Dear Fellow Shareholders,
It’s hard to believe it’s only been five months since I last wrote to you. It
feels like the world is constantly changing, sometimes even by the hour.
This fast-paced new reality requires rapid action from every angle. Our
customers must be capable of pivoting at any moment to accommodate
the changing needs of their users who are trying to navigate the future of
the classroom, workspace and event landscape. We at Sonic Foundry must
anticipate our customers’ needs, staying one step ahead by innovating new
technologies and offerings to meet market demands and help our clients
solve their business issues.
As I discussed at our last shareholder meeting in January, personally, I am
energized by rapid change. We at Sonic Foundry are motivated by it, too,
and I am proud of what our team has accomplished.
I’m continually inspired by a book that I’ve used during my career – Execution: The Discipline of Getting Things
Done, by Larry Bossidy. The book centers around three pillars: People. Strategy. Execution. I’ve used this approach
numerous times and am applying it again at Sonic Foundry. I would like to share the progress we’ve made in
applying these three pillars and how we are continuing to position our company for significant growth in the future.
2020: A Year in Review
While I’m sure the idea of looking back to 2020 isn’t high on your list of things to do, it’s important to put into
perspective just how far we’ve come collectively from a societal and industry perspective.
It was certainly a year of massive change. Through video we remained digitally connected with friends and
family, kept businesses operating, classes open, and avoided events being cancelled. Imagine a world where
this wasn’t an option.
A year ago there was market confusion and general discomfort from people being on screen. Now, we’re all more
likely to turn on our cameras. We don’t think twice about showing a less-than-pristine home office or creating and
sharing a video that is not professionally produced. The speed at which we communicate now tops formality, and
this has not only become part of our daily routine, but it is also cemented in our culture.
From March to September 2020 our customers created 5.8 million videos using Mediasite technology. Those
videos were viewed 1.4 billion times. Yes, billion with a ‘b.’ That’s incredible. To put that in perspective, it’s almost 10
times what many of our users were doing pre-pandemic. COVID-19 was a 10-year accelerant in our industry. There
is no going back, and I believe this will continue to create new opportunities for our business.
With that said, let me take a moment to address what you might be asking yourself: Why don’t our financials and
stock price match our usage momentum? Clearly, the largest impact on our business has been that the presentation
space is a primary area where we have participated in the marketplace historically. Let me emphasize that point
again — the classroom and meeting room is where we earn a large component of our revenue today. However,
these facilities have largely remained empty. We needed to overcome this massive constraint to our traditional go-
to-market approach. And we did — quite successfully.
You may recall back in January I shared how we will augment our business with what I believe to be two large
growth markets for us: cloud video management and virtual and hybrid events. Our bold and rapid move into these
areas have allowed us to create new client offerings and develop ongoing revenue streams. Ultimately, I believe we
will outperform last year, despite the impact of COVID on our traditional go-to-market approach. We anticipated this
and positioned our company to offer services that best help our clients. We worked side-by-side with our customers
to help them quickly rethink how to use our technologies in 2020 to ensure they could deliver fully virtual classes,
meetings and events. We created cloud options to help them manage what became an overflowing stream of new
videos. Our team supported our customers around the clock to help them navigate the uncertainty. Our customers
became leaders in the industry, fully embracing Mediasite solutions. Let’s look at two examples.
The Bank of Sun Prairie in the greater Madison, Wis., region recently held its virtual stockholder meeting with our
Mediasite Events platform. This was the first virtual event in the bank’s 124-year history, having never considered it
prior to the pandemic. The bank reached a larger audience and received rave reviews from its shareholders.
On the cloud front, University of Leeds in the United Kingdom successfully completed a massive migration of its
Mediasite deployment to our cloud, part of a multi-year commitment to support usage of academic video for virtual
and post-pandemic hybrid classes. The university saw the use of video lessons and assignments grow five times
over the prior year, with students watching from nearly 100 countries.
The new demand for video worldwide creates an urgent need to ensure those videos can be accessed anytime,
anywhere without bandwidth constraints. Our professional services team has been working with organizations
worldwide like Leeds to host their data in our cloud, a relatively new focus for us but a key part of our trajectory forward.
We saw cloud hosting increase by 42 percent year to date through our second quarter of 2021 over the same
period in 2020, and events revenue is double what it was last year. I expect these new focuses to continue to grow
at substantial rates for us.
Let’s not dismiss the traditional classrooms and meeting rooms, though. Looking ahead, I expect it to remain a
key piece of our business because we believe the lights will turn on again soon. Now more than ever the need
for video technologies to deliver online learning is crystal clear. Universities now recognize online learning
solutions not only aid their business, but they are also critical to their survival. Also, after so much uncertainty in
education, there will be a greater demand from instructors and students to expand classroom video technologies
as an online learning component. We have unparalleled technology to do that and an extensive user base ready
to make it a reality.
Laying the Foundation for Future Growth
While 2020 was a year of tremendous hardship, from a business perspective it’s important to focus on the
positives. I believe that these changes in the way we work, learn and communicate, and the rapid adoption of
video, reinforces our company’s vision and prospects for creating substantial growth. We’ve achieved progress
toward this since we last spoke.
Referring to the three pillars, I am excited about the ‘People’ part of our equation. In January, I told you about our
business growth strategy. Part of that plan included introducing new faces to our team, and that is happening at
every level. Our management team looks different, with the addition of three new senior positions including an
SVP of Product and Technology, Steve McKee, an SVP of Sales and Marketing, Duane Glader, and a VP Controller,
CJ Tao. In addition, our longtime CFO of 20 years, Ken Minor, returned to the business. Each has a background
creating high growth and/or maneuvering in capital market activities. These are areas I anticipated to be future
pathways for our organization, and these new positions support the company’s efforts to create new revenue
streams, open new market share and increase customer adoption of Mediasite services.
We are also making changes at the board level, which we will address further during our upcoming shareholder
meeting in June. I’d like to thank David Slayton and Gary Weis, longtime board members, for their years of service
to our company. They will be stepping down as we welcome Taha Jangda, the General Partner of Healthx Ventures,
and William St. Lawrence, General Counsel/VP of Business Development at BioDental Sciences, Inc., to the board.
Mr. Jangda has extensive experience in start-ups and fast market growth and understands how new technologies
can impact businesses and create new opportunities. Mr. St. Lawrence has vast capital market experience along
with corporate development activities and recognizes how speed in the marketplace is a critical factor for growth
– our growth. As we achieve internal and external growth, and launch new services, I am excited about the
opportunity to work with them.
This is our leadership growth team. I am confident we have the right people in place to build and execute our
strategy to establish new levels of growth at Sonic Foundry.
Thinking Differently About the Business
Now that we have the right people in place, we have been honing our ‘Strategy’ — pillar number two — over the
past few months. I believe the future of Mediasite includes integrating our rock-solid video solutions with other
technologies and business opportunities that can further enhance video such as augmented reality, artificial
intelligence and 360-degree video. We are currently working on new opportunities within these arenas.
For 2021, we are focused on determining what new areas of business will get us to what I like to call, “the upper-
right-hand-corner.” As I have done in the past when creating new growth, we are using design theory and thinking
to envision our goal. This time, we are engaging with The Berkeley Innovation Group, an innovation consultancy
that helps companies expedite time-to-market with design thinking. This group, along with our Product Council
which kicked off a few months ago and is comprised of both Sonic Foundry employees and outside industry
leaders, is thinking creatively about our business. Both groups are helping us envision new high-growth areas and
will inform our thinking of the markets we have the right to win within. This avenue for new, scalable growth will be
built on our video solutions’ DNA, our team’s extensive expertise and our outstanding customer base.
We have exciting momentum for expansion within existing customers, too. For example, the Netherlands’ Ministry
of Defence, a Mediasite user for more than a decade, recently expanded its on-premises deployment and signed
a three-year contract for our cloud. They value our approach to securing their content, and there are more
opportunities for expansion to support their need for online trainings and the growth in virtual training across
defense sectors worldwide. This market opportunity alone is vast.
Similarly, we’re excited about the investments and focus we made in our events business. There has been a lot of
change in the events industry, but one thing remains constant: the value of educational content. That is our focus.
The revenue per event in Mediasite Events is almost double what it was pre-pandemic because we are bringing in
more service offerings to our clients. In this new emerging hybrid world, where meetings have both an online and
in-person component, we are leaders in helping our customers capture, manage and leverage their content year-
round. Our events business has traditionally focused on leading events and managing content, and today we are
not only producing events, but we also help clients leverage and monetize content in ways they never did before.
We are exploring ways to monetize the prolific content directly through our channels and indirectly to help our
customers deliver value to their attendees, including continued engagement, memberships, pay-to-watch and
subscriptions. We are no longer a technology service provider for the event. We are the event. We are extending its
life cycle to create year-round engagement. That’s the future of this part of our business.
We are leading by example. We hosted a fully virtual Mediasite Experience 2021 conference in May where leaders
in the meetings and events industry, healthcare, higher education and enterprise came together through our
Mediasite Events platform to learn how to increase the impact and adoption of video in their organizations. Within
the first day of opening registration we received record response, and our team of experts positioned us as thought
leaders in the space, helping attendees navigate the new video-first world. That conference is available all year on-
demand, and is one we were extremely proud to produce.
Our business has come a long way already, but there is still much work to be done. I am confident we have the
team in place to reach our goals and grow our business. We are helping to write the future of our industry, and
that is exciting. As we put the final pieces of the strategy together we will swiftly move to the final pillar, ‘Execution,’
and we’ve already started to make dramatic departmental changes within our organization to support our growth
strategy.
I am even more enthusiastic about where we are headed than when I joined the company 10 months ago. I believe
if you have a vision and a mentality for growth, and have a passionate team in place, you can create dramatic
growth. We are on the journey to making our — your — company a growth company.
Sincerely,
Joe Mozden Jr.
CEO
SONIC FOUNDRY, INC.
222 West Washington Avenue
Madison, Wisconsin 53703
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held June 24, 2021
The Annual Meeting of Stockholders of SONIC FOUNDRY, INC., a Maryland corporation (“Sonic”) will be held
virtually, over the Internet, on June 24, 2021, for the following purposes:
1.
2.
To elect three directors to hold office for the terms set forth herein and until their successors are duly elected and
qualified.
To ratify the appointment of Wipfli LLP as our independent auditors for the fiscal year ending September 30,
2021;
3.
To transact such other business as may properly come before the meeting or any adjournments thereof.
All the above matters are more fully described in the accompanying Proxy Statement.
The Annual Meeting will be
at
a virtual meeting held over
www.sonicfoundry.com/shareholder. You will be able to vote your shares electronically at proxyvote.com by entering
your sixteen-digit control number located on your proxy card or in the email you have consented to receive from your
bank/broker that retains your shares.
Internet via Mediasite
the
Only holders of record of Common Stock at the close of business on May 17, 2021 are entitled to notice of, and to vote
at, this virtual meeting or any adjournment or adjournments thereof. You are invited to attend the virtual annual meeting
if you are a stockholder of record or a beneficial owner of shares of our common stock as of the Record Date.
The Company has also arranged for space in our offices located at 222 West Washington Avenue, Suite 100, Madison,
Wisconsin 53703 from which you can access the Internet and attend the meeting. Should you wish to do so, please
contact Laura Delis at laura.delis@sonicfoundry.com no later than seven days prior to the virtual annual meeting. This
is an option we are providing for your convenience, as required by Maryland law. YOU DO NOT HAVE TO UTILIZE
THIS SPACE IN ORDER TO ACCESS THE VIRTUAL MEETING. YOU MAY ACCESS THE VIRTUAL
MEETING FROM ANY CONVENIENT LOCATION.
Please complete and return the enclosed proxy in the envelope provided or follow the instructions on the proxy card to
authorize a proxy by telephone or over the Internet.
By Order of the Board of Directors,
Madison, Wisconsin
May 17, 2021
Ken Minor
Secretary
─────────────────────────────────────
If you cannot personally attend the virtual meeting, it is earnestly requested that you promptly indicate your vote
on the issues included on the enclosed proxy and date, sign and mail it in the enclosed self-addressed envelope,
which requires no postage if mailed in the United States or, follow the instructions on the proxy card to authorize
a proxy by telephone or over the Internet. Doing so will save us the expense of further mailings. If you sign and
return your proxy card without marking choices, your shares will be voted in accordance with the
recommendations of the Board of Directors.
─────────────────────────────────────
May 17, 2021
SONIC FOUNDRY, INC.
222 W. Washington Avenue
Madison, Wisconsin 53703
PROXY STATEMENT
The Board of Directors of Sonic Foundry, Inc., a Maryland corporation (“Sonic”), hereby solicits the enclosed proxy.
Unless instructed to the contrary on the proxy, it is the intention of the persons named in the proxy to vote the proxies:
FOR the election of Frederick H. Kopko Jr. and Taha Jangda for terms expiring in 2026 and William St. Lawrence
for term expiring 2023;
FOR the ratification of the appointment of Wipfli LLP as independent auditors of Sonic for the fiscal year ending
September 30, 2021.
In the event that a nominee for director becomes unavailable to serve, which management does not expect, the persons
named in the proxy reserve full discretion to vote for any other persons who may be nominated. Proxies may also be
authorized by telephone or over the Internet by following the instructions on the proxy card. Any stockholder giving
a proxy may revoke it at any time prior to the voting of such proxy. This Proxy Statement and the accompanying
proxy are being mailed on or about May 21, 2021.
Each holder of Common Stock will be entitled to one vote for each share of Common Stock standing in his or her
name on our books at the close of business on May 17, 2021 (the “Record Date”). Only holders of issued and
outstanding shares of Sonic's Common stock as of the close of business on the Record Date are entitled to notice of
and to vote at the Annual Meeting, including any adjournment or postponement thereof. On that date, we had
outstanding and entitled to vote 8,064,838 shares of Common Stock, held by approximately 2,800 stockholders, of
which approximately 2,600 were held in street name.
The Annual Meeting will be
at
a virtual meeting held over
www.sonicfoundry.com/shareholder. You will be able to vote your shares electronically at proxyvote.com by entering
your sixteen-digit control number located on your proxy card or in the email you have consented to receive from your
bank/broker that retains your shares.
Internet via Mediasite
the
The Company has also arranged for space in our offices located at 222 West Washington Avenue, Suite 100, Madison,
Wisconsin 53703 from which you can access the Internet and attend the virtual meeting. Should you wish to do so,
please contact Laura Delis at laura.delis@sonicfoundry.com no later than seven days prior to the virtual Annual
Meeting. This is an option we are providing for your convenience, as required by Maryland law. YOU DO NOT
HAVE TO UTILIZE THIS SPACE IN ORDER TO ACCESS THE VIRTUAL MEETING. YOU MAY ACCESS
THE VIRTUAL MEETING FROM ANY CONVENIENT LOCATION.
QUORUM; VOTES REQUIRED
Votes cast by proxy or in person at the virtual Annual Meeting will be tabulated by the inspector of elections appointed
for the virtual Annual Meeting and will determine whether or not a quorum is present. Where, as to any matter
submitted to the stockholders for a vote, proxies are marked as abstentions (or stockholders appear in person but
abstain from voting), such abstentions will be treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum, but will not be treated as present and entitled to vote for any other purpose. If
a broker indicates on the proxy that it does not have discretionary authority as to certain shares to vote on a particular
matter and has not received instructions from the beneficial owner, which is known as a broker non-vote, such shares
will also be considered present for purposes of a quorum, provided that the broker exercises discretionary authority
1
on any other matter in the Proxy. A majority of the shares of stock issued, outstanding and entitled to vote at the
Annual Meeting, present in person or represented by proxy, shall constitute a quorum at the virtual Annual Meeting.
The election of Directors requires a plurality of the votes present and entitled to vote. Therefore, the three directors
who receive the highest vote total will be elected. Neither an abstention nor a withheld vote will affect the outcome
of the election. The ratification of the appointment of Wipfli, LLP requires the affirmative vote of the holders of a
majority of the votes cast at the virtual Annual Meeting. If you abstain or withhold your vote on these proposals, it
will have no effect on the outcome of the proposal.
The New York Stock Exchange ("NYSE") has rules that govern brokers who have record ownership of listed company
stock held in brokerage accounts for their clients who beneficially own the shares. Under these rules, brokers who do
not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain discretionary
matters but do not have discretion to vote uninstructed shares as to certain other non-discretionary matters. A broker
may return a proxy card on behalf of a beneficial owner from whom the broker has not received instructions that casts
a vote with regard to discretionary matters but expressly states that the broker is not voting as to non-discretionary
matters. The broker's inability to vote with respect to the non-discretionary matters with respect to which the broker
has not received instructions from the beneficial owner is referred to as a "broker non-vote". Under current NYSE
interpretations, the proposal to ratify the appointment of Wipfli, LLP as our independent auditor is considered a
discretionary matter.
DATE, TIME AND PLACE OF ANNUAL MEETING
The Annual Meeting will be held virtually, over the Internet, on June 24, 2021 at 9:00 a.m. (Central time).
HOW TO VOTE AT THE ANNUAL MEETING
The Annual Meeting will be
at
a virtual meeting held over
www.sonicfoundry.com/shareholder. You will be able to vote your shares electronically at proxyvote.com by entering
your sixteen-digit control number located on your proxy card or in the email you have consented to receive from your
bank/broker that retains your shares.
Internet via Mediasite
the
The Company has also arranged for space in our offices located at 222 West Washington Avenue, Suite 100, Madison,
Wisconsin 53703 from which you can access the Internet and attend the virtual meeting. Should you wish to do so,
please contact Laura Delis at laura.delis@sonicfoundry.com no later than seven days prior to the virtual annual
meeting. This is an option we are providing for your convenience, as required by Maryland law. YOU DO NOT
HAVE TO UTILIZE THIS SPACE IN ORDER TO ACCESS THE VIRTUAL MEETING. YOU MAY ACCESS
THE VIRTUAL MEETING FROM ANY CONVENIENT LOCATION.
PROPOSAL ONE: ELECTION OF DIRECTORS
Our Amended and Restated Articles of Incorporation and Bylaws provide that the Board of Directors shall be divided
into five classes, with each class having a five-year term. Directors are assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. Vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes may be filled by either the affirmative vote of the holders of a
majority of the then-outstanding shares or by the affirmative vote of a majority of the remaining directors then in office,
even if less than a quorum of the Board of the Directors. Newly created directorships resulting from any increase in the
number of directors may, unless the Board of Directors determines otherwise, be filled only by a majority vote of the
entire Board of Directors. A director elected by the Board of Directors to fill a vacancy (including a vacancy created by
an increase in the number of directors) shall serve until the next annual meeting of stockholders or until such director’s
successor is elected and qualified.
Our Amended and Restated Articles of Incorporation provide that the number of directors, which shall constitute the
whole Board of Directors, shall not be less than three or more than twelve. The currently authorized number of directors
2
is seven. The seat on the Board of Directors currently held by Frederick H. Kopko, Jr. is designated as a Class III Board
seat, with a term expiring at the Annual Meeting. Additionally, following the resignations of David Slayton and Gary
Weis, the Sonic Board of Directors appointed Messrs. Taha Jangda and William St. Lawrence for seats on the Board of
Directors in May 2021 with terms expiring at the Annual Meeting. The Board of Directors has nominated Frederick H.
Kopko, Jr. and Taha Jangda as Class III Directors and William St. Lawrence as a Class V Director for election at the
Annual Meeting.
If elected at the Annual Meeting, Messrs. Kopko and Taha Jangda would serve until the 2026 Annual Meeting and
William St. Lawrence will serve until the 2023 Annual Meeting and until their successors are elected and qualified or
until their earlier death, resignation or removal.
The election of Messrs. Kopko, Jangda and St. Lawrence requires a plurality of the votes present and entitled to
vote.
Nominees for Director for a Five-Year term expiring on the 2026 Annual Meeting
Frederick H. Kopko, Jr.
Term Expires in 2026
(Class III director)
Mr. Kopko, age 65, served as Sonic Foundry’s Secretary from April 1997 to February 2001 and has been a Director
since December 1995. Mr. Kopko is a partner of the law firm of McBreen & Kopko, Chicago, Illinois, and has been
a partner of that firm since January 1990. Mr. Kopko practices in the area of corporate law. He is the Managing
Director, Neltjeberg Bay Enterprises LLC, a merchant banking and business consulting firm and has been a Director
of Mercury Air Group, Inc. since 1992. Mr. Kopko received a B.A. degree in Economics from the University of
Connecticut, a J.D. degree from the University of Notre Dame Law School and an M.B.A. degree from the University
of Chicago.
Taha Jangda
Term Expires in 2026
(Class III director)
Mr. Jangda, age 30, was elected as a Director in May 2021. Mr. Jangda is the General Partner of Healthx Ventures, a
digital healthcare-focused early-stage fund since December 2016, a member of the board of directors of Orbita, Inc.
since 2018 as well as serving in numerous board observer and advisory roles. Prior to his current roles, Mr. Jangda
served from February 2015 to September 2017, as one of the founding team members and Strategic Advisor of TMC
Innovation Institute, an accelerator program for the development of medical devices and digital heath startups. From
September 2015 to December 2016 Mr. Jangda served as the Chief Evangelist of Redox, a healthcare industry software
company. From August 2014 to October 2015 Mr. Jangda was the Director of Commercialization for Admetsys, a
developer of real-time diagnostic platform and closed-loop artificial pancreas. Mr. Jangda has a BS in Psychology
from Texas A&M University.
Nominee for Director for a Two-Year term expiring on the 2023 Annual Meeting
William St. Lawrence
Term Expires in 2023
(Class V director)
Mr. St. Lawrence, age 52, was elected as a Director in May 2021. Mr. St. Lawrence has served as the General Counsel
/ VP of Business Development at BioDental Sciences, Inc, a dental technology and services company since August
2019. Prior to joining BioDental Sciences, Inc., Mr. St. Lawrence served from February 2017 to August 2019, as the
General Counsel and then interim CEO at Northern Power Systems (TSX), a VT-based renewable energy company.
From September 2012 to December 2020 Mr. St. Lawrence was General Counsel and Chief Administrative Officer /
Advisor for Northeast Wireless Networks, a wholesale shared access cellular networks company acquired by AT&T
in September 2018. Mr. St. Lawrence has a B.A. in History from Hobart and William Smith Colleges and a J.D. from
the University of Maine School of Law.
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The members of the Board of Directors unanimously recommend a vote FOR the election of Messrs. Kopko and
Jangda as Class III Directors and Mr. St. Lawrence as a Class V Director.
DIRECTORS CONTINUING IN OFFICE
Brian T. Wiegand
Term Expires in 2022
(Class IV Director)
Mr. Wiegand, age, 51, has been a director of the Company since July 2012, and is a serial entrepreneur who
successfully founded and sold several internet-based companies. He is currently the founder and CEO of Gravy, Inc.,
a live video shopping platform. Mr. Wiegand founded and served as CEO of Hopster, a company that links digital
marketing efforts with real-world shopping behavior by rewarding consumer purchase loyalty, engagement and
advocacy. Hopster announced in October 2014 that it was acquired by Inmar, Incorporated, where Mr. Wiegand
served as SVP of Growth and Strategy from the date of purchase to August 2016. Mr. Wiegand co-founded and served
as executive chair of the board of Alice.com, an online retail platform that connects manufacturers and consumers in
the consumer packaged goods market. Alice.com filed for receivership in August 2013. Mr. Wiegand also co-founded
Jellyfish.com, a shopping search engine, in June of 2006. He served as CEO until October 2007 when the company
was sold to Microsoft. Mr. Wiegand continued with Microsoft as the General Manager of Social Commerce until May
2008. He also co-founded NameProtect, a trademark research and digital brand protection services company in August
1997 which was sold to Corporation Services Company in March 2007. In addition, Mr. Wiegand founded BizFilings
in 1996, the Internet’s leading incorporation Services Company. He served as the president and CEO until 2002 when
the company was acquired by Wolters Kluwer. Mr. Wiegand attended the University of Wisconsin – Madison.
Nelson A. Murphy
Term Expires in 2024
(Class I Director)
Mr. Murphy, age 60, has been a Director since November 2017. Since January 2015, Mr. Murphy has been the
Executive VP, Finance & Operations for Catawba College, a private liberal arts college. From August 2013 to June
2015 Mr. Murphy was VP, International Finance at Syniverse Technologies, Inc. in Luxembourg, a provider of mobile
technologies, and from October 2010 to August 2013 served as VP – Finance, Defensive Systems Division at Northrop
Grumman Corporation, a global security company. Previously, Mr. Murphy served in various senior finance roles at
AT&T including responsibility for finance in operations located in Europe, the Middle East and Latin America. Mr.
Murphy has a B.S. in Accounting from Wake Forest University.
Mark D. Burish
Term Expires in 2025
(Class II Director)
Mr. Burish, age 67, has been a director since March 2010 and has served as Non-Executive Chair since April 2011.
Mr. Burish is a shareholder of the law firm of Hurley, Burish & Stanton, Madison, WI, which he helped start in 1983.
He is the founder and CEO of Our House Senior Living, LLC, Milestone Senior Living, LLC and Milestone
Management Services, LLC which he started in 1997. Mr. Burish received his BA degree in communications from
Marquette University in 1975 and his JD degree from the University of Wisconsin in 1978.
Joe Mozden Jr.
Term Expires in 2025
(Class II Director)
Mr. Mozden, age 57, was appointed by the Board of Directors to serve as the Company’s Chief Executive Officer,
effective September 14, 2020, and to serve as a Class II Director. Prior to joining the Company, from 2015 to 2020,
Mr. Mozden served as Vice-President of DeVry University and leader of DeVryWORKS, an e-learning platform focused
on servicing corporations, military and educational institutions. From 2005 to 2015 he served as Executive Vice-President
and Chief Operating Officer for the Alliant Group, a private equity-owned multi-channel marketing services provider
specializing in database marketing, data aggregation, and analytics for advanced advertising, direct mail,
4
telemarketing, e-mail marketing, and big data. He also has been in sales and marketing roles at Commonwealth
Telephone Enterprises, Inc. and LSSI, a data aggregator providing content and SaaS offerings to telco, marketing,
cable and SEO companies. His other board affiliations include a manufacturing company and a non-for-profit
charitable organization. Mr. Mozden received a BS in Electrical Engineering from Rensselaer-Polytechnic Institute
and an MBA in Finance and International Business from New York University.
DIRECTORS NOT CONTINUING IN OFFICE
Gary R. Weis
Mr. Weis, age 74, served as Chief Executive Officer from March 2011 until April 2019, Chief Technology Officer
from September 2011 to April 2019 and a Director of Sonic from February 2004 to May 2021. Prior to joining Sonic,
he served as President, Chief Executive Officer and a Director of Cometa Networks, a wireless broadband Internet
access company from March 2003 to April 2004. From May 1999 to February 2003 he was Senior Vice President of
Global Services at AT&T where he was responsible for one of the world's largest data and IP networks, serving more
than 30,000 businesses and providing Internet access to more than one million individuals worldwide. While at AT&T,
Mr. Weis also was CEO of Concert, a joint venture between AT&T and British Telecom. Previously, from January
1995 to May 1999 he was General Manager of IBM Global Services, Network Services. Mr. Weis served as a Director
from March 2001 to February 2003 of AT&T Latin America, a facilities-based provider of telecom services in Brazil,
Argentina, Chile, Peru and Columbia. Mr. Weis earned BS and MS degrees in Applied Mathematics and Computer
Science at the University of Illinois, Chicago. Mr. Weis resigned from the Board of Directors on May 11, 2021,
effective April 30, 2021.
David F. Slayton
Mr. Slayton, age 52, served as a Director from November 2017 to May 2021. Since April 2013, Mr. Slayton has been
the Chief Financial Officer of Ovative Group, a digital media agency and analytics firm. From July 2008 to March
2013, Mr. Slayton was co-founder, Executive Vice President – CFO and a member of the board of Alice.com, an e-
commerce retail marketplace. Prior to his service at Alice.com, Mr. Slayton served in senior financial management
roles at numerous companies including as Chief Financial Officer at Shavlik Technologies from June 2005 to July
2008, Managing Director and co-founder at Haviland Partners Inc. from August 2003 to February 2005 and as Chief
Financial of NameProtect Inc. from July 2000 to July 2003. Mr. Slayton earned a BS in Economics from the
Massachusetts Institute of Technology (June 1991) and an MBA in Business Administration from Harvard University
(June 1996). Mr. Slayton resigned from the Board of Directors on May 6, 2021.
When considering whether the Board of Directors and nominees thereto have the experience, qualifications, attributes
and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light
of our business and structure, the Board of Directors focused primarily on the information discussed in each of the
Board members' biographical information set forth above. Each of the Company's directors possess high ethical
standards, act with integrity and exercise careful, mature judgment. Each is committed to employing his skills and
abilities to aid the long-term interests of the stakeholders of the Company. In addition, each of our directors has
exhibited judgment and skill, and has either been actively involved with the Company for a considerable period of
time or has experience with other organizations of comparable or greater size. In particular, Mr. Kopko has had
extensive experience with companies comparable in size to Sonic Foundry, including serving as a director of Mercury
Air Group, Inc. and other private and public companies and fills a valuable need with experience in securities and
other business law. Mr. Burish brings additional valuable legal experience to the Board as well as experience obtained
through founding multiple companies. Mr. Wiegand has significant experience in founding and operating technology
companies and building brand awareness with both businesses and consumers. Mr. Murphy has significant experience
in finance and accounting both in the higher education field as well as with technology companies. Mr. Mozden has
significant experience in developing and managing e-learning platforms. Mr. Jangda has significant experience
founding and investing in technology companies. Mr. St. Lawrence has substantial experience in business law and
managing technology companies.
5
CORPORATE GOVERNANCE
Director Independence
Although the Company’s stock is no longer listed on the NASDAQ Stock Market (“NASDAQ”), the Company
complies with many of the listing requirements for such market. After meeting all of the listing requirements for
NASDAQ, the Company will consider reapplying for listing. NASDAQ requires that a majority of the members of
our Board be independent, as defined under NASDAQ’s rules. The NASDAQ rules have both objective tests and a
subjective test for determining who is an “independent director.” The objective tests state, for example, that a director
is not considered independent if he or she is an employee of the Company or has engaged in various types of business
dealings with the Company. The subjective test states that an independent director must be a person who lacks a
relationship that in the opinion of the Board would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director. The Board has made a subjective determination as to each independent director that
no relationship exists that, in the opinion of the Board, would interfere with the exercise of independent judgment in
carrying out the responsibilities of a director. In making these determinations, the Board reviews information provided
by the directors in an annual questionnaire with regard to each director’s business and personal activities as they relate
to the Company. Based on this review and consistent with NASDAQ’s independence criteria, the Board has
affirmatively determined that Nelson A. Murphy, Taha Jangda, William St. Lawrence and Brian T. Wiegand are
independent.
Related Person Transaction
The Board has adopted a Related Person Transaction Policy (the “Policy”), which is a written policy governing the
review and approval or ratification of Related Person Transactions, as defined in SEC rules.
Under the Policy, each of our directors and executive officers must notify the Chairman of the Audit Committee in
writing of any new potential Related Person Transaction involving such person or an immediate family member. The
Audit Committee will review the relevant facts and circumstances and will approve or ratify the transaction only if it
determines that the transaction is not inconsistent with, the best interests of the Company. The Related Party
Transaction must then be approved by the independent directors. In determining whether to approve or ratify a Related
Person Transaction, the Audit Committee and the independent directors may consider, among other things, the benefits
to the Company; the impact on the director’s independence (if the Related Person is a director or an immediate family
member); the availability of other sources for comparable products or services; the terms of the transaction; and the
terms available to unrelated third parties or to employees generally.
Board Leadership Structure and Role in Risk Oversight
Mark D. Burish serves as Non-Executive Chairman of the Board and Joe Mozden Jr. serves as our Chief Executive
Officer. The Company believes that having separate positions provides an appropriate leadership structure.
Our business and affairs are managed under the direction of our board, which is the Company’s ultimate decision-
making body, except with respect to those matters reserved to our stockholders. Our Board’s key mission is to
maximize long-term stockholder value. Our Board establishes our overall corporate policies, selects and evaluates
our executive management team (which is charged with the conduct of our business), and acts as an advisor and
counselor to executive management. Our board also oversees our business strategy and planning, as well as the
performance of management in executing its business strategy and assessing and managing risks.
What is the Board’s role in risk oversight?
The board takes an active role in monitoring and assessing the Company’s risks, which include risks associated with
operations, credit, financing and capital investments. Management is responsible for the Company’s day-to-day risk
6
management activities and our board’s role is to engage in informed risk oversight. Management, through its
disclosure committee, compiles an annual ranking of risks to which the Company could be subjected and reviews the
results of this risk assessment with the audit committee. Any significant risks are then reviewed by the board and
assigned for oversight. In fulfilling this oversight role, our board focuses on understanding the nature of our enterprise
risks, including our operations and strategic direction, as well as the adequacy of our risk management process and
overall risk management system. There are a number of ways our board performs this function, including the
following:
• at its regularly scheduled meetings, the board receives management updates on our business operations,
financial results and strategy and discusses risks related to the business;
•
•
the audit committee assists the board in its oversight of risk management by discussing with management,
particularly, the Chief Financial Officer, our guidelines and policies regarding financial and enterprise risk
management and risk appetite, including major risk exposures, and the steps management has taken to monitor
and control such exposures; and
through management updates and committee reports, the board monitors our risk management activities,
including the annual risk assessment process, risks relating to our compensation programs, and financial and
operational risks being managed by the Company.
The board of directors also has oversight responsibility for risks and exposures related to employee compensation
programs and management succession planning and assesses whether the organization’s compensation practices
encourage risk taking that would have a material adverse effect on the Company. The compensation committee
periodically reviews the structure and elements of our compensation programs and its policies and practices that
manage or mitigate such risk, including the balance of short-term and long-term incentives, use of multiple
performance measures, and a multi-year vesting schedule for long-term incentives. Based on these reviews, the
committee believes our compensation programs do not encourage excessive risk taking.
Board Structure and Meetings
The Board met five times during Fiscal 2020. The Board also acted by written consent from time to time. All directors
attended at least 75% of the total number of Board meetings and committee meetings on which they serve (during the
period in which each director served). In addition, NASDAQ marketplace rules contemplate that the independent
members of our Board will meet during the year in separate closed meetings referred to as “executive sessions” without
any employee director or executive officer present. Executive sessions were usually held after regularly scheduled
Board meetings during Fiscal 2020.
The Board of Directors has four standing committees, the Audit Committee, the Executive Compensation Committee,
the Governance Committee and the Nominations Committee. The Board of Directors also established a special
committee of disinterested and independent members to consider and negotiate the terms of transactions between the
Company and Mark D. Burish, the Company’s chair.
Sonic has a standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Through April 30, 2021, the members of the Audit Committee were
Messrs. Murphy (chair), Slayton and Wiegand. Currently, members of the Audit Committee are Messrs. Murphy
(chair), Jangda and Wiegand. Sonic’s Board of Directors has determined that all members of Sonic’s Audit
Committee are “independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act and
as defined under Nasdaq listing standards. The Audit Committee provides assistance to the Board in fulfilling its
oversight responsibility including: (i) internal and external financial reporting, (ii) risks and controls related to financial
reporting, and (iii) the internal and external audit process. The Audit Committee is also responsible for recommending
to the Board the selection of our independent public accountants and for reviewing all related party transactions. The
Audit Committee met five times in Fiscal 2020. A copy of the charter of the Audit Committee is available on Sonic’s
website.
7
Sonic's Board of Directors has determined that, due to his experience serving in senior financial roles at several companies
as well as his degree in accounting and designation as a certified public accountant, Mr. Murphy meets the definition of
audit committee financial expert as that term is defined under the rules of the Securities and Exchange Commission. The
members of the Audit Committee also meet the Nasdaq Stock Market requirements regarding the financial sophistication
and the financial literacy of members of the Audit Committee.
The Compensation Committee consists of Messrs. Burish (chair) and Wiegand. The Board of Directors has determined
that all of the members of the Compensation Committee are “independent” as defined under Nasdaq listing standards.
The Compensation Committee makes recommendations to the Board with respect to salaries of employees, the amount
and allocation of any incentive bonuses among the employees, and the amount and terms of stock options to be granted
to executive officers. The Compensation Committee met once in Fiscal 2020. A copy of the charter of the Compensation
Committee is available on Sonic’s website.
The Nominations Committee consists of Messrs. Burish (chair) and Wiegand. The Board of Directors has determined
that all of the members of the Nominations Committee are “independent” as defined under Nasdaq listing standards. The
purpose of the Nominations Committee is to evaluate and recommend candidates for election as directors, make
recommendations concerning the size and composition of the Board of Directors, develop specific criteria for director
independence, and assess the effectiveness of the Board of Directors. Our Board of Directors has adopted a charter for
the Nominations Committee, which is available on Sonic’s website. The Nominations Committee will review all
candidates in the same manner regardless of the source of the recommendation. In recommending candidates for election
to the Board of Directors, the Nominations Committee reviews each candidate’s qualifications, including whether a
candidate possesses any of the specific qualities and skills desirable in certain members of the Board of Directors.
Evaluations of candidates generally involve a review of background materials, internal discussions and interviews with
selected candidates as appropriate. Generally, the Nominations Committee will consider various criteria in considering
whether to make a recommendation. These criteria include expectations that directors have substantial accomplishments
in their professional backgrounds and are able to make independent, analytical inquiries and exhibit practical wisdom
and mature judgment. Director candidates should possess the highest personal and professional ethics, integrity and
values, be committed to promoting the long-term interest of our stockholders and be able and willing to devote the
necessary time to carrying out their duties and responsibilities as members of the Board. While the Board of Directors
has not adopted a policy regarding diversity, we also believe our directors should come from diverse backgrounds and
experience bases in order to promote the representation of diverse views on the Board of Directors. Stockholder
recommendations of candidates for Board membership will be considered when submitted to Corporate Secretary, Sonic
Foundry, Inc., 222 W. Washington Ave., Madison, WI 53703. When submitting candidates for nomination to be elected
at Sonic's annual meeting of stockholders, stockholders must also follow the notice procedures and provide the
information required by Sonic's bylaws.
In particular, for a stockholder to nominate a candidate for election at the 2021 Annual Meeting of Stockholders, the
nomination must be delivered or mailed to and received by Sonic's Secretary between February 24, 2022 and March 26,
2022 (or, if the 2021 annual meeting is advanced by more than 30 days or delayed by more than 60 days from June 24,
2022, not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the tenth calendar day following the date on which
public announcement of the date of the annual meeting is first made). The nomination must include the same information
as is specified in Sonic's bylaws for stockholder nominees to be considered at an annual meeting, including the following:
• The stockholder's name and address and the beneficial owner, if any, on whose behalf the nomination is
proposed;
• The stockholder's reason for making the nomination at the annual meeting, and the signed consent of the
nominee to serve if elected;
• The number of shares owned by, and any material interest of, the record owner and the beneficial owner,
if any, on whose behalf the record owner is proposing the nominee;
• A description of any arrangements or understandings between the stockholder, the nominee and any other
person regarding the nomination; and
8
•
Information regarding the nominee that would be required to be included in Sonic's proxy statement by the
rules of the Securities and Exchange Commission, including the nominee's age, business experience for the
past five years and any other directorships held by the nominee.
DIRECTORS COMPENSATION
Our directors who are not also our full-time employees, receive an annual retainer of $10,000 in addition to a fee of $750
for attendance at each meeting of the Board of Directors and $500 per committee meeting attended, other than special
committee meetings for which members receive $1,000 per committee meeting attended. In addition, the chair of the
Audit Committee receives an Audit Committee annual retainer of $4,000 and the chair of the Compensation Committee
receives a $1,500 Compensation Committee annual retainer. Mr. Burish receives an annual retainer of $17,500 as
compensation for his services as Chair of the Board of Directors. The total fee compensation earned by the five non-
employee directors combined in Fiscal 2020 was $144,750. When traveling from out-of-town, the members of the Board
of Directors are also eligible for reimbursement for their travel expenses incurred in connection with attendance at Board
meetings and Board Committee meetings. Directors who are also employees do not receive any compensation for their
participation in Board or Board Committee meetings.
Pursuant to the 2008 Sonic Foundry Non-Employee Amended Directors Stock Option Plan (the “Directors Plan”) we
grant to each non-employee director who is reelected or who continues as a member of the Board of Directors at each
annual stockholders meeting a stock option to purchase 2,000 shares of Common Stock. Further, the chair of our Audit
Committee receives an additional stock option grant to purchase 500 shares of Common Stock per year pursuant to
Sonic’s Non-Employee Amended Directors Stock Option Plan.
The exercise price of each stock option granted was equal to the market price of Common Stock on the date the stock
option was granted. Stock options issued under the Directors Plan vest fully on the first anniversary of the date of grant
and expire after ten years from date of grant. An aggregate of 150,000 shares are reserved for issuance under the Directors
Plan.
If any change is made in the stock subject to the Directors Plan, or subject to any option granted thereunder, the Directors
Plan and options outstanding thereunder will be appropriately adjusted as to the type(s), number of securities and price
per share of stock subject to such outstanding options.
The options and warrants set forth above have an exercise price equal to the fair market value of the underlying
common stock on the date of grant. The term of all such options is ten years.
9
The following table summarizes cash and equity compensation provided our non-employee directors during the fiscal
year ended September 30, 2020.
Fees Earned
Or Paid In
Cash
($)(1)
(b)
2,750
13,750
37,250
32,250
16,750
11,500
Stock
Awards
($)(2)
(c)
30,500
—
—
—
—
—
Option
Awards
($)
(d)
—
—
—
—
—
—
Non-Equity
Incentive
Plan Compen-
sation
($)
(e)
—
—
—
—
—
—
Name
(a)
Mark D. Burish
Frederick H. Kopko
Nelson A. Murphy
David F. Slayton
Brian T. Wiegand
Gary R. Weis
Change in
Pension
Value and
Non-qualified
Deferred
Compen-
sation
Earnings
($)
(f)
—
—
—
—
—
—
All Other
Compensation
($)
(g)
—
—
—
—
—
—
Total
($)
(h)
33,250
13,750
37,250
32,250
16,750
11,500
(1)
(2)
The amount reported in column (b) is the total of retainer fees and meeting attendance fees paid in cash.
The amount reported in column (c) is the total of retainer fees and meeting attendance fees awarded in common
stock.
EXECUTIVE OFFICERS OF SONIC
Our executive officers, who are appointed by the Board of Directors, hold office for one-year terms or until their
respective successors have been duly elected and have qualified. There are no family relationships between any of the
executive officers of Sonic.
Joe Mozden, age 58, was appointed by the Board of Directors to serve as the Company’s Chief Executive Officer,
effective September 14, 2020. For further information regarding Mr. Mozden, please refer to “Directors Continuing
in Office”.
Kelsy Boyd, age 54, served as Chief Financial Officer from June 1, 2020 through February 2021. Prior to her
appointment as Chief Financial Officer she was Executive Vice-President of Finance. She has more than 25 years of
financial leadership and consulting experience in the digital media, manufacturing, agriculture and government
sectors. Prior to joining Sonic, she provided controller-level consulting services to several private companies between
2018 and 2019. She also served as Finance Director for a municipality from 2015-2017, and as the Chief Financial Officer
for a private manufacturing company from 2006-2014. From 1996 to 2003 she had served in various roles for Sonic,
including Controller and Senior Director of Operations. She received her BBA in Finance and Accounting from the
University of North Dakota, and is a Certified Public Accountant.
Robert M. Lipps, age 50, has been Executive Vice President of Sales since April 2008, joining Sonic Foundry in
April 2006 as Vice President of International Sales and assuming expanded responsibility for U.S. central sales in
2007. Mr. Lipps leads the company’s global sales organization including oversight of domestic, international and
channel sales. He holds 15 years of sales leadership, business development and emerging market entry expertise in
the technology and manufacturing sectors, including sales and channel management. From January 2004 to March
2006 he served as General Manager of Natural Log Homes LLC, a New Zealand based manufacturer of log homes.
From July 1999 to Dec 2002 he served as Latin America Regional Manager of Adaytum, a software publisher of
planning and performance management solutions, (acquired by Cognos Software, an IBM Company, in January 2003)
and from May 1996 to July 1999 he served as International Sales Manager for Persoft, a software publisher of host
access and mainframe connectivity solutions (acquired by Esker software in 1998). Mr. Lipps has a B.S. degree in
Marketing from the University of Wisconsin at La Crosse.
10
Kenneth A. Minor, age 59, has been our Interim Chief Financial Officer and Secretary since March 2021. Mr. Minor
previously served as our Chief Financial Officer from June 1997 through May 2020. Mr. Minor provides fractional CFO
and other financial consulting services through Spotlight CFO Services, a firm he founded in August 2019. Mr. Minor is
a certified public accountant and has a B.B.A. degree in accounting from Western Michigan University.
Michael Norregaard, age 59, served as Chief Executive Officer from May 2019 to September 2020 and joined the
Company in January 2013. During Mr. Norregaard’s tenure with the Company he served in various sales and
operations roles including as Chief Operating Officer, Vice President of Business Development and Senior Vice
President of Sales Operations. From 2007 to January 2013 Mr. Norregaard served as Managing Director / Divisions
Director Outsourcing Services for Logica PLC, a multinational IT and management consulting company
headquartered in the United Kingdom. Prior to his role with Logica, Mr. Norregaard held various other executive roles
in European technology companies as well as client manager and sales executive at IBM and general manager at
AT&T. Mr. Norregaard has a Bachelor of Business from the Copenhagen Business School and a Master of Social
Economics from the University of Copenhagen.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows information known to us about the beneficial ownership of our Common Stock as of May 17,
2021, by each stockholder known by us to own beneficially more than 5% of our Common Stock, each of our executive
officers named in the Summary Compensation Table (“Named Executive Officers”), each of our directors, and all of our
directors and executive officers as a group. Unless otherwise noted, the mailing address for these stockholders is 222
West Washington Avenue, Madison, Wisconsin 53703.
Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power
with respect to shares. Shares of common stock issuable upon the exercise of stock options or warrants exercisable within
60 days after May 17,2021, which we refer to as Presently Exercisable Options or Presently Exercisable Stock Warrants,
are deemed outstanding for computing the percentage ownership of the person holding the options but are not deemed
outstanding for computing the percentage ownership of any other person. Unless otherwise indicated below, to our
knowledge, all persons named in the table have sole voting and investment power with respect to their shares of common
stock, except to the extent authority is shared by spouses under applicable law. The inclusion of any shares in this table
does not constitute an admission of beneficial ownership for the person named below.
11
Name of Beneficial Owner(1)
Common Stock
Mark D. Burish(3)
33 East Main St.
Madison, WI 53703
Andrew D. Burish(4)
8020 Excelsior Drive
Madison, WI, 53717
Joe Mozden, Jr.(5)
Kenneth A. Minor
Robert M. Lipps(6)
Michael Norregaard (7)
Kelsy Boyd(8)
Gary R. Weis(9)
Frederick H. Kopko, Jr.(10)
29 South LaSalle Street
Chicago, IL 60603
Brian T. Wiegand (11)
1600 Aspen Commons
Middleton, WI 53562
Nelson A. Murphy(12)
2300 W. Innes St.
Salisbury, NC 28144
David F. Slayton(13)
701 Washington Ave N., Suite 400
Minneapolis, MN 55401
Taha Jangda
3827 Linklea Drive
Houston, TX 77025
William St. Lawrence
Number of Shares of
Class
Beneficially Owned
Percent
of Class(2)
3,321,284
41.1%
1,041,929
12.6
69,500
16,520
162,235
19,500
26,250
387,359
95,287
84,090
60,008
62,667
—
—
*
*
2.0
*
*
4.6
1.2
1.0
*
*
*
*
All current Executive Officers and Directors as a Group (9
4,304,700
49.7%
persons)(14)
*
less than 1%
12
(1) Sonic believes that the persons named in the table above, based upon information furnished by such persons, except
as set forth in notes (5) where such information is based on a Schedule 13G, have, except as set forth in note (5),
sole voting and dispositive power with respect to the number of shares indicated as beneficially owned by them.
(2) Applicable percentages are based on 8,064,838 shares outstanding, adjusted as required by rules promulgated by the
(3)
(4)
Securities and Exchange Commission.
Includes 16,000 shares subject to Presently Exercisable Options.
Includes 232,558 shares subject to Presently Exercisable Common Stock Warrants. Information is based on
information provided to the Company on April 30, 2021.
(5)
Includes 57,000 shares subject to Presently Exercisable Options.
(6)
Includes 160,160 shares subject to Presently Exercisable Options.
(7)
Includes 12,500 shares subject to Presently Exercisable Options.
(8)
Includes 16,250 shares subject to Presently Exercisable Options.
(9)
Includes 291,473 shares subject to Presently Exercisable Options.
(10) Includes 16,000 shares subject to Presently Exercisable Options.
(11) Includes 18,000 shares subject to Presently Exercisable Options.
(12) Includes 7,000 shares subject to Presently Exercisable Options.
(13) Includes 6,000 shares subject to Presently Exercisable Options.
(14) Includes an aggregate of 600,383 Presently Exercisable Options
Introduction
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes our compensation strategy, policies, programs and practices
for the executive officers identified in the Summary Compensation Table. Throughout this proxy statement, we refer
to these individuals, who serve as our Chief Executive Officer, Chief Financial Officer and Executive Vice President
of Sales as the “Named Executive Officers.”
The Executive Compensation Committee (“Committee”) establishes and oversees our compensation and employee
benefits programs and approves the elements of total compensation for the executive officers. The day-to-day design
and administration of our retirement and employee benefit programs available to our employees are handled by our
Human Resources and Finance Department employees. The Committee is responsible for reviewing these programs
with management and approving fundamental changes to them.
Overview and Objectives of our Executive Compensation Program
The compensation program for our executive officers is designed to attract, motivate, reward and retain highly
qualified individuals who can contribute to Sonic’s growth with the ultimate objective of increasing stockholder
value. Our compensation program consists of several forms of compensation: base salary, annual bonus, long-term
incentives and limited perquisites and benefits.
Base salary and annual bonus are cash-based while long-term incentives consist of stock option awards. The
Committee does not have a specific allocation goal between cash and equity-based compensation or between annual
and long-term incentive compensation. Instead, the Committee relies on the process described in this discussion and
analysis in its determination of compensation levels and allocations for each executive officer.
The recommendations of the Chief Executive Officer play a significant role in the compensation-setting process. The
Chief Executive Officer provides the Committee with an annual overall assessment of Sonic’s achievements and
performance, his evaluation of individual performance and his recommendations for annual compensation and long-
term incentive awards. The Committee has discretion to accept, reject or modify the Chief Executive Officer’s
recommendations. The Committee determines the compensation for the Chief Executive Officer in an executive
session.
13
Market Competitiveness
The Committee’s target is for total cash compensation to average between the 50th and 75th percentile of published
compensation data derived from two sources: (i) a peer group of companies that are in our industry, competitors for
key talent, or with similar financial characteristics; and (ii) published market survey data for companies within our
revenue range. The peer group data was obtained from the most recently filed proxy statement of 12 publicly-traded
technology companies with annual revenues ranging from approximately $10 million to just under $100 million;
market capitalization from approximately $10 million to approximately $200 million and approximately 300
employees or less. The following companies comprised the peer group for the study: Adesto Technologies, Corp,
Asure Software Inc., Bsquare Corporation, Datawatch Corp., FalconStor Software Inc., GlobalSCAPE Inc.,
Glowpoint Inc., GSE Systems Inc., Inuvo Inc., MAM Software Group, Inc., Qumu Corporation and Smith Micro
Software Company. Given competitive recruiting pressures, the Committee retains its discretion to deviate from this
target under appropriate circumstances. The Committee periodically receives updates of the published compensation
data
Pay for Performance
The Committee believes that both long and short term compensation of executive officers should correlate to Sonic’s
overall financial performance. Incentive payouts will be larger with strong performance and smaller if Sonic’s
financial results decline. From time to time, extraordinary Board-approved initiatives in a fiscal year, such as a
restructuring, acquisition, or divestiture, are considered by the Committee in its overall evaluation of Sonic’s
performance.
Peer Group Analysis
Compensation data came from a peer group of twelve public companies that we consider similar to our market for
sales, or for key talent, or with similar financial or other characteristics such as number of employees. The companies
in the peer group are described above.
Components of Executive Compensation
Base Salary
The Committee seeks to pay the executive officers a competitive base salary in recognition of their job responsibilities
for a publicly held company. As noted above, the target compensation range for an executive’s total cash compensation
(salary and bonus) is between the 50th and 75th percentile of the market data reviewed by the Committee.
As part of determining annual compensation review, the Committee also considers the Chief Executive Officer’s
recommendation regarding individual performance as well as internal equitable considerations.
In evaluating individual performance, the Committee considers initiative, leadership, tenure, experience, skill set for
the particular position, knowledge of industry and business, and execution of strategy in placing the individual within
the range outlined.
The Committee met on November 11, 2019 for consideration of base wage changes for Messrs. Norregaard and Lipps.
At the recommendation of management, the Committee agreed to maintain compensation for Messrs. Norregaard and
Lipps at $281,750 and $250,000, respectively. The Committee further agreed to potential bonus awards based on
achievement of target adjusted earnings before interest, taxes and depreciation and amortization (“AEBITDA”)
achievement for fiscal 2020 of $65,000 and $35,000, respectively.
14
Annual Performance-Based Variable Compensation
The performance-based variable compensation reported for each executive officer represents compensation that was
earned based on incentive plans. The following describes the methodologies used by the Compensation Committee to
determine the final annual performance-based variable compensation earned by each executive officer:
Selection of Performance Metrics. For fiscal 2020, the Compensation Committee designed an incentive program
driven by achievement of a combination of target adjusted EBTDA and customers billings results. Messrs. Norregaard
and Lipps were included in the plan.
Payout Based on Performance Against Goals. For fiscal 2020 the Company’s performance, as evaluated by the
Compensation Committee, lead to the determination Messrs. Norregaard and Lipps earned $87,750 and $50,400,
respectively.
Stock Options
The Committee has a long-standing practice of providing long-term incentive compensation grants to the executive
officers. The Committee believes that such grants, in the form of stock options, help align our executive officers’
interests with those of Sonic’s stockholders. All stock options have been granted under our 1995 Stock Option Plan,
the 1999 Non-Qualified Plan or the 2009 Stock Incentive Plan (“Employee Plans”). All but the 2009 Stock Incentive
Plan and the 2020 Equity Incentive Plan are now terminated.
The Committee reviews option grant recommendations by the Chief Executive Officer for each executive officer, but
retains full discretion to accept, reject or revise each recommendation. The Committee’s policy is to grant options on
the date it approves them or such other future date as the Committee may agree at the time of approval. The exercise
price is determined in accordance with the terms of the Employee Plan and cannot be less than the Fair Market Value,
as defined in the Plan, of Sonic’s common stock. The Committee typically grants options once a year, but may grant
options to newly hired executives at other times.
In making its determinations, the Committee considers the number of options or shares owned by the executive
officers.
No option grants were made to Messrs. Norregaard or Lipps in fiscal 2020. Additionally, an option to purchase 10,000
shares were granted to Ms. Boyd in December 2019.
Health and Welfare Benefits
Our officers are covered under the same health and welfare plans, including our 401(k) plan, as salaried employees.
Employment Agreements
The Company has employment agreements with Messrs. Norregaard and Lipps. Pursuant to such agreements,
Messrs. Norregaard and Lipps receive annual base salaries subject to increase each year at the discretion of the Board
of Directors. Messrs. Norregaard and Lipps are also entitled to incidental benefits of employment under the
agreements. Each of the employment agreements provides that a cash severance payment be made upon termination,
other than for cause, or upon death or disability. In the case of Mr. Norregaard, such cash severance is equal to his
then current base compensation paid bi-weekly over a twelve-month period. In the case of Mr. Lipps, such cash
severance is equal to the highest cash compensation paid in any of the last three fiscal years immediately prior to
termination. In addition, Messrs. Norregaard and Lipps will receive immediate vesting of all previously unvested
common stock and stock options and have the right to voluntarily terminate their employment, and receive the same
severance arrangement detailed above following (i) any “person” becoming a “ beneficial” owner of stock of Sonic
Foundry representing 50% or more of the total voting power of Sonic Foundry’s then outstanding stock; or, (ii) Sonic
Foundry is acquired by another entity through the purchase of substantially all of its assets or securities; or (iii) Sonic
15
Foundry is merged with another entity, consolidated with another entity or reorganized in a manner in which any
“person” is or becomes a “beneficial” owner of stock of the surviving entity representing 50% or more of the total
voting power of the surviving entity’s then outstanding stock; and, within two years and ninety days of any such event,
Messrs. Norregaard or Lipps, as the case may be, is demoted without cause or his title, authority, status or
responsibilities are substantially altered, their salary is reduced or the principal office is more than 50 miles outside
the Madison metropolitan area. In the case of Mr. Norregaard, it is not considered a termination of any kind, including
but not limited to a “voluntary termination”, “involuntary termination”, “constructive termination” or “termination
without cause” if the Board of Directors elects to hire a new Chief Executive Officer in replacement of Norregaard,
provided that the Board of Directors offers to engage Norregaard as Chief Operating Officer pursuant to substantially
the same terms and conditions. Pursuant to the employment agreements, each of Messrs. Norregaard and Lipps has
agreed not to disclose our confidential information and not to compete against us during the term of his employment
agreement and for a period of one year thereafter. Such non-compete clauses may not be enforceable, or may only be
partially enforceable, in state courts of relevant jurisdictions.
If Sonic terminated Mr. Lipps on September 30, 2020, (not for cause), or if Mr. Lipps elected to terminate his
employment following a demotion or alteration of duties on September 30, 2020, and a change of control as defined
in the employment agreements had occurred, Sonic would be obligated to pay $311,672 (based on fiscal
2018 compensation which was the fiscal year with highest cash compensation in three-year period preceding
September 30, 2020 for Mr. Lipps). In addition, any non-vested rights of Messrs. Norregaard and Lipps under the
Employee Plans, would vest as of the date of employment termination. There would be no additional value of
accelerated vesting of the options under these circumstances for Mr. Lipps as all of his outstanding options are
exercisable.
Effective August 21, 2020, Mr. Norregaard no longer served as Chief Executive Officer of the Company. Effective June
1, 2020, Mr. Minor no longer served as Chief Financial Officer of the Company, although he was retained again as
Interim Chief Financial Officer effective March 1, 2021.
Effective September 14, 2020, the Company entered into an employment agreement with Joe Mozden Jr. for Mr. Mozden
to serve as Chief Executive Officer of the Company. Pursuant to such employment agreement, Mr. Mozden receives an
annual base salary of $300,000, subject to revision each year at the discretion of the Board of Directors. Mr. Mozden will
also receive a bonus of up to $150,000 provided that the Company meets certain metrics to be determined, but which
will be primarily based on the Company achieving profitability. The employment agreement further provides that, during
the term thereof, the Company will nominate Mr. Mozden to serve as a director of the Company. In addition, pursuant to
the employment agreement, Mr. Mozden has also received (i) an initial stock option grant of options to purchase 200,000
shares of common stock, exercisable at the market price of the common stock on the date of grant, which vest ratably
over a three (3) year period, and (ii) performance options to purchase 150,000 shares of common stock, exercisable at
the market price of the common stock on the date of grant, which vest upon achievement of performance metrics to be
determined between the Company and Mr. Mozden. Mr. Mozden is also entitled to incidental benefits of employment
under the agreement. The employment agreement further provides that if Mr. Mozden’s employment by the Company is
terminated without cause, an amount equal to the sum of (i) Mr. Mozden’s previously-determined performance bonus,
but only if all performance-based metrics set forth in such bonus have been fully met prior to the date of termination,
and (ii) Mr. Mozden’s base compensation earned over the previous twelve (12) months, shall be paid through equal
bi-weekly installments made over a twelve-month period beginning on the day immediately following the date of Mr.
Mozden’s termination of employment (the “Severance Period”). In addition, Mr. Mozden will receive immediate
vesting of all previously unvested common stock and stock options and have the right to voluntarily terminate his
employment, and receive the same severance arrangement detailed above, if his employment is terminated within thirty
(30) days following a “Change of Control” or within thirty (30) days following an event constituting “Good Reason”. A
“Change of Control” is defined in the employment agreement as the following (i) any “person” who does not currently
have 50% or more of the total voting power of Sonic Foundry’s then outstanding stock becomes a “ beneficial” owner of
stock of Sonic Foundry representing 50% or more of the total voting power of Sonic Foundry’s then outstanding stock;
or, (ii) Sonic Foundry is acquired by another entity through the purchase of substantially all of its assets or securities; or
(iii) Sonic Foundry is merged with another entity, consolidated with another entity or reorganized in a manner in which
16
any “person” is or becomes a “beneficial” owner of stock of the surviving entity representing 50% or more of the total
voting power of the surviving entity’s then outstanding stock. “Good Reason” is defined in the Employment Agreement
as follows: a material diminution without cause of Mr. Mozden’s title, authority, status, duties or responsibilities; a
reduction in Mr. Mozden’s’s salary in excess of twenty-five percent (25%) in any fiscal year; a material breach by the
Company of the employment agreement, or; the principal office of the Company is relocated to a location which is more
than 50 miles outside the Madison metropolitan area. Pursuant to the employment agreement, Mr. Mozden has agreed
not to disclose the Company’s confidential information and not to compete against the Company during the term of his
employment agreement and for a period of one year thereafter. Such non-compete clause may not be enforceable, or may
only be partially enforceable, in state courts of relevant jurisdictions.
Effective June 1, 2020, the Company entered into a employment agreement with Kelsy Boyd for Ms. Boyd to serve as
Chief Financial Officer of the Company. Pursuant to such employment agreement, Ms. Boyd receives an annual base
salary of $200,000. Ms. Boyd will also receive a bonus of up to $50,000 provided that the Company meets certain metrics
to be determined, but which will be primarily based on the Company’s earnings. In addition, pursuant to the employment
agreement, Ms. Boyd has also received an initial stock option grant of options to purchase 40,000 shares of common
stock, exercisable at the market price of the common stock on the date of grant, of which options to purchase 10,000
shares will vest six months from the Effective Date, and of which options to purchase 30,000 shares will vest ratably
over a three (3) year period. The employment agreement further provides that if Ms. Boyd’s employment by the Company
is terminated without cause, an amount equal to Ms. Boyd’s base compensation earned over the previous six (6) months,
shall be paid through equal bi-weekly installments made over a twelve-month period beginning on the day
immediately following the date of Ms. Boyd’s termination of employment (the “Severance Period”). In addition, Ms.
Boyd will have the right to voluntarily terminate her employment, and receive the same severance arrangement detailed
above following (i) any “person” becoming a “ beneficial” owner of stock of Sonic Foundry representing 50% or more
of the total voting power of Sonic Foundry’s then outstanding stock; or, (ii) Sonic Foundry is acquired by another entity
through the purchase of substantially all of its assets or securities; or (iii) Sonic Foundry is merged with another entity,
consolidated with another entity or reorganized in a manner in which any “person” is or becomes a “beneficial” owner
of stock of the surviving entity representing 50% or more of the total voting power of the surviving entity’s then
outstanding stock; and, within sixty days of such event, one of the following occurs: a material diminution of Ms. Boyd’s
title, authority, status, duties or responsibilities; a reduction in Ms. Boyd’s salary; a material breach by the Company of
the employment agreement, or; the principal office of the Company is relocated to a location which is more than 50 miles
outside the Madison metropolitan area. Pursuant to the employment agreement, Ms. Boyd has agreed not to disclose our
confidential information and not to compete against us during the term of his employment agreement and for a period of
one year thereafter. Such non-compete clause may not be enforceable, or may only be partially enforceable, in state courts
of relevant jurisdictions.
Effective February 26, 2021, Ms. Boyd and the Company entered into a Retirement and Transition Agreement with Ms.
Boyd no longer served as Chief Financial Officer of the Company. The agreement made a one-time payment of $50,000
to Ms. Boyd upon execution of the agreement and accelerated vesting of outstanding 2,917 stock options to purchase
common stock at an exercise price of $1.30 per share. Mr. Boyd agreed to provide services relating to transition of her
duties to her successor as well as services reasonably requested through April 2, 2021 and continue at her current rate of
base compensation.
Personal Benefits
Our executives receive a limited number of personal benefits certain of which are considered taxable income to them
and which are described in the footnotes to the section of this Proxy Statement entitled “Summary Compensation
Table.”
17
Internal Revenue Code Section 162(m)
Internal Revenue Code Section 162(m) limits the ability of a public company to deduct compensation in excess of $1
million paid annually to each of the Chief Executive Officer and each of the other executive officers named in the
Summary Compensation Table. There are exemptions from this limit, including compensation that is based on the
attainment of performance goals that are established by the Committee and approved by the Company stockholders.
No executive officer was affected by this limitation in fiscal 2020.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of Sonic Foundry has reviewed and discussed the Compensation Discussion and
Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the
Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in
the Company’s 2021 Proxy Statement included in the Company’s Annual Report on Form 10-K for the fiscal year
ended September 30, 2020, as amended and filed in a Form 10-K.
Proxy Statement.
COMPENSATION COMMITTEE
Mark D. Burish, Chair
Brian T. Wiegand
18
The following table sets forth the compensation of our principal executive officer, our principal financial officer and our
other executive officer for the fiscal year ended September 30, 2020.
Summary Compensation
Name and Principal
Position
(a)(4)
Year
(b)
Salary
($)
(c)
Bonus
($)
(d)
Michael Norregaard (4)
Chief Executive Officer
2020
2019
260,077
250,916
87,750
—
Joe Mozden, Jr. (5)
—
—
Kelsy Boyd (6)
Chief Financial Officer
and Secretary
2020
130,231
—
—
Robert M. Lipps
Executive Vice
President - Sales
2020
2019
2018
249,171
242,810
242,810
50,400
—
—
Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings
($)
(h)
All Other
Compen-
sation
($)(3)
(i)
Total
($)
(j)
Stock
Awards
($)
(e)
Option
Awards
($)(1)
(f)
Non-Equity
Incentive Plan
Compensation
($)(2)
(g)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38,861
11,848
386,688
262,368
—
—
5,600
3,880
139,480
—
34,077
68,862
—
—
—
9,967
9,100
8,614
309,538
285,987
320,286
(1) The option awards in column (f) represent the aggregate grant date fair value computed in accordance with FASB
ASC Topic 718 for stock options granted during the fiscal year. The assumptions and methodology used in
calculating the compensation expense of the option awards are provided in Sonic’s Form 10-K. See Note 1,
“Accounting for Stock Based Compensation” in the Notes to the Consolidated Financial Statements in Sonic’s
Form 10-K. The amounts in this column represent value attributed to the awards at the date of grant and not
necessarily the actual value that will be realized by the executive. There can be no assurance that the options will
ever be exercised (in which case no value will be realized by the executive) or that the value on exercise will equal
the ASC Topic 718 value.
(2) The amounts in column (g) represent cash bonuses which were awarded for performance during the fiscal year based
on a pre-established formula.
(3) The amount shown under column (i) for the fiscal year 2020 includes Sonic’s matching contribution under our
401(k) plan of $10,403, $3,880 and $9,968 for Mr. Norregaard, Ms. Boyd and Mr. Lipps. Mr. Norregaard received
a car allowance of which the taxable personal portion was $6,785. Mr. Norregaard also received a severance of
$21,673.
(4) Mr. Norregaard was appointed Chief Operating Officer on March 4, 2019 and Chief Executive Officer on April 22,
2019, following the retirement of Mr. Weis as Chief Executive Officer. Mr. Norregaard ceased serving as CEO on
Aug. 21, 2020.
(5) Mr. Mozden was appointed CEO on September 14, 2020 and received no compensation in fiscal 2020.
(6) Ms. Boyd retired as CFO effective February 26, 2021.
19
The following table shows the plan-based awards granted to the Named Executive Officers during fiscal 2020.
Grants of Plan-Based Awards
Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards
Target
($)
(d)
Maximum
($)
(e)
Threshold
($)
(c)
Name
(a)
Grant
Date
(b)
Estimated Future Payouts
Under Equity
Incentive
Plan Awards
Target
($)
(g)
Maximum
($)
(h)
Threshold
($)
(f)
All other
stock
awards:
Number of
Shares of
stock or
units
(#)
(i)
All other option
awards:
Number of
Securities
Underlying
Options
(#)
(j)
Grant
Date fair
Value of
Stock and
option
awards
($)
(2)
(l)
Exercise
or base
price of
option
awards
($/Sh)
(1)
(k)
Kelsy Boyd
12/30/19
—
—
—
—
—
—
—
10,000
1.30
5,600
(1) Sonic grants employee stock options with exercise prices equal to the closing stock price on the date of grant.
(2) The amount reported in column (l) represents the grant date fair value of the award following the required FASB
ASC Topic 718 compensation methodology. Grant date fair value is calculated using the Lattice method. See Note
1, “Accounting for Stock Based Compensation” in the Notes to the Consolidated Financial Statements in Sonic’s
Form 10-K for the fiscal year ended September 30, 2019 for an explanation of the methodology and assumptions
used in FASB ASC Topic 718 valuation. With respect to the option grants, there can be no assurance that the options
will ever be exercised (in which case no value will be realized by the executive) or that the value on exercise will
equal the FASB ASC Topic 718 value.
Sonic grants options to its executive officers under our employee stock option plans. As of September 30, 2020, options
to purchase a total of 1,902,346 shares were outstanding under the plans, and options to purchase 1,680,502 shares
remained available for grant thereunder.
20
Outstanding Equity Awards at Fiscal Year-End
The following table shows information concerning outstanding equity awards as of September 30, 2020 held by the
Named Executive Officers.
Stock Awards
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($)
(j)
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other Rights
That Have
Not
Vested
(#)
(i)
Market
Value of
Shares or
Units of
Stock
That
Have
Not
Vested
($)
(h)
Option Awards
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
None
None
Number
of Shares
or Units
of Stock
That Have
Not
Vested
(#)
(g)
Option
Expiration Date
(1)
(f)
08/21/2021
08/21/2021
08/21/2021
08/21/2021
08/21/2021
08/21/2021
12/02/2019
10/17/2022
11/05/2025
12/27/2026
01/17/2028
12/30/2029
Option
Exercise
Price
($)
(1)
(e)
3.32
2.24
2.24
1.39
1.39
0.66
5.26
7.80
7.17
4.75
2.49
1.30
Number
of
Securities
Underlying
Unexercise
d Options
(#)
Exercisable
(1)
(b)
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(1)
(c)
Name
(a)
Michael Norregaard
Robert M. Lipps
Kelsy Boyd
5,000
2,500
2,500
2,500
11,250
11,250
6,000
40,000
27,816
41,273
34,047
10,000
0
0
0
0
0
0
0
0
0
0
17,024
0
None
(1) All options were granted under our stockholder approved Employee Stock Option Plan. All unexercisable options
listed in the table become exercisable over a three-year period in equal annual installments beginning one year
from the date of grant.
The following table shows information concerning option exercises in fiscal 2020 by the Named Executive Officers.
Option Exercises and Stock Vested
Option Awards
Stock Awards
Number of Shares
Acquired on
Exercise
(#)
Value Realized
on Exercise
($)
Number of
Shares Acquired
on Vesting
(#)
Value Realized
on Vesting
($)
None
21
Equity Compensation Plan Information
Plan category
Number of securities
to be issued upon
exercise of
outstanding options
Weighted average
exercise price of
outstanding
options
Number of
securities
remaining
available for
future issuance
(a)
(b)
(c)
Equity compensation plans approved by security holders (1)
1,707,515
$
5.09
967,117
Equity compensation plans not approved by security holders (2)
Total
—
1,707,515 $
—
5.09
—
967,117
(1) Consists of the 2009 Stock Incentive Plan, Employee Incentive Stock Option Plan and the Directors Stock
Option Plans. For further information regarding these plans, reference is made to Note 5 of the financial
statements.
(2) Consists of the Non-Qualified Stock Option Plan. For further information regarding this plan, reference is
made to Note 5 of the financial statements.
Compensation Committee Interlocks and Insider Participation
The members of the Executive Compensation Committee of Sonic's Board of Directors for fiscal 2020 were those named
in the Executive Compensation Committee Report. No member of the Committee was at any time during fiscal 2020 or at
any other time an officer or employee of Sonic Foundry, Inc.
No executive officer of Sonic Foundry, Inc. has served on the board of directors or compensation committee of any other
entity that has or has had one or more executive officers serving as a member of the Board of Directors of Sonic Foundry.
22
PROPOSAL TWO: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has appointed the firm of Wipfli LLP
(“Wipfli”) as independent auditors to audit our financial statements for the year ending September 30, 2020, and has
further directed that management submit the selection of independent public accountants for ratification by the
stockholders at the Annual Meeting. Representatives of Wipfli are expected to be present at the Annual Meeting to
respond to stockholders' questions and to have the opportunity to make any statements they consider appropriate.
Stockholder ratification of the selection of Wipfli as our independent auditors is not required by our Bylaws or otherwise.
However, the Board is submitting the selection of Wipfli to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection, the Board and the Audit Committee will reconsider whether or
not to retain that firm. Even if the selection is ratified, the Board and the Audit Committee in their discretion may direct
the appointment of a different independent accounting firm at any time during the year if they determine that such a
change would be in the best interests of Sonic and its stockholders.
The ratification of the appointment of Wipfli as independent public accountants requires the approval of a majority of
the votes cast at the Annual Meeting.
Recommendation of Board of Directors
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL TWO
RATIFYING THE APPOINTMENT OF WIPFLI AS INDEPENDENT AUDITORS FOR SONIC FOUNDRY.
Relations with Independent Auditors
The Company, upon the recommendation of its audit committee has selected Wipfli, LLP (“Wipfli”) as its independent
auditor for the fiscal year ending September 30, 2021.
During the years ended September 30, 2020 and 2019, neither the Company nor its audit committee consulted Wipfli
with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on our financial statements, as defined in Item 304(a)(2)(i) of Regulation
S-K, for which was concluded an important factor considered by the Company in reaching a decision as to the
accounting, auditing or financial reporting issue. Likewise, neither the Company nor the audit committee consulted
Wipfli regarding any matter that was the subject of a disagreement or a reportable event, as defined in
Item 304(a)(2)(ii) of Regulation S-K.
As stated in Proposal 2, the Board has selected Wipfli to serve as our independent auditors for the fiscal year ending
September 30, 2021.
Audit services performed by Wipfli for Fiscal years 2020 and 2019 consisted of the examination of our financial
statements, review of fiscal quarter results, and services related to filings with the Securities and Exchange
Commission (SEC). We also retained Wipfli to perform certain audit related services associated with the audit of our
benefit plan. All fees paid to Wipfli were reviewed, considered for independence and upon determination that such
payments were compatible with maintaining such auditors’ independence, approved by Sonic’s audit committee prior
to performance.
Audit services performed by BT for Fiscal 2019 consisted of certain audit related services associated with the audit of
our benefit plan. All fees paid to BT were reviewed, considered for independence and upon determination that such
payments were compatible with maintaining such auditors’ independence, approved by Sonic’s audit committee prior
to performance.
23
Fiscal Years 2020 and 2019 Audit Firm Fee Summary
During fiscal years 2020 and 2019, we retained our principal accountants to provide services in the following
categories and amounts:
Baker Tilly Virchow Krause LLP
Audit Fees
Audit Related
Tax Fees
Wipfli LLP
Audit Fees
Audit Related
Tax Fees
Years Ended September 30,
2020
2019
—
—
—
$30,000
—
—
276,135
10,850
35,867
360,723
10,500
46,710
All of the services described above were approved by Sonic’s audit committee prior to performance. The Audit
Committee may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-
audit services to be performed by the independent auditors, provided that any such approvals are presented to the Audit
Committee at its next scheduled meeting. The audit committee has determined that the payments made to its independent
accountants for these services are compatible with maintaining such auditors’ independence.
REPORT OF THE AUDIT COMMITTEE 1
The Audit Committee's role includes the oversight of our financial, accounting and reporting processes, our system of
internal accounting and financial controls and our compliance with related legal and regulatory requirements, the
appointment, engagement, termination and oversight of our independent auditors, including conducting a review of their
independence, reviewing and approving the planned scope of our annual audit, overseeing the independent auditors' audit
work, reviewing and pre-approving any audit and non-audit services that may be performed by them, reviewing with
management and our independent auditors the adequacy of our internal financial controls, and reviewing our critical
accounting policies and the application of accounting principles. The Audit Committee held five meetings during fiscal
2020.
Messrs. Murphy, Slayton and Wiegand meet the rules of the SEC for audit committee membership and are "independent"
as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act and under Nasdaq listing standards. A
copy of the Audit Committee Charter is available on Sonic’s website.
1 The material in this report is not “soliciting material”, is not deemed filed with the SEC, and is not to be incorporated
by reference in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language
in such filing.
24
As set forth in the Audit Committee Charter, management of Sonic is responsible for the preparation, presentation and
integrity of Sonic’s financial statements and for the effectiveness of internal control over financial reporting.
Management and the accounting department are responsible for maintaining Sonic’s accounting and financial reporting
principles and internal controls and procedures designed to assure compliance with accounting standards and applicable
laws and regulations. The independent auditors are responsible for auditing Sonic’s financial statements and expressing
an opinion as to their conformity with generally accepted accounting principles.
We have reviewed and discussed with our independent auditors, Wipfli, matters required to be discussed pursuant to
Auditing Standard No. 16 (Communications with Audit Committees) as promulgated by the Public Company Accounting
Oversight Board. We have received from the auditors a formal written statement describing the relationships between
the auditor and Sonic that might bear on the auditor's independence consistent with applicable requirements of the Public
Company Accounting Oversight Board. We have discussed with Wipfli matters relating to its independence, including a
review of audit related fees, and considered the compatibility of non-audit services with the auditors' independence.
The members of the Audit Committee are not full-time employees of Sonic and are not performing the functions of
auditors or accountants. As such, it is not the duty or responsibility of the Audit Committee or its members to conduct
“field work” or other types of auditing or accounting reviews or procedures or to set auditor independence standards.
Members of the Committee necessarily rely on the information provided to them by management and the independent
accountants. Accordingly, the Audit Committee’s considerations and discussions referred to above do not assure that the
audit of Sonic’s financial statements has been carried out in accordance with generally accepted auditing standards, that
the financial statements are presented in accordance with generally accepted accounting principles or that Sonic’s auditors
are in fact “independent.”
We have reviewed and discussed with management and Wipfli the audited financial statements. We discussed with Wipfli
the overall scope and plans of their audit. We met with Wipfli, with and without management present, to discuss results
of their examination and the overall quality of Sonic’s financial reporting.
Based on the reviews and discussions referred to above and our review of Sonic’s audited financial statements for fiscal
2020, we recommended to the Board that the audited financial statements be included in the Annual Report on
Form 10-K for the fiscal year ended September 30, 2020, for filing with the SEC effective December 22, 2020.
Respectfully submitted,
AUDIT COMMITTEE
Nelson A. Murphy, Chair
David F. Slayton
Brian T. Wiegand
CERTAIN TRANSACTIONS
Frederick H. Kopko, Jr., a director and stockholder of Sonic Foundry, is a partner in McBreen & Kopko. Pursuant to
the 2008 Non-Employee Directors Plan, Mr. Kopko was granted options to purchase 18,000 shares of Common Stock
at exercise prices ranging from $1.39 to $10.07. During fiscal 2020, we paid the Chicago law firm of McBreen &
Kopko certain compensation for legal services rendered subject to standard billing rates.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Sonic's officers and directors, and persons who own
more than ten percent of the Common Stock, to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Based solely upon a review of Forms 3 and Forms 4 furnished to us pursuant to Rule 16a-
3 under the Exchange Act during our most recent fiscal year, to Sonic Foundry's knowledge, all reporting persons
complied with all applicable filing requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended.
25
Code of Ethics
Sonic has adopted a Code of Ethics (as defined in Item 406 of Regulation S-K) that applies to its principal executive,
financial and accounting officers. Sonic Foundry will provide a copy of its code of ethics, without charge, to any
investor who requests it. Requests should be addressed in writing to Mr. Ken Minor, Corporate Secretary, 222 West
Washington Ave, Madison, WI 53703.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Any stockholder who desires to contact our Board or specific members of our Board may do so electronically by
sending an email to the following address: directors@sonicfoundry.com. Alternatively, a stockholder can contact our
Board or specific members of our Board by writing to: Secretary, Sonic Foundry Incorporated, 222 West Washington
Avenue, Madison, WI 53703.
Each communication received by the Secretary will be promptly forwarded to the specified party following normal
business procedures. The communication will not be opened but rather will be delivered unopened to the intended
recipient. In the case of communications to the Board or any group or committee of Directors, the Secretary will open
the communication and will make sufficient copies of the contents to send to each Director who is a member of the
group or committee to which the envelope is addressed.
STOCKHOLDER PROPOSALS FOR 2022 ANNUAL MEETING OF STOCKHOLDERS
Requirements for Stockholder Proposals to be Considered for Inclusion in Sonic's Proxy Materials.
Stockholders of Sonic may submit proposals on matters appropriate for stockholder action at meetings of Sonic's
stockholders in accordance with Rule 14a-8 promulgated under the Securities Exchange Act of 1934. For such
proposals to be included in Sonic's proxy materials relating to its 2022 Annual Meeting of Stockholders, all applicable
requirements of Rule 14a-8 must be satisfied and such proposals must be received by Sonic no later than the
anniversary date of 120 days prior to the date of this proxy statement (January 17, 2022). Such proposals should be
delivered to Corporate Secretary, Sonic Foundry, Inc., 222 West Washington Avenue, Madison, Wisconsin 53703.
Requirements for Stockholders Proposals to be Brought Before the Annual Meeting.
Sonic's bylaws provide that, except in the case of proposals made in accordance with Rule 14a-8, for stockholder
nominations to the Board of Directors or other proposals to be considered at an annual meeting of stockholders, the
stockholder must have given timely notice thereof in writing to the Secretary not less than ninety nor more than one
hundred twenty calendar days prior to the anniversary of the date on which Sonic held its immediately preceding
annual meeting of stockholders. To be timely for the 2022 Annual Meeting of Stockholders, a stockholder's notice
must be delivered or mailed to and received by Sonic's Secretary at the principal executive offices of Sonic between
February 24, 2022 and March 26, 2022. However, in the event that the annual meeting is advanced by more than 30
days or delayed by more than 60 days from June 24, 2022, to be timely, notice by the stockholders must be so received
not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of
business on the later of the 90th day prior to such annual meeting or the tenth calendar day following the date on which
public announcement of the date of the annual meeting is first made. In no event will the public announcement of an
adjournment of an annual meeting of stockholders commence a new time period for the giving of a stockholder's
notice as provided above. A stockholder's notice to Sonic's Secretary must set forth the information required by Sonic's
bylaws with respect to each matter the stockholder proposes to bring before the Annual Meeting.
26
In addition, the proxy solicited by the Board of Directors for the 2022 Annual Meeting of Stockholders will confer
discretionary authority to vote on (i) any proposal presented by a stockholder at that meeting for which Sonic has not
been provided with notice on or prior to the anniversary date of 45 days prior to the date of this proxy statement (April
2, 2022) and (ii) any other proposal, if the 2022 proxy statement briefly describes the matter and how management's
proxy holders intend to vote on it, and if the stockholder does not comply with the requirements of Rule 14a-4(c)(2)
under the Securities Exchange Act of 1934. Notwithstanding the above, all stockholder proposals must comply with
the provisions of Sonic’s bylaws.
OTHER MATTERS
The Board of Directors has at this time no knowledge of any matters to be brought before this year's Annual Meeting
other than those referred to above. However, if any other matters properly come before this year's Annual Meeting, it is
the intention of the persons named in the proxy to vote such proxy in accordance with their judgment on such matters.
GENERAL
A copy of our Annual Report to Stockholders for the fiscal year ended September 30, 2020 is being mailed, together with
this Proxy Statement, to each stockholder. Additional copies of such Annual Report and of the Notice of Annual Meeting,
this Proxy Statement and the accompanying proxy may be obtained from us. We will, upon request, reimburse brokers,
banks and other nominees, for costs incurred by them in forwarding proxy material and the Annual Report to beneficial
owners of Common Stock. In addition, directors, officers and regular employees of Sonic and its subsidiaries, at no
additional compensation, may solicit proxies by telephone, telegram or in person. All expenses in connection with
soliciting management proxies for this year's Annual Meeting, including the cost of preparing, assembling and mailing
the Notice of Annual Meeting, this Proxy Statement and the accompanying proxy are to be paid by Sonic.
Sonic will provide without charge (except for exhibits) to any record or beneficial owner of its securities, on written
request, a copy of Sonic's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the
fiscal year ended September 30, 2020, including the financial statements and schedules thereto. Exhibits to said report,
and exhibits to this proxy statement, will be provided upon payment of fees limited to Sonic's reasonable expenses in
furnishing such exhibits. Written requests should be directed to Investor Relations, 222 West Washington Avenue,
Madison, Wisconsin 53703. We also make available, free of charge, at the “Investor Information” section of our
website, our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our
proxy statement, amendments and exhibits to such reports as soon as practicable after the filing of such reports,
exhibits and proxy statements with the Securities and Exchange Commission.
In order to assure the presence of the necessary quorum at this year's virtual Annual Meeting, and to save Sonic the
expense of further mailings, please date, sign and mail the enclosed proxy promptly in the envelope provided. No
postage is required if mailed within the United States. The signing of a proxy will not prevent a stockholder of record
from voting virtually at the meeting.
By Order of the Board of Directors,
May 17, 2021
Ken Minor, Secretary
27
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-30407
SONIC FOUNDRY, INC.
(Exact name of registrant as specified in its charter)
MARYLAND
(State or other jurisdiction of incorporation or organization)
39-1783372
(I.R.S. Employer Identification No.)
222 W. Washington Ave, Madison, WI 53703
(Address of principal executive offices)
(608) 443-1600
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock par value $0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities
Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting
company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
☐
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
1
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the Registrant’s
most recently completed second fiscal quarter was approximately $12,023,119.
The number of shares outstanding of the registrant’s common equity was 7,960,775 as of December 16, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2021 Annual Meeting of Stockholders are incorporated by reference into Part III. A definitive
Proxy Statement pursuant to Regulation 14A will be filed with the Commission for required sections.
2
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
TABLE OF CONTENTS
PART I
PAGE NO.
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Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Consolidated Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data:
Item 8.
Report of Wipfli, LLP, Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
3
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
This annual report on Form 10-K (this "Report") contains statements that are considered forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and its rules and regulations (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended, and its rules and regulations (the "Exchange Act"). When
used in this Report, the words “anticipate”, “expect”, “plan”, “believe”, “seek”, “estimate” and similar expressions are
intended to identify such forward-looking statements. These are statements that relate to future periods and include, but are not
limited to, statements about the features, benefits and performance of our Rich Media products, our ability to introduce new
product offerings and increase revenue from existing products, expected expenses including those related to selling and
marketing, product development and general and administrative, our beliefs regarding the health and growth of the market for
our products, anticipated increase in our customer base, expansion of our products functionalities, expected revenue levels and
sources of revenue, expected impact, if any, of legal proceedings, the adequacy of liquidity and capital resources, and expected
growth in business. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ
materially from those projected. These risks and uncertainties include, but are not limited to, market acceptance for our
products, our ability to attract and retain customers and distribution partners for existing and new products, our ability to
control our expenses, our ability to recruit and retain employees, the ability of distribution partners to successfully sell our
products, legislation and government regulation, shifts in technology, global and local business conditions, our ability to
effectively maintain and update our products and service portfolio, the strength of competitive offerings, the prices being
charged by those competitors, and the risks discussed elsewhere herein. These forward-looking statements speak only as of the
date hereof. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-
looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
PART I
ITEM 1. BUSINESS
Who We Are
Sonic Foundry (OTC Pink Sheets:SOFO) (the “Company”) is a global leader in providing fully automated and integrated enterprise
video solutions that address every phase of the video life cycle. Its Mediasite Video Platform automates the capture, management,
and delivery of live and on-demand streaming videos for more than 5,200 educational institutions, corporations, health organizations
and government entities in over 65 countries around the world.
Sonic Foundry, Inc. was founded in 1991, incorporated in Wisconsin in March 1994 and merged into a Maryland corporation of the
same name in October 1996. Our executive offices are located at 222 West Washington Ave., Madison, Wisconsin 53703 and our
telephone number is (608) 443-1600. Our Sonic Foundry International B.V. ("Sonic Foundry International") (formerly Media
Mission B.V.) office is located in the Netherlands, and our Mediasite K.K. ("Mediasite KK" or "MSKK") office is located in Japan.
Our corporate website is www.sonicfoundry.com. In the “Investors” section of our website we make available, free of charge, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports required to
be filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after the
filing of such reports with the Securities and Exchange Commission.
Challenges We Address Through Our Product Offering
Every organization faces a fundamental need to share information and communicate efficiently. Universities and colleges connect
instructors with students to educate and prepare the next generation. Businesses strive for effective communication and collaboration
among employees to provide value to customers. Healthcare associations must deliver important information to the public and
continuing medical education to professionals. Government agencies must keep partners, stakeholders and constituents informed to
operate effectively.
With the onset of COVID-19 in early 2020, schools and businesses across the world have been forced into a digital-first world where
video adoption and utilization is at the core of every remote working and learning solution for education, communication and
collaboration.
Mediasite Video Capture Solutions
Mediasite provides the following primary flexible hardware and software solutions to record and upload any video-based content
from anywhere, automatically:
4
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
•
•
•
•
Mediasite RL Recorders: The RL Series of built-in room appliances use schedule-based capture and advanced audio/video
integration to fully automate high-quality video and content recording in lecture halls, training rooms, simulation labs and
auditoriums. The room can be scheduled to automatically record and publish to Mediasite Video Platform, so instructors and
speakers can focus on teaching and presenting as they are most comfortable, free from technology worries and confident that
everything they say and present is being captured.
Mediasite ML Recorders: The ML Series of portable recording devices is used to capture and stream broadcast-quality video.
Designed for on-the-go webcasting, hybrid events, guest speakers and conferences, the ML’s lightweight design moves easily
from location to location and can be set up and ready to record in only a few minutes.
Mediasite RL Mini: The Mini provides the automation and high-quality capture Mediasite is known for in a compact, affordable
device. With the Mini, there’s no need for AV in the room. Instructors simply plug in their laptop and camera and start teaching.
The plug-and-play device makes it easy to build or expand automated lecture capture programs in community colleges,
vocational-tech schools, small departments and even K12 classrooms.
Mediasite Mosaic: Formerly called My Mediasite, Mosaic allows instructors, employees and students to create great looking
videos, screencasts and slideshows from their computers or mobile devices with just one click. From demos and video training
to flipped classes, lectures and assignments, everything to record, upload, manage and publish personal videos is in one simple-
to-use tool, requiring no pro video skills
As a result of COVID, many of our customers switching to mainly remote work and teaching beginning in March 2020, the need
for in-room video capture slowed. That, along with the uncertainty for higher education institutions regarding their financial
outlook for a diminished return to campus in the fall semester caused a noticeable delay in room expansion. As a result, the
Company saw a slow down in hardware orders during the summer months when campuses are usually busy upgrading their
classrooms. Offsetting the decline in room recordings, software-based capture has significantly increased. Since mid-March 2020,
the Company has seen a 123 percent increase in videos created and an 109 percent increase in live sessions.
Mediasite Video Management and Delivery Solutions
Mediasite Video Platform (MVP) is a scalable, reliable, and secure solution to manage, search, analyze, publish, and stream video
content. With MVP government, businesses, and education institutions can:
•
•
•
•
•
•
•
Automatically publish video to a learning management system (LMS), content management system (CMS), training portal or
any website
Centrally manage and secure any video
Create an enterprise or campus YouTube channel
Deepen engagement and improve learning with quizzing, annotations, comments, polls, surveys and other interactive tools
Analyze viewing metrics to measure learner engagement and outcomes
Search everything with fully indexed audio, video and slide content
Stream live and on-demand video to any device
On-Premises or Mediasite Video Cloud
Mediasite Video Platform (MVP) is available as either an On-Premises license or as a SaaS (Software as a Service) offering within
our Mediasite Video Cloud. Customers can conveniently host and manage all their content with Mediasite Video Cloud, or use it as
needed for large events to divert heavy viewing traffic from their on-premises Mediasite Video Platform. Our co-located and high
availability data centers and experienced team successfully manage customers’ cloud-based video streaming in a secure, fault-
tolerant environment. During 2020, the Company made an investment in a new dual redundant, high availability data center in the
United Kingdom, which went online at the end of September. The Company also began purchasing components to upgrade its
existing US data centers, which is anticipated to go online during the first calendar quarter of 2021.
The investment in data center infrastructure was planned prior to the COVID crisis, however, the increased customer demand for
additional storage may require further investment. Any further hardware investment required would be offset by an increase in
revenue from hosting. There has been a significant increase in video content creation since the crisis started. In response to the
prolific utilization of video conferencing systems like Zoom to record meetings and presentations, the Company developed and
released an advanced integration to seamlessly automate workflow between Zoom, Mediasite Video Platform, and a school's LMS.
This allows all video content to be edited and managed in one secure location regardless of how it was recorded.
5
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Challenges We Address Through Our Service Offering
Mediasite Events Solutions
Mediasite Events provides live and on-demand webcasting services for conferences, hybrid events and high-profile broadcasts,
supplying turnkey streaming solutions for hundreds of events each year. Fortune 500 companies, universities, associations, sporting
events and charitable organizations use Mediasite Events to capture, produce, and deliver high-quality event experiences, both in-
person and virtually.
Our Mediasite Events business, both in the United States (US) and Japan, was significantly impacted by COVID. In early March
2020, all near-term, in-person events started to cancel due to concerns over the virus. While our US team's in-person pipeline for the
remainder of March and April shrunk to zero, they quickly replaced in-person events with virtual events. Ever since late March 2020,
our US team has been helping customers continue to have industry-specific, high-quality events via our virtual events platform,
which utilizes MVP technology. As in-person events eventually resume, we are optimistic that virtual events will be an ongoing
part of, or an addition to, the in-person event industry.
Mediasite Professional Services
Customers maximize their return on video with additional Mediasite Services including integration services, installation assistance,
custom development, training and monitoring services.
While COVID impacted our ability to do onsite services, so far we have been able to provide the majority of our professional services
remotely.
Mediasite Customer Care
Mediasite Customer Care plans include software upgrades for MVP and Mediasite Capture Solutions, technical support, warranty
extensions and advanced replacement on hardware, as well as access to the Mediasite Community and other online resources. Nearly
all of our customers purchase a Customer Care plan when they purchase Mediasite Video Platform or Mediasite Capture
Solutions. Annual service contracts for Mediasite Video Cloud include a Standard Customer Care plan.
COVID has not had an immediate impact on our Customer Care plans. It is, however, difficult to predict the long term impact should
the pandemic continue.
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, 2020.
Billings
Our services are typically billed and collected in advance of providing the service. Billings, which are a non-GAAP measure, are an
important indicator of customer activity and cash flow in addition to revenue, and is therefore used by management as a key
operational indicator. Billings are computed by combining revenue with the change in unearned revenue.
Our largest individual customers can be either value added resellers (“VARs”) or end users in the form of large higher education
institutions. No single customer represented over 10% of billings or revenue in 2020 or 2019.
Sales
We sell and market our offerings through a sales force that manages a channel of value-added resellers, system integrators, and
consultants. These third-party representatives specialize in understanding both audio/video systems and IT networking. We also sold
to approximately 300 resellers, and over 1,150 total end users.
Market expansion: Over two-thirds of our revenue is realized from the education market. Recent trends due to COVID are driving
rapid adoption of video as a remote work and learning solution. This development represents an exciting trend beyond the traditional
academic customer base for the company.
For our higher education as well as corporate, government and association clients, we anticipate economic conditions will expand
market demand for more outsourced services versus licensed, on-premises sales. Over the last two years, the Company has made
extensive capital and technology investments to advance its services model with turnkey event webcasting, a comprehensive cloud-
6
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
based Software as a Service (SaaS) datacenter, and e-commerce capabilities that position us well to deliver more diversified business
services.
For our Mediasite Events business both in the US and Japan, we continue to see growing demand for virtual events as a result of
COVID. These event-based communication, education and training platforms are expected to help drive the Company’s corporate
sales activities going forward.
Operations
We contract with a third party to build the hardware for our Mediasite Recorders and purchase quantities sufficient to fill specific
customer orders, including purchases of inventory by resellers. Quantities are maintained in inventory by the third-party provider
and shipped directly to the end customer or reseller. The hardware manufacturer provides a limited one-year warranty on the
hardware, which we pass on to our customers who purchase a Mediasite Customer Care support and maintenance plan. We believe
there are alternative sources of manufacturing for our recorders and believe there are additional sources and alternatives to the
existing production process. In recent months, we have experienced slight delays in shipments of component parts used in our
products due to the COVID crisis. In order to mitigate production delays in the future, the Company increased inventory quantities
during the fourth quarter of fiscal 2020.
Research and Development
We believe that our future success will depend in part on our ability to continue to develop new business, and to enhance our existing
business. Accordingly, we invest a significant amount of our resources in research and development activities, with a particular focus
on our SaaS offerings. During the fiscal years ended September 30, 2020 and 2019, we spent $6.3 million and $7.4 million,
respectively, on internal research and development activities in our business. These amounts represent 18% in 2020 and 21% in 2019
of total revenue.
Global Expansion
We acquired Sonic Foundry International in the Netherlands and Mediasite KK in Japan in fiscal 2014. With these acquisitions, we
significantly expanded our global market reach in the Asia-Pacific Region and Europe, and accelerated our commitment to enterprise
video communication world-wide.
Employees
At September 30, 2020 and 2019, we had 177 and 183 full-time employees, respectively. Our employees are not represented by a
labor union, nor are they subject to a collective bargaining agreement. We have never experienced a work stoppage and believe that
our employee relations are satisfactory.
7
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
ITEM 1A. RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN INVESTMENT DECISION.
THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS THAT WE ARE NOT
PRESENTLY AWARE OF OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS. OUR BUSINESS COULD BE HARMED BY ANY OR ALL OF THESE RISKS. THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE SIGNIFICANTLY DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART
OF YOUR INVESTMENT. IN ASSESSING THESE RISKS, YOU SHOULD ALSO REFER TO THE OTHER INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING OUR
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES.
On August 26, 2020, the Securities and Exchange Commission (“Commission”) announced the adoption of amendments to
modernize certain disclosures registrants are required to make pursuant to Regulation S-K. The amendments are intended to reflect
the Commission’s commitment to a principles-based, registrant-specific approach to disclosure, rooted in materiality. The
modernization of Item 105 Risk Factor Disclosures includes the following:
● The requirement for inclusion of a summary risk factor disclosure of no more than two pages if the risk factor section
exceeds 15 pages.
● Refining the principles-based approach by requiring disclosure of “material” risk factors versus “most significant.”
● The requirement to organize risk factors under relevant headings for ease of understanding, with generic risk factors placed
at the end of the section. The amendments do not specify the risk factor headings.
The Company has reviewed its current risk factors and will organize them under the primary categories of company risk, industry
risk, and investor risk.
Risk Factor Summary Disclosure
A. Company Risks consist of both internal and external items and events that impact Sonic Foundry as a company. These are
further categorized as follows:
1. Financial Risks impact the financial well-being of the Company. Those risks include, but are not limited to the
following:
a. We have a history of losses.
b. We may need to raise additional capital.
c.
d. Large, multi-unit deals are needed for continued success.
e. Because most of our service contracts are renewable on an annual basis, a reduction in our service renewal
If customer adoption has barriers, our business may not succeed.
rate could significantly reduce our revenues.
If we are viewed only as a commodity supplier, our margins and valuations will shrink.
f.
g. Our operating results are hard to predict as a significant amount of our sales typically occur at the end of a
quarter, and the mix of product and service orders may vary significantly.
h. Accounting regulations and related interpretations and policies, particularly those related to revenue
recognition, cause us to defer revenue recognition into future periods for all or portions of our products and
services.
i. Because we generally recognize revenues ratably over the term of our service contracts, a decrease or increase
in service transactions will not be fully reflected in our operating results until future periods.
j. Currency exchange rate fluctuations could result in higher costs and decreased margins and earnings.
k. Our ability to utilize our net operating loss carryforwards may be limited.
2. Operational Risks disrupt fundamental daily operations of the Company. Those risks include, but are not limited to
the following:
a. Operational failures in our network infrastructure could disrupt our remote hosting services, cause us to lose
clients and sales to potential clients and result in increased expenses and reduced revenues.
b. Our business is susceptible to risks associated with international operations.
8
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
c. Supporting our existing and growing customer base and implementing large customer deployments could
strain our personnel resources and infrastructure, and if we are unable to scale our operations and increase
productivity, customer satisfaction and our business will be harmed.
If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our
business could be impaired.
d.
e. Manufacturing disruption or capacity constraints would harm our business.
3. Strategic Risks prevent the Company from achieving its strategic objectives. Those risks include, but are not limited
to the following:
a. The technology underlying our products and services is complex and may contain unknown defects that could
harm our reputation, result in product liability or decrease market acceptance of our products.
b. Our success depends upon the proprietary aspects of our technology.
c. We may not be able to innovate to meet the needs of our target market.
d.
If potential customers or competitors use open source software to develop products that are competitive with
our products and services, we may face decreased demand and pressure to reduce the prices for our products.
e. We also rely upon trademark, copyright and trade secret laws, which may not be sufficient to protect our
f.
intellectual property.
If other parties bring infringement or other claims against us, we may incur significant costs or lose
customers.
g. There is a great deal of competition in the market for our products, which could lower the demand for our
products and have a negative impact on our operations.
If our marketing and lead generation efforts are not successful, our business will be harmed.
h.
i. The length of our sales and deployment cycles are uncertain, which may cause our revenue and operating
results to vary significantly from quarter to quarter and year to year.
j. We depend in part on the success of our relationships with third-party resellers and integrators.
k. We may need to make acquisitions or form strategic alliances or partnerships in order to remain competitive
in our market, and acquisitions, strategic alliances or partnerships, could be difficult to integrate, disrupt our
business and dilute stockholder value.
4. Compliance Risks result from non-compliance of laws and regulations from various governing bodies. Those risks
include, but are not limited to the following:
a. Our customers may use our products to share confidential and sensitive information, and if our system
security is breached, our reputation could be harmed and we may lose customers.
b. Our business is subject to changing regulations regarding corporate governance and public disclosure that will
increase both our costs and the risk of noncompliance.
5.
Industry Risks are items and events that have macro-level impacts on our industries. Those risks include, but are not
limited to the following:
a. Economic conditions could materially adversely affect the Company.
b. Economic conditions may have a disproportionate effect on the sale of our products.
c. We could lose revenues if there are changes in the spending policies or budget priorities for government
funding of colleges, universities, schools and other education providers.
d. Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a
material adverse impact on our business, operating results and financial condition.
e. Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer restrictions and
other domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our
business.
f. We face risks associated with government regulation of the internet and related legal uncertainties.
6.
Investor Risks are both internal and external risks that impact an investment made in the Company’s stock. Those
risks include, but are not limited to the following:
a. The market price of our common stock may be subject to volatility.
b. Our common stock is subject to low trading volume and broad price swings.
c. Exercise of outstanding options and warrants will result in further dilution.
d. Provisions of our charter documents and Maryland law could also discourage an acquisition of our Company
that would benefit our stockholders and, due to our insiders control of a substantial percentage of our stock,
9
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
our officers, directors, and major stockholders will have a substantial amount of control over whether to
approve or disapprove of a transaction.
Following is a more detailed discussion of each risk factor outlined in the summary.
Company Risks – Financial
We have a history of losses.
Our operations have generated losses in most years. Although we were able to maintain flat revenues in fiscal year 2020 and
reduce expenses, we still generated a loss for the year. While we continue to work towards profitability and growth, we may not
realize sufficient revenues or be able to sustain cost reductions to reach that goal. We initiated a plan for reducing costs in fiscal
2019 that began with eliminating certain headcount and functions, including a reduction in senior executive positions. In 2020, we
continued that focus on cost reduction and also executed on an executive leadership change in the fourth quarter of 2020. In that
same quarter, we eliminated three additional mid to senior level sales and marketing positions, and in the first quarter of 2021,
eliminated additional headcount, primarily within sales and marketing. To achieve profitability and growth, we may need to
change certain aspects of our business model. As such, we face risks, expenses and uncertainties related to our specific business
model, as well as those typically encountered by similar companies. Those risks include, but are not limited to our ability to
successfully achieve the following:
● Manage the growth and profitability of our business, including known and unknown challenges and expenses;
● Acquire new customers and retain and expand existing customers;
● Develop new and complimentary price competitive product and service offerings, both internally and in partnership with
third parties;
● Maintain and develop relationships with strategic partners including dealers, A/V integrators, large institutional end-users,
and other channel partners;
● Compete successfully with companies offering similar products and services;
● Develop targeted marketing efforts to expand our reach into new markets and deepen penetration into existing markets;
● Manage and scale a high-performance technology infrastructure;
● Ensure a highly secure and reliable product platform;
● Attract and retain highly skilled personnel to execute in a fast-paced, rapidly changing environment;
● Navigate the ongoing evolution of changing regulatory requirements, such as privacy laws and tax laws, and how it impacts
our business, including our products and services; and
● Expand our competitive reach into international markets.
We have experienced some of these risks already and will continue to encounter them as the business evolves. Failure to
successfully manage them could adversely affect our financial condition and results of operations.
We may need to raise additional capital.
At September 30, 2020, we had cash of $7.6 million, $2.3 million of which was in our foreign operations compared to total cash of
$4.3 million and foreign operations cash of $1.3 million at September 30, 2019. We no longer have a revolving credit facility for
any financing needs beyond our available cash and cash generated from operations, and, there can be no assurances a revolving
facility will be available. The Company has a history of losses and has historically financed its operations primarily through cash
from sales of equity or debt securities, and to a limited extent, cash from operations and through credit facilities. The Company
was able to maintain prior year revenue levels despite the impacts of COVID-19 and reduce operating expenses as planned to
reach positive adjusted EBITDA. We cannot ensure that revenue will continue to grow given the reduction in operating expenses.
If revenue is determined to be growing at a rate less than anticipated and expenses are not sufficiently reduced, our cash resources
may not be sufficient to support working capital needs, and we may have to attempt to borrow additional funds from other debt
providers or attempt to raise equity capital. In addition, our financial condition may, in the future, cause us to be in non-
compliance with certain provisions of any debt facilities we may establish.
In the event we need to borrow additional money or raise additional equity capital, we may not be able to do so on acceptable
terms and conditions. In that event, we may seek to raise money from entities that are affiliated with the Company, as we have
done in the past. However, investors may require that their investment be in the form of convertible preferred stock or convertible
debt, which will dilute the interests of our existing stockholders. The Company may need to rely on its Chairman, Mark Burish,
("Mr. Burish") to provide capital on terms reasonable and acceptable to the independent members of the Board of Directors. There
is no assurance, however, that Mr. Burish, or any other affiliated party, will be willing to provide additional capital..
10
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
During fiscal year 2020, the Company entered into a debt conversion agreement with Mr. Burish to convert all outstanding debt
owed to Mr. Burish into common stock at a conversion price of $5.00 per share. The total debt amount, including accrued interest
and fees of $5.6 million, was converted into 1,114,723 shares of common stock. No cash was exchanged in the transaction,
however, the elimination of debt improves our working capital as payments of $100 thousand plus interest beginning in August
2020 have now been eliminated.
As a result of the non-cash goodwill and other intangible assets impairment charges recorded in fiscal 2018, the Company was no
longer able to satisfy the NASDAQ requirement to maintain $2.5 million of stockholders' equity. On December 18, 2018, the
Board of Directors approved the voluntary transfer of its common stock from the NASDAQ Stock Exchange to the OTCQB
Market ("the "QTCQB"). The OTCQB Market is operated by OTC Markets Group, a centralized electronic quotation service for
over-the-counter-securities. The Company ceased trading on NASDAQ at the close of business on December 28, 2018 and began
trading on the OTCQB on December 31, 2018 under its current trading symbol "SOFO". The Company ceased trading on the
OTCQB at the close of business on February 15, 2019 and began trading on the OTC Pink Sheets on February 18, 2019 under its
current trading symbol "SOFO". The Company has remained a reporting company under the Securities Exchange Act of 1934, as
amended, notwithstanding its voluntary withdrawal from the NASDAQ. As a result of the Company's inability to satisfy the
NASDAQ requirements, its ability to raise equity capital may be adversely affected.
In the event we are able to borrow money, we may incur significant interest charges, which could harm our profitability. Holders
of debt would also have rights, preferences or privileges senior to those of existing holders of our common stock. In the event we
are able to raise additional equity, the terms of such financing may dilute the ownership interests of current investors and cause our
stock price to fall significantly. In the event additional capital is provided by executive officers or directors, then, due to the low
price levels of our common stock, control by such executive officers or directors may substantially increase.
We may not be able to secure debt or equity financing upon acceptable terms, if at all. If we cannot raise funds on acceptable
terms, our business, operating results, and financial condition could be negatively impacted. The Company believes its cash
position is adequate to accomplish its business plan through at least the next twelve months.
If the funds held by our foreign subsidiaries are 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.
If customer adoption has barriers, our business may not succeed.
Part of our strategic challenge is to convince enterprise customers of the stability, productivity, improved communications, cost
savings, suitability and other benefits of our products. The market for content delivery solutions is very complex, includes many
products and solutions that address various aspects of customer needs and as a result it is often difficult for customers and channel
partners to understand how our products and services compare. Further, corporate customers may use video as a tool, but may
choose to rely upon their own IT infrastructure and resources to manage their video content. Because many companies generally
are predisposed to maintaining control of their IT systems and infrastructure, there may be resistance to using software as a service
provided by a third party. Our future revenue and revenue growth rates will depend in large part on our success in delivering these
products effectively, creating market acceptance for these products in existing markets that we sell into and in new markets, and
meeting customer’s needs for new or enhanced products. If we fail to do so, our products will not achieve widespread market
acceptance, or will no longer be used by our customers, and we may not generate sufficient revenue to offset our product
development and selling and marketing costs, which will adversely impact the valuation of the Company, the price of our stock,
and will harm our business.
Large, multi-unit deals are needed for continued success.
We need to sell multiple units to educational, corporate and government institutions in order to sell most efficiently and become
profitable. Sales of multiple units to corporate customers have lagged behind results achieved in the higher education market;
consequently, we have allocated more resources to the higher education market. While we have addressed a strategy to leverage
existing customers, better address the needs of potential new customers, and close multiple unit transactions, a customer may
choose not to make expected purchases of our products. Despite our strategy to focus on a customer base with a recurring need to
purchase our products and services, we need to identify and sell more products and services to new customers, enter new markets
and reduce the rate of attrition from certain existing customers, typically those with smaller deployments. The failure to develop
effective strategies to enter new markets, and increase sales will adversely impact the valuation of the Company and the price of
our stock, and will harm our business.
Because most of our service contracts are renewable on an annual basis, a reduction in our service renewal rate could
significantly reduce our revenues.
Our clients have no obligation to renew their content hosting agreements, customer support contracts or other annual service
contracts after the expiration of the initial period, which is typically one year, and some clients have elected not to do so. A decline
11
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
in renewal rates could cause our revenues to decline. Our renewal rates may decline or fluctuate as a result of a number of factors,
including client dissatisfaction with our products and services, our slow response to customer technical inquiries, our failure to
update our products to maintain their attractiveness in the market, deteriorating economic conditions or budgetary constraints or
changes in budget priorities faced by our clients. If our retention rates decrease, we may need to provide more incentives, reduce
pricing or increase marketing costs to improve lead generation through marketing in order to increase revenues, all of which could
reduce profitability.
If we are viewed only as a commodity supplier, our margins and valuations will shrink.
We need to provide value-added services in order to avoid being viewed as a commodity supplier, which could adversely impact
the valuation of the Company, and the price of our stock. This entails building long-term customer relationships and developing
features that will distinguish our products. Our technology is complex and is often confused with other products and technologies
in the market place, including video conferencing, streaming and collaboration.
We have developed lower cost hardware, software products and cloud solutions to better address the more cost-conscious
customers. Such products have more limited features compared to our existing products. While we believe we can preserve the
market for our full-featured products due to differentiation between the two and migration to full featured products, release of
lower cost products has and could continue to reduce gross margins and demand for products sold at higher prices, which could
adversely affect our business and operating results. Potential large-scale deployments of our products often include the lower cost
products we sell, putting greater pressure on gross margin due to expectations for greater volume discounts.
If we fail to build long-term customer relationships, develop features that distinguish our products in the market place and address
the market for lower function and cost solutions, our margins will shrink, and our stock may be adversely impacted.
Our operating results are hard to predict as a significant amount of our sales typically occur at the end of a quarter and the mix
of product and service orders may vary significantly.
Revenue for any particular quarter is extremely difficult to predict with any degree of certainty. We typically ship products within
a short time after we receive an order and therefore, we do not have an order backlog with which to estimate future revenue. Any
decline or uncertainty in end-user demand could negatively impact end-user orders. Accordingly, our expectations for both short
and long-term future revenue is based almost exclusively on our own estimate of future demand based on history and the pipeline
of sales opportunities we manage, rather than on firm orders. The mix of product demand varies significantly from quarter to
quarter, further complicating our estimated product needs. Our expense and inventory levels are based largely on these estimates.
In addition, our events business is particularly unpredictable and subject to variation due to the short time-frame between when we
learn of an opportunity and when the event occurs. Further, the majority of our product orders are received in the last month of a
quarter; thus, the unpredictability of the receipt of these orders could negatively impact our future results. Accordingly, any
significant shortfall in demand for our products or services in relation to our expectations, even if the result was a short-term delay
in orders, would have an adverse impact on our operating results.
We have experienced growing demand for our hosting and event services as well as a growing preference from our customers in
purchasing our annually licensed software. As a result, we have seen an increase in service billings and recurring revenue as a
percentage of total billings, and a decrease in hardware billings. We expect this trend to continue, which we expect to help improve
predictability of revenue and gross margins but will delay the impact on revenue of any increase or decrease in billings during any
particular quarter. We subcontract for some services required by our events customers, such as onsite management labor and
closed captioning. We typically charge for such services at a lower margin than other services. The percentage of billings
represented by services, provided either directly or indirectly, is also likely to fluctuate from quarter to quarter due to seasonality
of event services and other factors. Since content hosting and support services are typically billed in advance of providing the
service, revenue is initially deferred, leading to reduced current period revenue with a corresponding negative impact to profits or
losses in periods of significant increase in the percentage of our billings for deferred services.
Accounting regulations and related interpretations and policies, particularly those related to revenue recognition, cause us to
defer revenue recognition into future periods for all or portions of our products and services.
Revenue recognition for our products and services is complex and subject to multiple sources of authoritative guidance, some of
which are new, as well as, varied interpretations and implementation practices for such rules. These rules require us to apply
judgment in determining revenue recognition. In certain situations, we may have to defer the entire amount of revenue from a
transaction, even when the product has already shipped. This may occur when the customer has delayed payment on the
transaction, or in certain other circumstances, such as when we agree to extend payment terms on other invoices from such
customer. In addition, we always defer revenue when services are included in a transaction, and not performed. Other factors that
are considered in revenue recognition include those such as standalone selling price (SSP), best estimate of selling price and the
inclusion of other services and contingencies to payment terms. We expect that we will continue to defer portions or, in certain
circumstances with respect to a particular customer, all of our product or service billings because of these factors, and to the extent
12
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
that management’s judgment is incorrect it could result in an increase in the amount of revenue deferred in any one period. The
amounts deferred may be significant and may vary from quarter to quarter depending on, among other factors, compliance with
payment terms, the mix of products sold, combination of products and services sold together or contractual terms.
Additional changes in authoritative guidance, including the interpretation of "Revenue from Contracts with Customers (Topic
606)", or changes in practice in applying such rules could also cause us to defer the recognition of revenue to future periods or
recognize lower revenue. See Note 1 - Accounting Policies of the Notes to Financial Statements (Part II, Item 8 of this Form 10-
K) for further discussion.
Because we generally recognize revenues ratably over the term of our service contracts, decrease or increase in service
transactions will not be fully reflected in our operating results until future periods.
We recognize most of our revenues from service contracts monthly over the terms of their agreements, which are typically
12 months, although terms have ranged from less than one month to 48 months. As a result, much of the service revenue we report
in each quarter is attributable to agreements entered into during previous quarters. Consequently, a decline in sales, client renewals
or market acceptance of our products in any one quarter will not necessarily be fully reflected in the revenues in that quarter and
will negatively affect our revenues and profitability in future quarters. This ratable revenue recognition also makes it difficult for
us to rapidly increase our revenues through additional sales in any period, as revenues from new clients must be recognized over
the applicable agreement term.
Currency exchange rate fluctuations could result in higher costs and decreased margins and earnings.
The functional currency of our foreign subsidiaries in the Netherlands is the Euro and in Japan is the Japanese Yen. They are
subject to foreign currency exchange rate risk. The conversion rate of the Yen to the US Dollar varied from about 105 to
approximately 109 during fiscal 2020. Similarly, the Euro varied from about 0.85 to approximately 0.92 to the US Dollar during
fiscal 2020. The strength of the dollar impacts our ability to export profitably to other countries, and will likely continue to
fluctuate. Any increase in the exchange rate of the US Dollar compared to the Euro or the Japanese Yen will impact our future
operating results and financial position.
Our ability to utilize our net operating loss carryforwards may be limited.
The use of our net operating loss carryforwards may have limitations resulting from certain future ownership changes or other
factors under the Internal Revenue Code and other taxing authorities. The Tax Cuts and Jobs Act of 2017 changed both the federal
deferred tax value of the net operating loss carryforwards and the rules of utilization of federal net operating loss carryforwards.
The Tax Cuts and Jobs Act of 2017 lowered the corporate tax rate from 35% to 21% effective for our 2018 fiscal year. For net
operating loss carryforwards generated in years prior to 2018, there is no annual limitation on the utilization and the carryforward
period remains at 20 years. There could be a limitation if a change in ownership occurs. However, net operating loss carryforwards
generated in years after 2017 will only be available to offset 80% of future taxable income in any single year, but will not expire.
If our net operating loss carryforwards are limited, and we have taxable income which exceeds the available net operating loss
carryforwards for that period, we would incur an income tax liability even though net operating loss carryforwards may be
available in future years prior to their expiration. Any such income tax liability may adversely affect our future cash flow, financial
position and financial results.
Company Risks – Operational
Operational failures in our network infrastructure could disrupt our remote hosting services, cause us to lose clients and sales
to potential clients and result in increased expenses and reduced revenues.
Unanticipated problems affecting our network systems could cause interruptions or delays in the delivery of the hosting services
we provide to some of our clients. We are not equipped to provide full disaster recovery to all of our hosted clients. If there are
operational failures in our network infrastructure that cause interruptions, slower response times, loss of data or extended loss of
service for our remotely hosted clients, we may be required to issue credits or pay penalties, current clients may terminate their
contracts or elect not to renew them and we may lose sales to potential clients. We have recently acquired additional hardware and
systems, expect to make more significant investments in hardware and outsourced most aspects of our network infrastructure to
multiple providers. We also rely on Internet systems and infrastructure to operate our business and provide our services. As a
result, we are reliant on third parties for network availability, so outages may be outside our control and we may need to acquire
additional hardware in order to provide an appropriate level of redundancy required by our customers. These hardware, data, and
cloud computing platforms may not be available at reasonable terms or prices.
Our business is susceptible to risks associated with international operations.
International product and service billings were 36% of our total billings in each of the past two years and are expected to continue
to account for a significant portion of our business in the future. International sales are subject to a variety of risks, including:
13
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
● Difficulties in establishing and managing international subsidiaries, distribution channels and operations;
● Difficulties in selling, servicing and supporting overseas products, translating products into foreign languages and
compliance with local hardware requirements;
● Difficulties in managing the demands of large international deployments, many of which distract key sales personnel from
opportunities in other parts of the world;
● Challenges associated with management transition;
● Challenges related to language or cultural differences;
● The uncertainty of laws and enforcement in certain countries, such as China, relating to the protection of intellectual
property or requirements for product certification, protection of personal data or other restrictions;
● Competitive pressure impacting other parts of the world;
● Multiple and possibly overlapping tax structures;
● Currency and exchange rate fluctuations and imposition of tariffs or quotas;
● Difficulties in collecting accounts receivable in foreign countries, including complexities in documenting letters of credit;
● Economic or political changes in international markets;
● Restrictions on access to the Internet; and
● Difficulty in complying with international employment related requirements
Supporting our existing and growing customer base and implementing large customer deployments could strain our personnel
resources and infrastructure, and if we are unable to scale our operations and increase productivity, customer satisfaction and
our business will be harmed.
Frequent enhancements to our software puts pressure on our customers to install, maintain and train their personnel on its use.
Further, frequent releases of the software can lead to less product stability. As a result, our customer care and engineering
resources have come under, and are expected in the future to come under significant pressure in providing the high-quality of
technical support our customers expect during periods of high demand. We may be unable to respond quickly enough to
accommodate short-term increases in customer demand for support services. Increased customer demand for these services,
without corresponding revenues, could increase costs and adversely affect our operating results. In addition, our sales process is
highly dependent on our applications and business reputation and on positive recommendations from our existing customers. Any
failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could
adversely affect our reputation, our ability to sell our products and services to existing and prospective customers, and our
business, operating results and financial position.
As we target more of our sales efforts at larger initial transactions, we face increasingly complex deployments requiring substantial
technical and management resources, including in some cases significant product customization and integration with other
applications or hardware. Customers making large expenditures for our products and services typically have higher expectations of
product and service operability and response time if issues arise. Some of these customers have asked us to host their content and
have significant amounts of legacy content to transfer to our datacenter. Such increased activity and storage demand on our data
centers put additional strain on our personnel and hosting infrastructure. Our hosting customers typically require a high level of
access, data security and need to capture and store multiple high definition streams. Such requirements require costly
enhancements to our infrastructure. If we do not accurately plan for our infrastructure capacity requirements and we experience
significant strains on our data center capacity, our customers could experience performance degradation or service outages that
may subject us to financial penalties, result in customer losses and harm our business. As we add or change data centers or
capacity, we may move or transfer our data and our customers’ data. Despite precautions taken during this process, any
unsuccessful data transfers may impair the delivery of our services, which may damage our business. High demand on technical
and management resources to manage large transactions distract personnel from existing customers, development of new products
and other important activities which could lead to potential customer dissatisfaction, product development delays or other issues
associated with the distraction.
If a customer is not satisfied with the quality of work performed by us or a third party or with the type of services or solutions
delivered, then we could incur additional costs to address the situation and delay recognition of revenue, the profitability of that
work might be impaired, and the customer’s dissatisfaction with our services could damage our ability to obtain additional work
from that customer. In addition, negative publicity related to our customer relationships, regardless of its accuracy, may further
damage our business by affecting our ability to compete for new business with current and prospective customers.
If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our business could be
impaired.
Our future success depends upon the continued service of our key management, technical, sales and other critical personnel,
including our Chief Executive Officer. Most of our officers and other key personnel are employees-at-will, and we cannot assure
14
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
that we will be able to retain them. Key personnel have left our Company in the past, sometimes to accept employment with
companies that sell similar products or services to existing or potential customers of ours. The technology industry is subject to
substantial and continuous competition for engineers with high levels of experience in designing, developing and managing
software and Internet-related services, as well as competition for sales and operations personnel. There will likely be additional
departures of key personnel from time to time in the future and such departures could result in additional competition, loss of
customers or confusion in the marketplace. As we seek to replace such departures, or expand our business, the hiring of qualified
sales, technical and support personnel is difficult due to the limited number of qualified professionals. Training of new sales,
technical and support personnel can take six months or longer before they become productive. Sales and technical strategies have
changed and will likely change further in the future and require different skills to sell to different customer types and develop new
and changing products. The loss of any key employee could result in significant disruptions to our operations, including adversely
affecting the timeliness of product releases, the successful implementation and completion of Company initiatives and the results
of our operations. In addition, we do not have life insurance policies on any of our key employees. If we lose the services of any of
our key employees, the integration of replacement personnel could be time consuming, may cause disruptions to our operations
and may be unsuccessful.
Manufacturing disruption or capacity constraints would harm our business.
We subcontract the manufacturing of our recorders to a 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 our contract
manufacturer, a disruption of supply of component parts or completed products, even if short term, would have a material negative
impact on our revenues. Likewise, we are susceptible to any material change in terms; such as pricing, level of services performed
or changes to payment terms by our contract manufacturer. In particular, the cost of our products increased this year as a result of
tariffs imposed by China. Many component parts currently have long delivery lead times or cease production of certain
components with limited notice in which to evaluate or obtain alternate supply, requiring conservative estimation of production
requirements. Lengthening lead times, product design changes and other third-party manufacturing disruptions have caused delays
in delivery in the past. In order to compensate for supply delays, we have sourced components from off-shore locations, used cross
component parts, paid significantly higher prices or premium fees to expedite delivery for short supply components and converted
inventory from one version to another. We have typically maintained greater amounts of inventory as insurance against delays but
currently hold substantially lower quantities of inventory in order to improve liquidity. Many of these strategies have increased our
costs or require substantial resources to maintain and may not be sufficient to ensure against a product shortage. We depend on our
subcontract manufacturer to produce our products efficiently while maintaining high levels of quality despite frequent changes in
configuration and scheduling imposed by us. Any manufacturing or component defects, delay in production or changes in product
features will likely cause customer dissatisfaction and may harm our reputation. Moreover, any incapacitation of the
manufacturing site due to destruction, natural disaster or similar events could result in a loss of product inventory. As a result of
any of the foregoing, we may not be able to meet demand for our products, which could negatively affect revenues in the quarter
of the disruption or longer depending upon the magnitude of the event, and could harm our reputation.
We license technology from third parties. If we are unable to maintain these licenses, our operations and financial condition
may be negatively impacted.
We license technology from third parties. The loss of, our inability to maintain, or changes in material terms of these licenses
could result in increased cost or delayed sales of our software, and services, or may cause us to remove features from our products
or services. We anticipate that we will continue to license technology from third parties in the future. This technology may not
continue to be available on commercially reasonable terms, if at all. Although we do not believe that we are substantially
dependent on any individual licensed technology, some of the component technologies that we license from third parties could be
difficult for us to replace. The impairment of these third-party relationships, especially if this impairment were to occur in unison,
could result in delays in the delivery of our software and services until equivalent technology, if available, is identified, licensed
and integrated. This delay could adversely affect our operating results and financial condition.
Company Risks – Strategic
The technology underlying our products and services is complex and may contain unknown defects that could harm our
reputation, result in product liability or decrease market acceptance of our products.
The technology underlying our products is complex and includes software that is internally developed, software licensed from
third parties and hardware purchased from third parties. These products have, and will in the future, contain errors or defects,
particularly when first introduced or when new versions or enhancements are released. We may not discover defects that affect our
current or new applications or enhancements until after they are sold, and our insurance coverage may not be sufficient to cover
our exposure. Further, there are third-party applications our products and services are dependent on, or integrate with, such as
operating systems and learning management systems. These integrations require specialized knowledge that is difficult and
expensive to maintain. Failure to maintain compatibility with such applications or identification of defects in our products and
services could:
15
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
● Damage our reputation;
● Cause our customers to initiate product liability suits against us;
●
● Cause customers to cancel orders, ask for partial refunds or potential customers to purchase competitive products or
Increase our product development resources;
services;
● Delay release or market acceptance of our products, or otherwise adversely impact our relationships with our customers;
and/or
● Cause us to allocate valuable engineering resources to fix our existing products, which may cause us to allocate fewer
resources toward developing new products, or toward adding features to our existing products.
Our success depends upon the proprietary aspects of our technology.
Our success and ability to compete depend to a significant degree upon the protection of our proprietary technology. We currently
have three U.S. patents that have been issued to us. We may seek additional patents in the future. However, it is possible that:
● Any patents acquired by or issued to us may not be broad enough to protect us.
●
●
●
●
Any issued patent could be successfully challenged by one or more third parties, which could result in our loss of the right to
prevent others from exploiting the inventions claimed in those patents.
Current and future competitors may independently develop similar technology, duplicate our services or design around any of
our patents.
Effective patent protection, including effective legal-enforcement mechanisms against those who violate our patent-related
assets, may not be available in every country in which we do or plan to do business.
We may not have the resources to enforce our patents or may determine the potential benefits are not worth the cost and risk of
ultimately being unsuccessful.
We may not be able to innovate to meet the needs of our target markets.
Our future success will continue to depend upon our ability to create an effective development product strategy, to develop new
products, product enhancements and service offerings that address future needs of our existing target markets and enable us to
expand the market for our products and service offerings. Our success is also dependent upon our ability to respond to changing
standards and practices on a timely basis, particularly as customers move away from hardware to software solutions. The success of
new strategies, products, product enhancements and service offerings depends on several factors, including timely completion,
quality and stability, and market acceptance. Our fiscal 2021 business plan includes an expectation for revenue contribution from
both new and existing customers associated with the introduction of lower priced hardware and software products in locations that
can’t support our more comprehensive solutions. There can be no assurance that we will be successful in achieving our revenue
expectations from these new products or that we are able to retain existing customers with our more comprehensive solutions. Our
revenue could be adversely impacted if we do not capitalize on opportunities to develop innovative new products, product
enhancements and service offerings that will increase the likelihood that our products and services will be accepted in preference
to the products and services of our current and future competitors. Some of our prospective customers may delay the purchase of
our products or services until certain features are completed, may require custom development of certain features as part of the
purchase decision, or may condition additional payments tied to completion of such features. Prioritizing such custom features can
be difficult to adapt to other customers and distracts our engineering team from implementing features required by other
customers.
If potential customers or competitors use open source software to develop products that are competitive with our products and
services, we may face decreased demand and pressure to reduce the prices for our products.
The growing acceptance and prevalence of open source software may make it easier for competitors or potential competitors to
develop software applications that compete with our products, or for customers and potential customers to internally develop
software applications that they would otherwise have licensed from us. One of the aspects of open source software is that it can be
modified or used to develop new software that competes with proprietary software applications, such as ours. Such competition
can develop without the degree of overhead and lead time required by traditional proprietary software companies. As open source
offerings become more prevalent, customers may defer or forego purchases of our products, which could reduce our sales and
lengthen the sales cycle for our products or result in the loss of current customers to open source solutions. If we are unable to
differentiate our products from competitive products based on open source software, demand for our products and services may
decline, and we may face pressure to reduce the prices of our products, which would hurt our profitability. If our use of open-
source is challenged and construes unfavorably, our operating results could be adversely impacted.
16
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
We use open source software in our application suite. Although we monitor our use of open source software closely, the terms of
many open source licenses have not been interpreted by United States courts, and there is risk that such licenses could be construed
in a manner that imposes unanticipated conditions or restrictions on our ability to commercialize our products. In such event, we
could be required to re-engineer our technology or to discontinue offering all or a portion of our products in the event re-
engineering cannot be accomplished on a timely basis, any of which could adversely affect our business, operating results and
financial condition.
We also rely upon trademark, copyright and trade secret laws, which may not be sufficient to protect our intellectual property.
We also rely on a combination of laws, such as copyright, trademark and trade secret laws and contractual restrictions, such as
confidentiality agreements and licenses, to establish and protect our technology. We have registered three U.S. and four foreign
country trademarks. These forms of intellectual property protection are critically important to our ability to establish and maintain
our competitive position. However, it is possible that:
● Third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights.
● Laws and contractual restrictions may not be sufficient to prevent misappropriation of our technology or to deter others
from developing similar technologies, particularly in foreign countries where the laws may not protect our proprietary
rights as fully or as readily as Unites States laws.
● There have been attacks on certain patent systems, increasing the likelihood of changes to established laws, including in the
United States. We cannot predict the long-term effects of any potential changes, which could be detrimental to our
licensing program.
● Effective trademark, copyright and trade secret protection, including effective legal-enforcement mechanisms against those
who violate our trademark, copyright or trade secret assets, may be cost prohibitive or unavailable or limited in foreign
countries.
● Contractual agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other
proprietary information.
● Other companies may claim common law trademark rights based upon state or foreign laws that precede the federal
registration of our marks.
● Policing unauthorized use of our services and trademarks is difficult, expensive and time-consuming, and we may be
unable to determine the extent of any unauthorized use.
● Reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third
parties to benefit from our technology without paying us for it, which would significantly harm our business.
If other parties bring infringement or other claims against us, we may incur significant costs or lose customers.
Other companies may obtain patents or other proprietary rights that would limit our ability to conduct our business and could
assert that our technologies infringe their proprietary rights. We have incurred substantial costs to defend against such claims in the
past and could incur legal costs in the future, even if without merit, and intellectual property litigation could force us to cease using
key technology, obtain a license or redesign our products. In the course of our business, we may sell certain systems to our
customers, and in connection with such sale, we may agree to indemnify these customers from claims made against them by third
parties for patent infringement related to these systems, which could harm our business.
There is a great deal of competition in the market for our products, which could lower the demand for our products and have a
negative impact on our operations.
The market for our products and services is intensely competitive, dynamic and subject to rapid technological change. The
intensity of the competition and the pace of change are expected to increase in the future, and likely will require the Company to
compete on price and our offerings more than in the past, which could adversely affect our business and operating results.
Increased competition has reduced gross margins, has resulted in new customer losses and may result in loss of market share, any
one of which could seriously harm our business. Competitors vary in size and in the scope and breadth of the products and services
offered, many of which have greater financial resources, greater name recognition, more employees and greater financial,
technical, marketing, public relations and distribution resources than we have. In addition, new competitors with greater financial
resources may arise through partnerships, distribution agreements, mergers, acquisitions or other types of transactions at any time.
In particular, large companies have begun to make investments in and/or partner with smaller companies to enter the lecture
capture and video management markets.
Various vendors provide lecture capture, enterprise webcasting or video content management capabilities, but few offer an end-to-
end solution that addresses all phases of the video content lifecycle (capture, delivery, transformation and management) in a single
platform like Mediasite.
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Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Lecture capture solutions designed specifically for higher education differ in their technology approach.
● Appliance- or room-based lecture capture provides a fully integrated system with complete recording automation for live or
on-demand content. The automated, pre-scheduled workflow results in the greatest faculty and staff adoption and largest
volumes of recorded content in the shortest amount of time.
● Software-based lecture capture that resides on a podium or computer in the classroom also captures and publishes rich
media content, but relies on campus- or user-supplied hardware.
● Desktop capture tools reside on individual users’ laptops or computers allowing them to record user-generated content.
Few lecture capture vendors offer a mix of all lecture capture approaches to best suit customers’ needs. Most vendors, including
Extron and Panopto, support only one approach to lecture capture. Likewise, a very small number of vendors provide an integrated
platform like Mediasite to archive and manage video and rich media recorded with their solution. Most rely on a third-party
platform, typically the institution’s learning or course management system, to publish, search and secure content.
Enterprise video management solutions serve as centralized media repositories that facilitate the delivery, publishing and
management of on-demand video. Unlike Mediasite, most platforms do not include a video capture, webcasting or live streaming
component, but instead ingest or import video-based content captured by other third-party devices or solutions. Also, most other
platforms focus on ingesting video-only content rather than rich video which combines multiple synchronous video and/or slide
streams into an interactive media experience.
Some current and potential customers develop their own home-grown lecture capture, webcasting or video content solutions which
may also compete with Mediasite. However, we often find many of these organizations are now looking for a commercial solution
that offers comprehensive management capabilities, requires fewer resources and internal maintenance and delivers a less
cumbersome workflow.
The competitive environment has required us to make changes in our products, pricing, licensing, services, or marketing to
maintain and extend our current technology. Price concessions or the emergence of other pricing, licensing, and distribution
strategies or technology solutions of competitors has impacted revenue growth and may in the future further reduce our revenue,
margins or market share. Other changes we have to make in response to competition, such as our desktop user interface, could
cause us to expend significant financial and other resources, disrupt our operations, strain relationships with partners, release
products and enhancements before they are thoroughly tested or result in customer dissatisfaction, any of which could harm our
operating results and stock price.
If our marketing and lead generation efforts are not successful, our business will be harmed.
We believe that continued marketing efforts will be critical to achieve widespread acceptance of our products. Our marketing
strategies and campaigns may not be successful, and we may not be able to generate sufficient cash flow from operations to cover
the expenses required to implement effective strategies and campaigns. For example, failure to adequately generate and develop
qualified sales leads could cause our future revenue to decrease. In addition, our inability to generate and cultivate qualified sales
leads into large organizations, where there is the potential for significant use of our products, could have a material adverse effect
on our business. We may not be able to identify and secure the number of strategic qualified sales leads necessary to help generate
marketplace acceptance of our products. If our marketing or lead-generation efforts are not successful, our business and operating
results will be harmed.
The length of our sales and deployment cycles are uncertain, which may cause our revenue and operating results to vary
significantly from quarter to quarter and year to year.
During our sales cycle, we spend considerable time and expense providing information to prospective customers about the use and
benefits of our products without generating corresponding revenue. Our expense levels are relatively fixed in the short-term and
based in part on our expectations of future revenue. Therefore, any delay in our sales cycle could cause significant variations in our
operating results, particularly because a relatively small number of customer orders represent a large portion of our revenue.
Our largest potential sources of revenue are educational institutions, large corporations and government entities that often require
long testing and approval processes before making a decision to purchase our products, particularly when evaluating our products
for inclusion in new buildings under construction, high dollar transactions or competitive bids. In general, the process of selling
our products to a potential customer may involve lengthy negotiations, collaborations with consultants, designers and architects,
time consuming installation processes and changes in network infrastructure in excess of what we or our VARs are able to provide.
In addition, educational institutions that started with small pilots are committing to more complex installations and expanding to
include undergraduate classrooms, which, due to the increased size of these types of transactions, typically require a longer sales
cycle. Also, our enterprise accounts are less motivated by seasonal sales and promotions, and therefore are frequently difficult to
finalize. As a result of these factors, our sales and deployment cycles are unpredictable. Our sales and deployment cycles are also
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Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
subject to delays as a result of customer-specific factors over which we have little or no control, including budgetary constraints,
existing infrastructure technical issues and internal approval procedures, particularly with customers or potential customers that
rely on government funding.
Our products are aimed toward a broadened user base within our key markets and these products are relatively early in their
product life cycles. We cannot predict how the market for our products will develop, and part of our strategic challenge will be to
convince targeted users of the productivity, improved communications and test scores, cost savings and other benefits.
Accordingly, it is likely that delays in our sales cycles with these products will occur and this could cause significant variations in
our operating results.
Sales of some of our products have experienced seasonal fluctuations which have affected sequential growth rates for these
products, particularly in our first fiscal quarter. For example, there is generally a slowdown for sales of our products in the higher
education and corporate markets in the first fiscal quarter of each year. Seasonal fluctuations could negatively affect our business,
which could cause our operating results to fall short of anticipated results for such quarters. As such, we believe that quarter-to-
quarter comparisons of our revenues, operating results and cash flows may not be meaningful and should not be relied upon as an
indication of future performance.
We depend in part on the success of our relationships with third-party resellers and integrators.
Our success depends on various third-party relationships, particularly in our non-higher education business, with certain
international geographies and our events services operations. The relationships include third party resellers, as well as, system
integrators that assist with implementations of our products and sourcing of our products and services. Identifying partners,
negotiating and documenting relationships with them and maintaining their relationships require significant time and resources
from us. In addition, our agreements with our resellers and integrators are typically non-exclusive and do not prohibit them from
working with our competitors or from offering competing products or services. We have limited control, if any, as to whether these
strategic partners devote adequate resources to promoting, selling and implementing our products as compared to our competitor’s
products. Our competitors may be effective in providing incentives to third parties to favor their products or services. If we are
unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or
to maintain or grow our revenue could be impaired and our operating results would suffer.
We may need to make acquisitions or form strategic alliances or partnerships in order to remain competitive in our market, and
recent acquisitions, strategic alliances or partnerships, including the acquisition of Mediasite KK and Sonic Foundry
International, could be difficult to integrate, disrupt our business and dilute stockholder value.
We completed the acquisitions of Mediasite KK in Japan and MediaMission (now Sonic Foundry International) in the Netherlands
in fiscal 2014. As a result of these acquisitions, we must integrate our products, services, dispersed operations, management
systems and very different cultures. In the future, we may acquire or form strategic alliances or partnerships with other businesses
in order to remain competitive or to acquire new technologies. Acquisitions, alliances and investments involve numerous risks,
including:
● The potential failure to achieve the expected benefits of the combination or acquisition;
● Difficulties in and the cost of integrating operations, technologies, services and personnel;
● Diversion of financial and managerial resources from existing operations;
● Risk of entering new markets in which we have little or no experience or where competitors may have stronger market
positions;
● Potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired
customers;
Inability to generate sufficient revenue to offset acquisition or investment costs;
● Potential loss of key employees;
●
● The inability to maintain relationships with customers and partners of the acquired business;
● The difficulty of transitioning the acquired technology onto our existing platforms and maintaining the security standards
consistent with our other services for such technology;
● Potential unknown liabilities associated with the acquired businesses;
● Unanticipated expenses related to acquired technology and its integration into existing technology;
● Negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired
intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue and unbilled deferred
revenue;
● Delays in customer purchases due to uncertainty related to any acquisition;
● The need to implement controls, procedures and policies at the acquired company;
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Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
● Challenges caused by distance, language and cultural differences;
●
In the case of foreign acquisitions, the challenges associated with integrating operations across different cultures and
languages and currency, technological, employee and other regulatory risks and uncertainties in the economic, social and
political conditions associated with specific countries; and
● The tax effects of any such acquisitions.
Our failure to successfully manage the acquisitions of Mediasite KK and Sonic Foundry International, or other future acquisitions,
strategic alliances or partnerships could seriously harm our operating results. In addition, our stockholders would be diluted if we
finance the future acquisitions, strategic alliances or partnerships by incurring convertible debt or issuing equity securities.
Company Risks – Compliance
Our customers may use our products to share confidential and sensitive information, and if our system security is breached,
our reputation could be harmed and we may lose customers.
Our customers may use our products and services to share confidential and sensitive information, the security of which is critical
to their business. Third parties may attempt to breach our security for customer hosted content or the networks of our customers.
Malicious third-parties may also conduct attacks designed to temporarily deny customers access to our services. Customers may
take inadequate security precautions with their sensitive information and may inadvertently make that information public. We may
be liable to our customers or subject to fines for a breach in security, and any breach could harm our reputation and cause us to
lose customers. In addition, customers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions,
which could lead to interruptions, delays or loss of data. We may be required to expend significant capital and other resources to
further protect against security breaches or to resolve problems caused by any breach, including litigation-related expenses if we
are sued.
Our business is subject to changing regulations regarding corporate governance and public disclosure that will increase both
our costs and the risk of noncompliance.
As a publicly traded company we are subject to significant regulations, including the Sarbanes-Oxley Act of 2002. While we have
developed and instituted a corporate compliance program based on what we believe are the current best practices and continue to
update the program in response to newly implemented regulatory requirements and guidance, we cannot assure that we are or will
be in compliance with all potentially applicable regulations.
Although our non-affiliate market capitalization was less than $75 million at March 31, 2020 and we were therefore not required to
have an auditor attestation on our internal controls over financial reporting for fiscal 2020, SEC rules may in the future require us
to have such an attestation if our non-affiliate market capitalization exceeds a certain threshold. We have found material
weaknesses in our internal control over financial reporting in the past and cannot assure that in the future our management or our
auditors, will not find additional material weaknesses in connection with our internal control over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act. We also cannot assure that we could correct all such weaknesses to allow our management
to attest that we have maintained effective internal controls over financial reporting as of the end of our fiscal year in time to
enable our independent registered public accounting firm to attest that such assessment will have been fairly stated in our Annual
Report on Form 10-K to be filed with the Securities and Exchange Commission or attest that we have maintained effective internal
control over financial reporting as of the end of our fiscal year. If we fail to comply with any of these regulations, we could be
subject to a range of regulatory actions, fines, or other sanctions or litigation. In addition, the disclosure of any material weakness
in our internal control over financial reporting could have a negative impact on our stock price.
On June 28, 2018, the SEC adopted amendments that raise the thresholds in the smaller reporting company ("SRC") definition,
thereby expanding the number of smaller reporting companies eligible to comply with the scaled disclosure requirements in
several Regulation S-K and Regulation S-X items. On March 12, 2020, the SEC adopted an amendment that provides for a new
subset of firms with annual revenues of less than $100 million and a public float of $250 million or more, but less than $700
million, or public float of $75 million or more, but less than $250 million, regardless of annual revenues, that also qualify as
smaller reporting companies to be exempt from the requirement to have an auditor attestation on its internal controls over financial
reporting. The amended definition of a smaller reporting company, and the creation of a new subset of firms that are exempt from
the auditor attestation requirement, reduces the likelihood that the Company would be required to have auditor attestation on our
internal controls over financial reporting in future periods.
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Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Industry Risks
Economic conditions could materially adversely affect the Company.
Weakness in domestic markets and global uncertainties exist in many areas of focus for us including the United Kingdom, Japan
and the Middle East. Many of our customers rely on local, state or Federal government funding, both domestic and international.
The Japanese government provides subsidies to support higher education from time to time but has not been consistent. Any future
delay or elimination of government programs will have a negative impact on our operations in Japan. Any continuing unfavorable
economic conditions could continue to negatively affect our business operating results or financial condition, which could in turn
affect our stock price. Weak economic conditions and the resulting impact on the availability of public funds along with the
possibility of state and local budget cuts and reduced university enrollment could lead to a reduction in demand for our products
and services. In addition, a prolonged economic downturn could cause insolvency of key suppliers resulting in product delays,
inability of customers to obtain credit to finance purchases of the Company’s products and inability or delay of our channel
partners and other customers to pay accounts receivable owed to us.
Economic conditions may have a disproportionate effect on the sale of our products.
Many of our customers will look at the total A/V equipment and labor cost to outfit a typical conference room or lecture hall as
one amount for budgetary purposes. Consequently, although our products represent only a portion of the total cost, the cost of the
entire project of outfitting a room or conference hall may be considered excessive and may not survive budgetary constraints.
Alternatively, our resellers may modify their quotes to end customers by eliminating our products or substituting less expensive
products supplied by our competitors in order to win opportunities within budget constraints. Event service partners may similarly
suggest that customers eliminate recording and webcasting as a means of reducing event cost. Consequently, declines in spending
by government, educational or corporate institutions due to budgetary constraints may have a disproportionate impact on the
Company and result in a material adverse impact on our financial condition.
We could lose revenues if there are changes in the spending policies or budget priorities for government funding of colleges,
universities, schools and other education providers.
Most of our customers and potential customers are public colleges, universities, schools and other education providers who depend
substantially on government funding. Accordingly, any general decrease, delay or change in federal, state or local funding for
colleges, universities, schools and other education providers could cause our current and potential customers to reduce or delay
their purchases of our products and services, or to decide not to renew service contracts, either of which could cause us to lose
revenues. In addition, a specific reduction in governmental funding support for products such as ours would also cause us to lose
revenues. Unfavorable economic conditions may result in further budget cuts and lead to lower overall spending, including
information technology spending, by our current and potential clients, which may cause our revenues to decrease.
Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse
impact on our business, operating results and financial condition.
The U.S. government has indicated its intent to adopt a new approach to trade policy and in some cases to renegotiate, or
potentially terminate, certain existing bilateral or multi-lateral trade agreements. It has also initiated tariffs on certain foreign goods
and has raised the possibility of imposing significant, additional tariff increases or expanding the tariffs to capture other types of
goods. In response, certain foreign governments have imposed retaliatory tariffs on goods that their countries import from the U.S.
Changes in U.S. trade policy have resulted in one or more foreign governments, including China, adopting responsive trade
policies that make it more difficult or costly for us to do business in or import our products from those countries. As a result of
tariffs in China, the cost of our products has increased. Additional trade restrictions may lead to increased prices to our customers,
which may reduce demand, or, if we are unable to achieve increased prices, result in lowering our margin on products sold.
We cannot predict the extent to which the U.S. or other countries will impose quotas, duties, tariffs, taxes or other similar
restrictions upon the import or export of our products in the future, nor can we predict future trade policy or the terms of any
renegotiated trade agreements and their impact on our business. The adoption and expansion of trade restrictions, the occurrence
of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact
demand for our products, our costs, our customers, our suppliers, and the U.S. economy, which in turn could have a material
adverse effect on our business, operating results and financial condition.
Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer restrictions and other domestic
or foreign regulations may limit the use and adoption of our solutions and adversely affect our business.
Regulation related to the provision of services on the Internet is increasing, as federal, state and foreign governments continue to
adopt new laws and regulations addressing data privacy and the collection, processing, storage and use of personal information,
including health data. In some cases, foreign data privacy laws and regulations, such as the European Union’s General Data
Protection Regulation that was enacted in May 2018, and an amended Act on the Protection of Personal Information in Japan,
impose new obligations directly on us both as a data controller and a data processor, as well as on many of our customers. These
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Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
new laws may require us to make changes to our services and/or our customers to meet the new legal requirements, and may also
increase our potential liability exposure through higher potential penalties for non-compliance. Further, laws such as the European
Union’s proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes, and the
tracking of individuals’ online activities. These new or proposed laws and regulations are subject to differing interpretations and
may be inconsistent among jurisdictions. These and other requirements could reduce demand for our services, require us to take on
more onerous obligations in our contracts, restrict our ability to store, transfer and process data or, in some cases, impact our
ability to offer our services in certain locations or our customers' ability to deploy our solutions globally. For example, ongoing
legal challenges in Europe to the mechanisms allowing companies to transfer personal data from the European Economic Area to
the United States could result in further limitations on the ability to transfer data across borders, particularly if governments are
unable or unwilling to reach new or maintain existing agreements that support cross-border data transfers, such as the EU-U.S. and
Swiss-U.S. Privacy Shield framework. Additionally, certain countries have passed or are considering passing laws requiring local
data residency. In addition, domestic data privacy laws, such as the California Consumer Privacy Act (“CCPA”), which took effect
in January 2020, continue to evolve and could expose us to further regulatory burdens. Further, laws such as the European Union’s
proposed e-Privacy Regulation are increasingly aimed at the use of personal information for marketing purposes, and the tracking
of individuals’ online activities. The costs of compliance with, and other burdens imposed by, privacy laws, regulations and
standards may limit the use and adoption of our services, reduce overall demand for our services, make it more difficult to meet
expectations from or commitments to customers, lead to significant fines, penalties or liabilities for noncompliance, or slow the
pace at which we close sales transactions, any of which could harm our business.
We likely will need to acquire software and hardware in order to enhance our ability to defend and to detect intrusions to our
network infrastructure. These enhancements will be expensive and require significant staff time to deploy and develop. These risks
are mitigated, to the extent possible, by our ability to maintain and improve business and data governance policies, enhanced
processes and internal security controls, including our ability to escalate and respond to known and potential risks. Our executive
management are regularly briefed on our cyber-security policies and practices and ongoing efforts to improve security, as well as
periodic updates on cyber-security events. In addition, we update our Audit Committee at least annually regarding our processes
for evaluating and mitigating risks including cyber related risks. Although we have developed systems and processes designed to
protect our customers’ and our customers’ customers’ proprietary and other sensitive data, we can provide no assurances that such
measures will be effective.
In addition to government activity, privacy advocacy and other industry groups have established, or may establish, new self-
regulatory standards that may place additional burdens on us. Many of our customers in the European Union face increasingly
complex procurement requirements that have delayed some projects and caused us not to be successful in winning other
opportunities. If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to
provide our solutions to certain customers and could harm our business.
Our customers and potential customers do business in a variety of industries, including financial services, the public sector,
healthcare and telecommunications. Regulators in certain industries have adopted and may in the future adopt regulations or
interpretive positions regarding the use of cloud computing and other outsourced services. The costs of compliance with, and other
burdens imposed by, industry-specific laws, regulations and interpretive positions may limit customers’ use and adoption of our
services and reduce overall demand for our services.
The costs of compliance with, and other burdens imposed by laws, regulations and standards, may limit the use and adoption of
our service and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance.
Furthermore, concerns regarding data privacy may cause the users of our customers’ data to resist providing the data necessary to
allow our customers to use our service effectively. Even the perception that the privacy of personal information is not satisfactorily
protected or does not meet regulatory requirements could inhibit sales of our products or services, and could limit adoption of our
cloud-based solutions.
We face risks associated with government regulation of the internet and related legal uncertainties.
Currently, few existing laws or regulations specifically apply to the Internet, other than laws generally applicable to businesses.
Many Internet-related laws and regulations, however, are pending and may be adopted in the United States, in individual states and
local jurisdictions and in other countries. These laws may relate to many areas that impact our business, including encryption,
network and information security, and the convergence of traditional communication services, such as telephone services, with
Internet communications, taxes and wireless networks. These types of regulations could differ between countries and other
political and geographic divisions both inside and outside the United States. Non-U.S. countries and political organizations may
impose, or favor, more and different regulation than that which has been proposed in the United States, thus furthering the
complexity of regulation. Certain countries have implemented, or may implement, legislative and technological actions that either
do or can effectively regulate access to the Internet, including the ability of Internet Service Providers to limit access to specific
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Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
websites or content. In addition, state and local governments within the United States may impose regulations in addition to,
inconsistent with, or stricter than federal regulations. The adoption of such laws or regulations, and uncertainties associated with
their validity, interpretation, applicability and enforcement, may affect the available distribution channels for, and the costs
associated with, our products and services. The adoption of such laws and regulations may harm our business.
Investor Risks
The market price of our common stock may be subject to volatility.
In the past and through 2020, the trading prices of the securities of technology companies have been more volatile than the broader
market. Factors affecting the market price of our common stock include:
● Variations in our operating results, earnings per share, cash flows from operating activities, deferred revenue and other
financial metrics and non-financial metrics, and how those results compare to investor expectations;
● Our announcement of actual results for a fiscal period that are higher or lower than expected results;
● Changes in the estimates of our operating results or changes in recommendations by securities analysts that elect to follow
our common stock;
● Announcements of technological innovations, new services or service enhancements, strategic alliances or significant
agreements by us or by our competitors;
● Announcements by us or by our competitors of mergers or other strategic acquisitions, or rumors of such transactions
involving us or our competitors;
● Announcements of customer additions and customer cancellations or delays in customer purchases;
● Recruitment or departure of key personnel;
● Disruptions in our service due to computer hardware, software, network or data center problems;
● The economy, market conditions in our industry and the industries of our customers;
● The issuance of shares of common stock and preferred stock by us, whether in connection with an acquisition or a capital
raising transaction;
Issuance of debt, changes to, defaults or non-renewal of debt facilities and other convertible securities;
● Low trading volumes of our shares and inconsistent trading activity;
●
● Failure to meet OTC market requirements; and
● Any other factors discussed herein.
●
In addition, if the market for technology stocks or the stock market in general experiences uneven investor confidence, the
market price of our common stock could decline for reasons unrelated to our business, operating results or financial
condition. The market price of our common stock might also decline in reaction to events that affect other companies
within, or outside, our industry even if these events do not directly affect us.
Our common stock is subject to low trading volume and broad price swings.
Our common stock is quoted on the OTC Market (“OTC Pink Sheets”) administered by the Financial Industry Regulatory
Authority under the symbol “SOFO” since February 18, 2019. Prior to that, our common stock was traded on the OTCQB since
December 31, 2018 and before that, the NASDAQ exchange under the same symbol. Trading of our stock on the OTC Pink Sheets
has often been subject to very low volumes, broad price swings and often with no Company news.
Exercise of outstanding options and warrants will result in further dilution.
The issuance of shares of common stock upon the exercise of our outstanding options and warrants will result in dilution to the
interests of our stockholders, and may reduce the trading price of our common stock.
At September 30, 2020, we had 299 thousand outstanding warrants and 1.7 million of outstanding stock options granted under our
stock option plans, 1.4 million of which are immediately exercisable.
While nearly all outstanding warrants and options are currently priced above the market price of our common stock, dilution to the
interests of our stockholders will likely occur if or when they are exercised. Additional options and warrants may be issued in the
future at prices not less than 85% of the fair market value of the underlying security on the date of grant. Exercises of these
options, or even the potential of their exercise may have an adverse effect on the trading price of our common stock. The holders
of our options are likely to exercise them at times when the market price of the common stock exceeds the exercise price of the
securities. Accordingly, the issuance of shares of common stock upon exercise of the options will likely result in dilution of the
equity represented by the then outstanding shares of common stock held by other stockholders. Holders of our options can be
expected to exercise or convert them at a time when we would, in all likelihood, be able to obtain any needed capital on terms,
which are more favorable to us than the exercise terms provided, by these options.
23
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Provisions of our charter documents and Maryland law could also discourage an acquisition of our Company that would
benefit our stockholders and, due to our insiders control of a substantial percentage of our stock, our officers, directors, and
major stockholders will have a substantial amount of control over whether to approve or disapprove of a transaction.
Provisions of our articles of incorporation and by-laws may make it more difficult for a third party to acquire control of our
company, even if a change in control would benefit our stockholders. Our articles of incorporation authorize our board of directors,
without stockholder approval, to issue one or more series of preferred stock, which could have voting and conversion rights that
adversely affect or dilute the voting power of the holders of common stock. Furthermore, our articles of incorporation provide for a
classified board of directors, which means that our stockholders may vote upon the retention of only one or two of our five
directors each year. Moreover, Maryland corporate law restricts certain business combination transactions with “interested
stockholders” and limits voting rights upon certain acquisitions of “control shares.” In addition, even when there are no interested
stockholders involved in a transaction, Maryland law requires that a transaction involving a merger, consolidation, transfer of
assets, or share exchange, must be approved by the affirmative vote of at least two-thirds of the Company’s stockholders.
Our executive officers and directors together beneficially own, on an “as converted basis”, over 50% of our outstanding common
stock, and Mr. Burish, individually, owns nearly 42% on an as converted basis. As a result, these stockholders, if they act together
or in a block, or individually in the case of Mr. Burish, could have significant influence over most matters that require approval by
our stockholders, including the approval of significant corporate transactions, even if other stockholders oppose them. In addition,
under federal law, in many circumstances a company such as Sonic Foundry is not required to disclose that negotiations relating to
a merger or to a sale of its stock or assets are occurring until a material definitive agreement has been reached. Concentration of
ownership as described here might also have the effect of delaying or preventing a change of control of our Company that other
stockholders may view as beneficial.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal office is located in Madison, Wisconsin in a leased facility of approximately 26,000 square feet. The building serves
as our corporate headquarters, accommodating our general and administrative, product development and selling and marketing
departments. We believe this facility is adequate for our needs. The current lease term for this office expires on December 31, 2021.
The rent for the remainder of the lease period is approximately $60 thousand per month.
Our operations in Japan are managed in Tokyo, Japan in a leased facility of approximately 9,874 square feet with a term expiring on
December 31, 2021. The facility includes sales, technical and administrative functions. The rent through December 31, 2020 is
approximately $41 thousand per month. Beginning on January 1, 2021, the monthly rent will increase to approximately $55 thousand
per month.
Our European operations are managed in Utrecht, Netherlands in a leased facility of approximately 3,886 square feet with a term
expiring on January 31, 2022. The facility includes sales, technical and administrative functions. The rent for the remainder of the
lease period is approximately $5 thousand per month.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
24
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Common Stock
Our common stock was initially traded on the American Stock Exchange under the symbol “SFO,” beginning with our initial public
offering in April of 1998. On April 24, 2000, our common stock began trading on the NASDAQ Global Market under the symbol
“SOFO.” Effective September 16, 2009, we transferred the listing of our common stock to the NASDAQ Capital Market. Effective
December 31, 2018, we transferred the listing of our common stock to the OTCQB Market under the symbol "SOFO". Effective
February 18, 2019, we transferred the listing of our common stock to the OTC Pink Sheets under the symbol "SOFO". The following
table sets forth, for the periods indicated, the high and low sale prices per share of our common stock as reported on the NASDAQ
Capital Market, the OTCQB Market, and the OTC Pink Sheets.
Year Ended September 30, 2021:
First Quarter (through November 27, 2020)
Year Ended September 30, 2020:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended September 30, 2019:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividends
High
Low
3.80
1.40
3.95
5.23
4.96
1.71
1.77
1.17
1.44
2.76
0.92
1.28
2.00
3.07
0.60
0.62
0.72
0.86
The Company has not paid any cash dividends and does not intend to pay any cash dividends in the foreseeable future. The Company
is prohibited from paying any cash dividends pursuant to the terms of the loan and security agreement with Partners for Growth.
Conversion of Related-Party Debt to Equity
On March 5, 2020, the Company announced that its special committee of disinterested and independent directors retained Silverwood
Partners LLC, an investment banking firm specializing in digital media technology, to evaluate strategic alternatives for the
Company.
On April 8, 2020, the company received an offer from Mr. Mark Burish, the current Chairman of the Board, to purchase all
outstanding shares of the Company’s common stock not presently held by Mr. Burish for $5.00 per share. After concluding no other
strategic alternatives existed for the Company at that time, the Company announced on April 27, 2020 that its special committee of
disinterested and independent directors had accepted the offer from Mr. Burish.
Shortly following the announcement, however, a number of shareholders advised they were opposed to the transaction and
felt opportunities available to the company now, in view of the video-first, distance learning environment resulting from the COVID
crisis, may provide pathways to achieve greater value. Concerned that a proposal would not obtain the required shareholder approval,
the company and Mr. Burish agreed to not pursue the transaction at that time, and instead, continue to pursue other strategic
alternatives to enhance both Company and shareholder value, improve the Company’s financial position, and provide the Company
with resources to further its growth opportunities.
On May 14, 2020, the Company announced it had agreed to convert $5.6 million of existing secured debt to Mr. Burish into 1,114,723
shares of its common stock at $5.00 per share. The transaction was recommended by the Company’s special committee of
disinterested and independent directors and unanimously approved by all disinterested directors of the Company. Silverwood
Partners LLC issued a fairness opinion in connection with the transaction.
25
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
The Company relied on Section 4(a)(2) of the Securities Act of 1933, as amended, to issue the Promissory Notes and stock, inasmuch
as the director and the affiliated party both received from the Company information that registration would provide and neither the
Company nor any person acting on its behalf offered or sold the Notes or stock by any form of general solicitation or general
advertising.
Holders
At December 14, 2020, there were 227 common stockholders of record and approximately 3,000 total shareholders. Many shares
are held by brokers and other institutions on behalf of shareholders.
Equity Compensation Plan Information
Plan category
Number of
securities
to be issued
upon
exercise of
outstanding
options
Weighted
average
Number of
securities
exercise price of
outstanding
remaining
available for
options
future issuance
Equity compensation plans approved by security holders (1)
Equity compensation plans not approved by security holders (2)
Total
1,707,515 $
—
1,707,515 $
5.09
—
5.09
967,117
—
967,117
(1) Consists of the 2009 Stock Incentive Plan, Employee Incentive Stock Option Plan and the Directors Stock Option Plans. For
further information regarding these plans, reference is made to Note 5 of the financial statements.
(2) Consists of the Non-Qualified Stock Option Plan. For further information regarding this plan, reference is made to Note 5 of
the financial statements.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial and operating data were derived from our consolidated financial statements. The selected financial data set
forth below is qualified in its entirety by, and should be read in conjunction with, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our financial statements and notes thereto appearing elsewhere in this annual
report on Form 10-K (in thousands except per share data).
Statement of Operations Data:
Revenue
Cost of revenue
Gross margin
Operating expenses
Impairment of goodwill & intangible assets
Income (loss) from operations
Other income (expense), net
Interest expense, net
Benefit (provision) for income taxes
Net loss
Dividends on preferred stock
Net loss attributable to common shareholders
Basic net loss per common share
Diluted net loss per common share
$
$
$
$
$
$
2020
34,753 $
9,634
25,119
24,383
—
736
(109 )
(658 )
(148 )
(179 ) $
— $
(179 ) $
(0.02 ) $
(0.02 ) $
26
Years Ended September 30,
2018
2017
2019
34,781 $
9,280
25,501
28,009
—
(2,508 )
(117 )
(897 )
(90 )
(3,612 ) $
(122 ) $
(3,734 ) $
(0.64 ) $
(0.64 ) $
34,544 $
9,656
24,888
29,118
11,809
(16,039 )
142
(601 )
4,332
(12,166 ) $
(257 ) $
(12,423 ) $
(2.67 ) $
(2.67 ) $
36,000 $
9,867
26,133
30,091
600
(4,558 )
(65 )
(495 )
79
(5,039 ) $
(169 ) $
(5,208 ) $
(1.17 ) $
(1.17 ) $
2016
37,975
9,985
27,990
30,266
—
(2,276 )
(178 )
(594 )
(269 )
(3,317 )
—
(3,317 )
(0.76 )
(0.76 )
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Weighted average common shares:
– Basic
– Diluted
Balance Sheet Data at September 30:
Cash and cash equivalents
Working capital (deficit)
Total assets
Long-term liabilities
Stockholders’ equity (deficit)
7,216,135 5,833,301 4,655,520 4,436,333 4,389,421
7,216,135 5,833,301 4,655,520 4,436,333 4,389,421
$
2020
2019
2018
2017
2016
7,619 $
(1,488 )
22,629
5,373
(1,048 )
4,295 $
(847 )
15,180
7,602
(6,253 )
1,189 $
(5,765 )
13,583
3,451
(6,458 )
1,211 $
(4,833 )
28,356
8,147
3,118
1,794
(3,720 )
33,082
7,249
6,516
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The financial and business analysis below provides information that Sonic Foundry, Inc. (the “Company”) believes is relevant to an
assessment and understanding of the Company’s consolidated financial position and results of operations. This financial and business
analysis should be read in conjunction with the consolidated financial statements and related notes.
This report includes estimates, projections, statements relating to our business plans, objectives, and expected operating results that
are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may appear throughout
this report, including the following sections: “Management’s Discussion and Analysis,” and “Risk Factors.” These forward-looking
statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,”
“future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar
expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties
that may cause actual results to differ materially. We describe risks and uncertainties that could cause actual results and events to
differ materially in “Risk Factors” (Part 1, Item 1A of this Form 10-K), “Quantitative and Qualitative Disclosures about Market
Risk” (Part II, Item 7A of this Form 10-K), and in this Item 7. We undertake no obligation to update or revise publicly any forward-
looking statements, whether because of new information, future events, or otherwise.
Overview
Sonic Foundry, Inc. is a trusted global leader for video capture, management and streaming solutions. Trusted by educational
institutions, corporations and government entities, Mediasite Video Platform quickly and cost-effectively automates the capture,
management, delivery and search of live and on-demand streaming video. Mediasite transforms communications, training, education
and events for our customers worldwide.
Critical Accounting Policies
We have identified the following as critical accounting policies to our Company and have discussed the development, selection of
estimates and the disclosure regarding them with the audit committee of the board of directors:
• Revenue recognition, inventory reserves and allowance for doubtful accounts;
• Asset retirement obligations;
• Valuation allowance for net deferred tax assets; and
• Accounting for stock-based compensation.
Revenue recognition
We recognize revenues in accordance with Financial Accounting Standards Board ("FASB"), Accounting Standards Codification
("ASC") Topic 606, Revenue from Contracts with Customers ("ASC 606"). Recording revenues requires judgment, including
determining whether an arrangement includes multiple performance obligations, whether any of those obligations are distinct and
cannot be combined and allocation of the transaction price to each performance obligation based on the relative standalone selling
prices ("SSP"). Customers receive certain contract elements over time. Changes to the elements in an arrangement or, in our
determination, to the relative SSP for these elements, could materially affect the amount of earned and unearned revenues reflected
in our consolidated financial statements.
27
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
The primary judgments relating to our revenue recognition include determining whether (i) the contract with a customer exists; (ii)
performance obligations are identified; (iii) the transaction price is determined; (iv) the transaction price is allocated to performance
obligations; and (v) the distinct performance obligations are satisfied by transferring control of the product or service to the client.
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. Revenues from
software and hosting solutions are primarily recognized ratably over time or as fee-bearing usages occur. Certain software licenses
are sold either on-premises 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-premises software licenses is generally recognized upfront at the point in time when the software is
made available to the customer.
Our contracts with customers for on-premises 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 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 as the maintenance services are provided. 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 billed on a time and materials basis and are
recognized as the services are performed.
We also provide cloud-based subscriptions, which allow customers to access our software during a contractual period without taking
possession of the software. We recognize revenue related to these cloud-based subscriptions ratably over the life of the subscription
agreement beginning when the customer first has access to the software.
We are often party to multiple concurrent contracts or contracts pursuant to which a client may purchase a combination of goods and
services. These situations require judgment to determine whether multiple contracts should be combined and accounted for as a
single arrangement. In making this determination, we consider whether the economics of the individual contracts cannot be
understood without reference to the whole and multiple promises represent one single performance obligation.
Due to the large number, broad nature and average size of individual contracts we are a party to, the effect of judgments and
assumptions we apply in recognizing revenues for any single contract is not likely to have a material effect on our consolidated
operations. However, the broader accounting policy assumptions that we apply across similar arrangements or classes of clients
could significantly influence the timing and amount of revenues recognized in our results of operations.
Reserves
Beginning in fiscal year 2020, the Company established a hardware inventory reserve. In conjunction with a new hardware release
due in the fourth quarter, certain older models are no longer being actively sold and those units, along with their corresponding raw
materials, have been 100% reserved.
Credit Evaluation and Allowance for Doubtful Accounts
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 $236 thousand at September 30, 2020 and $661 thousand at September 30,
2019.
Asset retirement obligation
An asset retirement obligation (“ARO”) represents a legal obligation associated with the retirement of a tangible long-lived asset
that is incurred upon the acquisition, construction, development, or normal operation of that long-lived asset. The Company’s ARO
28
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
is associated with MSKK leasehold improvements that we are contractually obligated to remove at the end of a lease to comply with
the lease agreement. We recognize asset retirement obligations upon construction of leasehold improvements with such conditions
if a reasonable estimate of fair value can be made. The ARO is recorded in other noncurrent liabilities in the Consolidated Balance
Sheets. The associated estimated ARO is capitalized as part of the carrying amount of the long-lived asset and depreciated over its
useful life.
Valuation allowance for net deferred tax assets
Deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. We 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, 2020 and 2019, 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. If we are subsequently able to utilize all or a
portion of the deferred tax assets for which a valuation allowance has been established, then we will be required to recognize these
deferred tax assets through the reduction of the valuation allowance, which could result in a material benefit to our results of
operations in the period in which the benefit is determined.
Accounting for 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 homogenous 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.
All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably
measured.
Restructuring and exit activities
The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether
the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company
accounts for on-going benefit arrangements in accordance with Accounting Standards Codification 712 ("ASC 712") Nonretirement
Postemployment Benefits. According to ASC 712, involuntary termination benefits would be measured and recognized when the
expense is both probable and estimatable. For those employees who have a severance arrangement outlined under an existing
employment agreement, the communication date would be the date of hire since at that point in time, the Company and the employee
had a mutual understanding of the agreement. The measurement and recognition date of the expense would occur when the Company
is committed to the plan and it is probable the impacted employee is entitled to the termination benefit. The Company accounts for
one-time benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations. According to ASC 420, an
arrangement for one-time employee termination benefits exists at the date the plan of termination meets certain criteria and has been
communicated to employees.
29
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
RESULTS OF OPERATIONS
You should read the following discussion of our results of operations and financial condition in conjunction with our consolidated
financial statements and related notes thereto included in Item 8 of this Annual Report on Form 10-K.
Revenue
Revenue from our business includes the sale of Mediasite recorders and server software products and related services contracts, such
as customer support, installation, customization services, training, content hosting and event services. We market our products to
educational institutions, corporations and government agencies that need to deploy, manage, index and distribute video content on
Internet-based networks. We reach both our domestic and international markets through reseller networks, a direct sales effort and
partnerships with system integrators.
Revenue in both fiscal 2020 and fiscal 2019 totaled $34.8 million. Revenue consisted of the following:
• Product and other revenue from the sale of Mediasite recorder units and server software decreased from $11.6 million in fiscal
2019 to $10.3 million in fiscal 2020. Mediasite recorder revenue declined $1.1 million from fiscal 2019 to fiscal 2020. The table
below outlines units sold as well as the proportion of mobile units to rack units, which continues to widen as sales of the mobile
units decline.
Units sold
Rack to mobile ratio
Average sales price, excluding support (000’s)
Refresh Units
2020
1,114
11.9 to 1
$5.30
272
2019
1,269
8.2 to 1
$5.30
547
•
Services revenue represents the portion of fees charged for Mediasite customer support and hosting contracts amortized over
the length of the contract, typically 12 months. It also includes point in time service revenue such as installations and training,
custom development, and event services. Total services revenue increased from $23.2 million in fiscal 2019 to $24.4 million
in fiscal 2020 primarily due to increases in custom development and hosting revenues as compared to fiscal 2019.
• At September 30, 2020, $12.1 million of revenue was deferred, of which we expect to recognize $10.4 million in the next
twelve months, including approximately $4.1 million in the quarter ending December 31, 2020. At September 30, 2019, $11.5
million of revenue was deferred. The increase in deferred revenue is due to increased billings in the fourth quarter of fiscal
year 2020 compared to the same period in 2019.
• Other revenue relates to freight charges billed separately to our customers.
Gross Margin
Total gross margin in fiscal 2020 was $25.1 million or 72% compared to $25.5 million or 73% in fiscal 2019. The slight decline
year over year is attributed to the establishment of an $122 thousand obsolescence reserve for inventory as well as additional labor
costs associated with a custom development project. The Company expects the gross margin percentage to be reduced slightly in
fiscal 2021, as a result of increased costs associated with our new data center in the UK.
Operating Expenses
Selling and Marketing Expenses
Selling and marketing expenses include wages and commissions for sales, marketing and business development personnel, print and
digital advertising, tradeshows and various promotional expenses for our products. Timing of these costs may vary greatly depending
on introduction of new products and services or entrance into new markets, or participation in major tradeshows.
Selling and marketing expense decreased $1.7 million, or 12%, from $14.7 million in fiscal 2019 to $13.0 million in fiscal 2020.
Fluctuations in the major categories include:
Salary, commissions and benefits decreased by $760 thousand due to reduced headcount in the later half of 2019.
•
• Advertising and professional services decreased by $209 thousand.
30
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
• T&E decreased $691 thousand due to the impact of COVID on travel beginning in February 2020.
•
Selling and marketing expenses for Sonic Foundry International and MSKK accounted for $653 thousand and $2.6 million,
respectively in fiscal 2020, an aggregate increase of $78 thousand from the prior year.
At September 30, 2020, we had 97 employees in selling and marketing, a decrease from 117 employees at September 30, 2019. Of
the 97 employees in selling and marketing at September 30, 2020, 50 are employed by our foreign subsidiaries. We do not anticipate
an increase in selling and marketing headcount in fiscal 2021.
General and Administrative Expenses
General and administrative (“G&A”) expenses consist of personnel and related costs associated with the facilities, finance, legal,
human resources and information technology departments, as well as other expenses not fully allocated to functional areas.
G&A expenses decreased by $874 thousand, or 15%, to $5.1 million in fiscal 2020 from $5.9 million in fiscal 2019. Fluctuations in
major categories include:
• Decrease in non-severance related compensation and benefits of $347 thousand due to attrition in Q2 of fiscal 2020.
• Decrease in severance expense for executives of $93 thousand.
•
• Depreciation decreased $148 thousand compared to fiscal 2019.
• G&A expenses for Sonic Foundry International and MSKK accounted for $288 thousand and $880 thousand, respectively, in
Increase in professional fees of $207 thousand due to costs associated with the work of the special committee.
fiscal 2020, an aggregate decrease of $246 thousand from the prior year.
At September 30, 2020, we had 16 full-time employees in G&A, a decrease from 23 full-time employees at September 30, 2019. Of
the 16 employees in G&A at September 30, 2020, 5 are employed by our foreign subsidiaries. We do not anticipate an increase in
G&A headcount in fiscal 2021.
Product Development Expenses
Product development expenses include salaries and wages of the software research and development staff and an allocation of
benefits, facility and administrative expenses.
Product development expenses decreased $1.1 million, or 14%, from $7.4 million in fiscal 2019 to $6.3 million in fiscal 2020.
Fluctuations include:
• Decrease in compensation and benefits of $1.1 million due to the elimination of two senior level management positions in
fiscal 2019, as well as other attrition during late fiscal 2019 and early fiscal 2020 that was not backfilled until later in the year.
Professional services increased by $170 thousand due to the utilization of non-recurring engineering resources.
Product development expenses for Sonic Foundry International and MSKK accounted for $457 thousand and $318 thousand,
respectively, for fiscal 2020, an aggregate increase of $11 thousand from the prior year related to the subsidiaries.
•
•
At September 30, 2020, we had 48 full-time employees in product development compared to 43 employees at September 30, 2019.
Of the 48 employees in product development at September 30, 2020, 8 are employed by our foreign subsidiaries. There were no
software development efforts in fiscal 2020 or 2019 that qualified for capitalization. We do not anticipate an increase in product
development headcount in fiscal 2021.
Other Income and Expense, Net
Interest expense for fiscal 2020 decreased $239 thousand compared to fiscal 2019, mainly as a result of the Burish debt to equity
conversion in May 2020. The Company also recorded $79 thousand of interest expense during fiscal 2020 related to the accretion
of discounts on the PFG Loan and Warrant Debt compared to $74 thousand in the same period last year. In addition, the
Company recorded amortization expense related to the back-end fee on the PFG loan of $50 thousand during both fiscal 2020 and
fiscal 2019. The Company also recorded $84 thousand of interest expense through May 14, 2020 related to the accretion of discounts
on the Burish notes payable compared to $79 thousand in fiscal 2019.
Warrants were also issued in connection with the Burish note. For further details, see Note 3 - Credit Arrangements and Note 10 -
Related Party Transactions.
31
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
During fiscal 2020, a change in fair value of $57 thousand was recorded related to the fair value remeasurement on the derivative
liability associated with the PFG V Loan and Warrant Debt compared to a change in fair value of $5 thousand during fiscal 2019.
No foreign currency exchange gain or loss was recorded related to re-measurement of the subordinated notes payable related to the
Company's foreign subsidiaries in either fiscal 2020 or 2019.
Provisions Related to Income Taxes
The Company believes the valuation allowance for its deferred tax assets is appropriate. See Note 6 - Income Taxes for further
details. The repatriation of undistributed foreign earnings is not expected to result in a material change to our financial results.
Foreign Currency Translation Adjustment
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. For
the year ended September 30, 2020, the Company’s foreign currency translation adjustment was a gain of $84 thousand compared
to a gain of $130 thousand in the year ended September 30, 2019. The gain in fiscal 2020 is attributable to the continued
strengthening in the Japanese Yen and the Euro compared to the U.S. dollar.
During fiscal 2020, the Company recorded an aggregate transaction loss of $36 thousand compared to an aggregate loss of
$157 thousand during fiscal 2019. The aggregate transaction gain or loss is included in the other expense line of the consolidated
statements of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary sources of liquidity are its cash and debt and equity financing. During fiscal 2020, the Company
generated $3.4 million of cash in operating activities compared with $736 thousand of cash used in operating activities in fiscal
2019. The Company had a decrease in net loss in fiscal 2020 as compared to fiscal 2019 of $3.4 million, mainly due to cost saving
measures instituted in fiscal 2019 and continued in fiscal 2020.
Capital expenditures for property and equipment were $1.7 million in fiscal 2020 compared to $433 thousand in fiscal 2019. The
large increase is related to our new data center in the UK that went live in September 2020 as well as work in progress for our new
US data center that is expected to go live in Q2 of fiscal 2021.
The Company generated $1.7 million of cash from financing activities during fiscal 2020, primarily due to proceeds from the PPP
loan of $2.3 million, the Mediasite K.K. term debt of $463 thousand, and the Mediasite K.K. government assistance loan of
$378 thousand. The Company also received $73 thousand from the issuance of common stock. These transactions were partially
offset by debt and capital lease payments of $1.5 million. For the same period in fiscal 2019, the Company generated $4.3 million
of cash from financing activities, primarily due to proceeds from the issuance of term debt of $500 thousand with PFG V and $5.0
million with Mr. Burish. The Company also received $873 thousand from the issuance of common stock and 728,155 warrants
during Q3-2020. These transactions were partially offset by debt and capital lease payments of $1.1 million.
At September 30, 2020, there was no balance outstanding on the line of credit with Mitsui Sumitomo Bank.
At September 30, 2020, the Company had $860 thousand outstanding, net of warrant debt and debt discounts, related to notes
payable with PFG V. At September 30, 2019, the Company had $6.4 million outstanding, net of warrant debt and debt discounts,
related to notes payable with PFG V and Mr. Burish. During fiscal 2020, the Company fully converted $5.6 million of subordinated
debt due to Mr. Burish into common stock, which did not and will not require cash settlement.
At September 30, 2020 approximately $2.3 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 We
may also seek additional equity financing, or issue additional, but there are no assurances that these will be on terms acceptable to
the Company.
32
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Contractual Obligations
The following summarizes our contractual obligations at September 30, 2020 and the effect those obligations are expected to have
on our liquidity and cash flow in future periods (in thousands):
Contractual Obligations:
Product and service purchase commitments
Operating lease obligations
Capital lease obligations (a)
Notes payable (a)
Total
Less than
1 Year
Years
2-3
Years
4-5
Over
5 years
$
1,252 $
2,305
221
3,574
838 $
1,532
129
1,050
414 $
564
87
2,524
— $
140
5
—
—
70
—
—
(a) Includes fixed and determinable interest payments
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments
Pursuant to Item 305 of Regulation S-K, the Company, as a smaller reporting company, is not required to provide the information
required by this item.
Interest Rate Risk
Our cash equivalents, which consist of overnight money market funds, are subject to interest rate fluctuations, however, we believe
this risk is minimal due to the short-term nature of these investments.
At September 30, 2020, none of the Company’s $3.8 million in outstanding debt is variable rate, therefore we an increase in the level
of interest rates would not have a material impact on our Consolidated Financial Statements. We monitor our positions with, and the
credit quality of, the financial institutions that are party to any of our financial transactions.
Foreign Currency Exchange Rate Risk
The functional currency of our foreign subsidiaries in the Netherlands is the Euro and in Japan is the Japanese Yen. They are subject
to foreign currency exchange rate risk. Any increase or decrease in the exchange rate of the U.S. Dollar compared to the Euro or
Japanese Yen will impact our future operating results and financial position.
33
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 sheets of Sonic Foundry, Inc. and Subsidiaries (the “Company”) as of
September 30, 2020 and 2019, and the related statements of operations, comprehensive loss, stockholders’ equity (deficit), and
cash flows for the years ended September 30, 2020 and 2019, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material aspects, the financial
position of the Company at September 30, 2020 and 2019 and the results of its operations and its cash flows for the years ended
September 30, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company changed its method of accounting for leases for the year ended
September 30, 2020, due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842), and its related
amendments.
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 audits. 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 audits 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 audits, 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 audits 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 the significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Wipfli LLP
We have served as the Company’s auditor since 2019.
Minneapolis, Minnesota
December 22, 2020
34
Sonic Foundry, Inc.
Consolidated Balance Sheets
(in thousands, except for share and per share data)
September 30,
2020
2019
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $236 and $135
Inventories
Investment in sales-type lease, current
Capitalized commissions, current
Prepaid expenses and other current assets
Total current assets
Property and equipment:
Leasehold improvements
Computer equipment
Furniture and fixtures
Total property and equipment
Less accumulated depreciation and amortization
Property and equipment, net
Other assets:
Investment in sales-type lease, long-term
Capitalized commissions, long-term
Right-of-use assets under operating leases
Other long-term assets
Total assets
Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable
Accrued liabilities
Unearned revenue
Current portion of finance lease obligations
Current portion of operating lease obligations
Current portion of notes payable and warrant debt, net of discounts
Total current liabilities
Long-term portion of unearned revenue
Long-term portion of finance lease obligations
Long-term portion of operating lease obligations
Long-term portion of notes payable and warrant debt, net of discounts
Derivative liability, at fair value
Other liabilities
Total liabilities
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 shares issued and
outstanding, at amounts paid in
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; 7,965,325 and 6,749,359
shares issued and 7,952,609 and 6,736,643 shares outstanding
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Treasury stock, at cost, 12,716 shares
Total stockholders’ equity (deficit)
Total liabilities and stockholders’ equity (deficit)
See accompanying notes to the consolidated financial statements.
35
$
$
7,619 $
6,250
1,167
275
440
1,065
16,816
1,128
7,960
1,366
10,454
7,295
3,159
76
100
2,081
397
22,629 $
2,689
2,565
10,402
119
1,425
1,104
18,304
1,736
89
665
2,673
66
144
23,677
—
—
—
4,295
6,532
558
163
464
972
12,984
1,121
5,610
1,233
7,964
6,396
1,568
134
106
—
388
15,180
843
2,216
9,610
194
—
968
13,831
1,842
179
—
5,429
9
143
21,433
—
—
—
80
209,022
(209,519 )
(462 )
(169 )
(1,048 )
22,629 $
67
203,735
(209,340 )
(546 )
(169 )
(6,253 )
15,180
$
Sonic Foundry, Inc.
Consolidated Statements of Operations
(in thousands, except for share and per share data)
Revenue:
Product and other
Services
Total revenue
Cost of revenue:
Product and other
Services
Total cost of revenue
Gross margin
Operating expenses:
Selling and marketing
General and administrative
Product development
Total operating expenses
Income/(loss) from operations
Non-operating income (expenses):
Interest expense, net
Other expense, net
Total non-operating expenses
Loss before income taxes
Income tax provision
Net loss
Dividends on preferred stock
Net loss attributable to common stockholders
Loss per common share:
Basic net loss per common share
Diluted net loss per common share
Weighted average common shares – Basic
– Diluted
See accompanying notes to the consolidated financial statements.
Years Ended September 30,
2020
2019
10,339 $
24,414
34,753
4,430
5,204
9,634
25,119
13,025
5,055
6,303
24,383
736
(658 )
(109 )
(767 )
(31 )
(148 )
(179 ) $
—
(179 ) $
11,631
23,150
34,781
4,387
4,893
9,280
25,501
14,727
5,929
7,353
28,009
(2,508 )
(897 )
(117 )
(1,014 )
(3,522 )
(90 )
(3,612 )
(122 )
(3,734 )
(0.02 ) $
(0.02 ) $
7,216,135
7,216,135
(0.64 )
(0.64 )
5,833,301
5,833,301
$
$
$
$
$
36
Sonic Foundry, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
Net loss
Other comprehensive loss
Foreign currency translation adjustment
Comprehensive loss
See accompanying notes to the consolidated financial statements.
Years Ended September 30,
2020
2019
(179 ) $
(3,612 )
84
(95 ) $
130
(3,482 )
$
$
37
Sonic Foundry, Inc.
Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands)
Preferred Common paid-in
capital
stock
stock
deficit
Accumulated comprehensive
Treasury
stock
Total
other
Accumulated Receivable
for common
stock
issued
loss
Additional
$
1,651 $
—
51 $ 200,130 $
177
—
(205,728 ) $
—
(676 ) $
—
(26 ) $
—
(169 ) $ (4,767 )
177
—
(1,773 )
6
1,767
—
10
1,109
—
122
—
—
674
(122 )
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
(3,612 )
67 $ 203,735 $
158
—
(209,340 ) $
—
—
—
—
—
—
130
—
(546 ) $
—
—
— —
—
— 1,119
—
—
—
674
— —
26
—
26
—
—
—
130
— (3,612 )
— $
—
(169 ) $ (6,253 )
158
—
—
2
135
—
—
—
—
137
—
11
4,994
—
—
—
—
—
—
—
—
(179 )
—
84
—
—
— 5,005
—
—
—
—
84
(179 )
— $
80 $ 209,022 $
(209,519 ) $
(462 ) $
— $
(169 ) $ (1,048 )
Balance, September 30,
2018
Stock compensation
Conversion of preferred
stock
Issuance of common stock
and warrants
Warrants issued in
connection with
subordinated notes payable
Preferred stock dividends
Cancellation of receivable
for common stock issued
Foreign currency
translation adjustment
Net loss
Balance, September 30,
2019
Stock compensation
Issuance of common stock
and warrants
Common stock issued for
extinguishment of related-
party debt
Foreign currency
translation adjustment
Net loss
Balance, September 30,
2020
$
$
See accompanying notes to the consolidated financial statements.
38
Sonic Foundry, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of other intangibles
Depreciation and amortization of property and equipment
Loss on sale of fixed assets
Provision for doubtful accounts - including financing receivables
Provision for inventory reserve
Loss on extinguishment of related party debt for equity
Stock-based compensation expense related to stock options and warrants
Stock issued for board of director's fees
Deferred loan interest to related party
Remeasurement loss (gain) on derivative liability
Changes in operating assets and liabilities:
Accounts receivable
Financing receivables
Inventories
Investment in sales-type lease
Capitalized commissions
Prepaid expenses and other current assets
Right-of-use assets under operating leases
Operating lease obligations
Other long-term assets
Accounts payable and accrued liabilities
Other long-term liabilities
Unearned revenue
Net cash provided by (used in) operating activities
Investing activities
Purchases of property and equipment
Net cash used in investing activities
Financing activities
Proceeds from notes payable
Proceeds from lines of credit
Payments on notes payable
Payments on lines of credit
Payments of debt issuance costs
Proceeds from issuance of common stock
Payments on capital lease and financing arrangements
Net cash provided by financing activities
Changes in cash and cash equivalents due to changes in foreign currency
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Years Ended
September 30,
2020
2019
$
(179 ) $
(3,612 )
231
889
—
111
122
26
158
63
317
57
268
—
(729 )
(48 )
30
(57 )
492
(528 )
—
1,503
(2 )
617
3,341
(1,736 )
(1,736 )
3,157
—
(1,358 )
—
—
73
(202 )
1,670
49
3,324
4,295
7,619 $
307
970
8
116
—
—
177
246
259
(8 )
950
293
472
120
123
15
—
—
—
(204 )
(68 )
(900 )
(736 )
(433 )
(433 )
5,500
9,199
(833 )
(10,098 )
(110 )
873
(250 )
4,281
(6 )
3,106
1,189
4,295
$
39
Sonic Foundry, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Interest paid
Income taxes paid, foreign
Non-cash financing and investing activities:
Property and equipment financed by finance lease or accounts payable
Debt discount and warrant
Preferred stock dividend paid in additional shares
Conversion of preferred shares to common shares
Common stock issued for extinguishment of related party debt
See accompanying notes to the consolidated financial statements.
$
148 $
154
724
—
—
—
5,005
618
99
186
679
122
1,773
—
40
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
1. Basis of Presentation and Significant Accounting Policies
Business
Sonic Foundry, Inc. (the Company) is in the business of providing video enterprise solutions and services for the digital-first, distance
learning and corporate 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. 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 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,
and events services. 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 dealers, 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
41
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
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
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.
2.
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.
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
later.
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 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
42
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
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.
Concentration of Credit Risk and Other Risks and Uncertainties
As of September 30, 2020, of the $7.6 million in cash and cash equivalents, $5.3 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 $2.3 million of cash and cash equivalents is held by our foreign subsidiaries in financial institutions in Japan and the
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 2020, the Company recorded an aggregate transaction loss of $36 thousand compared to an aggregate loss of
$157 thousand during fiscal 2019. 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 $236 thousand at September 30, 2020 and $661 thousand at September 30,
2019.
Currently the majority 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, 2020 and 2019, this supplier represented 33% and 31%, respectively, of total
accounts payable. We also license technology from third parties that is embedded in our software. We believe there are alternative
43
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
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
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.
Amounts receivable of $526 thousand at September 30, 2019 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 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 September 30, 2019.
During fiscal year 2020, it was determined that the financing receivable would not be collected. Therefore, both the financing
receivable of $526 thousand and the corresponding reserve of $526 thousand were written off.
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, 2020:
Investment in sales-type lease, gross:
2021
2022
Gross investment in sales-type lease
Less: Unearned income
Total investment in sales-type lease
Current portion of total investment in sales-type lease
Long-term portion of total investment in sales-type lease
44
$
$
$
$
276
76
352
(1 )
351
275
76
351
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
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):
Raw materials and supplies
Finished goods
Less: Obsolescence reserve
Inventories
Software Development Costs
September 30,
2020
2019
$
$
267 $
1,022
(122 )
1,167 $
163
395
—
558
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:
Leasehold improvements
Computer equipment
Furniture and fixtures
Depreciation expense is not included in cost of good sold.
Impairment of Long-Lived Assets
Years
(In Years)
5 to 15
1.5 to 5
3 to 15
Long-lived assets 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, 2020, the Company has recorded a liability of $134 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):
Asset retirement obligation at September 30, 2018
Accretion expense
Foreign currency changes
$
121
2
6
45
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Asset retirement obligation at September 30, 2019
Accretion expense
Foreign currency changes
Asset retirement obligation at September 30, 2020
Comprehensive Loss
129
2
3
134
$
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
$395 thousand and $444 thousand for years ended September 30, 2020 and 2019, respectively.
Research and Development Costs
Research and development costs represent product development and 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, 2020 and 2019, 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
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.
46
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
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):
September 30, 2020
Derivative liability
September 30, 2019
Derivative liability
Level 1
$
— $
Level 2
Level 3
66 $
Level 1
$
— $
Level 2
Level 3
9 $
Fair Value
66
— $
Total
Fair Value
9
— $
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 approximated 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 was being amortized over the life of the related debt until
the May 2020 Burish debt to equity conversion.
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 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, 2020 or 2019.
47
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
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:
Expected life (years)
Risk-free interest rate
Expected volatility
Expected forfeiture rate
Expected exercise factor
Expected dividend yield
Preferred Stock and Dividends
Years Ending September 30,
2020
4.5 - 4.8
2019
4.3 - 4.5
0.24% - 1.63% 1.43% - 2.93%
72.40% -
82.38%
12.76% -
15.38%
1.2
—
%
60.19% -
70.63%
13.51% -
14.79%
1.2
—
%
The Company considered relevant guidance when accounting for the issuance of preferred stock, and determined that the preferred
shares met 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:
Denominator for basic earnings (loss) per share
-weighted average common shares
Effect of dilutive options and warrants (treasury method)
Denominator for diluted earnings (loss) per share
-adjusted weighted average common shares
Options and warrants outstanding during each year, but not included in the computation of
diluted earnings (loss) per share because they are antidilutive
Liquidity
Years Ending
September 30,
2020
2019
7,216,135
—
5,833,301
—
7,216,135
5,833,301
2,006,073
2,024,589
At September 30, 2020 approximately $2.3 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.
48
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
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. We
may also seek additional equity financing, but there are no assurances that these will be on terms acceptable to the Company.
Restructuring and exit activities
The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether
the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company
accounts for on-going benefit arrangements, such as those documented by employment agreements, in accordance with Accounting
Standards Codification 712 ("ASC 712") Nonretirement Postemployment Benefits. Under ASC 712, liabilities for postemployment
benefits are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company
accounts for one-time employment benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations. When
applicable, the Company records such costs into operating expense.
During the year ended September 30, 2020, the Company expensed involuntary termination benefits of $705 thousand under ASC
712, compared to $1.0 million in the same period last year.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes",
("ASU 2019-12"). The amendments in this ASU affect entities within the scope of Topic 740. For public business entities, the
amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years
beginning after December 15, 2021. Early adoption of the amendments is permitted, including adoption in any interim period for
public entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the
amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim
period. An entity that elects early adoption much adopt all the amendments in the same period. 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
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", ("ASU 2016-02") as well as several other related updates
which were codified as ASC 842. On October 1, 2019, we adopted this update using the modified retrospective method through a
cumulative-effect adjustment. The reported results for the fiscal year ended September 30, 2020 reflect the application of Topic 842,
while the comparative information has not been restated and continues to be reported under the related lease accounting standards
in effect for those periods. The adoption of this update represents a change in accounting principle and resulted in the recognition of
right-of-use assets and lease liabilities of $2.5 million on October 1, 2019. We elected the package of practical expedients, which
permits us to leverage our prior conclusions about lease identification, lease classification and initial direct costs incurred. We also
elected the practical expedient to combine lease and non-lease components when determining the value of right-of-use assets and
lease liabilities. The primary effect of adopting this update relates to the recognition of our operating leases on our consolidated
balance sheets and providing additional disclosures about our leasing activities. Leases previously designated as capital leases are
now identified as finance leases and continue to be reported on the consolidated balance sheets. Leases previously identified as sales-
type leases, where the Company is a lessor, continue to be reported on the consolidated balance sheets. Refer to Note 2 -
Commitments for additional disclosures related to our leasing activities.
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 adoption of ASU 2018-07 did not have a material
impact on the total non-cash expense associated with nonemployee stock option grants issued during fiscal year 2020.
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
49
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, and the adoption of ASU 2018-
13 did not have a material impact on the Company's consolidated financial statements.
2. Commitments
Leases
The Company has operating leases for corporate office space with various expiration dates. Our leases have remaining lease terms
of up to three years, some of which include escalation clauses, renewal options for up to twelve years or termination options within
one year.
We determine if an arrangement is a lease upon contract inception. The Company has both operating and finance leases. Right-of-
use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease
payments according to the arrangement.
A contract contains a lease if the contract conveys the right to control the use of the identified property, plant or equipment for a
period of time in exchange for consideration. At commencement, contracts containing a lease are further evaluated for classification
as an operating or finance lease where the Company is a lessee, or as an operating, sales-type or direct financing lease where the
Company is a lessor, based on their terms.
Lease right-of-use assets and lease liabilities are recognized as of the commencement date based on the present value of the lease
payments over the lease term. The lease right-of use asset is reduced for tenant incentives and includes any initial direct costs
incurred. We use the implicit rate when it is readily determinable. Otherwise, the present value of future minimum lease payments
is determined using the Company's incremental borrowing rate. The incremental borrowing rate is based on the interest rate of the
Company's most recent borrowing.
The lease term we use for the valuation of our right-of-use assets and lease liabilities may include options to extend or terminate the
lease when it is reasonably certain that we will exercise those options. Lease expense is recognized on a straight-line basis over the
expected lease term for operating leases. Amortization expense of the right-of-use asset for finance leases is recognized on a straight-
line basis over the lease term and interest expense for finance leases is recognized based on the incremental interest rate.
Right-of-use assets and lease liabilities are recognized for our leases. Right-of-use assets under finance leases are included in property
and equipment on the consolidated balance sheets and have a net carrying value of $191 thousand at September 30, 2020.
We have operating lease arrangements with lease and non-lease components. The non-lease components in our arrangements are not
significant when compared to the lease components. For all operating leases, we account for the lease and non-lease components as
a single component.
As of September 30, 2020, future maturities of operating and finance lease liabilities for the fiscal years ended September 30 are as
follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total
Less: imputed interest
Total
$
$
50
Operating
Leases
Finance Leases
129
79
8
5
—
—
221
(13 )
208
1,531 $
464
100
106
34
70
2,305
(215 )
2,090 $
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Effect of Adopting ASC 842
Opening Balance Sheet Adjustment on October 1, 2019
As a result of applying the modified retrospective method to adopt ASC 842, the following amounts on our consolidated balance
sheet were adjusted as of October 1, 2019 to reflect the cumulative effect adjustment to the opening balance sheet (in thousands):
As reported
September 30,
2019
ASC 842
adoption
Adjusted
adjustments
October 1, 2019
2,533
17,713
2,533
2,533 $
Right-of-use assets under operating leases
Total assets
Current portion of operating lease obligations
Accrued liabilities
Total current liabilities
Long-term portion of operating lease obligations
Total liabilities
$
$
$
—
15,180 $
— $
2,216
13,831
—
21,433 $
1,314 $
(44 )
1,270
1,263
2,533 $
1,314
2,172
15,101
1,263
23,966
Supplemental information related to leases is as follows (in thousands, except lease term and discount rate):
Operating lease costs
Variable operating lease costs
Total operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Total finance lease cost
Fiscal Year
Ended
September 30,
2020
$
$
$
$
1,383
37
1,420
186
21
207
Variable lease costs include operating costs for U.S. office lease based on square footage and Consumer Price Index ("CPI") rent
escalation and related VAT for office lease in the Netherlands.
Supplemental cash flow information related to operating and finance leases were as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases
Operating cash outflows for finance leases
Financing cash outflows for finance leases
Other information related to leases was as follows:
Weighted average remaining lease term (in years)
Operating leases
Finance leases
Weighted average discount rate
51
Fiscal Year
Ended
September 30,
2020
$
1,387
21
201
September 30,
2020
2.3
1.9
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
9.11 %
8.65 %
Operating leases
Finance leases
Other Commitments
The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product for
hardware inventory, as well as services to support our hosting environment, which are not recorded on the Company’s
Consolidated Balance Sheet. At September 30, 2020, the Company has an obligation to purchase $543 thousand of Mediasite
product and $295 thousand of services during fiscal year 2021, and $414 thousand in services during fiscal 2022 and 2023.
3. Credit Arrangements
Partners for Growth V, L.P.
On May 11, 2018, Sonic Foundry, Inc., entered into a Loan and Security Agreement (the “2018 Loan and Security Agreement”)
with Partners for Growth V, L.P. (“PFG V”).
The 2018 Loan and Security Agreement 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 was 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, 2020 and 2019, the estimated fair value of the derivative liability associated with the warrants issued in connection
with the 2018 Loan and Security Agreement, was $66 thousand and $9 thousand, respectively. Included in other expense, the
remeasurement loss on the derivative liability was $57 thousand for fiscal year 2020 compared to a remeasurement gain of $8 during
fiscal 2019. The primary reason for the year over year change is due to an increase in stock price during fiscal 2020.
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 original carrying values
of $2.3 million and $156 thousand, respectively. The warrant debt is treated together as a debt discount on the PFG V Debt and is
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 2020, the Company recorded accretion of discount expense associated with the warrants issued
with the PFG V loan of $23 thousand compared to $20 thousand in fiscal 2019, as well as $56 thousand related to amortization of
the debt discount in fiscal 2020 compared to $54 thousand in fiscal 2019. At September 30, 2020, the carrying values of the PFG V
Debt and the Warrant Debt (inclusive of its conversion feature) were $794 thousand and $172 thousand, respectively. 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. 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 2020, the
Company recorded interest expense of $50 thousand associated with recognition of the back-end fee compared to $50 thousand in
fiscal 2019.
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 2020, we recorded $22 thousand of non-cash interest gain related to the effective interest rate
on the PFG V loan compared to $77 thousand interest expense in fiscal 2019.
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;
52
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
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, 2020, the Company was in compliance with all covenants per in
the 2018 Loan and Security Agreement, as modified.
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 existing terms of the PFG loan in terms of amortization, interest rate, payment schedule and maturity date were unchanged.
At September 30, 2020, a gross balance of $667 thousand 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, 2019, a gross balance of $1.7 million was outstanding with PFG
V.
Initial Notes of the February 28, 2019 Burish 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.
53
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
The Subordinated Promissory Notes accrued 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, was set to mature on February 28, 2024 (the "Maturity Date"). Principal installments of $100,000
were to begin monthly on August 31, 2020 and continue through the Maturity Date. The Note Purchase Agreement dated February
28, 2019 was subordinated to the existing PFG loan.
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 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 was treated together as a debt discount on the Subordinated
Notes Payable and was accreted to interest expense under the effective interest rate method over the five-year term of the
Subordinated Notes Payable. During fiscal 2020, the Company recorded accretion of discount expense associated with the
Subordinated Promissory Notes of $87 thousand compared to $79 thousand in fiscal 2019.
May 13, 2020 Debt Conversion Agreement
On May 13, 2020, the Company entered into a debt conversion agreement with Mr. Burish to convert all outstanding debt owed to
Mr. Burish into common stock at a conversion price of $5.00 per share. The net carrying value of $5.0 million, including principal
and accrued interest of $5.6 million less debt discount and loan origination fees of $596 thousand, was converted into 1,114,723
shares of common stock. The debt conversion was treated as a debt extinguishment and resulted in a net loss of $26 thousand.
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.
Paycheck Protection Program (PPP) Loan Dated April 20, 2020
Following the approval of the Board of Directors, the Company and First Business Bank entered into a $2.3 million Promissory
Note (the "Promissory Note") under the Paycheck Protection Program (PPP) contained within the new Coronavirus Aid, Relief,
and Economic Security (CARES) Act. The PPP loan has a term of two years for those companies receiving loan proceeds prior to
June 5, 2020, is unsecured, and is guaranteed by the U.S. Small Business Administration ("SBA"). The loan carries a fixed interest
rate of 1% per annum. Under the terms of the CARES Act, the Company will be eligible for and intends to apply for forgiveness
of all loan proceeds used for payroll costs, rent, utilities, and other qualifying expenses during the eight-week or twenty-four week
period ("covered period") following receipt of the loan, provided the Company maintains its employment and compensation within
certain parameters during such period, and provided further that not more than 40% of the amount forgiven can be attributable to
non-payroll costs. The Company must apply for forgiveness within 10 months from the end of the covered period. First Business
Bank will then have 60 days to review the application and submit it to the SBA, and the SBA will have 90 days from receipt of the
application to review and render a decision back to the lender. If the borrower does not apply for loan forgiveness within the 10
month time frame, or if the SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no
longer deferred and the borrower must begin paying principal and interest. If this occurs, the lender must notify the borrower of
the amount and the date the first payment is due. As of September 30, 2020, the Company has $193 thousand in short-term notes
payable as well as $2.1 million in long-term notes payable. As of September 30, 2020, the Company has accrued $10 thousand of
accrued interest. The company intends to apply for full forgiveness before December 31, 2020.
Other Indebtedness
On January 30, 2020, Mediasite K.K. entered into a Term Loan ("Term Loan") with Sumitomo Mitsui Banking Corporation for $460
thousand in cash. The Term loan accrues interest at an annual rate of 1.475%. Beginning in January 2020, principal is due in 12
equal monthly installments, plus accrued interest, continuing through December 30, 2020, when the principal balance will be paid
in full.
54
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
At September 30, 2020, $118 thousand was outstanding on the term loan with Mitsui Sumitomo Bank.
At September 30, 2020 and September 30, 2019, no balance was outstanding on the line of credit with Mitsui Sumitomo Bank. The
credit facility is related to Mediasite K.K., and accrues interest at an annual rate of approximately one-and-one half percent (1.575%).
The available line of credit at September 30, 2020 was $474 thousand and matures on March 1, 2021.
On August 20, 2020, Mediasite K.K. and Sumitomo Mitsui Banking Corporation entered into a $379 thousand Promissory Note
under an initiative by the Japanese Finance Corporation government institution in response to the Cabinet Decision entitled
"Emergency Economic Measures to Cope With COVID-19." Extending financial relief to organizations impacted by COVID-19,
the loan has a term of three years and carries a fixed interest rate of 0.46% per annum. Government subsidies provided through the
Japanese Finance Corporations will provide interest relief throughout the term of the loan. In addition, the loan agreement includes
a three year grace period with principal payments deferred through the end of the loan, which is September 30, 2023. As of September
30, 2020 the full amount of the loan has been included in long-term notes payable.
In the years ended September 30, 2020 and 2019, 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.
The annual principal payments on the outstanding notes payable are as follows:
Fiscal Year (in thousands)
2021
2022
2023
2024
2025
Thereafter
Total principal payments
Plus: Discount on notes payable and debt issuance costs
Total notes payable, net of discount
4. Balance Sheet
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the following (in thousands):
Prepaid expenses
Prepaid insurance
Other current assets
Total
$
$
978
1,158
1,344
—
—
—
3,480
297
3,777
September 30,
2020
2019
$
$
873 $
157
35
1,065 $
855
89
28
972
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 2020 and did not recur
at the current balance sheet date.
55
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Accrued Liabilities
Accrued liabilities consists of the following (in thousands):
Accrued compensation
Accrued expenses
Accrued interest & taxes
Other accrued liabilities
Total
September 30,
2020
2019
$
$
1,939 $
289
316
21
2,565 $
1,419
480
269
48
2,216
The Company accrues expenses as they are incurred. Accrued compensation includes wages, vacation, commissions, bonuses, and
severance. Accrued expenses is mainly related to professional fees and amounts owed to suppliers. Other accrued liabilities is made
up of employee-related expenses.
Prior Year Receivables and Contract Liabilities
Following the adoption of ASC 606 on October 1, 2018, the opening balance for accounts receivable was $7.4 million and total
customer contract liabilities were $12.3 million.
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:
Shares available for grant at September 30, 2018
Options granted
Options forfeited
Shares available for grant at September 30, 2019
Options granted
Options forfeited
Shares available for grant at September 30, 2020
Qualified
Employee
Director
Stock Option Stock Option
Plans
Plans
695,759
(218,850 )
536,292
1,013,201
(228,750 )
127,166
911,617
43,500
(10,500 )
12,000
45,000
—
10,500
55,500
There are additional non-shareholder approved plans with no shares available for grant at September 30, 2020.
56
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
The following table summarizes information with respect to outstanding stock options under all plans:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Exercisable at end of year
Weighted average fair value of options granted during the year
Years Ended September 30,
2020
Weighted
Average
Exercise
2019
Weighted
Average
Exercise
Options
1,654,429 $
228,750
(37,998 )
(137,666 )
1,707,515 $
1,367,618
0.84
$
Price
Options
5.62 2,029,741 $
229,350
1.86
—
1.53
6.82
(604,662 )
5.09 1,654,429 $
1,297,315
0.28
$
Price
7.04
0.73
—
8.53
5.62
The weighted-average remaining contractual life of exercisable shares is 3.6 years.
The options outstanding at September 30, 2020 have been segregated into three ranges for additional disclosure as follows:
Options Outstanding
Weighted
Options
Outstanding Average
Options Exercisable
Weighted Options
Weighted
Exercise Prices
$0.66 to $4.88
5.00 to 9.81
$10.00 to $15.00
Remaining Average
Average
at
September
30,
2020
1,002,039
554,516
150,960
1,707,515
Contractual Exercise
Life
Price
5.60 $
3.34
2.46
Exercisable
at
September
30,
2020
662,142 $
554,516
150,960
1,367,618
2.58
7.87
11.30
Exercise
Price
2.13
7.87
11.30
As of September 30, 2020, there was $154 thousand of total unrecognized compensation cost related to non-vested stock-based
compensation, with total forfeiture adjusted unrecognized compensation costs of $122 thousand. The cost is expected to be
recognized over a weighted-average life of 1.7 years. 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.
A summary of the status of the Company’s non-vested shares under all plans at September 30, 2020 and for the year then ended is
presented below:
Non-vested options at October 1, 2018
Granted
Vested
Forfeited
Non-vested options at September 30, 2019
Granted
Vested
Forfeited
Non-vested options at September 30, 2020
57
Weighted
Average
Grant Date
Fair Value
Options
680,720 $
229,350
(508,998 )
(43,958 )
357,114
228,750
(219,966 )
(26,001 )
339,897 $
1.46
0.28
1.46
1.06
0.77
0.84
1.12
0.54
0.60
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
Stock-based compensation recorded in the year ended September 30, 2020 was $158 thousand. Stock-based compensation recorded
in the year ended September 30, 2019 was $177 thousand. Cash received from exercises under all stock option plans and warrants
for the year ended September 30, 2020 and 2019 was $58 thousand and $859 thousand, respectively. There were no tax benefits
realized for tax deductions from option exercises for the years ended September 30, 2020 and 2019. 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 9,440 shares are available to be issued under the plan at September 30, 2020.
There were 16,227 and 22,200 shares purchased by employees during fiscal 2020 and 2019, respectively. The Company recorded
stock compensation expense under this plan of $2 thousand and $1 thousand during fiscal 2020 and 2019, respectively. Cash received
from issuance of stock under this plan was $17 thousand and $12 thousand during fiscal 2020 and 2019, 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
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, 2020 and 2019, an aggregate total of 4,500 shares were authorized,
respectively. Holders of the Preferred Stock, Series A will receive monthly dividends at an annual rate of 9%, payable in additional
shares of Preferred Stock, Series A. Dividends declared on the preferred stock were earned monthly as additional shares and
accounted for as a reduction to paid-in capital since the Company is currently in an accumulated deficit position. Each share of
Preferred Stock, Series A was convertible into that number of shares of common stock determined by dividing $4.23 into the
liquidation amount.
The Company considered relevant guidance when accounting for the issuance of preferred stock, and determined that the preferred
shares meet the criteria for equity classification. Dividends accrued on preferred shares have been shown as a reduction to net income
(or an increase in net loss) for purposes of calculating earnings per share
On November 9, 2017, Mr. Burish, a director of the Company who beneficially owns more than 5% of the Company's common
stock, purchased $500 thousand of shares of Preferred Stock, Series A, at $762.85 per share. On November 15, 2018, 718 shares of
Preferred Stock Series A was automatically converted by the Company into 169,741 shares of common stock.
On May 17, 2019, 2,080 shares of Preferred Stock Series A owned by Mr. Burish were automatically converted by the Company
into 491,753 shares of common stock. The amount of shares converted represents all preferred shares issued, including related
dividends.
A total of zero shares of Preferred Stock, Series A were issued and outstanding as of September 30, 2020 and 2019, respectively.
58
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
6. Income Taxes
Provision for income taxes consists of the following (in thousands):
Current income tax expense U.S.
Current income tax expense foreign
Deferred income tax provision
Provision for income taxes
U.S. and foreign components of loss before income taxes were as follows (in thousands):
U.S.
Foreign
Loss before income taxes
Years Ended September 30,
2020
2019
— $
97
51
148 $
—
67
23
90
Years Ended September 30,
2020
2019
(184 ) $
153
(31 ) $
(3,576 )
54
(3,522 )
$
$
$
$
The reconciliation of income tax expense (benefit) computed at the appropriate country specific rate to income tax benefit is as
follows (in thousands):
Income tax benefit at statutory rate
State income tax expense (benefit)
Foreign tax activity
Permanent differences, net
Change in valuation allowance
Return to provision true-up
Other
Income tax expense
Years Ended September 30,
2020
2019
$
$
(39 ) $
148
97
538
(632 )
—
36
148 $
(751 )
(198 )
67
44
1,569
(1,053 )
412
90
The significant components of the deferred tax accounts recognized for financial reporting purposes are as follows (in thousands):
Deferred tax assets:
Net operating loss and other carryforwards
Common stock options
Unearned revenue
Interest expense limitation
Other
Total deferred tax assets
Deferred tax liabilities:
Other
Total deferred tax liabilities
Net deferred tax asset
Valuation allowance
Net deferred tax asset
September 30,
2020
2019
$
$
20,069 $
958
446
457
433
22,363
(339 )
(339 )
22,024
(21,981 )
43 $
25,347
946
477
262
544
27,576
(97 )
(97 )
27,479
(27,443 )
36
The Company has a $43 thousand and $36 thousand deferred tax asset at September 30, 2020 and 2019, 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.
59
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
At September 30, 2020, the Company had net operating loss carryforwards of approximately $79 million for U.S. Federal and $57
million for state tax purposes. For Federal tax purposes, the carryforwards expire in varying amounts through 2037. For state tax
purposes, the carryforwards expire in varying amounts between 2020 and 2039. 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 before utilization. In
addition, the Company had research and development tax credit carryforwards of approximately $165 thousand, which expired 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 2020 and
fiscal 2019, 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, 2020, 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, 2020, 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.
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 Consolidated Balance Sheets at
September 30, 2020 or September 30, 2019 and has not recognized any interest or penalties in the Consolidated Statements of
Operations for either of the years ended September 30, 2020 or 2019.
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.
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 $428 thousand and $444 thousand during the years ended September 30, 2020 and 2019,
respectively. The Company made no additional discretionary contributions during 2020 or 2019.
8. Revenue
Disaggregation of Revenues
60
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
The following table summarizes revenues from contracts with customers for the twelve months ended September 30, 2020 and 2019,
respectively, (in thousands):
Fiscal Year Ended September 30, 2020
SOFO
SFI
MSKK
Eliminations
Total
Revenue:
Hardware
Software
Shipping
Product and other total
Support
Hosting
Events
Installs and training
Services total
$
5,452 $
3,201
218
8,871
7,638
4,934
3,533
1,655
17,760
718 $
456
9
1,183
603
623
121
21
1,368
759 $
704
—
1,463
1,965
1,375
2,250
390
5,980
(612 ) $
(566 )
—
(1,178 )
(694 )
—
—
—
(694 )
6,317
3,795
227
10,339
9,512
6,932
5,904
2,066
24,414
Total revenue
$
26,631 $
2,551 $
7,443 $
(1,872 ) $
34,753
Fiscal Year Ended September 30, 2019
SOFO
SFI
MSKK
Eliminations
Total
Revenue:
Hardware
Software
Shipping
Product and other total
Support
Hosting
Events
Installs and training
Services total
$
6,710 $
3,316
840
10,866
7,717
4,258
3,785
258
16,018
598 $
417
5
1,020
672
544
167
25
1,408
950 $
542
—
1,492
2,137
1,649
2,741
—
6,527
(808 ) $
(430 )
(509 )
(1,747 )
(803 )
—
—
—
(803 )
7,450
3,845
336
11,631
9,723
6,451
6,693
283
23,150
Total revenue
$
26,884 $
2,428 $
8,019 $
(2,550 ) $
34,781
Transaction price allocated to future performance obligations
As of September 30, 2020, the aggregate amount of the transaction price that is allocated to our future performance obligations was
approximately $4.1 million in the next three months compared to $4.0 million last year, $10.4 million in the next twelve months
compared to $9.6 million last year , and the remaining $1.7 million thereafter compared to $1.8 million last year.
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, 2020, revenues recognized
61
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
related to the amount included in the unearned revenues balance at the beginning of the period was $9.9 million compared to $10.3
million at September 30, 2019.
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, 2020,
amortization expense recognized related to the amount included in the capitalized commissions at the beginning of the period was
$491 thousand compared to $593 thousand at September 30, 2019.
9. Related-Party Transactions
The Company incurred fees of $424 thousand and $316 thousand during the years ended September 30, 2020 and 2019, 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 $36 thousand and $30 thousand at September 30, 2020 and 2019, respectively.
Coincident with a retirement and transition agreement, the Company agreed to cancel a loan outstanding with an executive and the
remaining balance of $26 thousand was fully written off as of September 30, 2020.
On May 13, 2020, the Company entered into a debt conversion agreement with Mr. Burish to convert all outstanding debt owed to
Mr. Burish into common stock at a conversion price of $5.00 per share. The total debt amount, including accrued interest and fees,
of $5.6 million was converted into 1,114,723 shares of common stock. The transaction was recommended by the Company's Special
Committee of Independent and Disinterested Directors and unanimously approved by all disinterested directors of the
Company. Silverwood Partners, the Special Committee's financial advisor, issued a fairness opinion in connection with the
transaction.
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.
10. 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, 2020 and 2019.
The following summarizes revenue and long-lived assets by geographic region (in thousands):
United States
Europe and Middle East
Asia
Other
Total
11. Legal Proceedings
Revenues
Years Ended
September 30,
2020
2019
Long-Lived Assets
September 30,
2020
2019
$
$
18,714 $
7,245
7,714
1,080
34,753 $
19,680 $
5,718
7,822
1,561
34,781 $
3,412 $
1,447
1,449
—
6,308 $
1,778
475
1,307
—
3,560
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, 2020,
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.
62
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
12. Impacts of COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which
has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines,
shelter-in-place orders, and business limitations and shutdowns. While we are unable to accurately predict the full impact that
COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties,
including the duration, severity and impact of the pandemic and containment measures, our compliance with these measures has
impacted our day-to-day operations and could disrupt our business and operations, as well as those of our key business partners,
vendors and other counterparties for an indefinite period of time. To support the health and well-being of our employees, business
partners and communities, a vast majority of our employees have been working remotely since mid-March 2020 and continue to do
so for the foreseeable future.
COVID-19 has had negative impacts on our operations and the future impacts of the pandemic and any corresponding economic
results are largely unknown and rapidly evolving. Beginning in March and continuing through our fiscal year and beyond, the events
portion of our business was and continues to be significantly impacted by cancellations and/or postponements due to social distancing
protocols enacted to stem the spread of the virus. In addition, the closure of educational institutions globally and the negative
financial impact on their funding, could impact our sales in the upcoming quarters. While the virus has increased awareness of the
need for distance learning tools and the adoption of video as a necessary communication medium, it is impossible for us to predict
with confidence the long-term financial impact on our business including results of operations and liquidity.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Based on evaluations at September 30, 2020, our principal executive officer and principal financial officer, with the participation of
our management team, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 (e) and
15d-15 (e) under the Securities Exchange Act). Disclosure controls and procedures ensure that information required to be disclosed
by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC, and that material information relating to the Company is accumulated
and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to
allow timely decisions regarding required disclosures. Based on this evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.
Limitations on the effectiveness of Controls and Permitted Omission from Management’s Assessment
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human
error and the circumvention or overriding of controls. Accordingly, even effective internal controls can only provide reasonable
assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is
defined in Exchange Act Rules 13a-15(f).
Under the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
the 2013 Internal Control- Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “2013 COSO Framework”) on May 14, 2013. The 2013 COSO Framework outlines the 17 underlying principles
63
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
and the following fundamental components of a company’s internal control: (i) control environment, (ii) risk assessment, (iii) control
activities, (iv) information and communication, and (v) monitoring. The 2013 Framework was adopted in the fiscal year ended
September 30, 2015.
Based on evaluations at September 30, 2020, our principal executive officer and principal financial officer, with the participation of
our management team, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15 (e) and
15d-15 (e) under the Securities Exchange Act). Disclosure controls and procedures ensure that information required to be disclosed
by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the SEC, and that material information relating to the Company is accumulated
and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to
allow timely decisions regarding required disclosures. Based on this evaluation, our principal executive officer and principal financial
officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public
accounting firm, as allowed by the SEC.
Changes in Internal Control Over Financial Reporting
We have not made any change to our internal control over financial reporting that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
64
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The information required by Item 10 of Form 10-K with respect to directors and executive officers is incorporated herein by reference
to the information contained in the section entitled “Proposal One: Election of Directors” and “Executive Officers of Sonic”,
respectively, in the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection
with the solicitation of proxies for the Company’s 2020 and 2021 Annual Meeting of Stockholders.
Item 405 of Regulation S-K calls for disclosure of any known late filings or failure by an insider to file a report required by
Section 16(a) of the Securities Act. This information is contained in the Section entitled “Section 16(a) Beneficial Ownership
Reporting Compliance” in the Proxy Statement and is incorporated herein by reference.
Item 401 of Regulation S-K calls for disclosure of whether or not the Company has a financial expert serving on the audit committee
of its Board of Directors, and if so who that individual is. This information is contained in the Section entitled “Meetings and
Committees of Directors” in the Proxy Statement and is incorporated herein by reference.
Item 407 of Regulation S-K calls for disclosure of whether or not the Company has an audit committee and a financial expert serving
on the audit committee of the Board of Directors, and if so, who that individual is. Item 407 also requires disclosure regarding the
Company’s nominating committee and the director nomination process and whether or not the audit committee has a charter. This
information is contained in the section entitled “Meetings and Committees of Directors” in the Proxy Statement and is incorporated
herein by reference.
Sonic Foundry has adopted a code of ethics that applies to all officers and employees, including Sonic Foundry’s principal executive
officer, its principal financial officer, and persons performing similar functions. This code of ethics is available, without charge, to
any investor who requests it. Requests should be addressed in writing to Kelsy L. Boyd, Corporate Secretary, 222 West Washington
Avenue, Madison, Wisconsin 53703.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K is incorporated herein by reference to the information contained in the sections
entitled “Directors Compensation”, “Executive Compensation and Related Information” and “Compensation Committee Interlocks
and Insider Participation” in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by Item 12 of Form 10-K is incorporated herein by reference to the information contained in the sections
entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement. Information related to equity
compensation plans is set forth in Item 5 herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 of Form 10-K is incorporated herein by reference to the information contained in the section
entitled “Certain Transactions” and “Meetings and Committees of Directors” in the Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 of Form 10-K is incorporated herein by reference to the information contained in the section
entitled “Ratification of Appointment of Independent Auditors – Fiscal 2019 and 2020 Audit Fee Summary” in the Proxy Statement.
65
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following financial statements are filed as part of this report:
1
2
Financial Statements are listed in the Table of Contents provided in response to Item 8.
Exhibits.
NUMBER
3.1
Articles of Amendment of Amended and Restated Articles of Incorporation, effective November 16, 2009, Amended
and Restated Articles of Incorporation, effective January 26, 1998, and Articles of Amendment, effective April 9, 2000,
filed as Exhibit No. 3.1 to the Annual Report on Form 10-K for the year ended September 30, 2009, and hereby
incorporated by reference.
DESCRIPTION
3.2
3.3
3.4
3.5
Articles Supplementary to the Company Charter of the Registrant, as relates to Series A Preferred Stock, dated May 30,
2017, filed as Exhibit 5.03 to the 8-K filed on June 5, 2017, and hereby incorporated by reference.
Articles Supplementary to the Company Charter of the Registrant, as relates to Series A Preferred Stock, dated
November 6, 2017, filed as Exhibit 3.1 to the Form 8-K filed on November 21, 2017, and hereby incorporated by
reference.
Amended and Restated By-Laws of the Registrant, filed as Exhibit No. 3.1 to the Form 8-K filed on January 25, 2018,
and hereby incorporated by reference.
Articles Supplementary to the Company Charter of the Registrant, as relates to Series A Preferred Stock, filed as
Exhibit 3.1 to the Form 8-K filed on May 23, 2018, and hereby incorporated by reference.
10.1*
Registrant’s 2008 Non-Employee Directors’ Stock Option Plan, as amended, filed as Exhibit 3 to the Form 14A filed
on January 26, 2017, and hereby incorporated by reference.
10.2*
Registrant’s 2008 Employee Stock Purchase Plan, as amended, filed as Exhibit 1 to the Form 14A filed on January 26,
2017, and hereby incorporated by reference.
10.3*
Registrant’s 2009 Stock Incentive Plan, as amended, filed as Exhibit 2 to the Form 14A filed on January 26, 2017, and
hereby incorporated by reference.
10.4
Lease Agreement between Registrant, as tenant, and West Washington Associates, LLC as landlord, dated June 28,
2011, filed as Exhibit 10.1 to the Form 8-K filed on July 1, 2011, and hereby incorporated by reference.
10.5*
Employment Agreement dated March 21, 2014 between Sonic Foundry, Inc. and Robert M. Lipps, filed as Exhibit 10.1
to the Form 8-K filed on March 26, 2014, and hereby incorporated by reference.
10.6
10.7
10.8
10.9
Forms of Subscription Agreements, Lock-Up Agreements and Warrant Agreements dated December 22, 2014 among
Sonic Foundry, Inc. and Mark Burish, and Sonic Foundry, Inc. and Andrew Burish, filed as Exhibits 10.1, 10.2, and
10.3 to the Form 8-K filed on December 30, 2014 and hereby incorporated by reference.
Lease Agreement between Mediasite KK, as tenant, and Ollie Company as landlord, dated September 1, 2011, filed as
Exhibit 10.23 to the form 10-Q filed on February 6, 2015, and hereby incorporated by reference.
Lease Agreement between Mediasite KK, as tenant, and Ollie Company as landlord, dated September 1, 2011, filed as
Exhibit 10.24 to the form 10-Q filed on February 6, 2015, and hereby incorporated by reference.
Lease Agreement between Sonic Foundry International, as tenant, and Prinsen Geerligs as landlord, dated February 1,
2014, filed as Exhibit 10.25 to the form 10-Q on February 6, 2015, and hereby incorporated by reference.
66
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
10.10
Loan and Security Agreement, dated May 13, 2015 among Registrant, Sonic Foundry, Inc. and Partners for Growth IV,
L.P., filed as Exhibit 10.27 to the form 10-Q filed on May 14, 2015, and hereby incorporated by reference.
10.11
10.12
Warrant, dated as of May 13, 2015, between Registrant and Partners for Growth IV, L.P., filed as Exhibit 10.28 to the
form 10-Q filed on May 14, 2015, and hereby incorporated by reference.
Warrant dated as of May 13, 2015, between Registrant and PFG Equity Investors, LLC, filed as Exhibit 10.30 to the
form 10-Q filed on May 14, 2015, and hereby incorporated by reference.
10.13
Intellectual Property Security Agreement, dated as of May 13, 2015, between Registrant and Partners for Growth IV,
L.P., filed as Exhibit 10.31 to form 10-Q filed on May 14, 2015, and hereby incorporated by reference.
10.14
Modification No. 1 to Loan and Security Agreement, dated September 30, 2015 among Registrant, Sonic Foundry, Inc.
and Partners for Growth IV, L.P., filed as Exhibit No. 10.2 to the Form 8-K filed on October 9, 2015, and hereby
incorporated by reference.
10.15
Lease Agreement between Mediasite KK, as tenant, and Sumitomo Metal Mining Co., Ltd., as landlord, dated August
1, 2016, filed as Exhibit 10.1 to the Form 8-K filed on August 3, 2016, and hereby incorporated by reference.
10.16
10.17
Modification No. 2 to Loan and Security Agreement, dated February 8, 2017 among Registrant, Sonic Foundry, Inc.
and Partners for Growth IV, L.P., filed as Exhibit 10.28 to the Form 10-Q filed on February 9, 2017, and hereby
incorporated by reference.
Waiver and Modification No. 3 to Loan and Security Agreement, dated May 11, 2017 among Registrant Sonic
Foundry, Inc. and Partners for Growth IV, L.P., filed as Exhibit 10.31 to the Form 10-Q filed on May 11, 2017, and
hereby incorporated by reference.
10.18
Subscription Agreement between Registrant and Mark D. Burish, dated May 30, 2017, filed as Exhibit 3.02 to the 8-K
filed on June 5, 2017, and hereby incorporated by reference.
10.19
Agreement Not to Convert between Registrant and Mark D. Burish, dated November 17, 2017, filed as Exhibit 10.1 to
the Form 8-K filed on November 21, 2017, and hereby incorporated by reference.
10.20
Subscription Agreement between Registrant and Mark D. Burish, dated August 23, 2017, filed as Exhibit 10.1 to the 8-
K filed on August 25, 2017, and hereby incorporated by reference.
10.21
Modification No. 4 to Loan and Security Agreement, dated December 28, 2017 among Registrant, Sonic Foundry, Inc.
and Partners for Growth IV, L.P., filed as Exhibit 10.2 to the Form 8-K filed on December 29, 2017, and hereby
incorporated by reference.
10.22
Subscription Agreement between Registrant and Mark D. Burish, dated January 19, 2018, filed as Exhibit 10.1 to the
Form 8-K filed on January 25, 2018, and hereby incorporated by reference.
10.23
10.75% Convertible Secured Subordinated Promissory Note between Registrant and Mark D. Burish, filed as Exhibit
10.2 to the Form 8-K filed on January 25, 2018, and hereby incorporated by reference.
10.24
Subscription Agreement between Registrant and Andrew D. Burish, dated April 16, 2018, filed as Exhibit 10.1 to the
Form 8-K filed on April 18, 2018, and hereby incorporated by reference.
10.25
Warrant, dated April 16, 2018, filed as Exhibit 10.2 to the Form 8-K filed on April 18, 2018, and hereby incorporated
by reference.
10.26
Loan and Security Agreement, dated May 11, 2018 among Registrant, Sonic Foundry, Inc. and Partners for Growth V,
L.P., filed as Exhibit 10.41 to the Form 10-Q filed on May 15, 2018, and hereby incorporated by reference.
10.27
Warrant, dated as of May 11, 2018, between Registrant and Partners for Growth V, L.P., filed as Exhibit 10.42 to the
Form 10-Q filed on May 15, 2018, and hereby incorporated by reference.
67
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
10.28
Promissory Note between Registrant and Mark D. Burish, dated January 4, 2019, filed as Exhibit 10.1 to the Form 8-K
filed on January 8, 2019, and hereby incorporated by reference.
10.29
Promissory Note between Registrant and Mark D. Burish, dated January 31, 2019, effective upon receipt of funds on
February 5, 2019, filed as Exhibit 10.1 to the Form 8-K filed on February 12, 2019, and hereby incorporated by
reference.
10.30
Promissory Note between Registrant and Mark D. Burish, dated February 14, 2019, filed as Exhibit 10.1 to the Form 8-
K filed on February 20, 2019, and hereby incorporated by reference.
10.31
10.32
10.33
Note Purchase Agreement between the Company and Mark Burish, dated February 28, 2019, filed as Exhibit 10.1 to
the Form 8-K filed on March 6, 2019, and hereby incorporated by reference.
Warrant between the Company and Mark Burish, dated February 28, 2019, filed as Exhibit 10.2 to the Form 8-K filed
on March 6, 2019, and hereby incorporated by reference.
Consent, Waiver & Modification to Loan and Security Agreement dated March 11, 2019 between Sonic Foundry, Inc.
and Partners for Growth V, L.P., filed as Exhibit 10.1 to the Form 8-K filed on March 12, 2019, and hereby
incorporated by reference.
10.34
Employment Agreement dated April 22, 2019 between Sonic Foundry, Inc. and Michael Norregaard, filed as Exhibit
10.1 to the Form 8-K filed on April 24, 2019, and hereby incorporated by reference.
10.35
Retirement and Transition Agreement dated April 22, 2019 between Sonic Foundry, Inc. and Gary Weis, filed as
Exhibit 10.2 to the Form 8-K filed on April 24, 2019, and hereby incorporated by reference.
10.36
Retirement and Transition Agreement dated August 5, 2019 between Sonic Foundry, Inc. and Kenneth Minor, filed as
Exhibit 10.1 to the Form 8-K filed on August 9, 2019, and hereby incorporated by reference.
10.37
Amended and Restated Employment Agreement dated as of August 23, 2019 by and between Sonic Foundry, Inc. and
Michael Norregaard, filed as Exhibit 10.1 to the Form 8-K filed on August 29, 2019, and hereby incorporated by
reference.
10.38
Lease Agreement between Mediasite KK, as tenant, and Maida Housing Corporation, as landlord, dated April 1, 2014,
filed with the March 31, 2020 Form 10-Q and hereby incorporated by reference.
10.39
Term Loan Agreement dated January 30, 2020 between Mediasite KK and Sumitomo Mitsui Banking, filed with the
March 31, 2020 Form 10-Q and hereby incorporated by reference.
10.40
First Amendment to Note Modification Agreement dated March 24, 2020 between Sonic Foundry, Inc. and Mark
Burish, filed with the March 31, 2020 Form 10-Q and hereby incorporated by reference.
10.41
Term Loan Agreement dated April 20, 2020 between Sonic Foundry, Inc. and First Business Bank filed as Exhibit 10.1
to the Form 8-K filed on April 23, 2020 and herby incorporated by reference.
10.42
Debt Conversion Agreement dated May 13, 2020 between Sonic Foundry, Inc. and Mark Burish filed with the March
31, 2020 Form 10-Q and herby incorporated by reference.
21 List of Subsidiaries
23.1 Consent of Wipfli LLP, Independent Registered Public Accounting Firm
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer and Secretary
32 Section 906 Certification of Chief Executive Officer and Chief Financial Officer and Secretary
68
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
101
The following materials from the Sonic Foundry, Inc. Form 10-K for the year ended September 30, 2020 formatted in
Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated
Balance Sheets, (iii) the Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of
Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) Notes to Consolidated Financial
Statements.
Registrant will furnish upon request to the Securities and Exchange Commission a copy of all exhibits, annexes and schedules
attached to each contract referenced in item 10.
*
Compensatory Plan or Arrangement
69
Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2020
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
Sonic Foundry, Inc.
(Registrant)
By:
/s/ Joe Mozden, Jr.
Joe Mozden, Jr.
Chief Executive Officer
Date:
December 22, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the dates indicated.
Signature
Title
/s/ Joe Mozden, Jr.
Chief Executive Officer
/s/ Kelsy L. Boyd
Chief Financial Officer
/s/ Mark D. Burish
Chair and Director
/s/ Frederick H. Kopko, Jr.
/s/ Brian T. Wiegand
/s/ Nelson A. Murphy
/s/ Gary R. Weis
/s/ David F. Slayton
Director
Director
Director
Director
Director
Date
December 22, 2020
December 22, 2020
December 22, 2020
December 22, 2020
December 22, 2020
December 22, 2020
December 22, 2020
December 22, 2020
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