
|
Total property and equipment
|
7,964
|
|
|
7,922
|
|
|
Less accumulated depreciation and amortization
|
6,396
|
|
|
6,009
|
|
|
Property and equipment, net
|
1,568
|
|
|
1,913
|
|
|
Other assets:
|
|
|
|
|
Financing receivables, long-term
|
—
|
|
|
181
|
|
|
Investment in sales-type lease, long-term
|
134
|
|
|
249
|
|
|
Capitalized commissions, long-term
|
106
|
|
|
—
|
|
|
Other long-term assets
|
388
|
|
|
415
|
|
|
Total assets
|
$
|
15,180
|
|
|
$
|
13,583
|
|
|
Liabilities and stockholders’ equity (deficit)
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Revolving lines of credit
|
$
|
—
|
|
|
$
|
885
|
|
|
Accounts payable
|
843
|
|
|
1,610
|
|
|
Accrued liabilities
|
2,216
|
|
|
1,609
|
|
|
Unearned revenue
|
9,610
|
|
|
11,645
|
|
|
Current portion of capital lease and financing arrangements
|
194
|
|
|
248
|
|
|
Current portion of notes payable and warrant debt, net of discounts
|
968
|
|
|
593
|
|
|
Total current liabilities
|
13,831
|
|
|
16,590
|
|
|
Long-term portion of unearned revenue
|
1,842
|
|
|
1,691
|
|
|
Long-term portion of capital lease and financing arrangements
|
179
|
|
|
187
|
|
|
Long-term portion of notes payable and warrant debt, net of discounts
|
5,429
|
|
|
1,357
|
|
|
Derivative liability, at fair value
|
9
|
|
|
14
|
|
|
Other liabilities
|
143
|
|
|
202
|
|
|
Total liabilities
|
21,433
|
|
|
20,041
|
|
|
Commitments and contingencies
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
Preferred stock, $.01 par value, authorized 500,000 shares; none issued
|
—
|
|
|
—
|
|
|
9% Preferred stock, Series A, voting, cumulative, convertible, $.01 par value (liquidation preference of $1,000 per share), authorized 4,500 shares; zero and 2,678 shares issued and outstanding, respectively, at amounts paid in
|
—
|
|
|
1,651
|
|
|
5% Preferred stock, Series B, voting, cumulative, convertible, $.01 par value (liquidation preference at par), authorized 1,000,000 shares, none issued
|
—
|
|
|
—
|
|
|
Common stock, $.01 par value, authorized 10,000,000 shares; 6,749,359 and 5,113,400 shares issued and 6,736,643 and 5,100,684 shares outstanding
|
67
|
|
|
51
|
|
|
Additional paid-in capital
|
203,735
|
|
|
200,130
|
|
|
Accumulated deficit
|
(209,340
|
)
|
|
(207,419
|
)
|
|
Accumulated other comprehensive loss
|
(546
|
)
|
|
(676
|
)
|
Sonic Foundry, Inc.
Consolidated Balance Sheets
(in thousands, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Receivable for common stock issued
|
—
|
|
|
(26
|
)
|
|
Treasury stock, at cost, 12,716 shares
|
(169
|
)
|
|
(169
|
)
|
|
Total stockholders’ equity (deficit)
|
(6,253
|
)
|
|
(6,458
|
)
|
|
Total liabilities and stockholders’ equity (deficit)
|
$
|
15,180
|
|
|
$
|
13,583
|
|
See accompanying notes to the consolidated financial statements.
Sonic Foundry, Inc.
Consolidated Statements of Operations
(in thousands, except for share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
2019
|
|
2018
|
|
Revenue:
|
|
|
|
|
Product and other
|
$
|
11,631
|
|
|
$
|
12,311
|
|
|
Services
|
23,150
|
|
|
22,233
|
|
|
Total revenue
|
34,781
|
|
|
34,544
|
|
|
Cost of revenue:
|
|
|
|
|
Product and other
|
4,387
|
|
|
5,231
|
|
|
Services
|
4,893
|
|
|
4,425
|
|
|
Total cost of revenue
|
9,280
|
|
|
9,656
|
|
|
Gross margin
|
25,501
|
|
|
24,888
|
|
|
Operating expenses:
|
|
|
|
|
Selling and marketing
|
14,727
|
|
|
15,622
|
|
|
General and administrative
|
5,929
|
|
|
6,354
|
|
|
Product development
|
7,353
|
|
|
7,142
|
|
|
Impairment of goodwill and intangible assets
|
—
|
|
|
11,809
|
|
|
Total operating expenses
|
28,009
|
|
|
40,927
|
|
|
Loss from operations
|
(2,508
|
)
|
|
(16,039
|
)
|
|
Non-operating income (expenses):
|
|
|
|
|
Interest expense, net
|
(897
|
)
|
|
(601
|
)
|
|
Other income (expense), net
|
(117
|
)
|
|
142
|
|
|
Total non-operating expenses
|
(1,014
|
)
|
|
(459
|
)
|
|
Loss before income taxes
|
(3,522
|
)
|
|
(16,498
|
)
|
|
Income tax benefit (provision)
|
(90
|
)
|
|
4,332
|
|
|
Net loss
|
$
|
(3,612
|
)
|
|
$
|
(12,166
|
)
|
|
Dividends on preferred stock
|
(122
|
)
|
|
(257
|
)
|
|
Net loss attributable to common stockholders
|
$
|
(3,734
|
)
|
|
$
|
(12,423
|
)
|
|
Loss per common share:
|
|
|
|
|
Basic net loss per common share
|
$
|
(0.64
|
)
|
|
$
|
(2.67
|
)
|
|
Diluted net loss per common share
|
$
|
(0.64
|
)
|
|
$
|
(2.67
|
)
|
|
Weighted average common shares – Basic
|
5,833,301
|
|
|
4,655,520
|
|
|
– Diluted
|
5,833,301
|
|
|
4,655,520
|
|
See accompanying notes to the consolidated financial statements.
Sonic Foundry, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
2019
|
|
2018
|
|
Net loss
|
$
|
(3,612
|
)
|
|
$
|
(12,166
|
)
|
|
Foreign currency translation adjustment
|
130
|
|
|
(81
|
)
|
|
Comprehensive loss
|
$
|
(3,482
|
)
|
|
$
|
(12,247
|
)
|
See accompanying notes to the consolidated financial statements.
Sonic Foundry, Inc.
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, September 30, 2017
|
$
|
1,280
|
|
|
$
|
45
|
|
|
$
|
197,836
|
|
|
$
|
(195,253
|
)
|
|
$
|
(595
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
3,118
|
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
476
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
476
|
|
|
Issuance of preferred stock
|
1,531
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,531
|
|
|
Conversion of preferred stock
|
(1,390
|
)
|
|
4
|
|
|
1,386
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of common stock
|
—
|
|
|
2
|
|
|
592
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
594
|
|
|
Beneficial conversion feature on convertible debt
|
—
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|
Preferred stock dividends
|
230
|
|
|
—
|
|
|
(230
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(81
|
)
|
|
—
|
|
|
—
|
|
|
(81
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,166
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,166
|
)
|
|
Balance, September 30, 2018
|
$
|
1,651
|
|
|
$
|
51
|
|
|
$
|
200,130
|
|
|
$
|
(207,419
|
)
|
|
$
|
(676
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(6,458
|
)
|
|
Cumulative effect of ASC 606 adoption Note 9
|
—
|
|
|
—
|
|
|
—
|
|
|
1,691
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,691
|
|
|
Adjusted balance, October 1, 2018
|
1,651
|
|
|
51
|
|
|
200,130
|
|
|
(205,728
|
)
|
|
(676
|
)
|
|
(26
|
)
|
|
(169
|
)
|
|
(4,767
|
)
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
177
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
177
|
|
|
Conversion of preferred stock
|
(1,773
|
)
|
|
6
|
|
|
1,767
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of common stock and warrants
|
—
|
|
|
10
|
|
|
1,109
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,119
|
|
|
Warrants issued in connection with subordinated notes payable
|
—
|
|
|
—
|
|
|
674
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
674
|
|
|
Preferred stock dividends
|
122
|
|
|
—
|
|
|
(122
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Cancellation of receivable for common stock issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
—
|
|
|
130
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,612
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,612
|
)
|
|
Balance, September 30, 2019
|
$
|
—
|
|
|
$
|
67
|
|
|
$
|
203,735
|
|
|
$
|
(209,340
|
)
|
|
$
|
(546
|
)
|
|
$
|
—
|
|
|
$
|
(169
|
)
|
|
$
|
(6,253
|
)
|
See accompanying notes to the consolidated financial statements.
Sonic Foundry, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
September 30,
|
|
|
2019
|
|
2018
|
|
Operating activities
|
|
|
|
|
Net loss
|
$
|
(3,612
|
)
|
|
$
|
(12,166
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
Amortization of other intangibles
|
307
|
|
|
621
|
|
|
Depreciation and amortization of property and equipment
|
970
|
|
|
1,118
|
|
|
Impairment of goodwill and intangible assets
|
—
|
|
|
11,809
|
|
|
Loss on sale of fixed assets
|
8
|
|
|
—
|
|
|
Provision for doubtful accounts - including financing receivables
|
116
|
|
|
475
|
|
|
Deferred taxes
|
—
|
|
|
(4,450
|
)
|
|
Stock-based compensation expense related to stock options and warrants
|
177
|
|
|
476
|
|
|
Stock issued for board of director's fees
|
246
|
|
|
—
|
|
|
Deferred loan interest to related party
|
259
|
|
|
—
|
|
|
Conversion of accrued interest to preferred stock
|
—
|
|
|
31
|
|
|
Beneficial conversion feature recognized on debt converted to preferred stock
|
—
|
|
|
70
|
|
|
Remeasurement gain on derivative liability
|
(8
|
)
|
|
(28
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
950
|
|
|
348
|
|
|
Financing receivables
|
293
|
|
|
1,630
|
|
|
Inventories
|
472
|
|
|
(41
|
)
|
|
Investment in lease
|
120
|
|
|
158
|
|
|
Capitalized commissions
|
123
|
|
|
—
|
|
|
Prepaid expenses and other current assets
|
15
|
|
|
132
|
|
|
Accounts payable and accrued liabilities
|
(204
|
)
|
|
268
|
|
|
Other long-term liabilities
|
(68
|
)
|
|
(169
|
)
|
|
Unearned revenue
|
(900
|
)
|
|
(920
|
)
|
|
Net cash used in operating activities
|
(736
|
)
|
|
(638
|
)
|
|
Investing activities
|
|
|
|
|
Purchases of property and equipment
|
(433
|
)
|
|
(840
|
)
|
|
Net cash used in investing activities
|
(433
|
)
|
|
(840
|
)
|
|
Financing activities
|
|
|
|
|
Proceeds from notes payable
|
5,500
|
|
|
3,000
|
|
|
Proceeds from lines of credit
|
9,199
|
|
|
22,236
|
|
|
Payments on notes payable
|
(833
|
)
|
|
(815
|
)
|
|
Payments on lines of credit
|
(10,098
|
)
|
|
(23,422
|
)
|
|
Payments of debt issuance costs
|
(110
|
)
|
|
(97
|
)
|
|
Payments to settle put on term debt
|
—
|
|
|
(200
|
)
|
|
Proceeds from issuance of preferred stock and common stock
|
873
|
|
|
1,094
|
|
|
Payments on capital lease and financing arrangements
|
(250
|
)
|
|
(298
|
)
|
|
Net cash provided by financing activities
|
4,281
|
|
|
1,498
|
|
|
Changes in cash and cash equivalents due to changes in foreign currency
|
(6
|
)
|
|
(42
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
3,106
|
|
|
(22
|
)
|
|
Cash and cash equivalents at beginning of year
|
1,189
|
|
|
1,211
|
|
|
Cash and cash equivalents at end of year
|
$
|
4,295
|
|
|
$
|
1,189
|
|
|
Supplemental cash flow information:
|
|
|
|
Sonic Foundry, Inc.
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
$
|
618
|
|
|
$
|
409
|
|
|
Income taxes paid, foreign
|
99
|
|
|
112
|
|
|
Non-cash financing and investing activities:
|
|
|
|
|
Property and equipment financed by capital lease or accounts payable
|
186
|
|
|
460
|
|
|
Debt discount and warrant
|
679
|
|
|
127
|
|
|
Deemed dividend for beneficial conversion feature of preferred stock
|
—
|
|
|
28
|
|
|
Preferred stock dividend paid in additional shares
|
122
|
|
|
230
|
|
|
Subordinated note payable converted to preferred stock
|
—
|
|
|
1,000
|
|
|
Conversion of preferred shares to common shares
|
1,773
|
|
|
1,390
|
|
See accompanying notes to the consolidated financial statements.
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
1. Basis of Presentation and Significant Accounting Policies
Business
Sonic Foundry, Inc. (the Company) is in the business of providing enterprise solutions and services for the web communications market.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Sonic Foundry Media Systems, Inc., Sonic Foundry International B.V. (formerly Media Mission B.V.) and Mediasite K.K. All significant intercompany transactions and balances have been eliminated.
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the period. Actual results could differ from those estimates.
Assets Recognized From the Costs to Obtain a Contract With a Customer
Sales commissions and related expenses are considered incremental and recoverable costs of acquiring customer contracts. Effective October 1, 2018, these costs are capitalized and amortized on a straight-line basis over the anticipated period of benefit, which we have determined to be the contract period, typically around 12 months. Assets recorded are included in current assets and other long-term assets. Amortization expense is recorded in sales and marketing expense within our 2019 consolidated statement of operations. We calculate a quarterly average percentage based on actual commissions incurred on billings during the same period and apply that percentage to the respective periods’ unearned revenues to determine the capitalized commission amount.
Revenue Recognition
We generate revenues in the form of hardware sales of our Mediasite recorder and Mediasite related products, such as our server software and other software licenses and related customer support and services fees, including hosting, installations and training. Software license revenues include fees from sales of perpetual and term licenses. Maintenance and services revenues primarily consist of fees for maintenance services (including support and unspecified upgrades and enhancements when and if they are available), hosting, installation, training and other professional services.
Invoices are billed when a customer contract, purchase order or signed quote is obtained from the customer. No revenue is recognized prior to such a customer authorization. In some renewal circumstances, we continue to provide services, typically customer support, during the period when our sales team is working to obtain a customer authorization to avoid customer attrition. Typically, we would bill for this period such that the customer support contract does not lapse. Consistent with historical company practices, we would recognize revenue for the periods where services have already been rendered once customer authorization has occurred.
Products
Products are considered delivered, and revenue is recognized, when title and risk of loss have been transferred to the customer or upon customer acceptance if non-delivered products or services are essential to the functionality of delivered products. Under the terms and conditions of the sale, this occurs at the time of shipment to the customer. Product revenue currently represents sales of our Mediasite recorder and Mediasite related products such as our server software and other software licenses.
Services
The Company sells support and content hosting contracts to our customers, typically one year in length, and records the related revenue ratably over the contractual period. Our support contracts cover phone and electronic technical support availability over and above the level provided by our distributors, software upgrades on a when and if available basis, advance hardware replacement and an extension of the standard hardware warranty from 90 days to one year. The manufacturers the Company contracts with to build the units provide a limited one-year warranty on the hardware. The Company also sells installation, training, event webcasting, and customer content hosting services. Revenue for those services is recognized when performed in the case of installation, training and event webcasting services. Occasionally, the Company will sell customization services to enhance the server software. Revenue
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
from those services is recognized when performed, if perfunctory, or under contract accounting. Service amounts invoiced to customers in excess of revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met.
Revenue Recognition - ASC 606 Adopted Effective October 1, 2018
In accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps:
|
|
|
|
1.
|
Identify the contract with a customer. A contract with a customer exists when: (1) we and the customer have approved the contract and both parties are committed to perform their respective obligations; (2) we can identify each party’s rights regarding the products or services to be transferred; (3) we can identify the payment terms for the products or services to be transferred; (4) the contract has commercial substance as our future cash flows are expected to change; and (5) it is probable that we will collect substantially all of the consideration to which we are entitled in exchange for the products or services. Any subsequent contract modifications are analyzed to determine the treatment of the contract modification as a separate contract, prospectively or through a cumulative catch-up adjustment.
|
|
|
|
|
2.
|
Identify the performance obligations in the contract. Performance obligations are promises to transfer a good or service to the customer. Performance obligations may be each individual promise in a contract, or may be groups of promises within a contract that significantly affect one another. To the extent a contract includes multiple promises, we must apply judgment to determine whether promises are capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promises are accounted for as a combined performance obligation.
|
|
|
|
|
3.
|
Determine the transaction price. The transaction price is the total amount of consideration to which we expect to be entitled in exchange for transferring promised products and services to a customer.
|
|
|
|
|
4.
|
Allocate the transaction price to performance obligations in the contract. The allocation of the transaction price to performance obligations is generally done in proportion to their standalone selling prices (“SSP”). SSP is the price that we would sell a distinct product or service separately to a customer and is determined at contract inception.
|
If SSP is not available through the analysis of observable inputs, this step is subject to significant judgment and additional analysis so that we can establish an estimated SSP. The estimated SSP considers historical information, including demand, trends and information about the customer or class of customers.
|
|
|
|
5.
|
Recognize revenues when or as the company satisfies a performance obligation. We recognize revenues when, or as, distinct performance obligations are satisfied by transferring control of the product or service to the customer. A performance obligation is considered transferred when the customer obtains control of the product or service. Transfer of control is typically evaluated from the customer's perspective. At contract inception, we determine whether we satisfy the performance obligation over time or at a point in time. Revenue is recognized when performance obligations are satisfied.
|
Our contract payment terms are typically net 30 days. We assess collectability based on a number of factors including collection history and creditworthiness of the customer, and we may mitigate exposures to credit risk by requiring payments in advance. If we determine that collectability related to a contract is not probable, we may not record revenue until collectability becomes probable at a later date.
Our revenues are recorded based on the transaction price excluding amounts collected on behalf of third parties such as sales taxes, which are collected on behalf of and remitted to governmental authorities.
Nature of Products and Services
Certain software licenses are sold either on-premise or through term-based hosting agreements. These hosting arrangements provide customers with the same product functionality and differ mainly in the duration over which the customer benefits from the software. We deliver our software licenses electronically. Electronic delivery occurs when we provide the customer with access to the software and license key via a secure portal. Revenue from on-premise software licenses is generally recognized upfront at the point in time when the software is made available to the customer. Revenue from term-based hosted licenses are recognized ratably over the term of the agreement.
Our contracts with customers for on-premise and hosted software licenses include maintenance services and may also include training and/or professional services. Maintenance services agreements consist of fees for providing software updates on an if and when available basis and for providing technical support for software products for a specified term. We believe that our software
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
updates and technical support each have the same pattern of transfer to the customer and are substantially the same. Therefore, we consider these updates and technical support to be a single distinct performance obligation. Revenues allocated to maintenance services are recognized ratably over the term of the agreement. Revenues related to training services are billed on a fixed fee basis and are recognized as the services are delivered. Payments received in advance of services performed are deferred and recognized when the related services are performed. Revenues related to professional services are recognized as the services are performed.
In the case of the Company’s hardware products with embedded software, the Company has determined that the hardware and software components function together to deliver the product’s essential functionality, and therefore, are considered to be one performance obligation. The revenue from the sale of these products along with other products and services we provide requires an allocation of transaction price based on the stand-alone selling price of each component.
The Company also offers hosting services bundled with events services. The Company recognizes events revenue when the event takes place and recognizes the hosting revenue over the term of the hosting agreement.
Judgments and Estimates
Our contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately from one another sometimes requires judgment.
Judgment is required to determine standalone selling prices (“SSP”) for each distinct performance obligation. We typically have more than one SSP for each of our products and services based on customer stratification, which is based on the size of the customer, their geographic region and market segment. We use a cost plus margin approach to determine SSPs for hardware. We use historical sales data to determine SSPs for perpetual software licenses. For both on-premise and term-hosted agreements, events services, training and professional services, SSPs are generally observable using internally developed pricing calculators and/or price sheets. For maintenance services, SSPs are generally observable using historical renewal data.
Our revenue recognition accounting policy for ASC 605 is included below. Information presented for 2018 and prior years is in accordance with ASC 605 revenue recognition policies.
Revenue Recognition - ASC 985-605 and 605
General
Revenue is recognized when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectability is reasonably assured. Revenue is deferred when undelivered products or services are essential to the functionality of delivered products, customer acceptance is uncertain, significant obligations remain, or the fair value of undelivered elements is unknown. Typically, the Company does not offer customers the right to return product, other than for exchange or repair pursuant to a warranty or stock rotation. The Company’s policy is to reduce revenue if it incurs an obligation for price rebates or other such programs during the period the obligation is reasonably estimated to occur. The following policies apply to the Company’s major categories of revenue transactions.
Revenue Arrangements that Include Multiple Elements
Sales of software, with or without installation, training, and post customer support fall within the scope of the software revenue recognition rules. Under the software revenue recognition rules, the fee from a multiple-deliverable arrangement is allocated to each of the undelivered elements based upon vendor-specific objective evidence (VSOE), which is limited to the price charged when the same deliverable is sold separately, with the residual value from the arrangement allocated to the delivered element. The portion of the fee that is allocated to each deliverable is then recognized as revenue when the criteria for revenue recognition are met with respect to that deliverable. If VSOE does not exist for all of the undelivered elements, then all revenue from the arrangement is typically deferred until all elements have been delivered to the customer.
In the case of the Company’s hardware products with embedded software, the Company has determined that the hardware and software components function together to deliver the product’s essential functionality, and therefore, the revenue from the sale of these products is accounted for under the revenue recognition rules for tangible products whereby the fee from a multiple-deliverable arrangement is allocated to each of the deliverables based upon their relative selling prices as determined by a selling-price hierarchy. A deliverable in an arrangement qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis. A delivered item that does not qualify as a separate unit of accounting is combined with the other undelivered items in the arrangement and revenue is recognized for those combined deliverables as a single unit of accounting. The selling price used for each deliverable is based upon VSOE if available, from third-party evidence (TPE) if VSOE is not available, and best estimate of selling price (ESP) if neither VSOE nor TPE are available. TPE is the price of the Company’s or any competitor’s
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
largely interchangeable products or services in stand-alone sales to similarly situated customers. ESP is the price at which the Company would sell the deliverable if it were sold regularly on a stand-alone basis, considering market conditions and entity-specific factors. All revenue arrangements, excluding the sale of all software-only products and associated services, have been accounted for under this guidance.
The selling prices used in the relative selling price allocation method are as follows: (1)the Company’s products and services are based upon VSOE and (2) hardware products with embedded software, for which VSOE does not exist, are based upon ESP. The Company does not believe TPE exists for any of these products and services because they are differentiated from competing products and services in terms of functionality and performance and there are no competing products or services that are largely interchangeable. Management establishes ESP for hardware products with embedded software using a cost plus margin approach with consideration for market conditions, such as the impact of competition and geographic considerations, and entity-specific factors, such as the cost of the product and the Company’s profit objectives. Management believes that ESP is reflective of reasonable pricing of that deliverable as if priced on a stand-alone basis. When a sales transaction includes deliverables that are divided between Accounting Standards Codification (ASC) Topic 605 and ASC Subtopic 985-605, the Company allocates the selling price using the relative selling price method whereas value is allocated using an ESP for software developed using a percent of list price approach. The other deliverables are valued using ESP or VSOE as previously discussed.
While the pricing model captures all critical variables, unforeseen changes due to external market forces may result in a revision of the inputs. These modifications may result in the consideration allocation differing from the one presently in use. Absent a significant change in the pricing inputs or the way in which the industry structures its transactions, future changes in the pricing model are not expected to materially affect our allocation of arrangement consideration.
Management has established VSOE for hosting services. Billings for hosting are spread ratably over the term of the hosting agreement, with the typical hosting agreement having a term of 1 year, with renewal on an annual basis. The Company sells most hosting contracts without the inclusion of products. When the hosting arrangement is sold in conjunction with product, the product revenue is recognized immediately while the remaining hosting revenue is spread ratably over the term of the hosting agreement. The selling price is allocated between these elements using the relative selling price method. The Company uses ESP for development of the selling price for hardware products with embedded software.
The Company also offers hosting services bundled with events services. The Company uses VSOE to establish relative selling prices for its events services. The Company recognizes events revenue when the event takes place and recognizes the hosting revenue over the term of the hosting agreement. The total amount of the arrangement is allocated to each element based on the relative selling price method.
Reserves
The Company reserves for stock rotations, price adjustments, rebates, and sales incentives to reduce revenue and accounts receivable for these and other credits granted to customers. Such reserves are recorded at the time of sale and are calculated based on historical information (such as rates of product stock rotations) and the specific terms of sales programs, taking into account any other known information about likely customer behavior. If actual customer behavior differs from our expectations, it may compromise our ability to recognize revenue to these distributors at the time of shipment. Also, if the Company determines that it can no longer accurately estimate amounts for stock rotations and sales incentives, the Company would not be able to recognize revenue until resellers sell the inventory to the final end user.
Shipping and Handling
The Company’s shipping and handling costs billed to customers are included in other revenue. Costs related to shipping and handling are included in cost of revenue and are recorded at the time of shipment to the customer. As a result of the adoption of ASC 606, shipping and handling revenue is included in the relative selling price allocation method effective October 1, 2018.
Concentration of Credit Risk and Other Risks and Uncertainties
As of September 30, 2019, of the $4.3 million in cash and cash equivalents, $3.0 million is deposited with 2 major U.S. financial institutions. At times, deposits in these institutions exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on such amounts and believes that it is not exposed to any significant credit risk on these balances. The remaining $1.3 million of cash and cash equivalents is held by our foreign subsidiaries in financial institutions in Japan and the
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
Netherlands and held in their local currency. The cash held in foreign financial institutions is not guaranteed. If the funds held by our foreign subsidiaries were needed for our operations in the United States, the repatriation of some of these funds to the United States could require payment of additional U.S. taxes.
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 whiles 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 on the consolidated statements of operations.
During fiscal 2019, the Company recorded an aggregate transaction loss of $157 thousand compared to an aggregate gain of $6 thousand during fiscal 2018. The aggregate transaction gain or loss is included in the other expense line of the consolidated statements of operations.
We assess the realization of our receivables by performing ongoing credit evaluations of our customers’ financial condition. Through these evaluations, we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. Our reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received. Our reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. Allowance for doubtful accounts for accounts receivable and financing receivables was $661 thousand at September 30, 2019 and $1.0 million at September 30, 2018.
We had billings for Mediasite product and support services as a percentage of total billings to one distributor of less than 1% in 2019 and approximately 6% in 2018 and to a second distributor of less than 1% in 2019 and approximately 11% in 2018. At September 30, 2019 and 2018, these two distributors represented 0% and 28% of total accounts receivable, respectively. The reduction in both billings and accounts receivable concentration is a result of the planned reduction in inventory sold through distribution.
Currently all of our product inventory purchases are from one third-party contract manufacturer. Although we believe there are multiple sources of supply from other contract manufacturers as well as multiple suppliers of component parts required by the contract manufacturers, a disruption of supply of component parts or completed products, even if short term, would have a material negative impact on our revenues. At September 30, 2019 and 2018, this supplier represented 31% and 29%, respectively, of total accounts payable. We also license technology from third parties that is embedded in our software. We believe there are alternative sources of similar licensed technology from other third parties that we could also embed in our software, although it could create potential programming related issues that might require engineering resources.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Trade Accounts Receivable
The majority of the Company’s accounts receivable are due from entities in, or distributors or value-added resellers to, the education, corporate and government sectors. Credit is extended based on evaluation of a customer’s financial condition and, generally, collateral is not required. Accounts receivable are typically due within 30 days and are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered to be past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Interest is not accrued on past due receivables.
Financing Receivables
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
Financing receivables consist of customer receivables resulting from the sale of the Company's products and services, primarily software and long-term customer support contracts, and are presented net of allowance for losses. The Company has a single portfolio consisting of fixed-term receivables, which is further segregated into two classes based on type of product and lease.
The Company generally determines its allowance for losses on financing receivables at the customer class level by considering a number of factors, including the length of time financing receivable are past due, historical and anticipated experience, the customer’s current ability to pay its obligation, and the condition of the general economy and the industry as a whole. The Company writes-off financing receivables when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for financing receivable losses. Interest is not accrued on past due receivables. There was an allowance of $526 thousand at both September 30, 2019 and September 30, 2018.
The Company's financing receivables are aggregated into the following categories:
Long-term customer support contracts: These contracts are typically entered into in conjunction with sale-type lease arrangements, over the life of which the Company agrees to provide support services similar to those offered within Mediasite Customer Care plans. Contract terms range from 3-5 years, and payments are generally due from the customer annually on the contract anniversary. All amounts due were current as of the balance sheet date and there are no credit losses expected to be incurred related to long-term support contracts.
Product receivables: Amounts due primarily represent sales of perpetual software licenses to a single international distributor on invoices outstanding for product delivered from March 2016 through June 2017. The entire balance of product receivables as of September 30, 2019 is made up of the product finance receivable that is fully reserved. The entire allowance for losses on financing receivables of $526 thousand is considered attributable to this class of customer as of September 30, 2019 and 2018. A balance of $281 thousand was outstanding on the product receivables, net of allowance, as of September 30, 2018.
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 consisted of the following (in thousands) as of September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
Investment in sales-type lease, gross:
|
|
|
|
2020
|
$
|
167
|
|
|
2021
|
134
|
|
|
Gross investment in sales-type lease
|
301
|
|
|
Less: Unearned income
|
(4
|
)
|
|
Total investment in sales-type lease
|
$
|
297
|
|
|
|
|
|
Current portion of total investment in sales-type lease
|
$
|
163
|
|
|
Long-term portion of total investment in sales-type lease
|
134
|
|
|
|
$
|
297
|
|
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.
Inventory consists of the following (in thousands):
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
Raw materials and supplies
|
$
|
163
|
|
|
$
|
358
|
|
|
Finished goods
|
395
|
|
|
669
|
|
|
|
$
|
558
|
|
|
$
|
1,027
|
|
Software Development Costs
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 the net realizable value of the related product. Typically, the period between achieving technological feasibility of the Company’s products and the general availability of the products has been short. Consequently, software development costs qualifying for capitalization are typically immaterial and are generally expensed to research and development costs.
Property and Equipment
Property and equipment are recorded at cost and are depreciated using the straight-line method for financial reporting purposes. The estimated useful lives used to calculate depreciation are as follows:
|
|
|
|
|
|
|
Years
|
|
Leasehold improvements
|
5 to 15 years
|
|
Computer equipment
|
1.5 to 5 years
|
|
Furniture and fixtures
|
3 to 15 years
|
Depreciation expense is not included in cost of good sold.
Impairment of Long-Lived Assets
Goodwill had an indefinite useful life and was recorded at cost and not amortized but, instead, tested at least annually for impairment. We assessed the impairment of goodwill on an annual basis or whenever events or changes in circumstances indicated that the fair value of these assets was less than the carrying value. If a qualitative assessment was used and the Company determined that the fair value of goodwill was more likely than not (i.e., a likelihood of more than 50%) less than its carrying amount, a quantitative impairment test would be performed. If goodwill was quantitatively assessed for impairment, the Company compared the estimated fair value of the reporting unit to which goodwill was allocated to its carrying value. The amount of impairment, if any, is equal to the amount by which the carrying value of the reporting unit exceeds its fair value.
Long-lived assets and intangible assets other than goodwill are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. Key assumptions utilized in the analysis of undiscounted cash flows for each asset or asset group being tested included 1) whether cash flows were attributable solely to the asset or group, or to an entire reporting unit; and 2) the useful lives of the asset or asset group. Forecasts used in the analysis were also consistent with those used in determining fair value of reporting units during goodwill impairment testing.
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 September 30, 2019, the Company has recorded a liability of $129 thousand for retirement obligations associated with returning the MSKK leased property to the respective lessors upon the termination of the lease arrangement.
A summary of the changes in the ARO is included in the table below (amounts in thousands):
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
Asset retirement obligation at September 30, 2017
|
$
|
120
|
|
|
Accretion expense
|
1
|
|
|
Asset retirement obligation at September 30, 2018
|
121
|
|
|
Accretion expense
|
2
|
|
|
Foreign currency changes
|
6
|
|
|
Asset retirement obligation at September 30, 2019
|
$
|
129
|
|
Comprehensive Loss
Comprehensive loss includes disclosure of financial information that historically has not been recognized in the calculation of net income. Our comprehensive loss encompasses net loss and foreign currency translation adjustments. Assets and liabilities of international operations that have a functional currency that is not in U.S. dollars are translated into U.S. dollars at year-end exchange rates, and revenue and expense items are translated using weighted average exchange rates. Any adjustments arising on translation are included in stockholders’ equity (deficit) as an element of accumulated other comprehensive loss.
Advertising Expense
Advertising costs included in selling and marketing, are expensed when the advertising first takes place. Advertising expense was $444 thousand and $451 thousand for years ended September 30, 2019 and 2018, respectively.
Research and Development Costs
Research and development costs are expensed in the period incurred, unless they meet the criteria for capitalized software development costs.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. We do not provide for U.S. income taxes on the undistributed earnings of our foreign subsidiaries, which we consider to be permanently invested outside of the U.S.
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, 2019 and 2018, valuation allowances have 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.
The Company also accounts for the uncertainty in income taxes related to the recognition and measurement of a tax position and measurement of a tax position taken or expected to be taken in an income tax return. The Company follows the applicable accounting guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure related to the uncertainty in income tax positions.
Fair Value of Financial Instruments
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
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 a Recurring Basis
The fair value of the bifurcated conversion feature represented by the warrant derivative liability associated with the PFG debt 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):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Fair Value
|
|
Derivative liability
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Fair Value
|
|
Derivative liability
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
14
|
|
The gain or loss related to the fair value remeasurement on the derivative liability is included in the other income (expense) line on the Consolidated Statements of Operations.
Financial Liabilities Measured at Fair Value on a Nonrecurring Basis
The initial fair values of PFG debt and warrant debt (see Note 3) 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).
The Burish warrant was measured at fair value using a Black Scholes model and the remaining fair value was allocated to the related Burish note purchase agreement (see Note 3) which management believes materially approximates the fair value based on calculating the present value of expected future cash flows (Level 3). The non-recurring fair value measurements were performed as of the date of issuance of the note purchase agreement and warrant. The discount is being amortized over the life of the related debt.
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, financing receivables, accounts payable and debt instruments and capital lease obligations. The book values of cash and cash equivalents, accounts receivable, investment in sales-type lease, and accounts payable are considered to be
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
representative of their respective fair values due their short term nature. The carrying value of capital lease obligations and 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 for either of the years ended September 30, 2019 or 2018.
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:
|
|
|
|
|
|
|
|
|
Years Ending September 30,
|
|
|
2019
|
|
2018
|
|
Expected life
|
4.3 - 4.5 years
|
|
4.3 - 4.4 years
|
|
Risk-free interest rate
|
1.43%-2.93%
|
|
1.79%-2.75%
|
|
Expected volatility
|
60.19%-70.63%
|
|
60.62%-63.49%
|
|
Expected forfeiture rate
|
13.51%-14.79%
|
|
12.53%-14.58%
|
|
Expected exercise factor
|
1.2
|
|
1.00-1.17
|
|
Expected dividend yield
|
—%
|
|
—%
|
Preferred Stock and Dividends
The Company considered relevant guidance when accounting for the issuance of preferred stock, and determined that the preferred shares meet the criteria for equity classification. Dividends accrued on preferred shares will be shown as a reduction to net income (or an increase in net loss) for purposes of calculating earnings per common share. See Note 5 - Stockholders' Equity (Deficit) for further details.
Per Share Computation
Basic earnings (loss) per share has been computed using the weighted-average number of shares of common stock outstanding during the period, less shares that may be repurchased, 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) attributable to common stockholders. The following table sets forth the computation of basic and diluted weighted average shares used in the earnings per share calculations:
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Years Ending
September 30,
|
|
|
2019
|
|
2018
|
|
Denominator for basic earnings (loss) per share
|
|
|
|
|
-weighted average common shares
|
5,833,301
|
|
|
4,655,520
|
|
|
Effect of dilutive options and warrants (treasury method)
|
—
|
|
|
—
|
|
|
Denominator for diluted earnings (loss) per share
|
|
|
|
|
-adjusted weighted average common shares
|
5,833,301
|
|
|
4,655,520
|
|
|
Options and warrants outstanding during each year, but not included in the computation of diluted earnings (loss) per share because they are antidilutive
|
2,024,589
|
|
|
2,399,901
|
|
Liquidity
At September 30, 2019 approximately $1.3 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.
The Company believes its cash position plus available resources is adequate to accomplish its business plan through at least the next twelve months. We will likely evaluate operating and capital leases opportunities to finance equipment purchases in the future and anticipate utilizing proceeds from the recent note purchase agreement to support working capital needs. We may also seek additional equity financing, or issue additional shares previously registered in our available shelf registration and there are no assurances that these will be on terms acceptable to the Company.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", ("ASU 2016-02"). ASU 2016-02 aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for public entities. Early application of the amendment is permitted. The Company is currently reviewing this guidance and its impact to the financial statements.
In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)", ("ASU 2017-11"). This update was issued to address complexities in accounting for certain equity-linked financial instruments containing down round features. The amendment changes the classification analysis of these financial instruments (or embedded features) so that equity classification is no longer precluded. The amendments in ASU 2017-11 are effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging Topic 815): Targeted Improvements to Accounting for Hedging Activities", ("ASU 2017-12"). This update was issued to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in ASU 2017-12 are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting", ("ASU 2018-07"). The standard addresses aspects of the accounting for nonemployee share-based payment transactions. The amendments in ASU 2018-07 are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. The Company is currently reviewing this guidance and its impact to the financial statements.
In July 2018, the FASB issued ASU 2018-10, "Codification Improvements to Topic 842, Leases", ("ASU 2018-10"). The standard clarifies certain topics related to previously issued Topic 842. The amendments in ASU 2018-10 are not yet effective, but early adopton is permitted. For entities that have not yet adopted Topic 842, the effective date and transition requirements will be the
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
same as the effective date and transition requirements in Topic 842. The Company is currently evaluating this guidance and its impact to the financial statements.
In August 2018, the FASB issued ASU 2018-11, "Leases (Topic 842): Targeted Improvements", ("ASU 2018-11"). The ASU is intended to reduce costs and ease implementation of the leases standard for financial statement preparers. ASU 2018-11 provides a new transition method and a practical expedient for separating components of a contract. For entities that have not adopted Topic 842 before the issuance of this ASU, the effective date and transition requirements for the amendments in this update related to separating components of a contract are the same as the effective date and transition requirements in ASU 2016-02. The Company is currently evaluating this guidance and its impact to the financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements", ("ASU 2018-13"). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe the ASU will have a significant impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", ("ASU 2018-15"). ASU 2018-15 align the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in ASU 2018-15 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the guidance and its impact to the financial statements.
In November 2018, the FASB issued ASU 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606", ("ASU 2018-18"). ASU 2018-18 provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. The amendments in ASU 2018-18 are effective for all public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.
In December 2018, the FASB issued ASU 2018-20, "Leases (Topic 842): Narrow - Scope Improvements for Lessors", ("ASU 2018-20"). ASU 2018-20 provides amendments related to sales taxes and other similar taxes collected from lessees, lessor costs for lessor entities that have lease contracts that either require lessees to pay lessor costs directly to a third party or require lessees to reimburse lessors for costs paid by lessors directly to third parties and finally, the recognition of variable payments for contracts with lease and nonlease components. The amendments in ASU 2018-20 are effective for entities that have not adopted Topic 842 before the issuance of this Update are the same as the effective date and transition requirements in Update 2016-02. The Company does not believe the ASU will have a significant impact on its consolidated financial statements.
In March 2019, the FASB issued ASU 2019-01, "Leases (Topic 842): Codification Improvements", ("ASU 2019-01"). ASU 2019-01 aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing essential information about leasing transactions. The amendments in ASU 2019-01 amend Topic 842 and the effective date of those amendments is for fiscal years beginning December 15, 2019, and interim periods within those fiscal years for public business entities. The Company does not believe the ASU will have a significant impact on its consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", ("ASU 2019-04"). ASU 2019-04 identifies certain areas that need clarification and correction in each of these Topics. The amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within fiscal those fiscal years. The Company is currently evaluating the guidance and its impact to the financial statements.
In November 2019, the FASB issued ASU 2019-08, "Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)", ("ASU 2019-08"). This ASU requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. For entities that have not yet adopted the amendments in ASU 2018-07, the amendments in this Update are effective for public business entities in fiscal years beginning after December
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
15, 2019, and interim periods within those fiscal years. 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.
Recently Adopted Accounting Pronouncements
Revenue Recognition (ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"))
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09 related to revenue recognition and later issued additional ASUs including ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20 and ASU 2017-14, all of which clarified certain aspects of ASU 2014-09, and together with ASU 2014-09, which we refer to collectively as the "new revenue recognition standard".
On October 1, 2018, we adopted the new revenue recognition standard using the modified retrospective method. Under this method, we recognized the cumulative effect of applying the new revenue recognition standard to existing revenue contracts that were active as of the adoption date as an adjustment to the opening balance of accumulated deficit. Upon adoption, we recorded an adjustment of $1.7 million to our accumulated deficit. See Note 9 for additional detail.
The new revenue recognition standard materially impacts the timing of revenue recognition related to our on-premises term license agreements. Prior to adoption of the new revenue recognition standard, we recognized revenue related to on-premises term license agreements ratably over the term of the licensing agreement. Under the new revenue recognition standard, revenue allocable to the license portion of the arrangement is recognized upon delivery of the license. Maintenance revenues related to on-premises term license agreements continue to be recognized ratably over the term of the licensing agreement. Under the new revenue recognition standard, we allocate total transaction price to performance obligations based on estimated standalone selling prices, which impacts the timing of revenue recognition depending on when each performance obligation is performed. These impacts to the timing of revenue recognition also affect our deferred revenue balances.
The new revenue recognition standard requires the capitalization of certain incremental costs of obtaining a contract, which impacts the period in which we record our sales commissions expense. Prior to our adoption of the new revenue recognition standard, we recognized sales commissions expense as incurred. Under the new revenue recognition standard, we are required to recognize these expenses over the period of benefit associated with these costs. This results in a deferral of sales commissions expense each period. Upon adoption, we reduced our accumulated deficit by $692 thousand and recognized an offsetting asset for deferred sales commissions related to contracts that were not completed contracts prior to October 1, 2018. This amount is included in the $1.7 million adjustment to our accumulated deficit as a result of ASC 606 adoption.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10)", ("ASU 2016-01"). ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments in ASU 2016-01 are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, and was adopted by the Company as of October 1, 2018. The implementation of this standard did not result in a material impact to its consolidated financial statements.
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"). ASU 2016-13 affects 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 in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and was adopted by the Company as of October 1, 2018. The implementation of this standard did not result in a material impact to its consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230)", ("ASU 2016-15"). ASU 2016-15 addresses classification of certain cash receipts and cash payments within the statement of cash flows. The amendments are effective for
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
fiscal years beginning after December 15, 2017, and interim periods with those fiscal years, and was adopted by the Company as of October 1, 2018. The implementation of this standard did not result in a material impact to its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718)", ("ASU 2017-09"). The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in ASU 2017-09 are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods, and was adopted by the Company as of October 1, 2018. The implementation of this standard did not result in a material impact to its consolidated financial statements.
In May 2019, the FASB issued ASU 2019-05, “Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief", ("ASU 2019-05"). This ASU allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The amendments in ASU 2019-05 are effective on the same dates as ASU 2016-13, and was adopted by the Company as of October 1, 2018. The implementation of this standard did not result in a material impact to its consolidated financial statements.
2. Commitments
Capital Lease and Financing Agreements
The Company leases certain equipment under capital lease and financing agreements expiring through June 2024. Capital leases that are currently outstanding on equipment included in fixed assets have a cost of $1.4 million and accumulated depreciation of $1.1 million at September 30, 2019 compared to a cost of $1.3 million and accumulated depreciation of $892 thousand at September 30, 2018. Minimum lease payments, including principal and interest, are summarized in the table below. Depreciation expense for assets under capital lease and financing agreements was $252 thousand for fiscal 2019 and $283 thousand for fiscal 2018 which is reflected in the depreciation and amortization of property and equipment.
|
|
|
|
|
|
|
|
Fiscal Year (in thousands)
|
Capital
|
|
2020
|
$
|
210
|
|
|
2021
|
116
|
|
|
2022
|
63
|
|
|
2023
|
7
|
|
|
2024
|
5
|
|
|
Total payments
|
401
|
|
|
Less interest
|
(28
|
)
|
|
Total
|
$
|
373
|
|
Operating Leases
The Company leases certain facilities and equipment under operating lease agreements expiring at various times through March 31, 2022. Total rent expense on all operating leases was approximately $1.2 million for both of the years ended September 30, 2019 and 2018, respectively.
The Company occupies office space related to a lease agreement entered into on June 28, 2011. The initial lease term was from November 2011 through December 2018 and in Q3 2018, the lease was extended for three years through December 31, 2021. There are two additional three-year extensions included in the initial lease agreement. The lease includes a tenant improvement allowance of $613 thousand that was recorded as a leasehold improvement liability and is being amortized as a credit to rent expense on a straight-line basis over the lease term. At September 30, 2019, the unamortized balance was zero compared to $7 thousand at September 30, 2018.
The Company also occupies office space related to a lease agreement entered into on August 1, 2016. The lease term is from October 2016 through December 2020. The lease includes five months of free rent of $130 thousand that was recorded as a deferred rent liability and is being amortized as a credit to rent expense on a straight-line basis over the lease term. At September 30, 2019 and 2018, the unamortized balance was $44 thousand and $75 thousand, respectively.
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
The following is a schedule by year of future minimum lease payments under operating leases:
|
|
|
|
|
|
|
|
Fiscal Year (in thousands)
|
Operating
|
|
2020
|
$
|
1,289
|
|
|
2021
|
939
|
|
|
2022
|
209
|
|
|
Total
|
$
|
2,437
|
|
Other Commitments
The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. At September 30, 2019, the Company has an obligation to purchase $464 thousand of Mediasite product, which is not recorded on the Company’s Consolidated Balance Sheet.
3. Credit Arrangements
Silicon Valley Bank
The Company and its wholly owned subsidiary, Sonic Foundry Media Systems, Inc. (the “Companies”) entered into the Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank, dated June 27, 2011, as amended by the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh and Twelfth Amendments, dated May 31, 2013, January 10, 2014, March 31, 2014, January 27, 2015, May 13, 2015, October 5, 2015, February 8, 2016, December 9, 2016, March 22, 2017, May 10, 2017, December 22, 2017, and May 11, 2018 (the Second Amended and Restated Loan Agreement, as amended by the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, and Twelfth Amendments, collectively, the “Second Amended and Restated Loan Agreement”). The Second Amended and Restated Loan Agreement provided for a revolving line of credit in the maximum principal amount of $4,000,000. Interest accrued on the revolving line of credit at the variable per annum rate equal to the Prime Rate (as defined) plus two percent (2.00%). The Second Amended and Restated Loan Agreement provides for an advance rate on domestic receivables of 80%, and an advance rate on foreign receivables of 75% of the lesser of (x) Foreign Eligible Accounts (as defined) or (y) $1,000,000. The maturity date of the revolving credit facility was January 31, 2019. Under the Second Amended and Restated Loan Agreement, a term loan was entered into on January 27, 2015 in the original principal amount of $2,500,000 which accrued interest at the variable per annum rate equal to the Prime Rate (as defined) plus two and three-quarters percent, and was to be repaid in 36 equal monthly principal payments, beginning in February 2015. The Second Amended and Restated Loan Agreement also required Sonic Foundry to comply with certain financial covenants, including (i) a liquidity financial covenant, which required minimum Liquidity (as defined), tested with respect to the Company only, on a monthly basis, of at least 1.60:1.00 for each month-end that is not the last day of a fiscal quarter, and 1.75:1.00 for each month-end that is the last day of a fiscal quarter, and (ii) a covenant that required the Company to achieve minimum EBITDA (as defined) plus the net change in Deferred Revenue (i) for the quarterly period ended June 30, 2018, measured on a trailing six (6) month basis, to be no less than negative ($1,100,000); (ii) for the quarterly period ended September 30, 2018, measured on a trailing six (6) month basis, to be no less than $500,000, and (iii) for the quarterly period ended December 31, 2018, measured on a trailing six (6) month basis, to be no less than negative ($250,000), and (iv) for the quarterly period ended March 31, 2019, measured on a trailing three (3) month basis, to be no less than negative ($250,000). The Second Amended and Restated Loan Agreement also required Sonic Foundry to comply with certain financial and funding covenants.
The line of credit, which matured on January 31, 2019, was paid in full. The Company did not renew the line of credit. At September 30, 2018, there was a balance of $621 thousand outstanding on the revolving line of credit with an effective interest rate of seven-and-one-quarter percent (7.25%)
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”).
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
The 2018 Loan and Security Agreement provides 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 $2,000,000; and Tranche 2 in the amount of $500,000, was disbursed on November 8, 2018.
Each tranche of the Term Loan bears interest at 10.75% per annum. Tranche 1 of the Term Loan is payable interest only until November 30, 2018. Thereafter, principal is due in 30 equal monthly principal installments, plus accrued interest, beginning December 1, 2018 and continuing until May 1, 2021, when the principal balance is to be paid in full. Tranche 2 of the Term Loan is payable using the same repayment schedule as Tranche 1. Upon maturity, Sonic Foundry is required to pay PFG V a cash fee of $150,000.
The principal of the Term Loan may be prepaid at any time, provided that Sonic Foundry pays to PFG V a prepayment fee equal to 1% of the principal amount prepaid, if the prepayment occurs in the first year from disbursement of Tranche 1.
The Term Loan is collateralized by substantially all the Company’s assets, including intellectual property.
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. All warrants issued in connection with PFG V expire on May 11, 2023.
At September 30, 2019 and 2018, the estimated fair value of the derivative liability associated with the warrants issued in connection with the 2018 Loan and Security Agreement, was $9 thousand and $14 thousand, respectively. The remeasurement gain on the derivative liability during fiscal 2019 was $8 thousand, included in the other income (expense), and there was $3 thousand added to fair value related to Tranche 2 of the PFG V Debt, compared to a change in fair value of $14 thousand in fiscal 2018.
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 $1.9 million and $127 thousand, respectively. The warrant debt of $127 thousand is treated together as a debt discount on the PFG V Debt and will be accreted to interest expense under the effective interest method over the three-year term of the PFG V Debt and the five-year term of the Warrant Debt. During fiscal 2019, the Company recorded accretion of discount expense associated with the warrants issued with the PFG V loan of $20 thousand compared to $6 thousand in fiscal 2018, as well as $54 thousand related to amortization of the debt discount in fiscal 2019 compared to $17 thousand in fiscal 2018. At September 30, 2019, the carrying values of the PFG V Debt and the Warrant Debt (inclusive of its conversion feature) were $1.7 million and $149 thousand, respectively. At September 30, 2018, the carrying values of the PFG V Debt and the Warrant Debt (inclusive of its conversion feature) were $1.9 million and $117 thousand, respectively. In addition, the Company agreed to pay PFG V a cash fee of up to $150,000 payable upon maturity (the “back-end fee”), which will be earned ratably over the three year term of the PFG V loan. During fiscal 2019, the Company recorded interest expense of $50 thousand associated with recognition of the back-end fee compared to $19 thousand in fiscal 2018.
The non-cash effective interest expense is calculated on the net balance of the PFG V Debt, Warrant Debt, and related loan origination fees, on a monthly basis. During fiscal 2019, we recorded $77 thousand of non-cash interest expense related to the effective interest rate on the PFG V loan.
On March 11, 2019, Sonic Foundry, Inc. entered into a Consent, Waiver & Modification to the 2018 Loan and Security Agreement dated May 11, 2018 (the "Modification") with Partners for Growth V, L.P. ("PFG"). Under the Modification: PFG waived the Company's default on the Minimum EBITDA financial covenant for the quarterly reporting period ending December 31, 2018; modified the existing financial covenants to be as follows: (i) Minimum Coverage Ratio (as defined), which requires, as of the last day of each month on or after the closing date, to be equal to or greater than (x) 0.7: 1.00 for the December through May calendar months, and (y) 0.9:1.00 for the June through November calendar months; (ii) Minimum Qualifying Revenue (as defined), which requires, as of the last day of each calendar month, on or after December 1, 2018, on a trailing twelve-month basis, to be no less than $13,000,000; and modified the negative covenants to be as follows: the Company (x) shall not cause or permit (a) Japanese subsidiary indebtedness under its revolving line of credit facility to exceed at any time $1,000,000 outstanding, or (b) aggregate subsidiary indebtedness to exceed $1,200,000 at any time. At September 30, 2019, the Company was in compliance with all covenants per in the 2018 Loan and Security Agreement, as modified.
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
Under the Modification, the Company was required to draw the next tranche of $1,000,000 in proceeds on the Note Purchase Agreement (detailed below) on or before March 31, 2019 as well as the final tranche of $1,000,000 in proceeds on or before April 30, 2019. The Company met this requirement as all tranches were fully drawn prior to April 30, 2019
The Modification acknowledged that Silicon Valley Bank, the named "Senior Lender" in the May 11, 2018 Loan Agreement has been repaid and the related senior loan documents terminated.
The existing terms of the PFG loan in terms of amortization, interest rate, payment schedule and maturity date are unchanged.
At September 30, 2019, a gross balance of $1.7 million was outstanding on the term debt with PFG V, with an effective interest rate of sixteen-and-six-tenths percent (16.60%). At September 30, 2018, a gross balance of $1.9 million was outstanding on the term debt with PFG V.
Initial Notes of the February 28, 2019 Note Purchase Agreement
On January 4, 2019, Sonic Foundry, Inc. and Mr. Mark Burish ("Mr. Burish") entered into a Promissory Note (the "Promissory Note") pursuant to which Mr. Burish purchased a 9.25% Unsecured Promissory Note for $1,000,000 in cash. Interest accrued and outstanding principal on the Promissory Note was due and payable on January 4, 2020. The Promissory Note may be prepaid at any time without penalty. The Promissory Note was later included in the Note Purchase Agreement, dated February 28, 2019, as detailed below.
On January 31, 2019, Sonic Foundry, Inc. and Mr. Burish entered into a Promissory Note (the "January 31, 2019 Promissory Note") pursuant to which Mr. Burish purchased a 9.25% Unsecured Promissory Note for $1,000,000 in cash. Interest accrued and outstanding principal on the January 31, 2019 Promissory Note was due and payable on January 31, 2020. The January 31, 2019 Promissory Note may be prepaid any time without penalty. The note may be paid by the Company by issuing common stock to Mr. Burish, with each share valued at $1.30 per share. The January 31, 2019 Promissory Note was later included in the Note Purchase Agreement, dated February 28, 2019, as detailed below.
On February 14, 2019, Sonic Foundry, Inc. and Mr. Burish entered into a Promissory Note (the "February 14, 2019 Promissory Note") pursuant to which Mr. Burish purchased a 9.25% Unsecured Promissory Note for $1,000,000 in cash. Interest accrued and outstanding principal on the February 14, 2019 Promissory Note was due and payable on February 14, 2020. The February 14, 2019 Promissory Note may be prepaid any time without penalty. The note may be paid by the Company by issuing common stock to Mr. Burish with each share valued at $1.30 per share. The February 14, 2019 Promissory Note was later included in the Note Purchase Agreement, dated February 28, 2019, as detailed below.
Mr. Burish beneficially owns more than 5% of the Company's common stock and also serves as the Chairman of the Board of Directors.
February 28, 2019 Note Purchase Agreement
On February 28, 2019, Sonic Foundry, Inc. entered into a Note Purchase Agreement (the "Note Purchase Agreement") with Mr. Burish.
The Note Purchase Agreement provides for subordinated secured promissory notes (the "Subordinated Promissory Notes") in an aggregate original principal amount of up to $5,000,000. Mr. Burish will acquire from the Company (a) on the initial closing date, the notes in an aggregate principal amount of $3,000,000 (the "Initial Notes") and (b) two additional tranches, each in the amount of $1,000,000 and payable at any time prior to the first anniversary of the Agreement (the "Additional Notes" and together with the Initial Notes, collectively, the "Purchase Price"). The Initial Notes were previously disbursed in January and February of 2019, as detailed above (the Promissory Note, the January 31st, 2019 Promissory Note, and the February 14, 2019 Promissory Note, collectively referred to as the "Initial Notes"). The fourth tranche was disbursed on March 13, 2019 and the fifth and final tranche was disbursed on April 4, 2019.
The Subordinated Promissory Notes accrue interest at the variable per annum rate equal to the Prime Rate (as defined) plus four percent (4.00%). The outstanding principal balance of the Subordinated Promissory Notes, plus all unpaid accrued interest, plus all outstanding and unpaid obligations, shall be due and payable on February 28, 2024 (the "Maturity Date"). Principal installments of $100,000 are payable on the last day of each month end beginning with the month ending August 31, 2020, and continuing through the Maturity Date.
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
The principal of the Subordinated Promissory Notes may be prepaid at any time in whole or in part, by payment of an amount equal to the unpaid principal balance to be pre-paid, plus all unpaid interest accrued thereon through the prepayment date, plus all outstanding and unpaid fees and expenses payable through the prepayment date.
At each anniversary of the Closing, an administration fee will be payable to Mr. Burish equal to 0.5% of the purchase price less principal payments made.
The Subordinated Promissory Notes are collateralized by substantially all the Company's assets, including intellectual property, subject to the rights of Partners for Growth V, L.P., which shall be senior to the Subordinated Promissory Notes.
The Note Purchase Agreement requires compliance with the following financial covenants: (i) Minimum Coverage Ratio, which requires, as of the last day of each month on or after the closing date, the Minimum Coverage Ratio (as defined) to be equal to or greater than (x) 0.7:1.00 for the December through May calendar months, (y) 0.9:1.00 for the June through November calendar months; (ii) Minimum Qualifying Revenue (as defined), as of the last day of any calendar month, on or after December 1, 2018, on a trailing twelve-month basis, to be no less than $13,000,000. At September 30, 2019, the Company was in compliance with all covenants per in the Note Purchase Agreement.
The Note Purchase Agreement dated February 28, 2019 is subordinated to the existing PFG loan.
The Company used the proceeds from the notes issued under the Note Purchase Agreement to replace the revolving line of credit with Silicon Valley Bank, which matured on January 31, 2019.
The proceeds from the Note Purchase Agreement were allocated between the Subordinated Promissory Notes and the Warrant debt based on their relative fair value on the date of issuance. The warrant debt of $674 thousand is treated together as a debt discount on the Subordinated Notes Payable and will be accreted to interest expense under the effective interest rate method over the five-year term of the Subordinated Notes Payable. During fiscal 2019, the Company recorded accretion of discount expense associated with the Subordinated Promissory Notes of $79 thousand.
The non-cash effective interest expense is calculated on the net balance of the Subordinated Promissory Notes, Warrant, and related loan origination fees, on a monthly basis. During fiscal 2019, we recorded $11 thousand of non-cash interest benefit related to the effective interest rate on the Subordinated Promissory Notes.
At September 30, 2019, a gross principal balance of $5.0 million was outstanding on the Subordinated Promissory Notes, with an effective interest rate of fifteen-and-nine-hundredths percent (15.09%).
Accrued interest on the Subordinated Promissory Notes was paid through March 31, 2019, but has been deferred since that date. In April 2019 it was informally agreed between the Company and Mr. Burish that the interest would be deferred. On November 22, 2019, the Company entered into a Note Modification Agreement to formalize the deferment of the accrued interest. The Note Modification Agreement modifies the terms of the Subordinated Promissory Notes by deferring all interest payments due at the end of each calendar month beginning April 30, 2019 and continuing through and including July 31, 2020, in an amount which will be determined based on the variable interest rate on the Subordinated Promissory Notes. The deferred interest amount shall be added to the principal amount due on the Subordinated Notes and shall be paid on the maturity date. As a result of the Note Modification Agreement, $259 thousand of accrued interest related to the Subordinated Notes Payable has been re-classed from current to long-term on the Company consolidated balance sheet as of September 30, 2019.
February 28, 2019 Warrant
Coincident with execution of the Note Purchase Agreement, the Company entered into a Warrant Agreement ("Warrant") with Mr. Burish. Pursuant to the terms of the Warrant, the Company issued to Mr. Burish a warrant to purchase up to 728,155 shares of common stock of the Company at an exercise price of $1.18 per share, subject to certain adjustments.
On April 25, 2019, Mr. Burish exercised his warrant to purchase 728,155 shares of common stock of the Company at an exercise price of $1.18 per share. A special committee of disinterested and independent directors approved the issuance of the Subordinated Promissory Notes and the Warrant.
Other Indebtedness
At September 30, 2019, no balance was outstanding on the line of credit with Mitsui Sumitomo Bank. At September 30, 2018, a balance of $264 thousand was outstanding on the line of credit. The credit facility is related to Mediasite K.K., and accrues an annual interest rate of approximately one-and-one half percent (1.575%).
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
On January 19, 2018, the Company and Mr. Burish entered into a Subscription Agreement (the “Subscription Agreement”)’ Pursuant to the Subscription Agreement, (i) on January 19, 2018, Mr. Burish purchased a 10.75% Convertible Secured Subordinated Promissory Note for $500,000 in cash; and (ii) on February 15, 2018, Mr. Burish purchased an additional 10.75% Convertible Secured Subordinated Promissory Note for $500,000 in cash (each, a “Note”, and collectively, the “Notes”).
On May 17, 2018, following approval by the stockholders of the Company of the conversion of the Notes sufficient to comply with rules and regulations of NASDAQ and the Securities and Exchange Commission, the Notes were automatically converted into 1,902 shares of Series A Preferred stock. The number of shares was determined by dividing the total principal and accrued interest due on each Note by $542.13 (the “Conversion Rate”).
In the years ended September 30, 2019 and 2018, respectively, no foreign currency gain or loss was realized related to re-measurement of the subordinated notes payable related to the Company’s foreign subsidiaries.
Included below is a summary of the changes in the outstanding notes payable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PFG V Debt, Net
of Discount
|
|
Warrant
Debt. PFG V
|
|
Burish Notes, Net of Discount
|
|
Balance as of September 30, 2018
|
$
|
1,905
|
|
|
$
|
103
|
|
|
$
|
—
|
|
|
Activity during the period:
|
|
|
|
|
|
|
Disbursement of Tranche 2, net of discount
|
471
|
|
|
26
|
|
|
—
|
|
|
Disbursement of Tranches 1-5
|
—
|
|
|
—
|
|
|
5,000
|
|
|
Fair value of warrants issued
|
—
|
|
|
—
|
|
|
(674
|
)
|
|
Payments
|
(833
|
)
|
|
—
|
|
|
—
|
|
|
Deferred accrued interest
|
—
|
|
|
—
|
|
|
259
|
|
|
Amortization and accretion expense
|
180
|
|
|
20
|
|
|
66
|
|
|
Balance as of September 30, 2019
|
$
|
1,723
|
|
|
$
|
149
|
|
|
$
|
4,651
|
|
|
|
|
|
|
|
|
|
Loan origination fees
|
(35
|
)
|
|
—
|
|
|
(91
|
)
|
|
Total notes payable and warrant debt, net of discounts
|
$
|
1,688
|
|
|
$
|
149
|
|
|
$
|
4,560
|
|
The annual principal payments on the outstanding notes payable are as follows:
|
|
|
|
|
|
|
|
Fiscal Year (in thousands)
|
|
|
2020
|
$
|
1,200
|
|
|
2021
|
1,867
|
|
|
2022
|
1,200
|
|
|
2023
|
1,200
|
|
|
2024
|
1,459
|
|
|
Thereafter
|
—
|
|
|
Total principal payments
|
6,926
|
|
|
Less: Discount on notes payable and debt issuance costs
|
(529
|
)
|
|
Total notes payable, net of discount
|
$
|
6,397
|
|
4. Balance Sheet
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the following (in thousands):
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
Prepaid expenses
|
$
|
855
|
|
|
$
|
699
|
|
|
Prepaid insurance
|
89
|
|
|
84
|
|
|
Other current assets
|
28
|
|
|
158
|
|
|
Total
|
$
|
972
|
|
|
$
|
941
|
|
Prepaid expenses are amounts paid for services covering periods of performance beyond the balance sheet date such as tradeshow fees and service agreements. Prepaid insurance represents fees paid for insurance covering periods beyond the balance sheet date. Other current assets mainly relates to consumption taxes paid by Mediasite K.K. that were refunded in fiscal 2019 and did not recur at the current balance sheet date.
Accrued Liabilities
Accrued liabilities consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
Accrued compensation
|
$
|
1,419
|
|
|
$
|
972
|
|
|
Accrued expenses
|
480
|
|
|
359
|
|
|
Accrued interest & taxes
|
269
|
|
|
223
|
|
|
Other accrued liabilities
|
48
|
|
|
55
|
|
|
Total
|
$
|
2,216
|
|
|
$
|
1,609
|
|
The Company accrues expenses as they are incurred. Accrued compensation includes wages, vacation, commissions, bonuses, and severance. Accrued expenses is mainly related to stock compensation, professional fees and amounts owed to suppliers. Other accrued liabilities is made up of employee-related expenses.
5. Stockholders' Equity (Deficit)
Stock Options and Employee Stock Purchase Plan
On March 5, 2009, Stockholders approved adoption of the 2009 Stock Incentive Plan (the “2009 Plan”). The 2009 Plan, beginning October 1, 2009, replaced two former employee stock option plans that terminated coincident with the effectiveness of the 2009 Plan. The Company maintains a directors’ stock option plan under which options may be issued to purchase up to an aggregate of 150,000 shares of common stock. Each non-employee director, who is re-elected or who continues as a member of the board of directors on each annual meeting date and on each subsequent meeting of Stockholders, will be granted options to purchase 2,000 shares of common stock under the directors’ plan, or at other times or amounts at the discretion of the Board of Directors.
Each option entitles the holder to purchase one share of common stock at the specified option price. The exercise price of each option granted under the plans was set at the fair market value of the Company’s common stock at the respective grant date. Options vest at various intervals and expire at the earlier of termination of employment, discontinuance of service on the board of directors, ten years from the grant date or at such times as are set by the Company at the date of grant.
The Company has applied a graded (tranche-by-tranche) attribution method and expenses share-based compensation on an accelerated basis over the vesting period of the share award, net of estimated forfeitures.
The number of shares available for grant under these stockholder approved plans at September 30, is as follows:
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Qualified
Employee
Stock Option
Plans
|
|
Director
Stock Option
Plans
|
|
Shares available for grant at September 30, 2017
|
1,008,390
|
|
|
48,000
|
|
|
Options granted
|
(398,749
|
)
|
|
(14,500
|
)
|
|
Options forfeited
|
86,118
|
|
|
10,000
|
|
|
Shares available for grant at September 30, 2018
|
695,759
|
|
|
43,500
|
|
|
Options granted
|
(218,850
|
)
|
|
(10,500
|
)
|
|
Options forfeited
|
536,292
|
|
|
12,000
|
|
|
Shares available for grant at September 30, 2019
|
1,013,201
|
|
|
45,000
|
|
There are additional non-shareholder approved plans with no shares available for grant at September 30, 2019.
The following table summarizes information with respect to outstanding stock options under all plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
2019
|
|
2018
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at beginning of year
|
2,029,741
|
|
|
$
|
7.04
|
|
|
1,805,443
|
|
|
$
|
8.33
|
|
|
Granted
|
229,350
|
|
|
0.73
|
|
|
413,249
|
|
|
2.49
|
|
|
Exercised
|
—
|
|
|
—
|
|
|
(14,332
|
)
|
|
4.75
|
|
|
Forfeited
|
(604,662
|
)
|
|
8.53
|
|
|
(174,619
|
)
|
|
9.82
|
|
|
Outstanding at end of year
|
1,654,429
|
|
|
$
|
5.62
|
|
|
2,029,741
|
|
|
$
|
7.04
|
|
|
Exercisable at end of year
|
1,297,315
|
|
|
|
|
1,349,021
|
|
|
|
|
Weighted average fair value of options granted during the year
|
$
|
0.28
|
|
|
|
|
$
|
0.95
|
|
|
|
The weighted-average remaining contractual life of exercisable shares is 3.8 years.
The options outstanding at September 30, 2019 have been segregated into three ranges for additional disclosure as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Exercise Prices
|
Options
Outstanding
at
September 30,
2019
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Options
Exercisable at
September 30,
2019
|
|
Weighted
Average
Exercise
Price
|
|
$0.66 to $4.88
|
848,136
|
|
|
5.60
|
|
$
|
2.71
|
|
|
493,189
|
|
|
$
|
3.37
|
|
|
5.00 to 9.81
|
614,533
|
|
|
4.23
|
|
7.80
|
|
|
612,866
|
|
|
7.80
|
|
|
$10.00 to $15.00
|
191,760
|
|
|
3.60
|
|
11.46
|
|
|
191,260
|
|
|
11.46
|
|
|
|
1,654,429
|
|
|
|
|
|
|
1,297,315
|
|
|
|
As of September 30, 2019, there was $131 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation costs of $97 thousand. The cost is expected to be recognized over a weighted-average life of 0.9 years. As of September 30, 2018, there was $475 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation costs of $359 thousand.
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
A summary of the status of the Company’s non-vested shares under all plans at September 30, 2019 and for the year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted Average
Grant Date
Fair Value
|
|
Non-vested options at October 1, 2017
|
544,834
|
|
|
$
|
2.42
|
|
|
Granted
|
413,249
|
|
|
0.95
|
|
|
Vested
|
(258,938
|
)
|
|
2.47
|
|
|
Forfeited
|
(18,425
|
)
|
|
1.73
|
|
|
Non-vested options at September 30, 2018
|
680,720
|
|
|
1.46
|
|
|
Granted
|
229,350
|
|
|
0.28
|
|
|
Vested
|
(508,998
|
)
|
|
1.46
|
|
|
Forfeited
|
(43,958
|
)
|
|
1.06
|
|
|
Non-vested options at September 30, 2019
|
357,114
|
|
|
$
|
0.77
|
|
Stock-based compensation recorded in the year ended September 30, 2019 was $177 thousand. Stock-based compensation recorded in the year ended September 30, 2018 was $476 thousand. Stock-based compensation was reduced in fiscal 2019 compared to the prior year due to modification of terms related to non-vested shares as a result of retirement agreements with two former executives and separation agreements with two senior managers. Cash received from exercises under all stock option plans and warrants for the year ended September 30, 2019 was $859 thousand. There was no cash received from exercises under all stock options plans and warrants for the year ended September 30, 2018. There were no tax benefits realized for tax deductions from option exercises for the years ended September 30, 2019 and 2018. The Company currently expects to satisfy stock-based awards with registered shares available to be issued.
The Company also has an Employee Stock Purchase Plan (Purchase Plan) under which an aggregate of 200,000 common shares may be issued. All employees who have completed 90 days of employment with the Company on the first day of each offering period and customarily work twenty hours per week or more are eligible to participate in the Purchase Plan. An employee who, after the grant of an option to purchase, would hold common stock and/or hold outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of the Company will not be eligible to participate. Eligible employees may make contributions through payroll deductions of up to 10% of their compensation. No participant in the Purchase Plan is permitted to purchase common stock under the Purchase Plan if such option would permit his or her rights to purchase stock under the Purchase Plan to accrue at a rate that exceeds $25,000 of the fair market value of such shares, or that exceeds 1,000 shares, for each calendar year. The Company makes a bi-annual offering to eligible employees of options to purchase shares of common stock under the Purchase Plan on the first trading day of January and July. Each offering period is for a period of 6 months from the date of the offering, and each eligible employee as of the date of offering is entitled to purchase shares of common stock at a purchase price equal to the lower of 85% of the fair market value of common stock on the first or last trading day of the offering period. A total of 25,667 shares are available to be issued under the plan at September 30, 2019. There were 22,200 and 12,794 shares purchased by employees during fiscal 2019 and 2018, respectively. The Company recorded stock compensation expense under this plan of $1 thousand and $8 thousand during fiscal 2019 and 2018, respectively. Cash received from issuance of stock under this plan was $12 thousand and $27 thousand during fiscal 2019 and 2018, respectively.
Common Stock Warrants
On April 16, 2018, the Company issued 232,558 shares of common stock to an affiliated party. The shares were issued at a price of $2.15 per share, representing the closing price on April 13, 2018. The affiliated party also received warrants to purchase 232,558 shares of common stock at an exercise price of $2.50 per share, respectively, which expire on April 16, 2025.
On April 25, 2019, Mr. Burish exercised his warrant, described in Note 3 (February 28, 2019 Warrant) to purchase 728,155 shares of common stock of the Company at an exercise price of $1.18 per share.
See Note 10 - Related Party Transactions for more details on the affiliated party.
Preferred stock and dividends
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
In May 2017, the Company created a new series of preferred stock entitled "9% Cumulative Voting Convertible Preferred Stock, Series A" (the "Preferred Stock, Series A"). As of September 30, 2019 and 2018, an aggregate total of 4,500 shares were authorized, respectively. Holders of the Preferred Stock, Series A will receive monthly dividends at an annual rate of 9%, payable in additional shares of Preferred Stock, Series A. Dividends declared on the preferred stock are earned monthly as additional shares and accounted for as a reduction to paid-in capital since the Company is currently in an accumulated deficit position. Each share of Preferred Stock, Series A is convertible into that number of shares of common stock determined by dividing $4.23 into the liquidation amount. A total of zero and 2,678 shares of Preferred Stock, Series A issued and outstanding as of September 30, 2019 and 2018, respectively.
On November 9, 2017, the Company sold to Mr. Burish $500 thousand of shares of Preferred Stock, Series A, at $762.85 per share. Mr. Burish is a director of the Company and beneficially owns more than 5% of the Company’s common stock.
On November 17, 2017, the Company entered into an Agreement in which Mr. Burish's right to convert shares of Preferred Stock, Series A, into common stock was waived until shareholder approval to approve the issuance of Preferred Stock, Series A had been obtained. The right to vote said shares of Preferred Stock, Series A was also waived pending shareholder approval of the issuance. Shareholder approval was obtained on May 17, 2018. All the above transactions were approved by a special committee of disinterested and independent directors.
The Company considered relevant guidance when accounting for the issuance of preferred stock, and determined that the preferred shares meet the criteria for equity classification. Dividends accrued on preferred shares will be shown as a reduction to net income (or an increase in net loss) for purposes of calculating earnings per share.
On May 17, 2018, $1.0 million of subordinated convertible debt was fully converted into 1,902 shares of Preferred Stock, Series A, following approval by the stockholders of the Company of the issuance of the Preferred Stock, Series A sufficient to comply with rules and regulations of NASDAQ.
On June 8, 2018, 905 shares of Preferred Stock, Series A were automatically converted by the Company into 213,437 shares of common stock. The amount of shares converted represents all preferred shares issued on May 30, 2017 and June 8, 2017, including related dividends.
On August 23, 2018, 717 shares of Preferred Stock, Series A were automatically converted by the Company into 169,485 shares of common stock. The amount of shares converted represents all preferred shares issued on August 23, 2017.
On November 15, 2018, 718 shares of Preferred Stock, Series A were automatically converted by the Company into 169,741 shares of common stock. The amount of shares converted represents all preferred shares issued on November 9, 2017.
On May 17, 2019, 2,080 shares of Preferred Stock Series A were automatically converted by the Company into 491,753 shares of common stock. The amount of shares converted represents all preferred shares issued on May 17, 2018, including related dividends.
6. Income Taxes
(Benefit) provision for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
2019
|
|
2018
|
|
Current income tax expense U.S.
|
$
|
—
|
|
|
$
|
—
|
|
|
Current income tax expense foreign
|
67
|
|
|
101
|
|
|
Deferred income tax (benefit) provision
|
23
|
|
|
(4,433
|
)
|
|
(Benefit) provision for income taxes
|
$
|
90
|
|
|
$
|
(4,332
|
)
|
U.S. and foreign components of loss before income taxes were as follows (in thousands):
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
2019
|
|
2018
|
|
U.S.
|
$
|
(3,576
|
)
|
|
$
|
(16,934
|
)
|
|
Foreign
|
54
|
|
|
436
|
|
|
Loss before income taxes
|
$
|
(3,522
|
)
|
|
$
|
(16,498
|
)
|
The reconciliation of income tax expense (benefit) computed at the appropriate country specific rate to income tax benefit is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended September 30,
|
|
|
2019
|
|
2018
|
|
Income tax benefit at statutory rate
|
$
|
(751
|
)
|
|
$
|
(4,111
|
)
|
|
State income tax benefit
|
(198
|
)
|
|
(823
|
)
|
|
Foreign tax activity
|
67
|
|
|
101
|
|
|
Permanent differences, net
|
44
|
|
|
771
|
|
|
Change in valuation allowance
|
1,569
|
|
|
1,285
|
|
|
Tax rate change
|
—
|
|
|
(1,545
|
)
|
|
Return to provision true-up
|
(1,053
|
)
|
|
—
|
|
|
Other
|
412
|
|
|
(10
|
)
|
|
Income tax expense (benefit)
|
$
|
90
|
|
|
$
|
(4,332
|
)
|
The significant components of the deferred tax accounts recognized for financial reporting purposes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
2019
|
|
2018
|
|
Deferred tax assets:
|
|
|
|
|
Net operating loss and other carryforwards
|
$
|
25,347
|
|
|
$
|
24,262
|
|
|
Common stock options
|
946
|
|
|
919
|
|
|
Unearned revenue
|
477
|
|
|
510
|
|
|
Interest expense limitation
|
262
|
|
|
—
|
|
|
Other
|
544
|
|
|
369
|
|
|
Total deferred tax assets
|
27,576
|
|
|
26,060
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Other
|
(97
|
)
|
|
(103
|
)
|
|
Total deferred tax liabilities
|
(97
|
)
|
|
(103
|
)
|
|
|
|
|
|
|
Net deferred tax asset
|
27,479
|
|
|
25,957
|
|
|
Valuation allowance
|
(27,443
|
)
|
|
(25,881
|
)
|
|
Net deferred tax asset
|
$
|
36
|
|
|
$
|
76
|
|
The Company has a $36 thousand and $76 thousand deferred tax asset at September 30, 2019 and 2018, respectively, recorded within the prepaid expenses and other current assets and other long-term assets lines on the consolidated balance sheet and is primarily related to net operating losses of MSKK.
At September 30, 2019, the Company had net operating loss carryforwards of approximately $103 million for U.S. Federal and $60 million for state tax purposes. For Federal tax purposes, the carryforwards expire in varying amounts through 2038. For state tax purposes, the carryforwards expire in varying amounts between 2019 and 2034. Utilization of the Company’s net operating loss may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss carryforwards
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
before utilization. In addition, the Company has research and development tax credit carryforwards of approximately $165 thousand, which expires in 2020.
The Company maintains an additional paid-in-capital (APIC) pool which represents the excess tax benefits related to share-based compensation that are available to absorb future tax deficiencies. If the amount of future tax deficiencies is greater than the available APIC pool, the Company records the excess as income tax expense in its consolidated statements of income. For fiscal 2019 and fiscal 2018, the Company had a sufficient APIC pool to cover any tax deficiencies recorded and as a result, these deficiencies did not affect its results of operations. At September 30, 2019, the Company has $1.1 million of net operating loss carry forwards for which a benefit would be recorded in APIC when realized.
Earnings of the Company’s foreign subsidiaries are generally subject to U.S. taxation upon repatriation to the U.S. and the Company’s tax provision reflects the related incremental U.S. tax except for certain foreign subsidiaries whose unremitted earnings are considered to be indefinitely reinvested. No deferred tax liability has been recognized with regard to the remittance of such earnings after MSKK and Sonic Foundry International BV acquisitions were completed. At September 30, 2019, unremitted earnings of $1.2 million for foreign subsidiaries were deemed to be indefinitely reinvested.
Beginning with an acquisition in fiscal year 2002, the Company has amortized Goodwill for tax purposes over a 15 year life. Tax amortization is not applicable to the goodwill from the foreign acquisitions that took place during fiscal 2014 since the foreign goodwill is non-deductible for US federal tax purposes.
The difference between the book and tax balance of certain of the company’s goodwill creates a deferred tax liability and an annual tax expense. Because of the long term nature of the goodwill timing difference, tax planning strategies cannot be utilized with respect to the deferred tax liability. The Company’s tax rate differs from the expected tax rate each reporting period as a result of the aforementioned items. The balance of the deferred tax liability related to goodwill was fully written off as of September 30, 2018 as a result of the impairment. The Company recorded a deferred tax liability related to the Customer Relationship intangibles value acquired as part of the purchase of Sonic Foundry International BV and Mediasite KK.
In accordance with accounting guidance for uncertainty in income taxes, the Company has concluded that a reserve for income tax contingencies is not necessary. 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 September 30, 2019 or September 30, 2018 and has not recognized any interest or penalties in the Condensed Consolidated Statements of Operations for either of the years ended September 30, 2019 or 2018.
The Company is subject to taxation in the U.S., Netherlands, Japan and various state jurisdictions. All of the Company’s tax years are subject to examination by the U.S., Dutch, Japanese and state tax authorities due to the carryforward of unutilized net operating losses.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act, which is generally effective for tax years beginning on January 1, 2018, makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) eliminating the corporate alternative minimum tax (AMT); (3) bonus depreciation that will allow for full expensing of qualified property; (4) creating a new limitation on deductible interest expense; (5) the repeal of the domestic production activity deduction; (6) the creation of the base erosion anti-abuse tax (BEAT), a new minimum tax; (7) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries and imposing a one-time repatriation tax on deemed repatriated earnings and profits of U.S.-owned foreign subsidiaries (the Transition Tax); (8) a new provision designed to tax global intangible low-taxed income (GILTI), which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); and (9) changing rules related to uses and limitation of net operating loss carryforwards created in tax years beginning after December 31, 2017.
Shortly after enactment, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 ("SAB 118") which provided US GAAP guidance on the accounting for the Act's impact at December 31, 2017. A reporting entity may recognize provisional amounts, where the necessary information is not available, prepared or analyzed (including computations) in reasonable detail or where additional guidance is needed from the taxing authority to determine the appropriate application of the Act. A reporting entity's provisional impact analysis may be adjusted within the 12-month measurement period provided for under SAB 118.
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
The reduction in the corporate tax rate to 21 percent due to the Tax Act is effective January 1, 2018. Consequently, the Company has recorded a decrease related to the net deferred tax assets of approximately $1.5 million with a corresponding net adjustment to the valuation allowance of approximately $1.5 million for the year ended September 30, 2018.
7. Savings Plan
The Company’s defined contribution 401(k) savings plan covers substantially all employees meeting certain minimum eligibility requirements. Participating employees can elect to defer a portion of their compensation and contribute it to the plan on a pretax basis. The Company may also match certain amounts and/or provide additional discretionary contributions, as defined. The Company made matching contributions of $444 thousand and $365 thousand during the years ended September 30, 2019 and 2018, respectively. The Company made no additional discretionary contributions during 2019 or 2018.
8. Goodwill and Other Intangible Assets
Goodwill and intangible assets that had indefinite useful lives are recorded at cost and are not amortized but, instead, tested at least annually for impairment. The Company assessed the impairment of goodwill on an annual basis or whenever events or changes in circumstances indicated that the fair value of these assets is less than the carrying value.
The Company performed an annual goodwill impairment test as of July 1, and tested goodwill recognized in connection with the acquisitions of Mediasite, Sonic Foundry International and Mediasite KK. For purposes of the test, goodwill on the Company’s books was evaluated within three separate reporting units.
The fair values of the reporting units were initially measured as of July 1, 2018, in accordance with annual testing procedures. Goodwill related to all three reporting units, Sonic Foundry (Mediasite), Sonic Foundry International and Mediasite KK, was found to be impaired and the Company recognized an impairment loss of $10.4 million, or the remaining balance of goodwill, during the year ended September 30, 2018. This non-cash loss was primarily due to the fall in the Company's stock price and the decrease of the Company's market capitalization as well as past operating performance, which was deemed to have negatively impacted all three of the Company's reporting units. As a consequence, management forecasts were revised and additional risk factors were applied. The fair value of the three reporting units was estimated using a combination of market comparables (level 1 inputs) and expected present value of future cash flows (level 3 inputs). See Note 1 for further details on fair value measurements.
No impairment test was performed in fiscal 2019 as goodwill was fully impaired as of September 30, 2018.
The changes in the carrying amount of goodwill for the year ended September 30, 2018 are as follows:
|
|
|
|
|
|
|
|
Balance as of October 1, 2017
|
$
|
10,455
|
|
|
Impairment losses
|
(10,423
|
)
|
|
Foreign currency translation adjustment
|
(32
|
)
|
|
Balance as of September 30, 2018
|
$
|
—
|
|
Long-lived assets and intangible assets other than goodwill are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable based on expected undiscounted cash flows attributable to that asset. For the year ended September 30, 2018, it was determined that changes in circumstances were present, primarily the decline in the Company's market capitalization during the fiscal year and past performance. For the year ended September 30, 2018, the Company determined that intangible assets, consisting of customer relationships and product rights, were impaired and recognized an impairment charge of $1.4 million. For the year ended September 30, 2019, no events or changes in circumstances occurred that required this analysis.
The net book value of intangible assets is zero at September 30, 2019 due to the full impairment of intangible assets recorded as of September 30, 2018.
The following tables present details of the Company’s total intangible assets that were being amortized at September 30, 2018:
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Life
(years)
|
|
Gross
|
|
Accumulated
Amortization at
September 30,
2018
|
|
Balance at
September 30,
2018
|
|
Amortizable:
|
|
|
|
|
|
|
|
|
Customer relationships
|
10
|
|
$
|
1,256
|
|
|
$
|
1,256
|
|
|
$
|
—
|
|
|
Software development costs
|
3
|
|
533
|
|
|
533
|
|
|
—
|
|
|
Product rights
|
6
|
|
534
|
|
|
534
|
|
|
—
|
|
|
Total
|
|
|
$
|
2,323
|
|
|
$
|
2,323
|
|
|
$
|
—
|
|
Amortization expense related to intangibles was $337 thousand in fiscal 2018.
9. Revenue
We adopted the new revenue recognition accounting standard ASC 606 October 1, 2018 on a modified retrospective basis and applied the new standard only to contracts that were not completed prior to October 1, 2018. See Note 1 for a description of our ASC 606 revenue recognition accounting policy. Financial results for reporting periods during fiscal 2019 are presented in compliance with the new revenue recognition standard. Historical financial results for reporting periods prior to fiscal 2019 have not been retroactively restated and are presented in conformity with amounts previously disclosed under ASC 985-605 and 605. This note includes additional information regarding the impacts from the adoption of the new revenue recognition standard on our financial results for the twelve months ended September 30, 2019. This includes the presentation of financial results during fiscal 2019 under ASC 605 for comparison to the prior year. Our revenue recognition accounting policy for ASC 985-605 and 605 is also included in Note 1.
Disaggregation of Revenues
The following table summarizes revenues from contracts with customers for the twelve months ended September 30, 2019, respectively, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended September 30, 2019
|
|
|
SOFO
|
|
SFI
|
|
MSKK
|
|
Eliminations
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hardware
|
$
|
6,710
|
|
|
$
|
598
|
|
|
$
|
950
|
|
|
$
|
(808
|
)
|
|
$
|
7,450
|
|
|
Software
|
3,316
|
|
|
417
|
|
|
542
|
|
|
(430
|
)
|
|
3,845
|
|
|
Shipping
|
840
|
|
|
5
|
|
|
—
|
|
|
(509
|
)
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and other total
|
10,866
|
|
|
1,020
|
|
|
1,492
|
|
|
(1,747
|
)
|
|
11,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Support
|
7,717
|
|
|
672
|
|
|
2,137
|
|
|
(803
|
)
|
|
9,723
|
|
|
Hosting
|
4,258
|
|
|
544
|
|
|
1,649
|
|
|
—
|
|
|
6,451
|
|
|
Events
|
3,785
|
|
|
167
|
|
|
2,741
|
|
|
—
|
|
|
6,693
|
|
|
Installs & training
|
258
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services total
|
16,018
|
|
|
1,408
|
|
|
6,527
|
|
|
(803
|
)
|
|
23,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
|
26,884
|
|
|
$
|
2,428
|
|
|
$
|
8,019
|
|
|
$
|
(2,550
|
)
|
|
$
|
34,781
|
|
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
Effect of adopting ASC 606
Opening Balance Sheet Adjustment on October 1, 2018
As a result of applying the modified retrospective method to adopt ASC 606, the following amounts on our Consolidated Balance Sheet were adjusted as of October 1, 2018 to reflect the cumulative effect adjustment to the opening balance of accumulated deficit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
ASC 606 adoption
|
|
Adjusted
|
|
|
September 30, 2018
|
|
adjustments
|
|
October 1, 2018
|
|
Capitalized commissions, current
|
$
|
—
|
|
|
$
|
580
|
|
|
$
|
580
|
|
|
Total current assets
|
10,825
|
|
|
580
|
|
|
11,405
|
|
|
|
|
|
|
|
|
|
Capitalized commissions, long-term
|
—
|
|
|
112
|
|
|
112
|
|
|
Total assets
|
$
|
13,583
|
|
|
$
|
692
|
|
|
$
|
14,275
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
$
|
1,609
|
|
|
$
|
2
|
|
|
$
|
1,611
|
|
|
Unearned revenue
|
11,645
|
|
|
(924
|
)
|
|
10,721
|
|
|
Total current liabilities
|
16,590
|
|
|
(922
|
)
|
|
15,668
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
202
|
|
|
(2
|
)
|
|
200
|
|
|
Long-term portion of unearned revenue
|
1,691
|
|
|
(75
|
)
|
|
1,616
|
|
|
Total liabilities
|
20,041
|
|
|
(999
|
)
|
|
19,042
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
(207,419
|
)
|
|
1,691
|
|
|
(205,728
|
)
|
|
Total stockholders' equity (deficit)
|
(6,458
|
)
|
|
1,691
|
|
|
(4,767
|
)
|
|
Total liabilities and stockholders' equity (deficit)
|
$
|
13,583
|
|
|
$
|
692
|
|
|
$
|
14,275
|
|
Effect of ASC 606 as of September 30, 2019 and for the Twelve Months Ended September 30, 2019
The following table summarizes the effect of adopting ASC 606 on our Consolidated Balance Sheet as of September 30, 2019 (in thousands):
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts without
|
|
|
As reported
|
|
ASC 606 adoption
|
|
ASC 606 impact
|
|
|
September 30, 2019
|
|
impact
|
|
September 30, 2019
|
|
Capitalized commissions, current
|
$
|
464
|
|
|
$
|
(464
|
)
|
|
$
|
—
|
|
|
Total current assets
|
12,984
|
|
|
(464
|
)
|
|
12,520
|
|
|
|
|
|
|
|
|
|
Capitalized commissions, long-term
|
106
|
|
|
(106
|
)
|
|
—
|
|
|
Total assets
|
$
|
15,180
|
|
|
$
|
(570
|
)
|
|
$
|
14,610
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
$
|
2,216
|
|
|
$
|
(2
|
)
|
|
$
|
2,214
|
|
|
Unearned revenue
|
9,610
|
|
|
785
|
|
|
10,395
|
|
|
Total current liabilities
|
13,831
|
|
|
783
|
|
|
14,614
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
143
|
|
|
2
|
|
|
145
|
|
|
Long-term portion of unearned revenue
|
1,842
|
|
|
68
|
|
|
1,910
|
|
|
Total liabilities
|
21,433
|
|
|
853
|
|
|
22,286
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
(209,340
|
)
|
|
(1,423
|
)
|
|
(210,763
|
)
|
|
Total stockholders' equity (deficit)
|
(6,253
|
)
|
|
(1,423
|
)
|
|
(7,676
|
)
|
|
Total liabilities and stockholders' equity (deficit)
|
$
|
15,180
|
|
|
$
|
(570
|
)
|
|
$
|
14,610
|
|
The following tables summarize the effects of adopting ASC 606 on our Consolidated Statement of Operations for the fiscal year ended September 30, 2019, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported
|
|
|
|
Amounts without
|
|
|
Year Ended
|
|
ASC 606 adoption
|
|
ASC 606 impact
|
|
|
September 30, 2019
|
|
impact
|
|
September 30, 2019
|
|
Product and other revenue
|
$
|
11,631
|
|
|
$
|
145
|
|
|
$
|
11,776
|
|
|
Total revenue
|
34,781
|
|
|
145
|
|
|
34,926
|
|
|
|
|
|
|
|
|
|
Product and other cost of revenue
|
4,387
|
|
|
—
|
|
|
4,387
|
|
|
Total cost of revenue
|
9,280
|
|
|
—
|
|
|
9,280
|
|
|
|
|
|
|
|
|
|
Gross margin
|
25,501
|
|
|
145
|
|
|
25,646
|
|
|
|
|
|
|
|
|
|
Selling and marketing (operating expenses)
|
14,727
|
|
|
(123
|
)
|
|
14,604
|
|
|
Loss from operations
|
(2,508
|
)
|
|
268
|
|
|
(2,240
|
)
|
|
Loss before income taxes
|
(3,522
|
)
|
|
268
|
|
|
(3,254
|
)
|
|
Net loss
|
$
|
(3,612
|
)
|
|
$
|
268
|
|
|
$
|
(3,344
|
)
|
|
Net loss attributable to common stockholders
|
$
|
(3,734
|
)
|
|
$
|
268
|
|
|
$
|
(3,466
|
)
|
|
|
|
|
|
|
|
|
Loss per common share
|
|
|
|
|
|
|
-basic
|
$
|
(0.64
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.59
|
)
|
|
-diluted
|
$
|
(0.64
|
)
|
|
$
|
0.05
|
|
|
$
|
(0.59
|
)
|
The following table summarizes the effect of adopting ASC 606 on our Consolidated Statement of Cash Flow for the twelve months ended September 30, 2019 (in thousands):
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts without
|
|
|
As reported
|
|
ASC 606 adoption
|
|
ASC 606 impact
|
|
|
September 30, 2019
|
|
impact
|
|
September 30, 2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net loss
|
$
|
(3,612
|
)
|
|
$
|
268
|
|
|
$
|
(3,344
|
)
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Capitalized commissions
|
123
|
|
|
(123
|
)
|
|
—
|
|
|
Unearned revenue
|
(900
|
)
|
|
(145
|
)
|
|
(1,045
|
)
|
|
Net cash used in operating activities
|
$
|
(736
|
)
|
|
$
|
—
|
|
|
$
|
(736
|
)
|
Transaction price allocated to future performance obligations
ASC 606 allows for the use of certain practical expedients, which we have elected and applied to measure our future performance obligations as of September 30, 2019.
As of September 30, 2019, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $4.0 million in the next three months, $9.6 million in the next twelve months, and the remaining $1.8 million thereafter.
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 twelve months ended September 30, 2019, revenues recognized related to the amount included in the unearned revenues balance at the beginning of the period was $10.3 million.
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 proportionate with related revenues over the period of the contract. During the twelve months ended September 30, 2019, amortization expense recognized related to the amount included in the capitalized commissions at the beginning of the period was $593 thousand.
10. Related-Party Transactions
The Company incurred fees of $316 thousand and $212 thousand during the years ended September 30, 2019 and 2018, respectively, to a law firm whose partner is a director and stockholder of the Company. The Company had accrued liabilities for unbilled services to the same law firm of $30 thousand and $60 thousand at September 30, 2019 and 2018, respectively.
Coincident with a retirement and transition agreement, the Company agreed to cancel a loan outstanding with an executive and the remaining balance was fully written off as of September 30, 2019. At September 30, 2018, the balance of the loan outstanding totaled $26 thousand. The loan was collateralized by Company stock.
On November 9, 2017, the Company sold to Mr. Burish $500 thousand of shares of Preferred Stock, Series A, at $762.85 per share. Mr. Burish is a director of the Company and beneficially owns more than 5% of the Company’s common stock.
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
On November 17, 2017, the Company entered into an Agreement in which Mr. Burish's right to convert shares of Preferred Stock, Series A, into common stock was waived until shareholder approval to approve the issuances of Preferred Stock, Series A had been obtained. The right to vote said shares of Preferred Stock, Series A was also waived pending shareholder approval of the issuance. Shareholder approval was obtained on May 17, 2018.
On January 19, 2018, the Company and Mr. Burish entered into a Subscription Agreement (the “Subscription Agreement”). Pursuant to the Subscription Agreement, (i) on January 19, 2018, the director purchased a 10.75% Convertible Secured Subordinated Promissory Note for $500,000 in cash; and (ii) on February 15, 2018, the director purchased an additional 10.75% Convertible Secured Promissory Note for $500,000 in cash (each, a “Note”, and collectively, the “Notes”).
On May 17, 2018, following approval by the stockholders of the Company of the conversion of the Notes sufficient to comply with rules and regulations of NASDAQ, the Notes were automatically converted into 1,902 shares of Series A Preferred stock. The number of shares was determined by dividing the total principal and accrued interest due on each Note by $542.13 (the “Conversion Rate”).
On April 16, 2018, the Company issued 232,558 shares of common stock to an affiliated party. The shares were issued at a price of $2.15 per share, representing the closing price on April 13, 2018. On April 16, 2018, the closing price of the Company’s common stock was $2.18 per share. The affiliated party also received warrants to purchase 232,558 shares of common stock at an exercise price of $2.50 per share, respectively, which expire on April 16, 2025.
On June 8, 2018, 905 shares of Preferred Stock, Series A were automatically converted by the Company into 213,437 shares of common stock. The amount of shares converted represents all preferred shares issued on May 30, 2017 and June 8, 2017, including related dividends.
On August 23, 2018, 717 shares of Preferred Stock, Series A were automatically converted by the Company into 169,485 shares of common stock. The amount of shares converted represents all preferred shares issued on August 23, 2017.
On November 15, 2018, 718 shares of Preferred Stock, Series A were automatically converted by the Company into 169,741 shares of common stock. The amount of shares converted represents all preferred shares issued on November 9, 2017, including related dividends.
On April 25, 2019, Mr. Burish exercised his warrant to purchase 728,155 shares of common stock of the Company at an exercise price of $1.18 per share, which was entered into coincident with the execution of the Note Purchase Agreement on February 28, 2019.
On May 17, 2019, 2,080 shares of Preferred Stock Series A were automatically converted by the Company into 491,753 shares on common stock. The amount of shares converted represents all preferred shares issued on May 17, 2018, including related dividends.
The Company has also been provided with debt financing from Mr. Burish. See Note 3 - Credit Arrangements for additional information on the Warrant issued to, and Note Purchase Agreements, with Mr. Burish as well as accrued interest on the Notes.
Mr. Burish beneficially owns more than 5% of the Company’s common stock. Mr. Burish also serves as the Chairman of the Board of Directors. An affiliated party beneficially owns more than 5% of the Company's common stock. All transactions with Mr. Burish and with the affiliated party were approved by a special committee of disinterested and independent directors.
11. Segment Information
We have determined that in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280-10, Segment Reporting, we operate in three operating segments, however these segments meet the criteria for aggregation for reporting purposes as one reporting segment as of September 30, 2019 and 2018.
The following summarizes revenue by geographic region (in thousands):
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
September 30,
|
|
|
2019
|
|
2018
|
|
United States
|
$
|
19,680
|
|
|
$
|
21,152
|
|
|
Europe and Middle East
|
5,718
|
|
|
4,482
|
|
|
Asia
|
7,822
|
|
|
7,418
|
|
|
Other
|
1,561
|
|
|
1,492
|
|
|
Total
|
$
|
34,781
|
|
|
$
|
34,544
|
|
12. Customer Concentration
In the fiscal year ended September 30, 2018, sales to two distributors represented 17% of total revenue. At September 30, 2018, these two distributors represented 28% of total accounts receivable. These two distributors did not represent a significant portion of revenue in the fiscal year ended September 30, 2019 or accounts receivable at September 30, 2019 as a result of the elimination of inventory sold through distributors.
13. Legal Proceedings
From time to time, the Company is subject to legal proceedings or claims arising from its normal course of operations. The Company accrues for costs related to loss contingencies when such costs are probable and reasonably estimable. As of September 30, 2019, the Company is not aware of any material pending legal proceedings or threatened litigation that would have a material adverse effect on the Company’s financial condition or results of operations.
14. Quarterly Statements of Stockholders' Equity (Deficit) (unaudited)
The following tables summarizes activity in stockholder's equity (deficit) on a quarterly basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, September 30, 2017
|
$
|
1,280
|
|
|
$
|
45
|
|
|
$
|
197,836
|
|
|
$
|
(195,253
|
)
|
|
$
|
(595
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
3,118
|
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
245
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
245
|
|
|
Issuance of preferred stock
|
500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
Preferred stock dividends
|
44
|
|
|
—
|
|
|
(44
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
320
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
320
|
|
|
Balance, December 31, 2017
|
$
|
1,824
|
|
|
$
|
45
|
|
|
$
|
198,037
|
|
|
$
|
(194,933
|
)
|
|
$
|
(575
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
4,203
|
|
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, December 31, 2017
|
$
|
1,824
|
|
|
$
|
45
|
|
|
$
|
198,037
|
|
|
$
|
(194,933
|
)
|
|
$
|
(575
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
4,203
|
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
75
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75
|
|
|
Issuance of common stock
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Preferred stock dividends
|
50
|
|
|
—
|
|
|
(50
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
309
|
|
|
—
|
|
|
—
|
|
|
309
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,449
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,449
|
)
|
|
Balance, March 31, 2018
|
$
|
1,874
|
|
|
$
|
45
|
|
|
$
|
198,070
|
|
|
$
|
(196,382
|
)
|
|
$
|
(266
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
3,146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, March 31, 2018
|
$
|
1,874
|
|
|
$
|
45
|
|
|
$
|
198,070
|
|
|
$
|
(196,382
|
)
|
|
$
|
(266
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
3,146
|
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
Issuance of preferred stock
|
1,031
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,031
|
|
|
Conversion of preferred stock
|
(829
|
)
|
|
2
|
|
|
827
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of common stock
|
—
|
|
|
2
|
|
|
498
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
Beneficial conversion feature on convertible debt
|
—
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
70
|
|
|
Preferred stock dividends
|
67
|
|
|
—
|
|
|
(67
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(272
|
)
|
|
—
|
|
|
—
|
|
|
(272
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,020
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,020
|
)
|
|
Balance, June 30, 2018
|
$
|
2,143
|
|
|
$
|
49
|
|
|
$
|
199,471
|
|
|
$
|
(197,402
|
)
|
|
$
|
(538
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
3,528
|
|
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, June 30, 2018
|
$
|
2,143
|
|
|
$
|
49
|
|
|
$
|
199,471
|
|
|
$
|
(197,402
|
)
|
|
$
|
(538
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
3,528
|
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
83
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
83
|
|
|
Conversion of preferred stock
|
(561
|
)
|
|
2
|
|
|
559
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of common stock
|
—
|
|
|
|
|
|
86
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
86
|
|
|
Preferred stock dividends
|
69
|
|
|
—
|
|
|
(69
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(138
|
)
|
|
—
|
|
|
—
|
|
|
(138
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,017
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10,017
|
)
|
|
Balance, September 30, 2018
|
$
|
1,651
|
|
|
$
|
51
|
|
|
$
|
200,130
|
|
|
$
|
(207,419
|
)
|
|
$
|
(676
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(6,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, September 30, 2018
|
$
|
1,651
|
|
|
$
|
51
|
|
|
$
|
200,130
|
|
|
$
|
(207,419
|
)
|
|
$
|
(676
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(6,458
|
)
|
|
Cumulative effect of ASC 606 adoption Note 9
|
—
|
|
|
—
|
|
|
—
|
|
|
1,691
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,691
|
|
|
Adjusted balance, October 1, 2018
|
1,651
|
|
|
51
|
|
|
200,130
|
|
|
(205,728
|
)
|
|
(676
|
)
|
|
(26
|
)
|
|
(169
|
)
|
|
(4,767
|
)
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
164
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
164
|
|
|
Conversion of preferred stock
|
(563
|
)
|
|
2
|
|
|
561
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Preferred stock dividends
|
53
|
|
|
—
|
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
—
|
|
|
—
|
|
|
62
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,788
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,788
|
)
|
|
Balance, December 31, 2018
|
$
|
1,141
|
|
|
$
|
53
|
|
|
$
|
200,802
|
|
|
$
|
(207,516
|
)
|
|
$
|
(614
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(6,329
|
)
|
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, December 31, 2018
|
$
|
1,141
|
|
|
$
|
53
|
|
|
$
|
200,802
|
|
|
$
|
(207,516
|
)
|
|
$
|
(614
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(6,329
|
)
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
56
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
56
|
|
|
Issuance of common stock and warrants
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
Warrants issued in connection with subordinated notes payable
|
—
|
|
|
—
|
|
|
674
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
674
|
|
|
Preferred stock dividends
|
46
|
|
|
—
|
|
|
(46
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,486
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,486
|
)
|
|
Balance, March 31, 2019
|
$
|
1,187
|
|
|
$
|
53
|
|
|
$
|
201,490
|
|
|
$
|
(209,002
|
)
|
|
$
|
(631
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(7,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, March 31, 2019
|
$
|
1,187
|
|
|
$
|
53
|
|
|
$
|
201,490
|
|
|
$
|
(209,002
|
)
|
|
$
|
(631
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(7,098
|
)
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17
|
)
|
|
Conversion of preferred stock
|
(1,210
|
)
|
|
4
|
|
|
1,206
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Issuance of common stock and warrants
|
—
|
|
|
10
|
|
|
1,096
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,106
|
|
|
Preferred stock dividends
|
23
|
|
|
—
|
|
|
(23
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
89
|
|
|
—
|
|
|
—
|
|
|
89
|
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(159
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(159
|
)
|
|
Balance, June 30, 2019
|
$
|
—
|
|
|
$
|
67
|
|
|
$
|
203,752
|
|
|
$
|
(209,161
|
)
|
|
$
|
(542
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(6,079
|
)
|
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
Common
stock
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Accumulated
other
comprehensive
loss
|
|
Receivable
for
common
stock issued
|
|
Treasury
stock
|
|
Total
|
|
Balance, June 30, 2019
|
$
|
—
|
|
|
$
|
67
|
|
|
$
|
203,752
|
|
|
$
|
(209,161
|
)
|
|
$
|
(542
|
)
|
|
$
|
(26
|
)
|
|
$
|
(169
|
)
|
|
$
|
(6,079
|
)
|
|
Stock compensation
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
|
Issuance of common stock and warrants
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
Cancellation of receivable for common stock issued
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
26
|
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(179
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(179
|
)
|
|
Balance, September 30, 2019
|
$
|
—
|
|
|
$
|
67
|
|
|
$
|
203,735
|
|
|
$
|
(209,340
|
)
|
|
$
|
(546
|
)
|
|
$
|
—
|
|
|
$
|
(169
|
)
|
|
$
|
(6,253
|
)
|
15. Quarterly Financial Data (unaudited)
The following table sets forth selected quarterly financial information for the years ended September 30, 2019 and 2018. The operating results are not necessarily indicative of results for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarterly Financial Data
|
|
(in thousands except per share data)
|
Q4-’19
|
|
Q3-’19
|
|
Q2-’19
|
|
Q1-’19
|
|
Q4-’18
|
|
Q3-’18
|
|
Q2-’18
|
|
Q1-’18
|
|
Revenue
|
$
|
9,212
|
|
|
$
|
10,068
|
|
|
$
|
7,997
|
|
|
$
|
7,502
|
|
|
$
|
8,490
|
|
|
$
|
8,699
|
|
|
$
|
8,460
|
|
|
$
|
8,895
|
|
|
Gross margin
|
6,461
|
|
|
7,387
|
|
|
5,993
|
|
|
5,660
|
|
|
6,094
|
|
|
6,395
|
|
|
5,929
|
|
|
6,470
|
|
|
Income (loss) from operations
|
125
|
|
|
144
|
|
|
(1,123
|
)
|
|
(1,654
|
)
|
|
(12,900
|
)
|
|
(914
|
)
|
|
(1,259
|
)
|
|
(966
|
)
|
|
Net income (loss)
|
(179
|
)
|
|
(159
|
)
|
|
(1,486
|
)
|
|
(1,788
|
)
|
|
(10,017
|
)
|
|
(1,020
|
)
|
|
(1,449
|
)
|
|
320
|
|
|
Basic and diluted net income (loss) per share
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.36
|
)
|
|
$
|
(2.16
|
)
|
|
$
|
(0.23
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
0.06
|
|