10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended March 31, 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	39-1783372
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

222 West Washington Ave, Madison, WI 53703

(Address of principal executive offices)

(608) 443-1600

(Registrant’s telephone number including area code)

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  x           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  x            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	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x
		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.

Yes  ¨ No   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨            No  x

State the number of shares outstanding of each of the issuer’s common equity as of the last practicable date:

Class	Outstanding April 30, 2020
Common Stock, $0.01 par value	6,788,321

PART I. FINANCIAL INFORMATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. For a more complete discussion of accounting policies and certain other information, refer to the Company’s annual report filed on Form 10-K for the fiscal year ended September 30, 2019.

2

TABLE OF CONTENTS

		PAGE NO.
PART I	FINANCIAL INFORMATION	2
Item 1.	Condensed Consolidated Financial Statements	4
	Condensed Consolidated Balance Sheets – March 31, 2020 (Unaudited) and September 30, 2019	4
	Condensed Consolidated Statements of Operations (Unaudited) – Three and six months ended March 31, 2020 and 2019	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three and six months ended March 31, 2020 and 2019	6
	Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - Three and six months ended March 31, 2020 and 2019	7
	Condensed Consolidated Statements of Cash Flows (Unaudited) – Six months ended March 31, 2020 and 2019	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 6.	Exhibits	34
Signatures		37

3

Item 1

Sonic Foundry, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share data)

	(Unaudited)
	March 31, 2020			September 30, 2019
Assets
Current assets:
Cash and cash equivalents	$	4,586		$	4,295
Accounts receivable, net of allowances of $135 & $135	6,344			6,532
Inventories, net of reserves of $30 and $0	602			558
Investment in sales-type lease, current	11			163
Capitalized commissions, current	334			464
Prepaid expenses and other current assets	910			972
Total current assets	12,787			12,984
Property and equipment:
Leasehold improvements	1,121			1,121
Computer equipment	6,499			5,610
Furniture and fixtures	1,291			1,233
Total property and equipment	8,911			7,964
Less accumulated depreciation and amortization	6,838			6,396
Property and equipment, net	2,073			1,568
Other assets:
Investment in sales-type lease, long-term	159			134
Capitalized commissions, long-term	102			106
Right-of-use assets under operating leases	1,972			—
Other long-term assets	384			388
Total assets	$	17,477		$	15,180
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	1,994		$	843
Accrued liabilities	1,649			2,216
Unearned revenue	9,453			9,610
Current portion of finance lease obligations	155			194
Current portion of operating lease obligations	1,160			—
Current portion of notes payable and warrant debt, net of discounts	1,915			968
Total current liabilities	16,326			13,831
Long-term portion of unearned revenue	2,055			1,842
Long-term portion of finance lease obligations	130			179
Long-term portion of operating lease obligations	840			—
Long-term portion of notes payable and warrant debt, net of discounts	4,743			5,429
Derivative liability, at fair value	72			9
Other liabilities	142			143
Total liabilities	24,308			21,433
Commitments and contingencies
Stockholders’ 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; 6,800,037 and 6,749,359 shares issued, respectively and 6,787,321 and 6,736,643 shares outstanding, respectively	68			67
Additional paid-in capital	203,884			203,735
Accumulated deficit	(210,065		)	(209,340		)
Accumulated other comprehensive loss	(549		)	(546		)
Treasury stock, at cost, 12,716 shares	(169		)	(169		)
Total stockholders’ deficit	(6,831		)	(6,253		)
Total liabilities and stockholders’ deficit	$	17,477		$	15,180

See accompanying notes to the condensed consolidated financial statements.

4

Sonic Foundry, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except for share and per share data)

(Unaudited)

	Three Months Ended March 31,						Six Months Ended March 31,
	2020			2019			2020			2019
Revenue:
Product and other	$	2,812		$	1,796		$	4,867		$	3,547
Services	5,854			6,201			11,814			11,952
Total revenue	8,666			7,997			16,681			15,499
Cost of revenue:
Product and other	1,158			645			1,989			1,296
Services	1,247			1,359			2,595			2,550
Total cost of revenue	2,405			2,004			4,584			3,846
Gross margin	6,261			5,993			12,097			11,653
Operating expenses:
Selling and marketing	3,057			3,836			6,453			7,779
General and administrative	1,176			1,345			2,617			2,883
Product development	1,499			1,935			3,089			3,768
Total operating expenses	5,732			7,116			12,159			14,430
Income (loss) from operations	529			(1,123		)	(62		)	(2,777		)
Non-operating expenses:
Interest expense, net	(218		)	(227		)	(481		)	(381		)
Other expense, net	(58		)	(11		)	(43		)	(3		)
Total non-operating expenses	(276		)	(238		)	(524		)	(384		)
Income (loss) before income taxes	253			(1,361		)	(586		)	(3,161		)
Income tax expense	(158		)	(125		)	(139		)	(113		)
Net income (loss)	$	95		$	(1,486	)	$	(725	)	$	(3,274	)
Dividends on preferred stock	—			(45		)				(98		)
Net income (loss) attributable to common stockholders	$	95		$	(1,531	)	$	(725	)	$	(3,372	)
Income (loss) per common share
– basic	$	0.01		$	(0.29	)	$	(0.11	)	$	(0.64	)
– diluted	$	0.01		$	(0.29	)	$	(0.11	)	$	(0.64	)
Weighted average common shares
– basic	6,785,180			5,278,500			6,760,779			5,232,449
– diluted	6,933,227			5,278,500			6,760,779			5,232,449

See accompanying notes to the condensed consolidated financial statements

5

Sonic Foundry, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(Unaudited)

	Three Months Ended March 31,					Six Months Ended March 31,
	2020		2019			2020			2019
Net income (loss)	$	95	$	(1,486	)	$	(725	)	$	(3,274	)
Foreign currency translation adjustment	5		(17		)	(3		)	45
Comprehensive income (loss)	$	100	$	(1,503	)	$	(728	)	$	(3,229	)

See accompanying notes to the condensed consolidated financial statements

6

Sonic Foundry, Inc.

Condensed Consolidated Statements of Stockholders' Deficit

(in thousands)

(Unaudited)

	Preferred stock			Common stock		Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Receivable for common stock issued			Treasury stock			Total
Balance, September 30, 2018	$	1,651		$	51	$	200,130		$	(207,419	)	$	(676	)	$	(26	)	$	(169	)	$	(6,458	)
Cumulative effect of ASC 606 adoption Note 6	—			—		—			1,691			—			—			—			1,691
Adjusted balance, October 1, 2018	1,651			51		200,130			(205,728		)	(676		)	(26		)	(169		)	(4,767		)
Stock compensation	—			—		220			—			—			—			—			220
Issuance of common stock and warrants	—			—		4			—			—			—			—			4
Warrants issued in connection with subordinated notes payable	—			—		674			—			—			—			—			674
Conversion of preferred stock	(563		)	2		561			—			—			—			—			—
Preferred stock dividends	99			—		(99		)	—			—			—			—			—
Foreign currency translation adjustment	—			—		—			—			45			—			—			45
Net loss	—			—		—			(3,274		)	—			—			—			(3,274		)
Balance, March 31, 2019	$	1,187		$	53	$	201,490		$	(209,002	)	$	(631	)	$	(26	)	$	(169	)	$	(7,098	)

	Preferred stock		Common stock		Additional paid-in capital			Accumulated deficit			Accumulated other comprehensive loss			Receivable for common stock issued			Treasury stock			Total
Balance, December 31, 2018	$	1,141	$	53	$	200,802		$	(207,516	)	$	(614	)	$	(26	)	$	(169	)	$	(6,329	)
Stock compensation	—		—		56			—			—			—			—			56
Issuance of common stock and warrants	—		—		4			—			—			—			—			4
Warrants issued in connection with subordinated notes payable	—		—		674			—			—			—			—			674
Preferred stock dividends	46		—		(46		)	—			—			—			—			—
Foreign currency translation adjustment	—		—		—			—			(17		)	—			—			(17		)
Net loss	—		—		—			(1,486		)	—			—			—			(1,486		)
Balance, March 31, 2019	$	1,187	$	53	$	201,490		$	(209,002	)	$	(631	)	$	(26	)	$	(169	)	$	(7,098	)

7

Sonic Foundry, Inc.

Condensed Consolidated Statements of Stockholders' Deficit

(in thousands)

(Unaudited)

	Preferred stock		Common stock		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Receivable for common stock issued		Treasury stock			Total
Balance, September 30, 2019	—		$	67	203,735		(209,340		)	(546		)	—		(169		)	(6,253		)
Stock compensation	—		—		86		—			—			—		—			86
Issuance of common stock	—		1		63		—			—			—		—			64
Foreign currency translation adjustment	—		—		—		—			(3		)	—		—			(3		)
Net loss	—		—		—		(725		)	—			—		—			(725		)
Balance, March 31, 2020	$	—	$	68	$	203,884	$	(210,065	)	$	(549	)	$	—	$	(169	)	$	(6,831	)

	Preferred stock		Common stock		Additional paid-in capital		Accumulated deficit			Accumulated other comprehensive loss			Receivable for common stock issued		Treasury stock			Total
Balance, December 31, 2019	$	—	$	67	$	203,787	$	(210,160	)	$	(554	)	$	—	$	(169	)	$	(7,029	)
Stock compensation	—		—		34		—			—			—		—			34
Issuance of common stock	—		1		63		—			—			—		—			64
Foreign currency translation adjustment	—		—		—		—			5			—		—			5
Net income	—		—		—		95			—			—		—			95
Balance, March 31, 2020	$	—	$	68	$	203,884	$	(210,065	)	$	(549	)	$	—	$	(169	)	$	(6,831	)

8

Sonic Foundry, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Six Months Ended March 31,
	2020			2019
Operating activities
Net loss	(725		)	(3,274		)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of other intangibles	150			97
Depreciation and amortization of property and equipment	433			516
Provision for doubtful accounts - including financing receivables	9			26
Stock-based compensation expense related to stock options and warrants	86			219
Deferred loan interest to related party	264			—
Stock issued for board of director fees	64			—
Remeasurement loss (gain) on derivative liability	63			(7		)
Changes in operating assets and liabilities:
Accounts receivable	175			1,354
Financing receivables	—			(2		)
Inventories	(45		)	(612		)
Investment in sales-type lease	126			—
Capitalized commissions	134			105
Prepaid expenses and other current assets	64			(25		)
Right-of-use assets under operating leases	562			—
Operating lease obligations	(578		)	—
Other long-term assets	4			—
Accounts payable and accrued liabilities	(162		)	89
Other long-term liabilities	(1		)	(33		)
Unearned revenue	57			(1,704		)
Net cash provided by (used in) operating activities	680			(3,251		)
Investing activities
Purchases of property and equipment	(118		)	(222		)
Net cash used in investing activities	(118		)	(222		)
Financing activities
Proceeds from notes payable	463			4,500
Proceeds from lines of credit	—			8,748
Payments on notes payable	(618		)	(333		)
Payments on lines of credit	—			(9,186		)
Payment of debt issuance costs	—			(110		)
Proceeds from issuance of preferred stock and common stock	—			5
Proceeds from exercise of common stock options	1			—
Payments on finance lease obligations	(124		)	(134		)
Net cash provided by (used in) financing activities	(278		)	3,490
Changes in cash and cash equivalents due to changes in foreign currency	7			(24		)
Net increase (decrease) in cash and cash equivalents	291			(7		)
Cash and cash equivalents at beginning of year	4,295			1,189
Cash and cash equivalents at end of period	$	4,586		$	1,182
Supplemental cash flow information:
Interest paid	$	479		$	264
Income taxes paid, foreign	90			160
Non-cash financing and investing activities:
Property and equipment financed by finance lease or accounts payable	821			112
Debt discount	—			676
Preferred stock dividends paid in additional shares	—			98
Conversion of preferred shares	—			563

See accompanying notes to the condensed consolidated financial statements.

9

Sonic Foundry, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Financial Statements

The accompanying condensed consolidated financial statements are unaudited and have been prepared on a basis substantially consistent with the Company's audited financial statements as of and for the year ended September 30, 2019 included in the Company's Annual Report on Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. Operating results for the six month period ended March 31, 2020 are not necessarily indicative of the results that might be expected for the year ending September 30, 2020.

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 represents 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 receivables 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 the period ended March 31, 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 consists of the following (in thousands) as of March 31, 2020:

Investment in sales-type lease, gross:
2020	$	13
2021	147
2022	13
Gross investment in sales-type lease	173
Less: Unearned income	3
Total investment in sales-type lease	$	170
Current portion of total investment in sales-type lease	$	11
Long-term portion of total investment in sales-type lease	159
	$	170

10

Inventory

Inventory consists of raw materials and supplies used in the assembly of Mediasite recorders and finished units. Inventory of completed units and spare parts are carried at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. An obsolescence reserve has been established to account for slow moving inventory.

Inventory consists of the following (in thousands):

	March 31, 2020			September 30, 2019
Raw materials and supplies	$	230		$	163
Finished goods	402			395
Less: Obsolescence reserve	(30		)	—
	$	602		$	558

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 March 31, 2020 and September 30, 2019, the Company has recorded a liability of $130 thousand and $129 thousand, respectively, for retirement obligations associated with returning the MSKK leased property to the respective lessors upon the termination of the lease arrangement. Asset retirement obligations are included in other-long term liabilities on the condensed consolidated balance sheets.

Fair Value of Financial Instruments

In determining the fair value of financial assets and liabilities, the Company currently utilizes market data or other assumptions that it believes market participants would use in pricing the asset or liability in the principal or most advantageous market, and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible to the Company at the measurement date.

Level 2 Inputs: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The hierarchy gives the highest priority to Level 1, as this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3.

Financial Liabilities Measured at Fair Value on Recurring Basis

The fair value of the bifurcated conversion feature represented by the warrant derivative liability associated with the PFG 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):

March 31, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	72	$	—	$	72

11

September 30, 2019	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	9	$	—	$	9

The gain or loss related to the fair value remeasurement on the derivative liability is included in the other (expense) line on the condensed consolidated statements of operations.

Financial Liabilities Measured at Fair Value on a Nonrecurring Basis

The initial fair values of PFG debt and warrant debt (see Note 4) were based on the present value of expected future cash flows and assumptions about current interest rates and the creditworthiness of the Company (Level 3). 

The Mr. Mark Burish ("Mr. Burish") warrant was measured at fair value using a Black Scholes model and the remaining fair value was allocated to the related Mr. Burish note purchase agreement (see Note 4) which management believes materially approximates the fair value based on calculating the present value of expected future cash flows (Level 3). The non-recurring fair value measurements were performed as of the date of issuance of the note purchase agreement and warrant. The discount is being amortized over the life of the related debt.

Financial Instruments Not Measured at Fair Value

The Company's other financial instruments consist primarily of cash and cash equivalents, accounts receivable, investment in sales-type lease, financing receivables, accounts payable and debt instruments and capital lease obligations. The book values of cash and cash equivalents, accounts receivable, investment in sales-type lease, and accounts payable are considered to be representative of their respective fair values due their short term nature. The carrying value of debt including the current portion, approximates fair market value as the variable and fixed rate approximates the current market rate of interest available to the Company.

Legal Contingencies

When legal proceedings are brought or claims are made against the Company and the outcome is uncertain, we are required to determine whether it is probable that an asset has been impaired or a liability has been incurred. If such impairment or liability is probable and the amount of loss can be reasonably estimated, the loss must be charged to earnings.

No legal contingencies were recorded or were required to be disclosed for the three or six months ended March 31, 2020 or 2019.

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.

12

The fair value of each option grant is estimated using the assumptions in the following table:

	Six Months Ended March 31,
	2020	2019
Expected life	4.5 years	4.3 years
Risk-free interest rate	1.41% - 1.63%	2.48% - 2.93%
Expected volatility	72.40% - 73.46%	60.19% - 66.05%
Expected forfeiture rate	15.05% - 15.38%	13.51% - 14.76%
Expected exercise factor	1.2	1.2
Expected dividend yield	0%	0%

A summary of option activity at March 31, 2020 and changes during the six months then ended is presented below:

	Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Period in Years
Outstanding at October 1, 2019	1,654,429		$	5.62	4.9
Granted	184,750		1.18		9.6
Exercised	(1,000	)	0.66		8.7
Forfeited	(54,700	)	4.07		4.3
Outstanding at March 31, 2020	1,783,479		5.20		4.9
Exercisable at March 31, 2020	1,416,998		6.21		3.8

A summary of the status of the Company’s non-vested options and changes during the six month period ended March 31, 2020 is presented below:

Non-vested Options	Options		Weighted-Average Grant Date Fair Value
Non-vested at October 1, 2019	357,114		$	0.77
Granted	184,750		0.51
Vested	(153,049	)	0.97
Forfeited	(22,334	)	0.55
Non-vested at March 31, 2020	366,481		$	0.57

The weighted average grant date fair value of options granted during the six months ended March 31, 2020 was $0.51. As of March 31, 2020, there was $131 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation cost of $95 thousand. The cost is expected to be recognized over a weighted-average remaining life of 2.2 years.

Stock-based compensation recorded in the three and six months ended March 31, 2020 was $34 thousand and $86 thousand. Stock-based compensation recorded in the three and six months ended March 31, 2019 was $57 thousand and $219 thousand. There was $1 thousand in cash received from exercises under all stock option plans and warrants during the three and six months ended March 31, 2020 and zero during the same periods in 2019. There were no tax benefits realized for tax deductions from option exercises in either of the three and six month periods ended March 31, 2020 or 2019. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

The Company also has an Employee Stock Purchase Plan ("Purchase Plan") under which an aggregate of 200,000 common shares may be issued. A total of 23,007 shares are available to be issued under the plan. The Company recorded stock compensation expense under this plan of $1 thousand for each of the three and six month periods ended March 31, 2020 and 2019.

13

Preferred Stock and Dividends

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

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:

	Three Months Ended March 31,		Six Months Ended March 31,
	2020	2019	2020	2019
Denominator for basic net income (loss) per share - weighted average common shares	6,785,180	5,278,500	6,760,779	5,232,449
Effect of dilutive options (treasury method)	148,047	—	—	—
Denominator for diluted net income (loss) per share - adjusted weighted average common shares	6,933,227	5,278,500	6,760,779	5,232,449
Options, warrants and convertible shares outstanding during each period, but not included in the computation of diluted net loss per share because they are antidilutive	1,933,990	2,076,083	2,082,037	2,076,083

Liquidity

At March 31, 2020, approximately $1.5 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 lease opportunities to finance equipment purchases in the future and anticipate continuing to utilize proceeds from the note purchase agreement to support working capital needs. We may also seek additional equity financing but there are no assurances that these will be on terms acceptable to the Company.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements", ("ASU 2018-13"). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe the ASU will have a significant impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", ("ASU 2018-15"). ASU 2018-15 aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in ASU 2018-15 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2018, the FASB issued ASU 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606", ("ASU 2018-18"). ASU 2018-18 provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. The amendments in ASU 2018-18 are effective for all public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", ("ASU 2019-04"). ASU 2019-04 identifies certain areas that need clarification and correction in each of these Topics. For Topic 326, for entities that have adopted ASU 2016-13,

14

the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within fiscal those fiscal years. Early adoption is permitted in any interim period after issuance as long as the entity has adopted the amendments in ASU 2016-13. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2019, the FASB issued ASU 2019-08, "Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)", ("ASU 2019-08"). This ASU requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. For entities that have not yet adopted the amendments in ASU 2018-07, the amendments in this Update are effective for public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)", ("ASU 2019-10"). This ASU addressed effective dates of the aforementioned major Accounting Standards Updates as a result of the challenges implementation of major standards poses for private companies, smaller reporting companies, and not-for-profit organizations. ASU 2019-10 is a major update which would first be effective for bucket-one entities, which are public entities that are Securities and Exchange Commission ("SEC") filers, excluding entities eligible to be smaller reporting companies under the SEC's definition. The Company does qualify as a smaller reporting company under the SEC's definition. Financial Instruments - Credit Losses (Topic 326) is currently not effective for any entities; ASU 2019-10 changes the effective date of this update for all other public companies (including smaller reporting companies) to be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Because Derivatives and Hedging (Topic 815) and Leases (Topic 842) are already effective for public business entities the Board retained the effective date for those entities, including smaller reporting companies.

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, 2021, and interim periods within fiscal years beginning after December 15, 2022. 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.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)", ("ASU 2020-01"). The amendments in this ASU affect all entities that apply the guidance in Topics 321, 323, and 815 and either (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. For public business entities, the amendments in this ASU are effective for fiscal year beginning after December 15, 2020, and interim periods with those fiscal years. The amendments in this ASU should be applied prospectively. Under a prospective transition, an entity should apply the amendments at the beginning of the interim period that includes the adoption date. 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

Leases (ASC Topic 842, Leases ("ASC 842"))

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 three and six months ended March 31, 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

15

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 condensed 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 condensed consolidated balance sheets. Leases previously identified as sales-type leases, where the Company is a lessor, continue to be reported on the condensed consolidated balance sheets. Refer to Note 3 - Commitments for additional disclosures related to our leasing activities.

Other Accounting Pronouncements

In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)", ("ASU 2017-11"). This update was issued to address complexities in accounting for certain equity-linked financial instruments containing down round features. The amendment changes the classification analysis of these financial instruments (or embedded features) so that equity classification is no longer precluded. The amendments in ASU 2017-11 are effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging Topic 815): Targeted Improvements to Accounting for Hedging Activities", ("ASU 2017-12"). This update was issued to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in ASU 2017-12 are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting", ("ASU 2018-07"). The standard addresses aspects of the accounting for nonemployee share-based payment transactions. The amendments in ASU 2018-07 are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", ("ASU 2019-04"). ASU 2019-04 identifies certain areas that need clarification and correction in each of these Topics. For Topic 815, for entities that have not yet adopted ASU 2017-12 as of the issuance date of this ASU, the effective dates and transition requirements for the amendments to Topic 815 are the same as the effective dates and transition requirements in ASU 2017-12. The amendments for Topic 815 in ASU 2019-04 were adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

2. Related Party Transactions

During the three and six months ended March 31, 2020, the Company incurred fees of $148 thousand and $258 thousand to a law firm, a partner of which is a director and stockholder of the Company. The Company incurred similar fees of $85 thousand and $131 thousand during the three and six months ended March 31, 2019. The Company had accrued liabilities for unbilled services of $0 thousand and $30 thousand at March 31, 2020 and September 30, 2019, respectively, to the same law firm.

On November 9, 2017, the Company sold to Mark Burish $500 thousand of Preferred Stock, Series A, at $762.85 per share. Mark Burish is a director of the Company and beneficially owns more than 5% of the Company’s common stock.

On November 17, 2017, the Company entered into an Agreement in which Mr. Burish's right to convert shares of Preferred Stock, Series A, into common stock was waived until shareholder approval for the issuance of Preferred Stock, Series A had been obtained. The right to vote said shares of Preferred Stock, Series A was also waived pending shareholder approval of the issuance. Shareholder approval was obtained on May 17, 2018.

On January 19, 2018, the Company and Mr. Burish entered into a Subscription Agreement (the "Subscription Agreement"). Pursuant to the Subscription Agreement, (i) on January 19, 2018, Mr. Burish purchased a 10.75% Convertible Secured Subordinated Promissory Note for $500,000 in cash; and (ii) on February 15, 2018, the director purchased an additional 10.75% Convertible Secured Promissory Note for $500,000 in cash (each, a “Note”, and collectively, the “Notes”).

16

On May 17, 2018, following approval by the stockholders of the Company of the conversion of the Notes sufficient to comply with rules and regulations of NASDAQ, the Notes were automatically converted into 1,902 shares of Series A Preferred stock. The number of shares was determined by dividing the total principal and accrued interest due on each Note by $542.13 (the “Conversion Rate”).

On April 16, 2018, the Company issued 232,558 shares of common stock to an affiliated party. The shares were issued at a price of $2.15 per share, representing the closing price on April 13, 2018. On April 16, 2018, the closing price of the Company’s common stock was $2.18 per share. The affiliated party also received warrants to purchase 232,558 shares of common stock at an exercise price of $2.50 per share which expire on April 16, 2025.

On June 8, 2018, 905 shares of Preferred Stock, Series A were automatically converted by the Company into 213,437 shares of common stock. The amount of shares converted represents all preferred shares issued on May 30, 2017 and June 8, 2017, including related dividends.

On August 23, 2018, 717 shares of Preferred Stock, Series A were automatically converted by the Company into 169,485 shares of common stock. The amount of shares converted represents all preferred shares issued on August 23, 2017.

On November 15, 2018, 718 shares of Preferred Stock, Series A were automatically converted by the Company into 169,741 shares of common stock. The amount of shares converted represents all preferred shares issued on November 9, 2017, including related dividends.

On April 25, 2019, Mr. Burish exercised his warrant to purchase 728,155 shares of common stock of the Company at an exercise price of $1.18 per share, which was entered into coincident with the execution of the Note Purchase Agreement on February 28, 2019.

On May 17, 2019, 2,080 shares of Preferred Stock Series A were automatically converted by the Company into 491,753 shares of common stock. The amount of shares converted represents all preferred shares issued on May 17, 2018, including related dividends.

The Company has also been provided with debt financing from Mr. Burish. See Note 4 - Credit Arrangements for additional information on the Warrant issued to, and Note Purchase Agreements, with Mr. Burish as well as accrued interest and the related anniversary fee on the Notes.

Mr. Burish beneficially owns more than 5% of the Company’s common stock. Mr. Burish also serves as the Chairman of the Board of Directors. An affiliated party beneficially owns more than 5% of the Company's common stock. All transactions with Mr. Burish and with the affiliated party were approved by a special committee of disinterested and independent directors.

3. Commitments

Inventory Purchase Commitments

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. At March 31, 2020, the Company has an obligation to purchase $319 thousand of Mediasite product, which is not recorded on the Company’s condensed consolidated balance sheet.

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 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.

17

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 excludes 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 condensed consolidated balance sheets.

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 March 31, 2020, future maturities of operating and finance lease liabilities for the fiscal years ended September 30 are as follows (in thousands):

	Operating Leases			Finance Leases
2020 (remaining)	$	688		$	88
2021	1,026			128
2022	292			79
2023	94			8
2024	102			5
Thereafter	101			—
Total	2,303			308
Less: imputed interest	(303		)	(23		)
Total	$	2,000		$	285

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 condensed 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		ASC 842 adoption			Adjusted
	September 30, 2019		adjustments			October 1, 2019
Right-of-use assets under operating leases	—		2,533			2,533
Total assets	$	15,180	$	2,533		$	17,713
Current portion of operating lease obligations	$	—	$	1,314		$	1,314
Accrued liabilities	2,216		(44		)	2,172
Total current liabilities	13,831		1,270			15,101
Long-term portion of operating lease obligations	—		1,263			1,263
Total liabilities	$	21,433	$	2,533		$	23,966

Supplemental information related to leases is as follows (in thousands, except lease term and discount rate):

18

	Six Months Ended March 31, 2020
Operating lease costs	$	662
Variable operating lease costs	29
Total operating lease cost	$	691
Finance lease cost:
Amortization of right-of-use assets	$	106
Interest on lease liabilities	12
Total finance lease cost	$	118

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):

	Six Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	679
Operating cash outflows for finance leases	12
Financing cash outflows for finance leases	123

Other information related to leases was as follows:

	March 31, 2020
Weighted average remaining lease term (in years)
Operating leases	2.6
Finance leases	2.3
Weighted average discount rate
Operating leases	11.82	%
Finance leases	7.14	%

4. Credit Arrangements

Partners for Growth V, L.P.

On May 11, 2018, Sonic Foundry, Inc., entered into a Loan and Security Agreement (the “2018 Loan and Security Agreement”) with Partners for Growth V, L.P. (“PFG V”).

The 2018 Loan and Security Agreement provides for a Term Loan ("Term Loan") in the amount of $2,500,000, which was disbursed in two (2) Tranches as follows: Tranche 1 was disbursed on May 14, 2018 in the amount of $2,000,000; and Tranche 2 in the amount of $500,000, was disbursed on November 8, 2018.

Each tranche of the Term Loan bears interest at 10.75% per annum. Tranche 1 of the Term Loan is payable interest only until November 30, 2018. Thereafter, principal is due in 30 equal monthly principal installments, plus accrued interest, beginning December 1, 2018 and continuing until May 1, 2021, when the principal balance is to be paid in full. Tranche 2 of the Term Loan is payable using the same repayment schedule as Tranche 1. Upon maturity, Sonic Foundry is required to pay PFG V a cash fee of $150,000.

The principal of the Term Loan may be prepaid at any time, provided that Sonic Foundry pays to PFG V a prepayment fee equal to 1% of the principal amount prepaid, if the prepayment occurs in the first year from disbursement of Tranche 1.

The Term Loan is collateralized by substantially all the Company’s assets, including intellectual property.

19

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 March 31, 2020, and September 30, 2019, the estimated fair value of the derivative liability associated with the warrants issued in connection with the 2018 Loan and Security Agreement, was $72 thousand and $9 thousand, respectively. Included in other expense, the remeasurement loss on the derivative liability during the three and six months ended March 31, 2020 was $61 thousand and $63 thousand, respectively, compared to a remeasurement loss of $8 thousand and a remeasurement gain of $15 thousand during the three and six months ended March 31, 2019.

The proceeds from the 2018 Loan and Security Agreement were allocated between the PFG V Debt and the Warrant Debt (inclusive of its conversion feature) based on their relative fair value on the date of issuance which resulted in carrying values of $2.3 million and $156 thousand, respectively. The warrant debt of $156 thousand is treated together as a debt discount on the PFG V Debt and will be accreted to interest expense under the effective interest method over the three-year term of the PFG V Debt and the five-year term of the Warrant Debt. During the three and six months ended March 31, 2020, the Company recorded accretion of discount expense associated with the warrants issued with the PFG V loan of $6 thousand and $11 thousand compared to $5 thousand and $9 thousand in the same periods last year. In addition, $14 thousand and $28 thousand amortization of the debt discount was recorded in the current three month and six month period compared to $13 thousand and $27 thousand in the prior year. At March 31, 2020, the carrying value of the PFG V Debt and the Warrant Debt (inclusive of its conversion feature) were $1.2 million and $160 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 the three and six months ended March 31, 2020, the Company recorded interest expense of $13 thousand and $25 thousand, associated with recognition of the back-end fee compared to $13 thousand and $25 thousand during the three and six months ended March 31, 2019.

The non-cash effective interest expense is calculated on the net balance of the PFG V Debt, debt discount, back-end fee and related loan origination fees, on a monthly basis. During the three and six months ended March 31, 2020, we recorded $3 thousand of gain and $1 thousand of non-cash interest expense related to the effective interest rate on the PFG V loan.

On March 11, 2019, Sonic Foundry, Inc. entered into a Consent, Waiver & Modification to the 2018 Loan and Security Agreement dated May 11, 2018 (the "Modification") with Partners for Growth V, L.P. ("PFG"). Under the Modification: PFG waived the Company's default on the Minimum EBITDA financial covenant for the quarterly reporting period ending December 31, 2018; modified the existing financial covenants to be as follows: (i) Minimum Coverage Ratio (as defined), which requires, as of the last day of each month on or after the closing date, to be equal to or greater than (x) 0.7: 1.00 for the December through May calendar months, and (y) 0.9:1.00 for the June through November calendar months; (ii) Minimum Qualifying Revenue (as defined), which requires, as of the last day of each calendar month, on or after December 1, 2018, on a trailing twelve-month basis, to be no less than $13,000,000; and modified the negative covenants to be as follows: the Company (x) shall not cause or permit (a) Japanese subsidiary indebtedness under its revolving line of credit facility to exceed at any time $1,000,000 outstanding, or (b) aggregate subsidiary indebtedness to exceed $1,200,000 at any time. At March 31, 2020, the Company was in compliance with all covenants per 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 are unchanged.

At March 31, 2020, a gross balance of $1.2 million was outstanding on the term debt with PFG V with an effective interest rate of sixteen-and-six-tenths percent (16.60%). At September 30, 2019, a gross balance of $1.7 million was outstanding with PFG V.

Initial Notes of the February 28, 2019 Note Purchase Agreement

On January 4, 2019, Sonic Foundry, Inc. and 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.

20

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.

February 28, 2019 Note Purchase Agreement

On February 28, 2019, Sonic Foundry, Inc. entered into a Note Purchase Agreement (the "Note Purchase Agreement") with Mr. Burish.

The Note Purchase Agreement provides for subordinated secured promissory notes (the "Subordinated Promissory Notes") in an aggregate original principal amount of up to $5,000,000. Mr. Burish will acquire from the Company (a) on the initial closing date, the notes in an aggregate principal amount of $3,000,000 (the "Initial Notes") and (b) two additional tranches, each in the amount of $1,000,000 and payable at any time prior to the first anniversary of the Agreement (the "Additional Notes" and together with the Initial Notes, collectively, the "Purchase Price"). The Initial Notes were previously disbursed in January and February of 2019, as detailed above (the Promissory Note, the January 31st, 2019 Promissory Note, and the February 14, 2019 Promissory Note, collectively referred to as the "Initial Notes"). The fourth tranche was disbursed on March 13, 2019 and the fifth and final tranche was disbursed on April 4, 2019.

The Subordinated Promissory Notes accrue interest at the variable per annum rate equal to the Prime Rate (as defined) plus four percent (4.00%). The outstanding principal balance of the Subordinated Promissory Notes, plus all unpaid accrued interest, plus all outstanding and unpaid obligations, shall be due and payable on February 28, 2024 (the "Maturity Date"). Principal installments of $100,000 are payable on the last day of each month end beginning with the month ending August 31, 2020, and continuing through the Maturity Date.

The principal of the Subordinated Promissory Notes may be prepaid at any time in whole or in part, by payment of an amount equal to the unpaid principal balance to be pre-paid, plus all unpaid interest accrued thereon through the prepayment date, plus all outstanding and unpaid fees and expenses payable through the prepayment date.

At each anniversary of the Closing, an administration fee ("anniversary fee") will be payable to Mr. Burish equal to 0.5% of the purchase price less principal payments made.

The Subordinated Promissory Notes are collateralized by substantially all the Company's assets, including intellectual property, subject to the rights of Partners for Growth V, L.P., which shall be senior to the Subordinated Promissory Notes.

The Note Purchase Agreement requires compliance with the following financial covenants: (i) Minimum Coverage Ratio, which requires, as of the last day of each month on or after the closing date, the Minimum Coverage Ratio (as defined) to be equal to or greater than (x) 0.7:1.00 for the December through May calendar months, (y) 0.9:1.00 for the June through November calendar months; (ii) Minimum Qualifying Revenue (as defined), as of the last day of any calendar month, on or after December 1, 2018, on a trailing twelve-month basis, to be no less than $13,000,000. At March 31, 2020, the Company was in compliance with all covenants per the Note Purchase Agreement.

The Note Purchase Agreement dated February 28, 2019 is subordinated to the existing PFG loan.

The Company used the proceeds from the notes issued under the Note Purchase Agreement to replace the revolving line of credit with Silicon Valley Bank, which matured on January 31, 2019.

The proceeds from the Note Purchase Agreement were allocated between the Subordinated Promissory Notes and the Warrant debt based on their relative fair value on the date of issuance. The warrant debt of $674 thousand is treated together as a debt

21

discount on the Subordinated Notes Payable and will be accreted to interest expense under the effective interest rate method over the five-year term of the Subordinated Notes Payable. During the three and six months ended March 31, 2020, the Company recorded accretion of discount expense associated with the Subordinated Promissory Notes of $33 thousand and $67 thousand compared to the three and six months ended March 31, 2019 of $13 thousand and $13 thousand.

During the three and six months ended March 31, 2020, the Company recorded an accrued anniversary fee associated with the Subordinated Promissory Notes of $6 thousand and $12 thousand. There was no accrued anniversary fee for the prior periods.

The non-cash effective interest expense is calculated on the net balance of the Subordinated Promissory Notes, Warrant, and related loan origination fees, on a monthly basis. During the three and six months ended March 31, 2020, we recorded $13 thousand and $2 thousand of non-cash interest benefit related to the effective interest rate on the Subordinated Promissory Notes.

At March 31, 2020, a gross principal balance of $5.0 million was outstanding on the Subordinated Promissory Notes, with an effective interest rate of twelve-and-four-tenths percent (12.4%). At September 30, 2019, a gross principal balance of $5.0 million was outstanding on the Subordinated Promissory Notes.

Accrued interest on the Subordinated Promissory Notes was paid through March 31, 2019, but has been deferred since that date. In April 2019 it was informally agreed between the Company and Mr. Burish that the interest would be deferred. On November 22, 2019, the Company entered into a Note Modification Agreement to formalize the deferment of the accrued interest. The Note Modification Agreement modifies the terms of the Subordinated Promissory Notes by deferring all interest payments due at the end of each calendar month beginning April 30, 2019 and continuing through and including July 31, 2020, in an amount which will be determined based on the variable interest rate on the Subordinated Promissory Notes. The deferred interest amount shall be added to the principal amount due on the Subordinated Notes and shall be paid on the maturity date. As a result of the Note Modification Agreement, $502 thousand and $259 thousand of accrued interest related to the Subordinated Notes Payable was re-classed from current to long-term on the Company's condensed consolidated balance sheets as of March 31, 2020 and September 30, 2019, respectively.

The anniversary fee on the Subordinated Promissory Notes was due on February 28, 2020 ("first year anniversary fee") and has been deferred. On March 24, 2020, the Company entered into a First Amendment to Note Modification Agreement ("First Amendment") to formalize the deferment of the first year anniversary fee. The First Amendment modified the terms of the Subordinated Promissory Notes by deferring the first year anniversary fee due on February 28, 2020. The deferred first year anniversary fee was added to the principal amount due on the Subordinated Notes and is required to be paid on the maturity date. As a result of the First Amendment, $25 thousand was re-classed from current to long-term on the Company's condensed consolidated balance sheets as of March 31, 2020.

February 28, 2019 Warrant

Coincident with execution of the Note Purchase Agreement, the Company entered into a Warrant Agreement ("Warrant") with Mr. Burish. Pursuant to the terms of the Warrant, the Company issued to Mr. Burish a warrant to purchase up to 728,155 shares of common stock of the Company at an exercise price of $1.18 per share, subject to certain adjustments.

On April 25, 2019, Mr. Burish exercised his warrant to purchase 728,155 shares of common stock of the Company at an exercise price of $1.18 per share. A special committee of disinterested and independent directors approved the issuance of the Subordinated Promissory Notes and the Warrant.

Other Indebtedness

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.

At March 31, 2020, $347 thousand was outstanding on the term loan with Mitsui Sumitomo Bank. The term loan accrues interest at an annual rate of approximately one-and-one-half percent (1.475%).

At March 31, 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%).

22

5. Income Taxes

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accruals for interest and penalties on the Company’s Condensed Consolidated Balance Sheets at March 31, 2020 or September 30, 2019, and has not recognized any interest or penalties in the Condensed Consolidated Statements of Operations for either of the three or six months ended March 31, 2020 or 2019.

The Company’s tax rate differs from the expected tax rate each reporting period as a result of permanent differences, the valuation allowance, and international tax items.

6. Revenue

Disaggregation of Revenues

The following tables summarize revenues from contracts with customers for the three and six months ended March 31, 2020 and 2019, respectively, (in thousands):

23

Three months ended March 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,563	$	153	$	181	$	(124	)	$	1,773
Software	883		64		194		(178		)	963
Shipping	74		2		—		—			76
Product and other total	2,520		219		375		(302		)	2,812
Support	1,887		136		919		(168		)	2,774
Hosting	1,132		160		321		—			1,613
Events	705		12		655		—			1,372
Installs & training	94		1		—		—			95
Services total	3,818		309		1,895		(168		)	5,854
Total revenue	$	6,338	$	528	$	2,270	$	(470	)	$	8,666

Six months ended March 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	2,609	$	219	$	196	$	(197	)	$	2,827
Software	1,597		253		231		(234		)	1,847
Shipping	190		3		—		—			193
Product and other total	4,396		475		427		(431		)	4,867
Support	3,897		291		1,237		(360		)	5,065
Hosting	2,138		280		697		—			3,115
Events	2,023		74		1,327		—			3,424
Installs & training	208		2		—		—			210
Services total	8,266		647		3,261		(360		)	11,814
Total revenue	$	12,662	$	1,122	$	3,688	$	(791	)	$	16,681

24

Three months ended March 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	784	$	35	$	376	$	(189	)	$	1,006
Software	618		124		120		(159		)	703
Shipping	87		—		—		—			87
Product and other total	1,489		159		496		(348		)	1,796
Support	1,961		145		976		(241		)	2,841
Hosting	1,062		115		513		—			1,690
Events	850		38		742		—			1,630
Installs & training	29		11		—		—			40
Services total	3,902		309		2,231		(241		)	6,201
Total revenue	$	5,391	$	468	$	2,727	$	(589	)	$	7,997

Six Months Ended March 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,598	$	174	$	385	$	(300	)	$	1,857
Software	1,260		239		318		(276		)	1,541
Shipping	148		1		—		—			149
Product and other total	3,006		414		703		(576		)	3,547
Support	3,948		334		1,222		(472		)	5,032
Hosting	2,116		264		866		—			3,246
Events	2,081		76		1,394		—			3,551
Installs & training	108		15		—		—			123
Services total	8,253		689		3,482		(472		)	11,952
Total revenue	$	11,259	$	1,103	$	4,185	$	(1,048	)	$	15,499

Transaction price allocated to future performance obligations

ASC 606 allows for the use of certain practical expedients, which we have elected and applied to measure our future performance obligations as of March 31, 2020.

As of March 31, 2020, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $3.6 million in the next three months, $9.5 million in the next twelve months, and the remaining $2.1 million thereafter.

25

Disclosures related to our contracts with customers

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers. We record assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. These liabilities are classified as current and non-current unearned revenue.

Unearned revenues

Unearned revenues represent our obligation to transfer products or services to our client for which we have received consideration, or an amount of consideration is due, from the client. During the three and six months ended March 31, 2020, revenues recognized related to the amount included in the unearned revenues balance at the beginning of the period was $2.4 million and $6.7 million compared to $2.6 million and $6.9 million recognized during the three and six months ended March 31, 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 three and six months ended March 31, 2020, amortization expense recognized related to the amount included in the capitalized commissions at the beginning of the period was $127 thousand and $330 thousand compared to $147 thousand and $396 thousand recognized during the three and six months ended March 31, 2019.

7. Subsequent Events

On March 11, 2020, COVID-19 was declared a pandemic by the World Health Organization. The disruption caused by the outbreak is uncertain and continues to evolve rapidly, however, it may result in material adverse impact on the Company's financial position, operations and cash flows. While we are unable to accurately predict the full impact that COVID-19 will have 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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies and their employees affected by the COVID-19 pandemic. Following the approval of the Board of Directors, the Company and First Business Bank entered into a $2,314,815 Promissory Note (the "Promissory Note") under the Paycheck Protection Program (PPP) contained within the (CARES) Act. The PPP loan has a term of two years, is unsecured, and is guaranteed by the U.S. Small Business Administration. The loan carries a fixed interest rate of 1% per annum, with the first six months of interest deferred. Under the terms of the CARES Act, the Company will be eligible to apply for forgiveness of all loan proceeds used for payroll costs, rent, utilities, and other qualifying expenses during the eight-week 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 25% of the amount forgiven can be attributable to non-payroll costs. Any amount not forgiven is due in equal installments of principal and interest beginning seven months from the date of the Promissory Note through the maturity date of two years from the date of first disbursement. The note was effective upon receipt of funds on April 21, 2020.

On April 27, 2020, the Company announced that its Special Committee of Independent and Disinterested Directors had accepted an offer from Mr. Mark Burish to purchase all outstanding shares of the Company’s common stock not presently held by Mr. Burish at $5.00 per share. The transaction was expected to close in the third calendar quarter of 2020. As previously announced, the Company formed the Special Committee to consider strategic alternatives.

In May 2020, the Special Committee and the Disinterested Directors and Mr. Burish agreed to not pursue the transaction at this time. Both Mr. Burish and the Special Committee were concerned that the proposal would not obtain the required shareholder approval, and therefore concluded that converting the debt to equity at the same value proposed by Mr. Burish for the acquisition was the most appropriate way to maximize both Company and Shareholder value, improve the Company's financial position, and provide the Company with resources to further its growth opportunities. In accordance therewith, on May 13, 2020, the Company entered into a Debt Conversion Agreement with Mr. Burish to convert Mr. Burish's existing secured debt of approximately $5.6 million into common stock at $5.00 per share.

26

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Risks and Uncertainties

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 I, Item 1A of the Company’s Annual Report on Form 10-K for the Fiscal Year ended September 30, 2019 and Part II, Item 1A of this Form 10-Q), “Quantitative and Qualitative Disclosures about Market Risk” (Part I, Item 3 of this Form 10-Q and Part II, Item 7A of the Company’s Annual Report on Form 10-K for the Fiscal Year ended September 30, 2019), and “Management’s Discussion and Analysis” (Part I, Item 2 of this Form 10-Q). We undertake no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.

Overview

Sonic Foundry, Inc. is 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 and rich media. Mediasite transforms communications, training, education and events for our customers.

Recent Developments

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. We are currently researching and preparing for a limited return to the office at the end of May 2020.

COVID-19 has had negative near-term 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, 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.

RESULTS OF OPERATIONS

ASC 842

27

On October 1, 2019, we adopted ASC Topic 842, Leases ("ASC 842"), using the modified retrospective method. Under this method, we recognized the cumulative effect of applying the new standard to existing leases that were active as of the adoption date as an adjustment to the opening balance sheet. The reported results for the three and six months ended March 31, 2020 reflect the adoption of ASC 842, while the comparative information has not been restated and continues to be reported under the related accounting standards in effect for those periods. Refer to Note 3 - Commitments to the notes to the condensed consolidated financial statements (unaudited) for additional information related to the effect of the adoption of ASC 842 as of and for the three and six months ended March 31, 2020.

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.

Q2-2020 compared to Q2-2019

Revenue in Q2-2020increased$669 thousand, or 8% to $8.7 million, from Q2-2019 revenue of $8.0 million. Revenue consisted of the following:

• Product and other revenue from sale of Mediasite recorder units and server software was $2.8 million in Q2-2020 and $1.8 million inQ2-2019. Average selling price was lower in Q2-2020as compared toQ2-2019 primarily as a result of a higher sales volume of low-cost recorders. Production and other revenue in Q2-2020 included a large refresh recorder transaction while Q2-2019 was negatively impacted by our planned reduced reliance on distribution.

	Q2-2020		Q2-2019
Recorders sold	369		131
Rack units to mobile units ratio	25.4 to 1		3.4 to 1
Average sales price, excluding service (000’s)	$	4.7	$	7.5
Refresh Units	58		70

• Services revenue represents the portion of fees charged for Mediasite customer support contracts amortized over the length of the contract, typically 12 months, as well as training, installation, events and content hosting services. Services revenue decreased$347 thousand or 6% from $6.2 million in Q2-2019 to $5.9 million in Q2-2020 primarily due to cancellations in event services due to COVID-19.

• At March 31, 2020, $11.5 million of revenue was deferred, of which we expect to recognize $9.5 million in the next twelve months, including approximately $3.6 million in the quarter ending June 30, 2020. At September 30, 2019, $11.5 million of revenue was deferred.

• Other revenue relates to freight charges billed separately to our customers.

YTD-2020 (six months) compared to YTD-2019 (six months)

Revenues for YTD-2020 totaled $16.7 million compared to YTD-2019 revenues of $15.5 million. Revenues included the following:

• $4.9 million product and other revenue from the sale of 572 Mediasite recorders and software during YTD-2020 versus $3.5 million from the delivery of 235 Mediasite recorders and software in YTD-2019. Recorders sold were substantially more than YTD-2019, partially due to a large refresh order in Q2-2020 and our planned reduced reliance on distribution.

• $11.8 million from Mediasite customer support contracts, installation, training, events and hosting services versus $12.0 million in 2019.

28

Gross Margin

Q2-2020 compared to Q2-2019

Gross margin for Q2-2020 was $6.3 million or 72% of revenue compared to Q2-2019 gross margin of $6.0 million or 75%. The significant components of cost of revenue include:

• Material and freight costs for the Mediasite recorders. Costs for Q2-2020 Mediasite recorder hardware and other costs totaled $453 thousand, along with $37 thousand of freight costs, and $645 thousand of labor and allocated costs, compared to Q2-2019 Mediasite recorder costs of $233 thousand for hardware and other costs, $50 thousand for freight and $383 thousand of labor and allocated costs. This resulted in gross margin on products of 59% in Q2-2020 and 64% in Q2-2019.

• Services costs. Staff wages and other costs allocated to cost of service revenue were $1.2 million in Q2-2020 and $1.4 million in Q2-2019, resulting in gross margin on services of 79% in Q2-2020 and 78% in Q2-2019.

YTD-2020 (six months) compared to YTD-2019 (six months)

Gross margin for YTD-2020 was $12.1 million or 73% of revenue compared to YTD-2019 gross margin of $11.7 million or 75% . The significant components of cost of revenue include:

• Material and freight costs for the Mediasite recorders. Costs for YTD-2020 Mediasite recorder hardware and other costs totaled $600 thousand, along with $58 thousand of freight costs, and $1,289 thousand of labor and allocated costs, compared to YTD-2019 Mediasite recorder costs of $491 thousand for hardware and other costs, $103 thousand for freight and $775 thousand of labor and allocated costs. This resulted in gross margin on products of 59% in YTD-2020 and 63% in YTD-2019.

• Service costs. Staff wages and other costs allocated to cost of service revenue were $2.6 million in YTD-2020 and $2.6 million in YTD-2019, resulting in gross margin on services of 78% in YTD-2020 and 79% in YTD-2019.

Operating Expenses

Selling and Marketing Expenses

Selling and marketing expenses include wages and commissions for sales, marketing and business development personnel, print advertising and various promotional expenses for our products. Timing of these costs may vary greatly depending on introduction of new products and services or entrance into new markets, or participation in major tradeshows.

Q2-2020 compared to Q2-2019

Selling and marketing expenses decreased $779 thousand or 20% from $3.8 million in Q2-2019 to $3.1 million in Q2-2020. Differences in the major categories include:

• Salary, commissions, and benefits expense decreased by $392 thousand as a result of reduced headcount.

• Travel expenses, including entertainment and meals, decreased by $153 thousand.

• Selling and marketing expenses for Sonic Foundry International and Mediasite KK accounted for $143 thousand and $615 thousand respectively, an aggregate decrease of $51 thousand from Q2-2019.

YTD-2020 (six months) compared to YTD-2019 (six months)

Selling and marketing expenses decreased $1,326 thousand or 17% from $7.8 million in YTD-2019 to $6.5 million in YTD-2020. Differences in the major categories include:

29

• Salary, commissions, and benefits expense decreased by $736 thousand as a result of reduced headcount.

• Travel expenses, including entertainment and meals, decreased by $308 thousand.

• Selling and marketing expenses for Sonic Foundry International and Mediasite KK accounted for $281 thousand and $1,337 thousand, respectively, an aggregate decrease of $43 thousand from YTD-2019.

We anticipate selling and marketing headcount to remain consistent throughout the remainder of the fiscal year.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist of personnel and related costs associated with the facilities, finance, legal, human resource and information technology departments, as well as other expenses not fully allocated to functional areas.

Q2-2020 compared to Q2-2019

G&A expenses decreased$169 thousand or 13% from $1.4 million in Q2-2019 to $1.2 million in Q2-2020. Differences in the major categories include:

• Decrease in compensation and benefits of $81 thousand as a result of reduced headcount.

• Professional services increased by $72 thousand primarily due to increase in legal and advisory fees.

• G&A expenses for Sonic Foundry International and Mediasite KK accounted for $13 thousand and $185 thousand respectively, an aggregate decrease of $78 thousand from Q2-2019.

YTD-2020 (six months) compared to YTD-2019 (six months)

G&A expenses decreased$266 thousand or 9% from $2.9 million in YTD-2019 to $2.6 million in YTD-2020. Differences in the major categories include:

• Decrease in compensation and benefits of $356 thousand as a result of reduced headcount.

• Professional services increased by $172 thousand primarily due to an increase in legal and advisory fees.

• G&A expenses for Sonic Foundry International and Mediasite KK accounted for $30 thousand and $425 thousand respectively, an aggregate decrease of $71 thousand from YTD-2019.

We anticipate general and administrative headcount to remain consistent throughout the remainder of the fiscal year.

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.

Q2-2020 compared to Q2-2019

Product development expenses decreased by $436 thousand, or 23% from $1.9 million in Q2-2019 to $1.5 million in Q2-2020. Differences in the major categories include:

• Decrease in compensation and benefits of $341 thousand as a result of reduced headcount.

• Decrease in professional services of $41 thousand.

• Product development expense for Sonic Foundry International and Mediasite KK accounted for $108 thousand and $76 thousand respectively, an aggregate decrease of $24 thousand compared to Q2-2019.

30

YTD-2020 (six months) compared to YTD-2019 (six months)

Product development expenses decreased by $679 thousand, or 18% from $3.8 million in YTD-2019 to $3.1 million in YTD-2020. Differences in the major categories include:

• Decrease in compensation and benefits of $463 thousand related primarily to an increase in compensation rates and the cost of benefits.

• Decrease in professional services of $50 thousand, due to decreased use of outsourced development.

• Product development expense for Sonic Foundry International and Mediasite KK accounted for $226 thousand and $146 thousand respectively, an aggregate decrease of $31 thousand compared to YTD-2019.

We anticipate product development headcount to remain consistent throughout the remainder of the fiscal year. We do not anticipate that any fiscal 2020 software development efforts will qualify for capitalization.

Other Income and Expense, Net

Interest expense for the three and six months ended March 31, 2020decreased$9 thousand and increased $100 thousand, respectively, compared to the same periods last year mainly as a result of interest on the Subordinated Promissory Notes with Mr. Burish, the first tranche of which was disbursed on January 4, 2019. Interest payments and the first anniversary fee on the Burish notes are currently being deferred. See Note 4 - Credit Arrangements for further details on the deferred interest and fees. The Company also recorded $14 thousand and $28 thousand of interest expense for the three and six months ended March 31, 2020 related to the accretion of discounts on the PFG Loan and Warrant Debt compared to $14 thousand and $27 thousand for the three and six months ended March 31, 2019. The Company also recorded amortization expense related to the back-end fee on the PFG loan of $13 thousand and $25 thousand in both the three and six month ended March 31, 2020 compared to $13 thousand and $25 thousand for the same periods last year. The Company also recorded $34 thousand and $67 thousand of interest expense during the three and six months ended March 31, 2020 related to the accretion of discounts on the Burish notes payable compared to $13 thousand for the three and six months ended March 31, 2019.

During the three and six months ended March 31, 2020, a loss in fair value of $61 thousand and $63 thousand, respectively, was recorded related to the fair value remeasurement on the derivative liability associated with the Loan and Security Agreement and Warrant Debt with PFG compared to a loss in fair value of $8 thousand and a gain of $15 thousand, respectively, during the three and six months ended March 31, 2019.

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 in US dollars at period end exchange rates while revenues and expenses are translated using average rates for the period. Gains and losses from the translation are deferred and included in accumulated other comprehensive loss the consolidated statements of operations.

For the three and six months ended March 31, 2020, the Company's foreign currency translation adjustment was a gain of $5 thousand and a loss of $3 thousand compared to to a loss of $17 thousand and a gain of $45 thousand for the three and six months ended March 31, 2019. The gain is attributable to the strengthening in the Japanese Yen compared to the US dollar compared to the prior period.

During the three and six months ended March 31, 2020, the Company recorded an aggregate transaction of $0 and a gain of $15 thousand compared to an aggregate loss of $3 thousand and $40 thousand for the three and six months ended March 31, 2019. The aggregate transaction gain or loss is included in the other expense line of the condensed consolidated statements of operations.

31

Liquidity and Capital Resources

The Company’s primary sources of liquidity are its cash from operations and debt and equity financing. During the first six months of fiscal 2020, the Company generated$680 thousand of cash from operating activities compared with $3.3 millionused in the same period of fiscal 2019.

Capital expenditures were $118 thousand in the first six months of fiscal 2020 compared to $222 thousand in the same period in fiscal 2019.

The Company used$278 thousand of cash from financing activities during the first six months of fiscal 2020, primarily due to net proceeds from the disbursement of the Mediasite term note of $463 thousand offset by payments of $618 thousand on existing debt. For the same period in fiscal 2019, the Company generated$3.5 million of cash from financing activities, mainly due to notes payable proceeds, primarily due to net proceeds from the disbursement of Tranches 1-4 of the Burish Note Purchase Agreement.

At March 31, 2020, the Company had $6.7 million outstanding, net of warrant debt and debt discounts, related to notes payable with PFG V, the subordinated notes issued under the Burish Note Purchase Agreement and the Mediasite KK term debt. The Company made principal payments of $250 thousand and $500 thousand for the three and six months ended March 31, 2020 on the PFG V debt, and $113 thousand on the Mediasite KK term debt in the current quarter.

At March 31, 2020, approximately $1.5 million of cash and cash equivalents was held by the Company’s foreign subsidiaries.

On May 13, 2020, the Company and Mr. Burish entered into a Debt Conversion Agreement to convert Mr. Burish's existing secured debt of approximately $5.6 million into common stock at $5.00 per share. Both the Special Committee and Mr. Burish concluded that converting the debt to equity was the most appropriate way to maximize both Company and Shareholder value, improve the Company's financial position, and provide the Company with resources to further its growth opportunities.

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 lease opportunities to finance equipment purchases in the future and anticipate continuing to utilize proceeds from the notes and term debt to support working capital needs. We may also seek additional equity financing but there are no assurances that these will be on terms acceptable to the Company.

32

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from those reported in the Company’s Annual Report on Form 10-K for the year-ended September 30, 2019. At March 31, 2020, $4.9 million of the Company’s $6.7 million in outstanding debt is variable rate. We do not expect that an increase in the level of interest rates would 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.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Based on evaluations at March 31, 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 March 31, 2020.

Changes in Internal Controls

On October 1, 2019, we adopted ASC 842. As a result, changes were made to the relevant business processes and related control activities in order to monitor and maintain appropriate controls over financial reporting.

During the period covered by the quarterly report on Form 10-Q, the Company has not made any other changes to its internal control over financial reporting (as referred to in Paragraph 4(b) of the Certifications of the Company's principal executive officer and principal financial officer included as exhibits to the report) that have materially affected, or are reasonably likely to affect the Company's internal control over financial reporting.

33

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our Form 10-K for the fiscal year ended September 30, 2019 filed with the SEC.

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 6. EXHIBITS

NUMBER	DESCRIPTION
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.
3.2	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.
3.3	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.
3.4	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.
3.5	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 Kenneth A. Minor, filed as Exhibit 10.2 to the Form 8-K filed on March 26, 2014, and hereby incorporated by reference.
10.6	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.
10.7	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.
10.8	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.
10.9	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.
10.10	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.

34

10.11	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.
10.12	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.
10.13	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.
10.14	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.
10.15	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.
10.16	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.
10.17	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.
10.18	Subscription Agreement between Registrant and Mark D. Burish, dated August 23, 2017, filed as Exhibit 10.1 to the Form 8-K filed on August 25, 2017, and hereby incorporated by reference.
10.19	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.
10.20	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.
10.21	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.
10.22	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.
10.23	Warrant, dated April 16, 2018, filed as Exhibit 10.2 to the Form 8-K filed on April 16, 2018, and hereby incorporated by reference.
10.24	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.
10.25	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.
10.26	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.
10.27	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.
10.28	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.
10.29	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.
10.30	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.
10.31	Consent, Waiver & Modification to Loan and Security Agreement between Sonic Foundry, Inc. and Partners for Growth V, L.P., dated March 11, 2019, filed as Exhibit 10.1 to the Form 8-K filed on March 12, 2019, and hereby incorporated by reference.
10.32	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.
10.33	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.

35

10.34	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.
10.35	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.
10.36	Note Modification Agreement dated November 22, 2019 between Sonic Foundry, Inc. and Mark Burish, filed as Exhibit 10.36 to the Form 10-Q filed on February 13, 2020, and hereby incorporated by reference.
10.37	Lease Agreement between Mediasite KK, as tenant, and Sanji Kato, as landlord, dated November 2, 2019, filed herewith.
10.38	Lease Agreement between Mediasite KK, as tenant, and Maida Housing Corporation, as landlord, dated April 1, 2014, filed herewith.
10.39	Term Loan Agreement dated January 30, 2020 between Mediasite KK and Sumitomo Mitsui Banking, filed herewith.
10.40	First Amendment to Note Modification Agreement dated March 24, 2020 between Sonic Foundry, Inc. and Mark Burish, filed herewith.
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 hereby incorporated by reference.
10.42	Debt Conversion Agreement dated May 13, 2020 between Sonic Foundry, Inc. and Mark Burish, filed herewith.
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Interim Chief Financial Officer
32	Section 906 Certification of Chief Executive Officer and Interim Chief Financial Officer
101	The following materials from the Sonic Foundry, Inc. Form 10-Q for the quarter ended March 31, 2020 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statement of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Stockholders' Deficit, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements.

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

36

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Sonic Foundry, Inc.

(Registrant)

May 14, 2020	By:	/s/ Michael Norregaard
		Michael Norregaard
		Chief Executive Officer
May 14, 2020	By:	/s/ Kenneth A. Minor
		Kenneth A. Minor
		Interim Chief Financial Officer

37

EX-10.37

Renewal     　Housing Lease Contract　　　　Transaction No.09-2-00004282

Lessor　　Sanji Kato　　　　　　　　　(hereinafter called【A】) and

Lessee　　Mediasite K.K.　(hereinafter called【B】) went into this housing lease contract

(hereinafter called【this Contract】)with under-mentioned terms and conditions.

Description of the Lease

Name	Kase Building　　　　　　　　　　　　　　2F　　　　　　　　Room No.202
Location	19-17 1-chome Sumiyoshi Koto-ku Tokyo
Structure/Size	Steel frame　　　　　　　　　　　　　　　　　　4-story Building
Lease Space	Occupied area　　　　　　　28.16㎡

Rent - Contract term

Rent	Monthly　　80,000　yen	CAM	Monthly　　　　　　　　　－
Security Deposit	80,000　yen		－
Guarantee Money	－		－
Remuneration	－		－
Renewal fee	New Rent　　1 month	Cancellation	1 month before
Contract term	November 2, 2019　　～　November 1, 2021

Inhabitant

Inhabitant	Name	Age	Relation	Workplace - School
	Shuji Sakamoto	51	Himself	Mediasite K.K.

Payment to:

Receiving Account	Name of Bank	The Tokyo Higashi Shinkin Bank　Sumiyoshi Branch
	Type of Account	Ordinary Account	Account No.	16860
	Phonetic Transcription
	Account Holder	Sanji Kase

Payment due date and payment method of monthly Rent

■Bank transfer of Rent for the following month to above account (bank commission to be paid by B)

Special Provision

●B shall bear the following amount of cleaning cost for occupied space at the time of quit and surrender.

　　　　Actual cost　　　　　

●Any matter not stipulated in this Contract shall follow former contractual clauses.

●B shall bear the cost of removing cigarette tar stain and odor, which cannot be handled by regular cleaning process.

●It is prohibited to keep pets or bring in and use(play)the piano.

●It is prohibited to use oil stove and bring its fuel (kerosene) in to the housing space.

Date of Contract Conclusion　November 2, 2019

Lessor【A】	Address	1-19-17 Sumiyoshi Koto-ku Tokyo
	Name	Sanji Kato	TEL No.	03-3631-0575

Lessee【B】	Address	8F Shinbashi-Sumitomo Building 5-11-3 Shinbashi Minato-ku Tokyo
	Phonetic Signs		TEL No.	03 – 6452 - 9043
	Name	Mediasite K.K. Hisatoshi Nakagawa, Rep. Director	Mobile No.	-　　-
			e-mail
	Workplace		TEL No.	-　　-
	Location

Joint/Several Guarantor	Address
	Phonetic Signs		TEL No.	-　　-
	Name	Registered stamp	Mobile No.	-　　-
			Relationship
	Workplace		TEL No.	-　　-
	Location

Emergency Contact	Address	8F Shinbashi-Sumitomo Building 5-11-3 Shinbashi Minato-ku Tokyo
	Phonetic Signs		TEL No.	03 – 6452 - 9043
	Name	Mediasite K.K. Hisatoshi Nakagwa Rep. Director	Mobile No.	-　　-
			Relationship
	Workplace		TEL. No.	-　　-
	Location

Mediating Agency	License No. Office Location Trade name Rep. Name TEL	Tokyo Governor ༈4༉83270 3-4-10 Kinshi Sumida-ku Tokyo 4F Togoshi Building CLC Corporation, Inc. Mitsuhiro Shishikura 03-5637-3071	License No. Office Location Trade Name Rep. Name TEL NO.
Transaction Manager*	Registry No. Name	(Saitama) 078490 Mizuho Ishii　　　　　　stamp	Registry No. Name	Stamp

*Residential Land and Building Transaction Manager

Maintenance Company	Location	Lessor’s own maintenance	貸主自主管理
	Name
	Contact

Receipt of Keys	maker	Number	Key No	Maker	Number	Key No
	We will return the keys upon quit and surrender. Should they get lost, we assure you we will bear replacement costs of the cylinder keys.
	Duly received above keys:  　　 　　Date　　　　　Month　　　　　Year　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　stamp

EX-10.38

No.3 Maida Building

OFFICE LEASE AGREEMENT

Room No. 301

From April 1, 2014 to March 31, 2016

With Mediasite K.K.

MAIDA HOUSING CORPORATION

AGREEMENT OF OFFICE LEASE

This AGREEMENT OF OFFICE LEASE (hereinafter referred to as “Agreement”) is made and entered between Maida Housing Corporation (hereinafter referred to as “Lessor”) and Mediasite K.K. (herein after referred to as “Tenant”), relating to the lease of the premises in the building stipulated in Clause 1, as follows:

Clause 1 Lease Premises

Lessor hereby leases Tenant and Tenant leases from Lessor premises (hereinafter referred to as Lease Premises) in the building under Lessor’s ownership (hereinafter referred to as ” Building”) under terms and conditions stipulated in following clauses of this Agreement. Building and Lease Premises are specified as hereunder:

Building:

Location: 8-12 Hiroshiba-cho, Suita City

Structure: Steel reinforced concrete,

Scale: 6-story building above ground

Name: No.3 Maida Building

Lease Premises:

Floor/Room No.: 3F, No.301

Lease area: 49.26 square meters (14.90 tsubo)

Clause 2 Purpose of Use

(1) Tenant shall use Lease Premises as the office or studio only for videotaping/recording lectures and promoting distribution and sale services as well as system development and shall not use it for any other purpose than that.

(2) If Tenant wishes to change the purpose of its use, it must obtain Lessor’s written approval in advance.

Clause 3 Term of Lease and Renewal

(1) The term of the lease under this Agreement shall be from April 1, 2014 to March 31, 2016.

(2) The Agreement shall be renewed for additional two (2) years from the next day of the expiration of the term of this Agreement, unless either of Lessor or Tenant

provides the other with written notice of non-renewal at least six (6) months prior to the expiration of the then current term of this Agreement, respectively, the same shall apply to the renewed term thereafter.

Clause 4 Rent

(1) Tenant shall pay to Lessor monthly rent of 94, 300 yen (hereinafter referred to “Rent”).

(2) Tenant shall pay the Rent for the following month by 25^th of each month by the method designated by Lessor. However, for the initial month of the conclusion of this Agreement, payment shall be made simultaneously with the conclusion of this Agreement,

(3) If the lease period is less than one month at the beginning of this Agreement, the Rent shall be calculated on a pro-rated basis with one month being 30 days.

(4) If the lease period is less than one month at the end of this Agreement, Tenant shall pay the Rent in full.

Clause 5 CAM

Tenant shall pay additionally 44,700 yen each month as costs to cover common-area maintenance and management (hereinafter referred to as “CAM”) simultaneously with and by the same method as the Rent payment.

Clause 6 Revision of Rent and CAM

(1) Lessor may revise the Rent and CAM if they become unreasonable in comparison with other rents of neighboring buildings, or as a result of Lessor’s increased economic burden, resulting from revision of relevant laws and regulations, economic conditions, alteration or improvement of facilities, increased taxes and levies imposed or any other reasons.

(2) When this Agreement is renewed pursuant to Clause 3 (2), the Rent shall be increased by ten (10) percent.

Clause 7 Costs and Expenses

Tenant shall bear, in addition to the Rent (Clause 4) and the CAM (Clause 5), the following out-of-pocket costs and expenses arising from the use of Lease Premises:

1. Electricity costs, costs of gas and water (tap and sewage)

2. Air-conditioning cost to be charged after meter measurement.

Basic(minimum) cost: 13,410 yen

3. Cleaning cost of Lease Premises

4. Maintenance and management costs of fixtures, facilities and equipment belonging to Tenant’s ownership. If Lessor pays such costs for Tenant’s sake, Tenant shall immediately reimburse them upon request and by the method designated by Lessor.

Clause 8 Real Estate Acquisition Tax and Property Tax

(1) Real estate acquisition tax and/or property tax imposed on fixtures and appurtenant facilities under Tenant’s ownership shall be borne by Tenant, regardless of taxable name.

(2) If above taxes are imposed to Lessor in an inseparable manner and as part of overall taxes for the principal structure of the Building, Lessor shall prorate the corresponding taxes based on the Tenant’s submitted construction costs and charge them to Tenant in writing.

(3) When above taxes are charge by Lessor, Tenant shall pay the amount of those taxes by the method designate by Lessor, without any objection and delay.

Clause 9 Security Deposit

(1) Tenant shall deposit 400,000 yen to Lessor to secure the full performance of any and all obligations owed by Tenant under this Agreement and arising from its implementation thereof, at the time of conclusion of this Agreement, and by the method designated by Lessor. However, no interest on this Security Deposit shall be payable from Lessor.

(2) Tenant shall not demand to set off or apply the Security Deposit against the Rent or any other obligations under this Agreement.

(3) If Tenant delays or default to pay any obligations to Lessor, Lessor may apply all or any of the Security Deposit in the preceding paragraph for the fulfillment of such obligations, at any time and without prior notice to Tenant. In such case, Lessor shall notify Tenant of the application of the Security Deposit without delay. Upon receipt of such notification, Tenant shall deposit again the amount equivalent to the resulting deficit of the Security Deposit within five (5) days from the receipt of such notification

(4) When this Agreement terminates, and Lessor acknowledges that Tenant has completed the surrender of the Lease Premises and has performed any other obligations, Lessor shall refund to Tenant the balance of the Security Deposit after deducting Tenant’s remaining obligations and in exchange of

this Agreement and Certificate of Custody for the Security Deposit. This refund shall be made one (1) month after the completion of the surrender.

Maximum refundable balance shall be 350,000 yen.

(5) Tenant shall not assign, pledge the reclaiming right to the Security Deposit to any third party.

Clause 10 Debt Late Payment

If Tenant fails to fulfill its monetary obligations to pay the Rent, CAM or others by the prescribed date, Tenant must additionally pay delinquent damages to be calculated by using annual interest rate of 14.6% for the period of delay.

Clause 11 Duty of Care

(1) Tenant must occupy and use Lease Premises as well as common areas like the entrance of the Building, staircases, elevators by well complying with the Building’s in-house rules and regulations established by Lessor, and with due care as a good faith manager. When such rules and regulations are added or modified by Lessor, Tenant shall approve and observe such changes without raising any objection.

(2) Tenant shall, under its own responsibility, take all necessary measures during its use of the Lease Premises, relating to the maintenance of security, prevention of fire and so forth.

(3) Tenant shall safely and strictly take custody of keys of the Lease Premises, lent by Lessor, and shall return them to Lessor at the time of termination of this Agreement.

Should the keys get lost, Tenant shall notify Lessor of the fact and bear the cost of replacement.

Clause 12 Prohibited Actions

Tenant must not take any actions listed below or any other similar actions thereto.

1. To assign or pledge part or whole of the leasing right to any third party.

2. To sublet part or whole of the Lease Premises to any third party.

3. To let any third party to use the Lease Premises by such method of outsourcing or other contractual arrangement or to use the Lease Premises as their nominal address of residence or business office for any third party.

4. To show the name of any third party on the door of the Lease Premises, or install a telephone under the name of any third party.

5. To stay overnight or reside in the Lease Premises or let any third party to stay overnight or reside.

6. To cook food in the Building

7. To bring into the Lease Premises animals or things which might cause fire, explosion, vibration, odor, noise or any other annoyance to others.

8. To place any appliance or equipment in common areas, obstructing smooth passage or use by Lessor or other tenants.

9. To commit any other act which might cause annoyance to other tenants or inflict damage to the Building for its maintenance.

Clause 13 Actions Requiring Lessor’s Prior Approval

Tenant may take any actions listed below, provided that Tenant notifies Lessor and obtain Lessor’s prior written approval and follows the method agreed by Lessor:

1. To change the purpose of use of the Lease Premises

2. To refurbish the inside of the Lease Premises (including repainting of walls, ceilings or, floors) and to install, transfer, remove appurtenant facilities or to carry out other work to modify the present state

3. To repair, install, transfer, remove or modify the present state of apparatuses relating to

electricity, gas, water, telephone, smoke detector, heat sensor, fire extinguisher etc. in the Lease Premises.

4. To bring into the Lease Premises or transfer a safe deposit box, heavy furniture like steel cabinets, large or tall equipment, or machines with high electric capacity like computers.

5. To install, attach, or show signs, advertisements, signals in the Lease Premises, regardless of the inside or outside.

6. To take any other actions similar to the above to modify the present state of the Lease Premises or the Building.

Clause 14 Execution of Works of Inner Fixtures or Appurtenant Facilities

(1) If Tenant wishes to carry out works pursuant to the preceding clause, Tenant shall submit application for approval from Lessor for the execution of works in writing before its start, and obtain its prior approval in writing. This application must attach design drawings, specifications and cost estimates of the works. Tennant must report the final costs incurred relating to the works to Lessor after completion.

(2) If Tenants executes works different from design drawings and specifications approved by Lessor or executes works without Lessor’s approval, then Lessor may order to stop works and cause Tenant to restore the original state of the works executed at the cost of Tenant.

Clause 15 Cleaning

Cleaning of the Lease Premises shall be carried out by the contractor appointed by Lessor and in accordance with the standard established by Lessor. Tenant shall bear the said cleaning cost.

Clause 16 Repair of Building, Improvement of Facilities

(1) If Tenant becomes aware of the damage or breakdown of the principal structure of the Building, fixtures or appurtenant facilities under Lessor’s ownership or the high possibility of such damage or breakdown, Tenant shall promptly Lessor thereof.

(2) Lessor shall carry out, at its own cost, repair of the principal structure of the Building, fixtures or appurtenant facilities necessary for their maintenance and preservation. Provided, however, that Tenant shall bear the cost for the repair work if such damage or breakdown has resulted from the cause attributable to Tenant, or if such work is carried out in the Lease Premises, regardless of the whatsoever the cause.

(3) If there arises the need for Lessor to suspend leasing part or whole of the Lease Premise or common areas to carry out work for repair, alteration or improvement, Tenant must accept Lessor’s request for cooperation. In such case, Tenant shall not demand to Lessor any compensation regardless of name and reason.

Clause 17 Lessor’s Right of Entry

(1) If and when Lessor, its designee or other party associated with Lessor deems necessary to enter into the Lease Premises for the purpose of preservation, sanitation, prevention of fire or crime, or maintenance or operation of the Building, it may enter into, inspect the same and take all and any appropriate actions after giving prior notice to Tenant. In such case, Tenant must cooperate with Lessor without any objection.

(2) Notwithstanding above, Lessor, in the case of emergency, may enter into the Lease Premises without advance notice and take actions and measures as provided in the preceding paragraph. But in such case, Lessor shall notify Tenant of its entry thereafter.

Clause 18 Early Termination

(1) If either Lessor or Tenant elects to terminate this Agreement during term of the lease, it shall advise to the other party to that effect, at least six (6) month’s prior written notice. Provided, however, that Tenant may terminate this Agreement with immediate effect by paying the amount equivalent to six (6) months’ Rent to Lessor.

(2) If this Agreement is terminated by any reason attributable to Tenant’s liability, Tenant must pay to Lessor breach-of-contract damage amounting to the same in the preceding paragraph (1).

(3) Once Tenant sends early termination notice to Lessor, Tenant may not revoke it, unless Lessor agrees otherwise.

(4) During the period from the time either Lessor or Tenant sends early termination notice to the other party, to the time this Agreement is terminated, if a new tenant candidate wishes to confirm the inside of the Lease Premises, Tenant must accept it without objection.

Clause 19 Termination

If Tenant falls within one of the following events of default, Lessor may forthwith terminate this Agreement without giving any notice to cure. Lessor shall not be hindered to claim compensation for damages under Clause 20, with termination of this Agreement.

(1) If Tenant is delinquent of the payment of the Rent or CAM for more than one (1) month or Tenant fails to pay other obligations to Lessor within the prescribed period

(2) If Tenant changes the purpose of use of the Lease Premises without Lessor’s approval

(3) If Tenant abandons the Lease Premises for more than one (1) month without any justifiable reasons

(4) If Tenant neglects to deposit or to fill up the deficit under Clause 9(3)

(5) If Tenant breaches any provision in Clause 12 and 13

(6) If Tenant or its employee gives substantial damage on the Lease Premises or cause fire, either intentionally or by negligence

(7) If Tenant alters its organization or type of business and Lessor acknowledges it as significant change of corporate status

(8) If a petition of the commencement of temporary foreclosure, temporary disposal, foreclosure, auction as well as bankruptcy, corporate rehabilitation, special liquidation, winding-up or other and similar legal proceeding is filed by or against Tenant

(9) If tenant is a natural person and he/she is adjudged to be placed under start of guardianship, ward or assistance or is sentenced by court to be guilty with penalty of more than imprisonment

(10)1f Tenant dies and Lessor disqualifies his/her successor

(11) If Tenant becomes insolvent or disqualified for banking transaction, and Lessor deems it difficult to continue this Agreement due to grave change and doubt on its creditworthiness and business continuity

(12) If competent authority governing Tenant’s business in the Lease Premise issues the order to stop operation or revokes Tenant’s business license

(13) 1) If a crime gang organization uses the Lease Premises as its shop or office (a crime gang organization means an organization consisting of members who tend to facilitate the collective and habitual indulgence in violent and criminal act, using the power of group)

2) If the Lease Premises show the name of a crime gang organization

3) If the Lease Premises are used as the “hang-out” for the members of a crime gang organization

4) If criminal acts violating penal code are committed in the Lease Premises

(14) If Tenant is known to be a member of a crime gang organization or have a relationship with it

(15) If Tenant is arrested by police for violating the” Act to Control Business Which Affects Public Morals” or for committing any other indecent act

(16) If Tenant conducts financial business in the Lease Premises or anywhere else

(17) If Tenant breaches one of the provisions in this Agreement or Building’s in-house rules and regulations separately established or if Lessor deems it difficult to continue this Agreement due to any similar cause to items stipulated above.

Clause 20 Compensation for Damages by a Breach of This Agreement

If and when Tenant gives damage to Lessor by a breach of this Agreement or of Building’s in-house rules and regulations established by Lessor, Tenant must compensate for the damages that Lessor has suffered.

Clause 21 Compensation for Damages to or from Third Party

(1) If Tenant, its employee, or other person associated with Tenant inflicts damage on other tenants or general customers in the Building, Tenant must compensate for the said damages, at its own cost and responsibility.

(2) When Tenant is inflicted damage by an act of a third party including other tenants, Tenant may not demand any compensation to Lessor.

Clause 22 Complaint Handling

When Lessor receives a monetary claim or other complaints from a third party,

in relation with Tenant’s use of the Lease Premises, Tenant and its joint-and-several

Guarantor shall solve them at their own burden and responsibility.

Clause 23 Exculpation

(1) Lessor shall be exculpated from any liability if Tenant suffers any loss or damage due to reasons listed hereunder:

1) Earthquake, fire, flood, storm or other natural disasters under force majeure

2) Breakdown of appurtenant, unforeseen accidents, theft and other cases not attributable to Lessor’s liability

3) Lessor’s observance of laws and regulations, instructions or administrative guidance from competent authority, relating to cases like saving of electricity or fuel

4) Any other force majeure events

(2) In addition to above, Lessor shall not be held liable for compensation for any loss or damage Tenant has suffered arising from temporary closure or restriction on use of the Lease Premises due to Lessor’s inspection, maintenance or repair work of the principal structure of the Building, fixtures and appurtenant facilities under Lessor’s ownership.

Clause 24 Ipso Facto Termination

If and when part or whole of the Building is confiscated by competent authority based on urban planning or land readjustment program, or part or whole of the Building is lost or damaged by natural disasters or other force majeure events and as a consequence, the Lease Premises become unusable, this Agreement will naturally come to ipso facto termination.

Clause 25 Surrender and Restoration of the Leased Premises

(1) Upon expiration, rescission, cancellation or termination due to other reason under this Agreement, Tenant shall quit and surrender the Lease Premises to Lessor, after restoring the Lease Premises to its original conditions as of the time of Tenant’s entering.

In such case, Tenant shall remove, at its cost and responsibility, fixtures, and appurtenant facilities newly installed by Tenant, and repair broken, damaged or abraded parts of the Lease Premises, before the surrender.

(2) If Tenant fails to restore the Lease Premises to the original conditions, Lessor may cause the restoration work to be performed at the cost of Tenant, and Tenant shall not raise any objection against it.

(3) With respect to any fixtures, equipment or other properties, left by Lessor in the Lease Premises, the ownership of the said properties shall be transferred to Lessor at no cost to Lessor, on the following day of the expiration of this Agreement. Lessor may dispose of them at its own discretion and at the cost of Tenant.

(4) Lessor may deduct costs and expenses to be borne by Tenant in accordance with above (2) and (3), from the Security Deposit under Clause 9, return to Tenant the balance of Security Deposit after deduction as provided in Clause 9(4).

(5) Tenant shall not, while surrendering the Lease Premises, demand recoupment of the costs and expenses disbursed for the fixtures and appurtenant facilities in the Lease Premises, or compensation for moving expense, surrender cost, lost business and goodwill, or any other monetary claims, under whatsoever title or name, as well as may not require Lessor to purchase fixtures and facilities affixed to the Lease Premises at the cost of Tenant.

Clause 26 Joint -and-several Guarantor

(1) A joint-and-several guarantor (hereinafter to be referred to as “Guarantor “) shall jointly and severally perform any and all obligations owed by Tenant under this Agreement.

(2) The same shall apply if this Agreement is renewed pursuant to Clause 3(2).

(3) If Guarantor’s asset significantly reduces or Guarantor’s social standing or residence change, Tenant shall immediately notify Lessor in writing to that effect. In such case, if Lessor deemed Guarantor as being disqualified, Tenant shall secure a different joint-and-several guarantor that Lessor agrees.

Clause 27 Jurisdiction of Agreement

Lessor and Tenant agree that any dispute and conflict arising from this Agreement shall be brought into the Osaka District Court for the first instance.

End

IN WITNESS WHEREOF, all the parties hereto have caused this Agreement to be duly signed and sealed by their authorized representatives in duplicate as the day and year written below, Lessor and Tenant retaining one (1) copy thereof, respectively.

April, 1, 2014

Lessor Address: 4-16 2-chome Honmachi Chuo-ku Osaka

Name: Maida Housing Corporation

Toshiho Maida

Representative Director

Tenant Address: 1-11-5 Kudan-kita Chiyoda-ku Tokyo

Green Oak Kudan 4F

Name: Mediasite K.K.

Hisatoshi Nakagawa

Representative Director

Guarantor Address: 1304 1-3-2 Haragi Ichikawa Chiba

Name: Hisatoshi Nakagawa

Preceding

Lessor Address: 11-34 Toyotsucho Suita

Name: Maida Juken K.K.

Hisatoshi Maida

Representative Director

Contract on Special Provisions

1. This contract on special provisions is concluded between Lessor and Tenant to confirm and add mutual agreement on special provisions attached to original Agreement, in consideration of the fact that Lessor took over the contractual position as the lessor of the Building from Maida Juken K.K. (hereinafter referred to as “Preceding Lessor”).

2. Payment method of the Rent and CAM shall be as follows:

1) Tenant shall pay the Rent and CAM for the following month by the end of each month to the bank account designated by Lessor using automatic bank account transfer contract with the bank.

2) Receiving bank: RESONA Bank, Esaka Branch

Current account No.0000542

3) Name of account holder: Maida Housing Corporation

3. Tenant shall bear consumption tax separately.

4. Bank commission with regard to the payment of the Rent or other expenses shall be borne by Tenant.

5. Refund of the Security Deposit in accordance with Clause 9 (4) shall be made by bank account transfer and its bank commission shall be borne by Tenant.

6. Tenant shall take a fire insurance designated by Lessor at its own cost.

7. Upon termination of this Agreement, Tenant shall remove fixtures and appurtenant facilities constructed by Tenant and other properties or items installed by Tenant and restore the Leased Premises to the original conditions at the time Preceding Lessor delivered the Leased Premises.

8. Lessor and Tenant confirm that the cash amount of Security Deposit stipulated in Clause 9 was handed over from Preceding Lessor to Lessor.

9. Clause 6(2) shall be reread as follows:

“If this Agreement is renewed pursuant to Clause 3(2), the Rent may be raised, upon consultation between Lessor and Tenant, by ten (10) percent as the upper limit.”

Certificate of Custody

                 day month year

To Maida Housing Corporation

                 Mediasite K.K.

We hereby confirm our receipt of the following items in accordance with our Maida Building Office Lease Agreement. We will return them upon termination of the Agreement. Should they get lost or broken, we will promptly notify you to that effect and we will replace and remake them. We assure you that we will bear all remaking and installation fees.

Keys for Entry into

the Leased Premises No. _________________________________

Security Card No. 0013991-12 One

No. 0013991-13 One

No. 0013991-15 One

No. 0013991-16 One

*Security cards may become unusable if they are bent or placed in a strong magnetic environment like on the television set or near mobile phone. Please use them with caution.

EX-10.39

Loan by Contract

Loan Repayment Schedule

105-0004        0001614#

5-11-3 Shinbashi Minato-ku Tokyo

(Type of Loan)

Sumitomo Mitsui Banking

Gotanda Branch

Mediasite K.K.

653-236-135-0206 1460

Interest comes first

Bank Use Code

Telephone　03-6452-9043

(Introduced by Ootemachi Area)

Branch No.	Account No.	Loan No.	Settlement Account (1: Current 2: Ordinary)		Rate		Date of Loan	Amount of Loan	Interest by the 1st repayment
653	206135	90259	2	7937455	1.475	%	01/30/2020	¥50,000,000	yen

Number	Date of Repayment			Repayment Amount	Interest portion	Principal portion	Loan Balance
	Year	Month	day	(Total)
1	2	1	31	4,224,416	57,416	4,167,000	45,833,000
2	2	3	2	4,215,829	48,829	4,167,000	41,666,000
3	2	3	31	4,212,461	45,461	4,167,000	37,499,000
4	2	4	30	4,210,103	43,103	4,167,000	33,332,000
5	2	6	1	4,201,178	34,178	4,167,000	29,165,000
6	2	6	30	4,198,315	31,315	4,167,000	24,998,000
7	2	7	31	4,193,095	26,095	4,167,000	20,831,000
8	2	8	31	4,187,202	20,202	4,167,000	16,664,000
9	2	9	30	4,183,665	16,665	4,167,000	12,497,000
10	2	11	2	4,176,425	9,425	4,167,000	8,330,000
11	2	11	30	4,172,046	5,046	4,167,000	4,163,000
12	2	12	30	4,163,000	—	4,163,000	—

We always apprecaite your special patronage and support to our bank. We hereby send this repayment schedule of your loan.

We will automatically withdraw each repayment amount of interest and pricnipal from your designated bank account according to this schedule.

If the floating rate applies to your loan, pursuant to the loan contract, we will change the applicable interest rate in the same way and every time basic rate fluctuates. So please bear in mind and in advance that total amount of each repayment may change from this schedule. In such case, we will send revised repayment schedule to you.

As we omit issuing account transfer confirmation slip each time, please keep this schedule in safe custody.

(If you have any inquiries, please feel free to contact our represetative in our bank any time ).

EX-10.40

FIRST AMENDMENT TO NOTE MODIFICATION AGREEMENT

This FIRST AMENDMENT TO NOTE MODIFICATION AGREEMENT (this “First Amendment”) is made and entered into as of March 24, 2020, by and among Sonic Foundry, Inc., a Maryland corporation (the “Company”) and Mark Burish, an individual (the “Noteholder”), with reference to the following facts:

A. On February 28, 2019, the Company entered into a Note Purchase Agreement (the "NotePurchase Agreement") with the Noteholder. The terms and conditions of the Note Purchase Agreement were authorized and approved by the Company's Special Committee of Disinterested and Independent Directors.

B. The Note Purchase Agreement provided for subordinated secured promissory notes in an aggregate original principal amount of up to $5,000,000. Pursuant to the Note Purchase Agreement, the Noteholder acquired from the Company (a) on each of January 4, 2019, January 31, 2019, and February 14, 2019, promissory notes, each in an aggregate principal amount of $3,000,000 (the "Initial Notes") and (b) on each of March 13, 2019, and April 4, 2019 promissory notes, each in an aggregate principal amount of $1,000,000 (the "Additional Notes" and together with the Initial Notes, collectively, the "Existing Notes").

C. The Existing Notes accrue interest at the variable per annum rate equal to the Prime Rate (as defined) plus four percent (4.00%). The outstanding principal balance of the Existing Notes, plus all unpaid accrued interest and unpaid obligations, are due and payable on February 28, 2024 (the "Maturity Date"). Pursuant to the terms of the Existing Notes, (i) principal installments of $100,000 are payable on the last day of each month end beginning with the month ending August 31, 2020 and continuing through the Maturity Date, and (ii) accrued interest payments are payable on the last day of each month.

D. On November 22, 2019, the Company and the Noteholder entered into a Note Modification Agreement (the “Note Modification Agreement”), pursuant to which the terms of the Existing Notes were modified by deferring interest payments due at the end of each calendar month beginning April 30, 2019 and continuing through and including July 31, 2020, in an amount which will be determined based on the variable interest rate of the Existing Notes (the “Deferred Interest Amount”).

E. The Note Modification Agreement further provided that the Deferred Interest Amount will be added to the principal amount due on the Existing Notes and shall be paid on the Maturity Date.

F. Pursuant to Section 2.2 of the Note Purchase Agreement, a payment of $25,000 was due and payable on February 28, 2020, and such payment has not been made.

G. The Company and the Noteholder desire to further modify the terms of the Note Purchase Agreement by deferring the $25,000 payment due on February 28, 2020 pursuant to Section 2.2 of such Note Purchase Agreement (the “Deferred Anniversary Payment Amount”), and the Noteholder agrees to waive all defaults arising therefrom.

H. The Company and the Noteholder agree that the Deferred Anniversary Payment Amount shall be added to the principal amount due on the Existing Notes and shall be paid on the Maturity Date.

NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

SECTION 1. Section 2.2 of the Note Purchase Agreement is hereby amended to add the following provision at the end of such paragraph:

“Notwithstanding the foregoing, the payment of $25,000 otherwise due on February 28, 2020 pursuant to this Section shall not be due or payable on such date. In lieu thereof, such amount of $25,000 (the “Deferred Anniversary Payment Amount”) shall be added to the principal due and shall be payable on the maturity of the Notes, whether by acceleration or otherwise.”

SECTION 2. The Company hereby represents and warrants to Noteholder as follows:

(a) Incorporation. The Company is a corporation duly organized and validly existing and in good standing under the laws of State of Maryland.

(b) Authorization. All corporate action on the part of the Company, its officers and directors necessary for the authorization, execution, delivery and performance of all obligations of the Company under this First Amendment has been taken, and this First Amendment constitutes a binding and enforceable obligation of the Company.

SECTION 3. The Noteholder hereby reaffirms each of the representations and warranties made him in Article 7 of the Note Purchase Agreement entered into by him in connection with the purchase of the Existing Notes. The Noteholder hereby waives any default arising out of the Company’s failure to make the $25,000 payment as set forth in Recital F.

SECTION 4.

a) This First Amendment shall be governed by the internal laws of the State of Maryland,     without     regard to conflict-of-law principles.

(b) This First Amendment constitutes the sole understanding of the parties with respect to the subject matter hereof.

(c) This First Amendment may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which together shall constitute one and the same instrument.

(d) Except as amended hereby, each Existing Note shall remain in full force and effect in accordance with its terms.

(e) Nothing in this First Amendment shall effect or alter any of the terms or conditions of that certain Subordination Agreement entered into by the Noteholder with the Company and Partners for Growth V, L.P., which Subordination Agreement shall remain in full force and affect in accordance with its terms.

IN WITNESS WHEREOF, each of the parties hereto has executed this First Amendment as of the date first indicated above.

SONIC FOUNDRY, INC.,

By:	/s/ Michael Norregaard
Name:	Michael Norregaard
Title:	Chief Executive Officer

By:	/s/ Mark Burish
Name:	Mark Burish

EX-10.42

DEBT CONVERSION AGREEMENT

THIS DEBT CONVERSION AGREEMENT (“Agreement”) dated as of May 13, 2020 (“Effective Date”) is made by and between Sonic Foundry, Inc., a Maryland corporation (the “Company”), and Mark D. Burish, the Chairman of the Board of Directors of the Company and a resident of the state of Wisconsin (“Burish”) (Company and Burish are sometimes referred to collectively as the “Parties”).

WHEREAS, on February 28, 2019, the Company and Burish entered into a Note Purchase Agreement (the "Note Purchase Agreement"), and the terms and conditions of the Note Purchase Agreement were considered, reviewed, authorized and approved by the Special Committee of Disinterested and Independent Directors of the Company (“Special Committee”); and

WHEREAS, the Note Purchase Agreement provides for Burish to loan the Company (a) on the initial closing date, an aggregate principal amount of $3,000,000, and (b) two additional tranches, each in the amount of $1,000,000, payable at any time prior to the first anniversary of the Note Purchase Agreement (the “Loans”), and the Loans were evidenced by subordinated secured promissory notes in an aggregate principal amount of up to $5,000,000 (collectively “Promissory Notes”); and

WHEREAS, Burish in fact did loan to the Company the full amount of the Loans in an aggregate principal amount of $5,000,000, by funding $3,000,000 as of the initial closing date of February 28, 2019, an additional $1,000,000 on March 31, 2019, and the final $1,000,000 on April 30, 2019; and

WHEREAS, under the terms of the Promissory Notes, (a) interest shall accrue on the unpaid principal balance at the variable per annum rate equal to the Prime Rate (as defined) plus four percent (4.00%), (b) the outstanding principal balance of the Promissory Notes, together with all unpaid accrued unpaid interest, plus all other outstanding and unpaid obligations, shall become due and payable on February 28, 2024 (the "Maturity Date"), (c) payments of principal shall be paid in installments of $100,000 each on the last day of each month beginning August 31, 2020 and continuing through the Maturity Date, and (d) the Promissory Notes are secured by substantially all the Company's assets, including intellectual property, subordinate however to the rights of Partners for Growth V, L.P.; and

WHEREAS, on November 22, 2019, Burish and the Company entered into a Note Modification Agreement deferring all interest payments due at the end of each calendar month beginning April 30, 2019 and continuing through and including July 31, 2020 (the “Modification Agreement”); and

WHEREAS, on March 24, 2020, the Company entered into a First Amendment to the Modification Agreement pursuant to which the first-year anniversary fee due on February 28, 2020 is to be deferred (the “First Amendment”); and

WHEREAS, the aggregate outstanding amounts payable in respect of the Loans as of the date hereof is $5,573,615.58 (“Outstanding Debt”); and

WHEREAS, Burish and the Company have agreed to recapitalize the Company by converting the Outstanding Debt into the common stock, par value $0.01 per share (the “Common Stock”) of the Company (the “Conversion”); and

WHEREAS, the terms and conditions of the Conversion have been negotiated by and recommended by the Special Committee and approved by all of the disinterested directors of the Company; and

WHEREAS, Burish is desirous of converting the Outstanding Debt into Common Stock on the terms and conditions set forth below;

WHEREAS, the Special Committee’s independent financial advisor has advised the Special Committee in its capacity as such that the conversion price of $5.00 is fair from a financial point of view to the Company’s common shareholders other than Burish in connection with the Conversion of the Outstanding Debt; and

WHEREAS, the Special Committee and all disinterested members of the Board of Directors of the Company have determined that the Conversion is in the best interests of the Company and its stockholders.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

1.  Conversion.

As of the effective date, Burish and the Company hereby agree to convert the Outstanding Debt into that number of shares of Common Stock rounded down to the nearest whole number equal to the Outstanding Debt divided by a conversion price of $5.00, and the Company will deliver cash in lieu of the related fractional share in an amount equal to the product of (a) such fraction and (b) $5.00.

2.  Representations, Warranties and Covenants of the Company.

(i) all consents, approvals, authorizations and orders necessary for the execution and delivery by Company of this Agreement and for the transactions contemplated hereunder, have been obtained, and the Company has the corporate power and authority necessary to enter into this Agreement and to perform the transactions hereunder except for such consents, approvals, authorizations, orders, licenses, registrations or qualifications the failure of which to obtain would not, individually or in the aggregate, have a material adverse effect on Company or Company’s ability to perform its obligations hereunder; 

(ii) the execution, delivery and performance by Company of this Agreement and the consummation by Company of the transactions contemplated herein will not (A) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of Company pursuant to, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which Company is a party or by which Company is bound or to which any of the property or assets of Company is subject, (B) result in any violation of the provisions of the charter or by-laws of Company or (C) result in the violation of any law or statute or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority having jurisdiction over Company, except, in the case of clauses (A) and (C) above, for any such conflict, breach, violation or default that would not, individually or in the aggregate, have a material adverse effect on Company or Company’s ability to perform its obligations hereunder and thereunder; 

(iii) this Agreement has been duly authorized, and when executed and delivered by Company and will constitute a valid and legally binding agreement of Company enforceable against Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting creditors’ rights generally or by equitable principles relating to enforceability;

(iv) the Company has been duly organized and is validly existing and in good standing under the laws of its jurisdiction of organization, is duly qualified to do business and is in good standing (to the extent such concept exists) in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification, and has all power and authority necessary to own or hold its properties and to conduct the business in which it is engaged, except where the failure to be so qualified or in good standing (to the extent such concept exists) or have such power or authority would not, individually or in the aggregate, have a material adverse effect on Company or on the performance by Company of its obligations under this Agreement; 

(v) upon delivery to Burish of a certificate endorsed in blank by an effective endorsement, Burish will acquire good and marketable title to such certificates and the shares of Common Stock represented thereby, free of any liens, encumbrances and adverse claims; and 

(vi) the Company has made its own independent inquiry as to the legal, tax and accounting aspects of the transaction contemplated by this Agreement, and Company has not relied on Burish or his legal counsel or other advisors for legal, tax or accounting advice in connection with the transactions contemplated by this Agreement. 

3.  Representations, Warranties and Covenants of Burish

(i)Title to Promissory Notes. Burish is the sole owner and holder of the Promissory Notes and has the authority and right to sell, assign, transfer and convert such Promissory Notes as set forth in this Agreement, and the Promissory Notes are free and clear of any and all liens, claims, pledges, participations, charges, security interests or encumbrances of any nature.

(ii)Authorization. Burish has full power and authority to enter into this Agreement, and this Agreement, when executed and delivered, will constitute a valid and legally binding obligation.

(iii)Necessary Action. Upon the effectiveness of the Conversion, the Note Purchase Agreement, the Modification Agreement, the Promissory Notes, and all documents and instruments relating to the Loans shall terminate and be of no further force or effect, and Burish shall promptly take any and all actions necessary to release any and all liens, security interests and other encumbrances relating to the Company’s tangible or intangible assets.  

(iv)Receipt of Information. Burish has received all the information he considers necessary or appropriate for deciding whether to convert the Outstanding Debt. Burish further represents that he has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the conversion, properties, prospects and financial condition of the Company.

(v)To Be Purchased Entirely For Own Account. Burish represents to the Company that the Common Stock to be acquired upon the Conversion will be acquired for investment for Burish’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof, and Burish has no present intention of selling, granting any participation in or otherwise distributing the same.

(vi)Restricted Securities. Burish understands that the Common Stock may not be sold, transferred or otherwise disposed of without registration under the Securities Act of 1933, as amended, or an exemption therefrom, and that in the absence of an effective registration statement covering the shares of Common Stock or an available exemption from registration under the Securities Act, the shares must be held indefinitely. Furthermore, Burish is aware that the Common Stock may not be sold pursuant to Rule 144 promulgated under the Securities Act unless all of the conditions of that Rule are met.

(vii)Legend. To the extent applicable, each certificate shall be endorsed with the legend substantially in the form set forth below:

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT, OR THE HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

4. Release of Company.

Burish on behalf of himself, his successors, assigns and affiliates, and any person claiming by, through or under Burish (collectively, the “Releasing Parties”), hereby releases and forever discharges Company  and each of their respective officers, directors, shareholders, members, principals, managers, employees, representatives, agents, servicers, operating advisors, other advisors and consultants, attorneys, predecessors, successors and assigns, and all persons acting on their behalf (all such persons being collectively referred to as the “Released Parties”), of and from any and all causes of action, claims, demands, obligations, liabilities, indebtedness, breaches of contract, breaches of duty or any relationship, acts, omissions, misfeasance, malfeasance, judgments, debts, controversies, damages, costs, losses and expenses, and remedies of whatsoever kind and nature that he or any other Releasing Party has or may in the future have against the Company or any other Released Parties, and in any manner on account of, arising out of or related (directly or indirectly) to the transactions contemplated by this Agreement, the Note Purchase Agreement, the Promissory Notes, the Modification, the First Amendment, and any other agreement pertaining to the Loan (the “Loan Documents”), whether known or unknown, past, present or future, latent or patent, suspected or unsuspected, anticipated or unanticipated, each as though fully set forth herein at length (including, without limitation based on fraud, duress, waiver, bad faith, negotiation (the “Released Matters”); provided, however, that the Released Matters shall not include, and Burish does not release Company from, any claims or causes of action arising by reason of Company’s material breach of this Agreement (including, without limitation, any material breach of the Company’s representations). The foregoing waiver and release includes claims of which the Releasing Parties are presently unaware or which the Releasing Parties do not presently suspect to exist which, if known by the Releasing Parties, would materially affect the Releasing Parties’ release of the Released Parties, and including without limitation any and all claims that are direct and/or indirect, contingent or matured, or of whatever kind or nature, for or because of any matter or things done, omitted or permitted to be done by any of the Released Parties, at law or in equity. Burish on behalf of himself and each other Releasing Parties (a) understands, acknowledges and agrees that the waiver and release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against or dismissal of any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release, (b) agrees that no fact, event, circumstance, evidence, or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the waiver and release set forth above, (c) agrees, represents and warrants that each realizes and acknowledges that factual matters now unknown to them may have given or may hereafter give rise to causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which are presently unknown, unanticipated and unsuspected, and it further agrees, represents and warrants that this release has been negotiated and agreed upon in light of that realization and that the Releasing Parties nevertheless hereby intend to release, discharge and acquit the Released Parties from any and all such unknown causes of action, claims, demands, debts, controversies, damages, costs, losses and expenses which in any way arise out of, are connected with, or relate to, the Loan Documents. Burish hereby represents and warrants that (i) he owns all of the purported claims, rights, demands and causes of action that are being released by the foregoing release and that no other person has any interest in said claims, rights, demands or causes of action whether by reason of any contract or dealing with the Releasing Parties or otherwise, and (ii) Burish has not assigned to any other person all or any part of such claims, rights, demands or causes of action. Burish hereby acknowledges, represents and warrants that he has had advice of counsel of his own choosing in negotiations for and the preparation of the foregoing release, that he has read the foregoing release or has had the same read by his counsel, that he has had the within release fully explained by such counsel, and that he is fully aware of its contents and legal effect.

5.  Registration Rights.

To the extent that the any class of shareholders of the Company are allowed to sell any of the Company’s Common Stock (the “Selling Shareholders”) or other securities into which such equity interests may convert (in either case, a “Company Security”) in a registered offering, Burish shall have the right to sell in the same registered offering, on the same terms as the Selling Shareholders, the same percentage of the aggregate shares of Common Stock that the Selling Shareholders are selling.

7.  Governing Law.

This Agreement shall be governed and construed by the laws of the State of Wisconsin, without reference to the choice of laws rules of such state.

8.  Fees and Expenses.

Each party hereto shall pay all of its own costs and expenses (including the fees of its own counsel) incurred in connection with this Agreement and the transactions contemplated hereby. 

9. Further Assurances.

The parties agree (i) to furnish upon request to each other such further information, (ii) to execute and deliver to each other such other documents, and (iii) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement.   

10. Notices.

All communications hereunder shall be in writing and addressed to the applicable party at the address set forth below or to such other address as such party may specify in writing:

If to Burish, to:

Mark D. Burish
c/o Hurley Burish S.C.222 West Washington Ave.
Madison, Wisconsin
Attention: Mark D. Burish
mburish@hurleyburish.com

If to Company, to:
Sonic Foundry, Inc. 222 West Washington

Madison, Wisconsin 53703
Attention: Michael Norregaard
Email: Michael.Norregaard@sonicfoundry.com

with a copy (which shall not constitute notice) to:
Gordon Feinblatt LLC

233 East Redwood Street Baltimore, Maryland 21202 Attention: Abba Poliakoff Email: apoliakoff@gfrlaw.com

and

McBreen & Kopko LLP 209 West Jackson Chicago, Illinois 60605 Attention: Frederick H. Kopko, Jr. fhkopko@mmklaw.com

11.  Successors and Assigns.

This Agreement shall be binding upon each party hereto and its respective successors and assigns.

12.  Severability.

If any term of provision of this Agreement or any application thereof shall be held invalid or unenforceable, the remainder of this Agreement and any other application of such term or provision shall not be affected thereby.

13.  Entire Agreement.

This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof, and may not be changed or modified except by an agreement in writing signed by the parties hereto.

14.  Interpretation.

All provisions of this Agreement shall be interpreted according to their fair meaning and shall not be strictly construed against any party.

15.  Counterparts; Third-Party Beneficiaries.

This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement. No provision of this Agreement shall confer upon any person other than the parties hereto any rights or remedies hereunder. 

[Signatures on following page]

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the Effective Date.

SONIC FOUNDRY, INC., a Maryland corporation

By:___/s/ Michael Norregaard_________

Name: Michael Norregaard

Title: Chief Executive Officer

MARK D. BURISH

_____/s/ Mark D. Burish______________

1

7823996.2

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Michael Norregaard, the CEO of Sonic Foundry, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sonic Foundry, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 14, 2020

By:	/s/ Michael Norregaard
By:	Michael Norregaard
Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

I, Kenneth A. Minor, the Interim CFO of Sonic Foundry, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sonic Foundry, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 14, 2020

By:	/s/ Kenneth A. Minor
By:	Kenneth A. Minor
Title:	Interim Chief Financial Officer

EX-32

SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

Exhibit 32

Statement

Solely for the purposes of complying with 18 U.S.C.§1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned Chief Executive Officer and the Chief Financial Officer of Sonic Foundry, Inc. (the “Company”), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2020 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 14, 2020

By:	/s/ Michael Norregaard
By:	Michael Norregaard
Title:	Chief Executive Officer
By:	/s/ Kenneth A. Minor
By:	Kenneth A. Minor
Title:	Interim Chief Financial Officer

XML

Commitments - Weighted Average Assumptions Used (Details)	Mar. 31, 2020
Operating Leases
Weighted average remaining lease term (in years)	2 years 7 months 6 days
Weighted average discount rate	11.82%
Finance Leases
Weighted average remaining lease term (in years)	2 years 3 months 18 days
Weighted average discount rate	7.14%

XML

Revenue - Performance Obligations (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Sep. 30, 2019
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Unearned revenue	$ 9,453	$ 9,610
Long-term portion of unearned revenue	$ 2,055	$ 1,842
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-04-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	3 months
Remaining performance obligation	$ 3,600
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-07-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period	12 months
Remaining performance obligation	$ 9,500
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-04-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period
Remaining performance obligation	$ 2,100

XML

Revenue (Tables)

6 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The following tables summarize revenues from contracts with customers for the three and six months ended March 31, 2020 and 2019, respectively, (in thousands):

Three months ended March 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,563	$	153	$	181	$	(124	)	$	1,773
Software	883		64		194		(178		)	963
Shipping	74		2		—		—			76
Product and other total	2,520		219		375		(302		)	2,812
Support	1,887		136		919		(168		)	2,774
Hosting	1,132		160		321		—			1,613
Events	705		12		655		—			1,372
Installs & training	94		1		—		—			95
Services total	3,818		309		1,895		(168		)	5,854
Total revenue	$	6,338	$	528	$	2,270	$	(470	)	$	8,666

Six months ended March 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	2,609	$	219	$	196	$	(197	)	$	2,827
Software	1,597		253		231		(234		)	1,847
Shipping	190		3		—		—			193
Product and other total	4,396		475		427		(431		)	4,867
Support	3,897		291		1,237		(360		)	5,065
Hosting	2,138		280		697		—			3,115
Events	2,023		74		1,327		—			3,424
Installs & training	208		2		—		—			210
Services total	8,266		647		3,261		(360		)	11,814
Total revenue	$	12,662	$	1,122	$	3,688	$	(791	)	$	16,681

Three months ended March 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	784	$	35	$	376	$	(189	)	$	1,006
Software	618		124		120		(159		)	703
Shipping	87		—		—		—			87
Product and other total	1,489		159		496		(348		)	1,796
Support	1,961		145		976		(241		)	2,841
Hosting	1,062		115		513		—			1,690
Events	850		38		742		—			1,630
Installs & training	29		11		—		—			40
Services total	3,902		309		2,231		(241		)	6,201
Total revenue	$	5,391	$	468	$	2,727	$	(589	)	$	7,997

Six Months Ended March 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,598	$	174	$	385	$	(300	)	$	1,857
Software	1,260		239		318		(276		)	1,541
Shipping	148		1		—		—			149
Product and other total	3,006		414		703		(576		)	3,547
Support	3,948		334		1,222		(472		)	5,032
Hosting	2,116		264		866		—			3,246
Events	2,081		76		1,394		—			3,551
Installs & training	108		15		—		—			123
Services total	8,253		689		3,482		(472		)	11,952
Total revenue	$	11,259	$	1,103	$	4,185	$	(1,048	)	$	15,499

XML

Subsequent Events (Notes)

6 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On March 11, 2020, COVID-19 was declared a pandemic by the World Health Organization. The disruption caused by the outbreak is uncertain and continues to evolve rapidly, however, it may result in material adverse impact on the Company's financial position, operations and cash flows. While we are unable to accurately predict the full impact that COVID-19 will have 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.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES Act provides opportunities for additional liquidity, loan guarantees, and other government programs to support companies and their employees affected by the COVID-19 pandemic. Following the approval of the Board of Directors, the Company and First Business Bank entered into a $2,314,815 Promissory Note (the "Promissory Note") under the Paycheck Protection Program (PPP) contained within the (CARES) Act. The PPP loan has a term of two years, is unsecured, and is guaranteed by the U.S. Small Business Administration. The loan carries a fixed interest rate of 1% per annum, with the first six months of interest deferred. Under the terms of the CARES Act, the Company will be eligible to apply for forgiveness of all loan proceeds used for payroll costs, rent, utilities, and other qualifying expenses during the eight-week 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 25% of the amount forgiven can be attributable to non-payroll costs. Any amount not forgiven is due in equal installments of principal and interest beginning seven months from the date of the Promissory Note through the maturity date of two years from the date of first disbursement. The note was effective upon receipt of funds on April 21, 2020.

On April 27, 2020, the Company announced that its Special Committee of Independent and Disinterested Directors had accepted an offer from Mr. Mark Burish to purchase all outstanding shares of the Company’s common stock not presently held by Mr. Burish at $5.00 per share. The transaction was expected to close in the third calendar quarter of 2020. As previously announced, the Company formed the Special Committee to consider strategic alternatives.

In May 2020, the Special Committee and the Disinterested Directors and Mr. Burish agreed to not pursue the transaction at this time. Both Mr. Burish and the Special Committee were concerned that the proposal would not obtain the required shareholder approval, and therefore concluded that converting the debt to equity at the same value proposed by Mr. Burish for the acquisition was the most appropriate way to maximize both Company and Shareholder value, improve the Company's financial position, and provide the Company with resources to further its growth opportunities. In accordance therewith, on May 13, 2020, the Company entered into a Debt Conversion Agreement with Mr. Burish to convert Mr. Burish's existing secured debt of approximately $5.6 million into common stock at $5.00 per share.

XML

Commitments

6 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments

Commitments

Inventory Purchase Commitments

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. At March 31, 2020, the Company has an obligation to purchase $319 thousand of Mediasite product, which is not recorded on the Company’s condensed consolidated balance sheet.

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 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 excludes 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 condensed consolidated balance sheets.

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 March 31, 2020, future maturities of operating and finance lease liabilities for the fiscal years ended September 30 are as follows (in thousands):

	Operating Leases			Finance Leases
2020 (remaining)	$	688		$	88
2021	1,026			128
2022	292			79
2023	94			8
2024	102			5
Thereafter	101			—
Total	2,303			308
Less: imputed interest	(303		)	(23		)
Total	$	2,000		$	285

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 condensed 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		ASC 842 adoption			Adjusted
	September 30, 2019		adjustments			October 1, 2019
Right-of-use assets under operating leases	—		2,533			2,533
Total assets	$	15,180	$	2,533		$	17,713
Current portion of operating lease obligations	$	—	$	1,314		$	1,314
Accrued liabilities	2,216		(44		)	2,172
Total current liabilities	13,831		1,270			15,101
Long-term portion of operating lease obligations	—		1,263			1,263
Total liabilities	$	21,433	$	2,533		$	23,966

Supplemental information related to leases is as follows (in thousands, except lease term and discount rate):

	Six Months Ended March 31, 2020
Operating lease costs	$	662
Variable operating lease costs	29
Total operating lease cost	$	691
Finance lease cost:
Amortization of right-of-use assets	$	106
Interest on lease liabilities	12
Total finance lease cost	$	118

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):

	Six Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	679
Operating cash outflows for finance leases	12
Financing cash outflows for finance leases	123

Other information related to leases was as follows:

	March 31, 2020
Weighted average remaining lease term (in years)
Operating leases	2.6
Finance leases	2.3
Weighted average discount rate
Operating leases	11.82	%
Finance leases	7.14	%

XML

Basis of Presentation and Significant Accounting Policies - Computation of Basic and Diluted Weighted Average Shares Used in Earnings per Share Calculations (Detail) - shares	3 Months Ended		6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share, Basic and Diluted [Abstract]
Denominator for basic earnings per share - weighted average common shares (in shares)	6,785,180	5,278,500	6,760,779	5,232,449
Effect of dilutive options (treasury method) (in shares)	148,047	0	0	0
Denominator for diluted earnings per share - adjusted weighted average common shares (in shares)	6,933,227	5,278,500	6,760,779	5,232,449
Options and warrants outstanding during each period, but not included in the computation of diluted earnings per share because they are antidilutive (in shares)	1,933,990	2,076,083	2,082,037	2,076,083

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Operating activities
Net loss	$ (725,000)	$ (3,274,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of other intangibles	150,000	97,000
Depreciation and amortization of property and equipment	433,000	516,000
Provision for doubtful accounts - including financing receivables	9,000	26,000
Stock-based compensation expense related to stock options and warrants	86,000	219,000
Deferred loan interest to related party	264,000	0
Stock issued for board of director fees	64,000	0
Remeasurement loss (gain) on derivative liability	63,000	(7,000)
Changes in operating assets and liabilities:
Accounts receivable	175,000	1,354,000
Financing receivables	0	(2,000)
Inventories	(45,000)	(612,000)
Investment in sales-type lease	126,000	0
Capitalized commissions	134,000	105,000
Prepaid expenses and other current assets	64,000	(25,000)
Right-of-use assets under operating leases	562,000
Operating lease obligations	(578,000)
Other long-term assets	(4,000)	0
Accounts payable and accrued liabilities	(162,000)	89,000
Other long-term liabilities	(1,000)	(33,000)
Unearned revenue	57,000	(1,704,000)
Net cash provided by (used in) operating activities	680,000	(3,251,000)
Investing activities
Purchases of property and equipment	(118,000)	(222,000)
Net cash used in investing activities	(118,000)	(222,000)
Financing activities
Proceeds from notes payable	463,000	4,500,000
Proceeds from lines of credit	0	8,748,000
Payments on notes payable	(618,000)	(333,000)
Payments on lines of credit	0	(9,186,000)
Payment of debt issuance costs	0	(110,000)
Proceeds from issuance of preferred stock and common stock	0	5,000
Proceeds from exercise of common stock options	1,000	0
Payments on finance lease obligations	(124,000)	(134,000)
Net cash provided by (used in) financing activities	(278,000)	3,490,000
Changes in cash and cash equivalents due to changes in foreign currency	7,000	(24,000)
Net increase (decrease) in cash and cash equivalents	291,000	(7,000)
Cash and cash equivalents at beginning of year	4,295,000	1,189,000
Cash and cash equivalents at end of period	4,586,000	1,182,000
Supplemental cash flow information:
Interest paid	479,000	264,000
Income taxes paid, foreign	90,000	160,000
Non-cash financing and investing activities:
Property and equipment financed by finance lease or accounts payable	821,000	112,000
Debt discount	0	676,000
Preferred stock dividends paid in additional shares	0	98,000
Conversion of preferred shares	$ 0	$ 563,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019
Revenue:
Revenues	$ 8,666	$ 7,997	$ 16,681	$ 15,499
Cost of revenue:
Cost of revenues	2,405	2,004	4,584	3,846
Gross margin	6,261	5,993	12,097	11,653
Operating expenses:
Selling and marketing	3,057	3,836	6,453	7,779
General and administrative	1,176	1,345	2,617	2,883
Product development	1,499	1,935	3,089	3,768
Total operating expenses	5,732	7,116	12,159	14,430
Income (loss) from operations	529	(1,123)	(62)	(2,777)
Non-operating expenses:
Interest expense, net	(218)	(227)	(481)	(381)
Other expense, net	(58)	(11)	(43)	(3)
Total non-operating expenses	(276)	(238)	(524)	(384)
Income (loss) before income taxes	253	(1,361)	(586)	(3,161)
Income tax expense	(158)	(125)	(139)	(113)
Net income (loss)	95	(1,486)	(725)	(3,274)
Preferred Stock Dividends and Other Adjustments	0	(45)		(98)
Net loss attributable to common stockholders	$ 95	$ (1,531)	$ (725)	$ (3,372)
Income (loss) per common share
Loss per common share - basic (in usd per share)	$ 0.01	$ (0.29)	$ (0.11)	$ (0.64)
Loss per common share – diluted (in usd per share)	$ 0.01	$ (0.29)	$ (0.11)	$ (0.64)
Weighted average common shares
– basic (in shares)	6,785,180	5,278,500	6,760,779	5,232,449
– diluted (in shares)	6,933,227	5,278,500	6,760,779	5,232,449
Product and other
Revenue:
Revenues	$ 2,812	$ 1,796	$ 4,867	$ 3,547
Cost of revenue:
Cost of revenues	1,158	645	1,989	1,296
Services
Revenue:
Revenues	5,854	6,201	11,814	11,952
Cost of revenue:
Cost of revenues	$ 1,247	$ 1,359	$ 2,595	$ 2,550

XML

Basis of Presentation and Significant Accounting Policies - Summary of Financial Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Sep. 30, 2019
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability	$ 72	$ 9
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability	$ 72	$ 9

XML

Basis of Presentation and Significant Accounting Policies Basis of Presentation and Significant Accounting Policies - Recently Adopted Accounting Pronouncements (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Oct. 01, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right-of-use assets under operating leases	$ 1,972	$ 2,533
Operating lease liabilities	$ 2,000
Accounting Standards Update 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right-of-use assets under operating leases		2,533
Operating lease liabilities		$ 2,500

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Preferred stock	Common stock	Additional paid-in capital	Accumulated deficit	Accumulated other comprehensive loss	Receivable for common stock issued	Treasury stock
Beginning balance at Sep. 30, 2018	$ (6,458)	$ 1,651	$ 51	$ 200,130	$ (207,419)	$ (676)	$ (26)	$ (169)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock compensation	220			220
Conversion of preferred stock	0	(563)	2	561
Issuance of common stock and warrants	4			4
Warrants issued in connection with subordinated notes payable	674			674
Preferred stock dividends	0	99		(99)
Foreign currency translation adjustment	45					45
Net income (loss)	(3,274)				(3,274)
Ending balance at Mar. 31, 2019	(7,098)	1,187	53	201,490	(209,002)	(631)	(26)	(169)
Beginning balance at Dec. 31, 2018	(6,329)	1,141	53	200,802	(207,516)	(614)	(26)	(169)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock compensation	56			56
Issuance of common stock and warrants	4			4
Warrants issued in connection with subordinated notes payable	674			674
Preferred stock dividends	0	46		(46)
Foreign currency translation adjustment	(17)					(17)
Net income (loss)	(1,486)				(1,486)
Ending balance at Mar. 31, 2019	(7,098)	1,187	53	201,490	(209,002)	(631)	(26)	(169)
Beginning balance at Sep. 30, 2019	(6,253)	0	67	203,735	(209,340)	(546)	0	(169)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock compensation	86			86
Issuance of common stock and warrants	64		1	63
Foreign currency translation adjustment	(3)					(3)
Net income (loss)	(725)				(725)
Ending balance at Mar. 31, 2020	(6,831)	0	68	203,884	(210,065)	(549)	0	(169)
Beginning balance at Dec. 31, 2019	(7,029)	0	67	203,787	(210,160)	(554)	0	(169)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock compensation	34			34
Issuance of common stock and warrants	64		1	63
Foreign currency translation adjustment	5					5
Net income (loss)	95				95
Ending balance at Mar. 31, 2020	$ (6,831)	$ 0	$ 68	$ 203,884	$ (210,065)	$ (549)	$ 0	$ (169)

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2020	Sep. 30, 2019
Current assets:
Cash and cash equivalents	$ 4,586	$ 4,295
Accounts receivable, net of allowances of $135 & $135	6,344	6,532
Inventories, net of reserves of $30 and $0	602	558
Investment in sales-type lease, current	11	163
Capitalized commissions, current	334	464
Prepaid expenses and other current assets	910	972
Total current assets	12,787	12,984
Property and equipment:
Leasehold improvements	1,121	1,121
Computer equipment	6,499	5,610
Furniture and fixtures	1,291	1,233
Total property and equipment	8,911	7,964
Less accumulated depreciation and amortization	6,838	6,396
Property and equipment, net	2,073	1,568
Other assets:
Investment in sales-type lease, long-term	159	134
Capitalized commissions, long-term	102	106
Right-of-use assets under operating leases	1,972
Other long-term assets	384	388
Total assets	17,477	15,180
Current liabilities:
Accounts payable	1,994	843
Accrued liabilities	1,649	2,216
Unearned revenue	9,453	9,610
Current portion of finance lease obligations	155	194
Current portion of operating lease obligations	1,160
Current portion of notes payable and warrant debt, net of discounts	1,915	968
Total current liabilities	16,326	13,831
Long-term portion of unearned revenue	2,055	1,842
Long-term portion of finance lease obligations	130	179
Long-term portion of operating lease obligations	840
Long-term portion of notes payable and warrant debt, net of discounts	4,743	5,429
Derivative liability, at fair value	72	9
Other liabilities	142	143
Total liabilities	24,308	21,433
Commitments and contingencies
Stockholders’ deficit:
Preferred stock	0	0
Common stock, $.01 par value, authorized 10,000,000 shares; 6,800,037 and 6,749,359 shares issued, respectively and 6,787,321 and 6,736,643 shares outstanding, respectively	68	67
Additional paid-in capital	203,884	203,735
Accumulated deficit	(210,065)	(209,340)
Accumulated other comprehensive loss	(549)	(546)
Treasury stock, at cost, 12,716 shares	(169)	(169)
Total stockholders’ deficit	(6,831)	(6,253)
Total liabilities and stockholders’ deficit	17,477	15,180
9% Preferred Stock, Series A, Voting, Cumulative, Convertible
Stockholders’ deficit:
Preferred stock	0	0
5% Preferred Stock, Series B, Voting, Cumulative, Convertible
Stockholders’ deficit:
Preferred stock	$ 0	$ 0

XML

Basis of Presentation and Significant Accounting Policies - Fair Value Assumptions for Stock Options Granted (Detail)	6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Accounting Policies [Abstract]
Expected life	4 years 6 months	4 years 3 months 18 days
Risk free interest rate, minimum	1.41%	2.38%
Risk free interest rate, maximum	1.63%	2.93%
Expected volatility, minimum	72.40%	60.19%
Expected volatility, maximum	73.46%	66.05%
Expected forfeiture rate, minimum	15.05%	13.51%
Expected forfeiture rate, maximum	15.38%	14.76%
Expected exercise factor (usd per share)	1.2	1.2
Expected dividend yield	0.00%	0.00%

XML

Commitments Commitments - Supplemental Information Related to Leases (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Mar. 31, 2020	Mar. 31, 2020
Operating Leases
Operating lease costs		$ 662
Variable operating lease costs		29
Total operating lease cost		691
Finance Leases
Amortization of right-of-use assets		106
Interest on lease liabilities		12
Total finance lease cost		$ 118
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$ 679
Operating cash outflows for finance leases	12
Financing cash outflows for finance leases	$ 123

XML

Revenue - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019
Disaggregation of Revenue [Line Items]
Revenues	$ 8,666	$ 7,997	$ 16,681	$ 15,499
Product and other total
Disaggregation of Revenue [Line Items]
Revenues	2,812	1,796	4,867	3,547
Hardware
Disaggregation of Revenue [Line Items]
Revenues	1,773	1,006	2,827	1,857
Software
Disaggregation of Revenue [Line Items]
Revenues	963	703	1,847	1,541
Shipping
Disaggregation of Revenue [Line Items]
Revenues	76	87	193	149
Services total
Disaggregation of Revenue [Line Items]
Revenues	5,854	6,201	11,814	11,952
Support
Disaggregation of Revenue [Line Items]
Revenues	2,774	2,841	5,065	5,032
Hosting
Disaggregation of Revenue [Line Items]
Revenues	1,613	1,690	3,115	3,246
Events
Disaggregation of Revenue [Line Items]
Revenues	1,372	1,630	3,424	3,551
Installs & training
Disaggregation of Revenue [Line Items]
Revenues	95	40	210	123
Intersegment Eliminations
Disaggregation of Revenue [Line Items]
Revenues	(470)	(589)	(791)	(1,048)
Intersegment Eliminations | Product and other total
Disaggregation of Revenue [Line Items]
Revenues	(302)	(348)	(431)	(576)
Intersegment Eliminations | Hardware
Disaggregation of Revenue [Line Items]
Revenues	(124)	(189)	(197)	(300)
Intersegment Eliminations | Software
Disaggregation of Revenue [Line Items]
Revenues	(178)	(159)	(234)	(276)
Intersegment Eliminations | Shipping
Disaggregation of Revenue [Line Items]
Revenues	0	0	0	0
Intersegment Eliminations | Services total
Disaggregation of Revenue [Line Items]
Revenues	(168)	(241)	(360)	(472)
Intersegment Eliminations | Support
Disaggregation of Revenue [Line Items]
Revenues	(168)	(241)	(360)	(472)
Intersegment Eliminations | Hosting
Disaggregation of Revenue [Line Items]
Revenues	0	0	0	0
Intersegment Eliminations | Events
Disaggregation of Revenue [Line Items]
Revenues	0	0	0	0
Intersegment Eliminations | Installs & training
Disaggregation of Revenue [Line Items]
Revenues	0	0	0	0
SOFO | Operating Segments
Disaggregation of Revenue [Line Items]
Revenues	6,338	5,391	12,662	11,259
SOFO | Operating Segments | Product and other total
Disaggregation of Revenue [Line Items]
Revenues	2,520	1,489	4,396	3,006
SOFO | Operating Segments | Hardware
Disaggregation of Revenue [Line Items]
Revenues	1,563	784	2,609	1,598
SOFO | Operating Segments | Software
Disaggregation of Revenue [Line Items]
Revenues	883	618	1,597	1,260
SOFO | Operating Segments | Shipping
Disaggregation of Revenue [Line Items]
Revenues	74	87	190	148
SOFO | Operating Segments | Services total
Disaggregation of Revenue [Line Items]
Revenues	3,818	3,902	8,266	8,253
SOFO | Operating Segments | Support
Disaggregation of Revenue [Line Items]
Revenues	1,887	1,961	3,897	3,948
SOFO | Operating Segments | Hosting
Disaggregation of Revenue [Line Items]
Revenues	1,132	1,062	2,138	2,116
SOFO | Operating Segments | Events
Disaggregation of Revenue [Line Items]
Revenues	705	850	2,023	2,081
SOFO | Operating Segments | Installs & training
Disaggregation of Revenue [Line Items]
Revenues	94	29	208	108
SFI | Operating Segments
Disaggregation of Revenue [Line Items]
Revenues	528	468	1,122	1,103
SFI | Operating Segments | Product and other total
Disaggregation of Revenue [Line Items]
Revenues	219	159	475	414
SFI | Operating Segments | Hardware
Disaggregation of Revenue [Line Items]
Revenues	153	35	219	174
SFI | Operating Segments | Software
Disaggregation of Revenue [Line Items]
Revenues	64	124	253	239
SFI | Operating Segments | Shipping
Disaggregation of Revenue [Line Items]
Revenues	2	0	3	1
SFI | Operating Segments | Services total
Disaggregation of Revenue [Line Items]
Revenues	309	309	647	689
SFI | Operating Segments | Support
Disaggregation of Revenue [Line Items]
Revenues	136	145	291	334
SFI | Operating Segments | Hosting
Disaggregation of Revenue [Line Items]
Revenues	160	115	280	264
SFI | Operating Segments | Events
Disaggregation of Revenue [Line Items]
Revenues	12	38	74	76
SFI | Operating Segments | Installs & training
Disaggregation of Revenue [Line Items]
Revenues	1	11	2	15
MSKK | Operating Segments
Disaggregation of Revenue [Line Items]
Revenues	2,270	2,727	3,688	4,185
MSKK | Operating Segments | Product and other total
Disaggregation of Revenue [Line Items]
Revenues	375	496	427	703
MSKK | Operating Segments | Hardware
Disaggregation of Revenue [Line Items]
Revenues	181	376	196	385
MSKK | Operating Segments | Software
Disaggregation of Revenue [Line Items]
Revenues	194	120	231	318
MSKK | Operating Segments | Shipping
Disaggregation of Revenue [Line Items]
Revenues	0	0	0	0
MSKK | Operating Segments | Services total
Disaggregation of Revenue [Line Items]
Revenues	1,895	2,231	3,261	3,482
MSKK | Operating Segments | Support
Disaggregation of Revenue [Line Items]
Revenues	919	976	1,237	1,222
MSKK | Operating Segments | Hosting
Disaggregation of Revenue [Line Items]
Revenues	321	513	697	866
MSKK | Operating Segments | Events
Disaggregation of Revenue [Line Items]
Revenues	655	742	1,327	1,394
MSKK | Operating Segments | Installs & training
Disaggregation of Revenue [Line Items]
Revenues	$ 0	$ 0	$ 0	$ 0

XML

Basis of Presentation and Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Lessee, Leases [Policy Text Block]

Investment in Sales-Type Lease

The Company has entered into sales-type lease arrangements with certain customers, consisting of recorders leased with terms ranging from 3-5 years.

Financing 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.

Inventory Valuation

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.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

In determining the fair value of financial assets and liabilities, the Company currently utilizes market data or other assumptions that it believes market participants would use in pricing the asset or liability in the principal or most advantageous market, and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible to the Company at the measurement date.

Level 2 Inputs: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The hierarchy gives the highest priority to Level 1, as this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3.

Financial Liabilities Measured at Fair Value on Recurring Basis

The fair value of the bifurcated conversion feature represented by the warrant derivative liability associated with the PFG 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 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 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

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.

Stock Based Compensation

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.

Per share computation

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.

Recent Accounting Pronouncements

ecent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements", ("ASU 2018-13"). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe the ASU will have a significant impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", ("ASU 2018-15"). ASU 2018-15 aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in ASU 2018-15 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2018, the FASB issued ASU 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606", ("ASU 2018-18"). ASU 2018-18 provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. The amendments in ASU 2018-18 are effective for all public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", ("ASU 2019-04"). ASU 2019-04 identifies certain areas that need clarification and correction in each of these Topics. For Topic 326, for entities that have adopted ASU 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within fiscal those fiscal years. Early adoption is permitted in any interim period after issuance as long as the entity has adopted the amendments in ASU 2016-13. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2019, the FASB issued ASU 2019-08, "Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)", ("ASU 2019-08"). This ASU requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. For entities that have not yet adopted the amendments in ASU 2018-07, the amendments in this Update are effective for public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)", ("ASU 2019-10"). This ASU addressed effective dates of the aforementioned major Accounting Standards Updates as a result of the challenges implementation of major standards poses for private companies, smaller reporting companies, and not-for-profit organizations. ASU 2019-10 is a major update which would first be effective for bucket-one entities, which are public entities that are Securities and Exchange Commission ("SEC") filers, excluding entities eligible to be smaller reporting companies under the SEC's definition. The Company does qualify as a smaller reporting company under the SEC's definition. Financial Instruments - Credit Losses (Topic 326) is currently not effective for any entities; ASU 2019-10 changes the effective date of this update for all other public companies (including smaller reporting companies) to be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Because Derivatives and Hedging (Topic 815) and Leases (Topic 842) are already effective for public business entities the Board retained the effective date for those entities, including smaller reporting companies.

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, 2021, and interim periods within fiscal years beginning after December 15, 2022. 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.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)", ("ASU 2020-01"). The amendments in this ASU affect all entities that apply the guidance in Topics 321, 323, and 815 and either (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. For public business entities, the amendments in this ASU are effective for fiscal year beginning after December 15, 2020, and interim periods with those fiscal years. The amendments in this ASU should be applied prospectively. Under a prospective transition, an entity should apply the amendments at the beginning of the interim period that includes the adoption date. 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

Leases (ASC Topic 842, Leases ("ASC 842"))

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 three and six months ended March 31, 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 condensed 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 condensed consolidated balance sheets. Leases previously identified as sales-type leases, where the Company is a lessor, continue to be reported on the condensed consolidated balance sheets. Refer to Note 3 - Commitments for additional disclosures related to our leasing activities.

Other Accounting Pronouncements

In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)", ("ASU 2017-11"). This update was issued to address complexities in accounting for certain equity-linked financial instruments containing down round features. The amendment changes the classification analysis of these financial instruments (or embedded features) so that equity classification is no longer precluded. The amendments in ASU 2017-11 are effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging Topic 815): Targeted Improvements to Accounting for Hedging Activities", ("ASU 2017-12"). This update was issued to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in ASU 2017-12 are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting", ("ASU 2018-07"). The standard addresses aspects of the accounting for nonemployee share-based payment transactions. The amendments in ASU 2018-07 are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", ("ASU 2019-04"). ASU 2019-04 identifies certain areas that need clarification and correction in each of these Topics. For Topic 815, for entities that have not yet adopted ASU 2017-12 as of the issuance date of this ASU, the effective dates and transition requirements for the amendments to Topic 815 are the same as the effective dates and transition requirements in ASU 2017-12. The amendments for Topic 815 in ASU 2019-04 were adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

XML

Credit Arrangements

6 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Credit Arrangements

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 is payable interest only until November 30, 2018. Thereafter, principal is due in 30 equal monthly principal installments, plus accrued interest, beginning December 1, 2018 and continuing until May 1, 2021, when the principal balance is to be paid in full. Tranche 2 of the Term Loan is payable using the same repayment schedule as Tranche 1. Upon maturity, Sonic Foundry is required to pay PFG V a cash fee of $150,000.

The principal of the Term Loan may be prepaid at any time, provided that Sonic Foundry pays to PFG V a prepayment fee equal to 1% of the principal amount prepaid, if the prepayment occurs in the first year from disbursement of Tranche 1.

The Term Loan is collateralized by substantially all the Company’s assets, including intellectual property.

Coincident with execution of the 2018 Loan and Security Agreement, the Company entered into a Warrant Agreement (“Warrant”) with PFG V. Pursuant to the terms of the Warrant, the Company issued to PFG V a warrant to purchase up to 66,000 shares of common stock of the Company at an exercise price of $2.57 per share, subject to certain adjustments. Pursuant to the Warrant, PFG V is also entitled, under certain conditions, to require the Company to exchange the Warrant for the sum of $250,000. All warrants issued in connection with PFG V expire on May 11, 2023.

At March 31, 2020, and September 30, 2019, the estimated fair value of the derivative liability associated with the warrants issued in connection with the 2018 Loan and Security Agreement, was $72 thousand and $9 thousand, respectively. Included in other expense, the remeasurement loss on the derivative liability during the three and six months ended March 31, 2020 was $61 thousand and $63 thousand, respectively, compared to a remeasurement loss of $8 thousand and a remeasurement gain of $15 thousand during the three and six months ended March 31, 2019.

The proceeds from the 2018 Loan and Security Agreement were allocated between the PFG V Debt and the Warrant Debt (inclusive of its conversion feature) based on their relative fair value on the date of issuance which resulted in carrying values of $2.3 million and $156 thousand, respectively. The warrant debt of $156 thousand is treated together as a debt discount on the PFG V Debt and will be accreted to interest expense under the effective interest method over the three-year term of the PFG V Debt and the five-year term of the Warrant Debt. During the three and six months ended March 31, 2020, the Company recorded accretion of discount expense associated with the warrants issued with the PFG V loan of $6 thousand and $11 thousand compared to $5 thousand and $9 thousand in the same periods last year. In addition, $14 thousand and $28 thousand amortization of the debt discount was recorded in the current three month and six month period compared to $13 thousand and $27 thousand in the prior year. At March 31, 2020, the carrying value of the PFG V Debt and the Warrant Debt (inclusive of its conversion feature) were $1.2 million and $160 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 the three and six months ended March 31, 2020, the Company recorded interest expense of $13 thousand and $25 thousand, associated with recognition of the back-end fee compared to $13 thousand and $25 thousand during the three and six months ended March 31, 2019.

The non-cash effective interest expense is calculated on the net balance of the PFG V Debt, debt discount, back-end fee and related loan origination fees, on a monthly basis. During the three and six months ended March 31, 2020, we recorded $3 thousand of gain and $1 thousand of non-cash interest expense related to the effective interest rate on the PFG V loan.

On March 11, 2019, Sonic Foundry, Inc. entered into a Consent, Waiver & Modification to the 2018 Loan and Security Agreement dated May 11, 2018 (the "Modification") with Partners for Growth V, L.P. ("PFG"). Under the Modification: PFG waived the Company's default on the Minimum EBITDA financial covenant for the quarterly reporting period ending December 31, 2018; modified the existing financial covenants to be as follows: (i) Minimum Coverage Ratio (as defined), which requires, as of the last day of each month on or after the closing date, to be equal to or greater than (x) 0.7: 1.00 for the December through May calendar months, and (y) 0.9:1.00 for the June through November calendar months; (ii) Minimum Qualifying Revenue (as defined), which requires, as of the last day of each calendar month, on or after December 1, 2018, on a trailing twelve-month basis, to be no less than $13,000,000; and modified the negative covenants to be as follows: the Company (x) shall not cause or permit (a) Japanese subsidiary indebtedness under its revolving line of credit facility to exceed at any time $1,000,000 outstanding, or (b) aggregate subsidiary indebtedness to exceed $1,200,000 at any time. At March 31, 2020, the Company was in compliance with all covenants per 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 are unchanged.

At March 31, 2020, a gross balance of $1.2 million was outstanding on the term debt with PFG V with an effective interest rate of sixteen-and-six-tenths percent (16.60%). At September 30, 2019, a gross balance of $1.7 million was outstanding with PFG V.

Initial Notes of the February 28, 2019 Note Purchase Agreement

On January 4, 2019, Sonic Foundry, Inc. and 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.

February 28, 2019 Note Purchase Agreement

On February 28, 2019, Sonic Foundry, Inc. entered into a Note Purchase Agreement (the "Note Purchase Agreement") with Mr. Burish.

The Note Purchase Agreement provides for subordinated secured promissory notes (the "Subordinated Promissory Notes") in an aggregate original principal amount of up to $5,000,000. Mr. Burish will acquire from the Company (a) on the initial closing date, the notes in an aggregate principal amount of $3,000,000 (the "Initial Notes") and (b) two additional tranches, each in the amount of $1,000,000 and payable at any time prior to the first anniversary of the Agreement (the "Additional Notes" and together with the Initial Notes, collectively, the "Purchase Price"). The Initial Notes were previously disbursed in January and February of 2019, as detailed above (the Promissory Note, the January 31st, 2019 Promissory Note, and the February 14, 2019 Promissory Note, collectively referred to as the "Initial Notes"). The fourth tranche was disbursed on March 13, 2019 and the fifth and final tranche was disbursed on April 4, 2019.

The Subordinated Promissory Notes accrue interest at the variable per annum rate equal to the Prime Rate (as defined) plus four percent (4.00%). The outstanding principal balance of the Subordinated Promissory Notes, plus all unpaid accrued interest, plus all outstanding and unpaid obligations, shall be due and payable on February 28, 2024 (the "Maturity Date"). Principal installments of $100,000 are payable on the last day of each month end beginning with the month ending August 31, 2020, and continuing through the Maturity Date.

The principal of the Subordinated Promissory Notes may be prepaid at any time in whole or in part, by payment of an amount equal to the unpaid principal balance to be pre-paid, plus all unpaid interest accrued thereon through the prepayment date, plus all outstanding and unpaid fees and expenses payable through the prepayment date.

At each anniversary of the Closing, an administration fee ("anniversary fee") will be payable to Mr. Burish equal to 0.5% of the purchase price less principal payments made.

The Subordinated Promissory Notes are collateralized by substantially all the Company's assets, including intellectual property, subject to the rights of Partners for Growth V, L.P., which shall be senior to the Subordinated Promissory Notes.

The Note Purchase Agreement requires compliance with the following financial covenants: (i) Minimum Coverage Ratio, which requires, as of the last day of each month on or after the closing date, the Minimum Coverage Ratio (as defined) to be equal to or greater than (x) 0.7:1.00 for the December through May calendar months, (y) 0.9:1.00 for the June through November calendar months; (ii) Minimum Qualifying Revenue (as defined), as of the last day of any calendar month, on or after December 1, 2018, on a trailing twelve-month basis, to be no less than $13,000,000. At March 31, 2020, the Company was in compliance with all covenants per the Note Purchase Agreement.

The Note Purchase Agreement dated February 28, 2019 is subordinated to the existing PFG loan.

The Company used the proceeds from the notes issued under the Note Purchase Agreement to replace the revolving line of credit with Silicon Valley Bank, which matured on January 31, 2019.

The proceeds from the Note Purchase Agreement were allocated between the Subordinated Promissory Notes and the Warrant debt based on their relative fair value on the date of issuance. The warrant debt of $674 thousand is treated together as a debt discount on the Subordinated Notes Payable and will be accreted to interest expense under the effective interest rate method over the five-year term of the Subordinated Notes Payable. During the three and six months ended March 31, 2020, the Company recorded accretion of discount expense associated with the Subordinated Promissory Notes of $33 thousand and $67 thousand compared to the three and six months ended March 31, 2019 of $13 thousand and $13 thousand.

During the three and six months ended March 31, 2020, the Company recorded an accrued anniversary fee associated with the Subordinated Promissory Notes of $6 thousand and $12 thousand. There was no accrued anniversary fee for the prior periods.

The non-cash effective interest expense is calculated on the net balance of the Subordinated Promissory Notes, Warrant, and related loan origination fees, on a monthly basis. During the three and six months ended March 31, 2020, we recorded $13 thousand and $2 thousand of non-cash interest benefit related to the effective interest rate on the Subordinated Promissory Notes.

At March 31, 2020, a gross principal balance of $5.0 million was outstanding on the Subordinated Promissory Notes, with an effective interest rate of twelve-and-four-tenths percent (12.4%). At September 30, 2019, a gross principal balance of $5.0 million was outstanding on the Subordinated Promissory Notes.

Accrued interest on the Subordinated Promissory Notes was paid through March 31, 2019, but has been deferred since that date. In April 2019 it was informally agreed between the Company and Mr. Burish that the interest would be deferred. On November 22, 2019, the Company entered into a Note Modification Agreement to formalize the deferment of the accrued interest. The Note Modification Agreement modifies the terms of the Subordinated Promissory Notes by deferring all interest payments due at the end of each calendar month beginning April 30, 2019 and continuing through and including July 31, 2020, in an amount which will be determined based on the variable interest rate on the Subordinated Promissory Notes. The deferred interest amount shall be added to the principal amount due on the Subordinated Notes and shall be paid on the maturity date. As a result of the Note Modification Agreement, $502 thousand and $259 thousand of accrued interest related to the Subordinated Notes Payable was re-classed from current to long-term on the Company's condensed consolidated balance sheets as of March 31, 2020 and September 30, 2019, respectively.

The anniversary fee on the Subordinated Promissory Notes was due on February 28, 2020 ("first year anniversary fee") and has been deferred. On March 24, 2020, the Company entered into a First Amendment to Note Modification Agreement ("First Amendment") to formalize the deferment of the first year anniversary fee. The First Amendment modified the terms of the Subordinated Promissory Notes by deferring the first year anniversary fee due on February 28, 2020. The deferred first year anniversary fee was added to the principal amount due on the Subordinated Notes and is required to be paid on the maturity date. As a result of the First Amendment, $25 thousand was re-classed from current to long-term on the Company's condensed consolidated balance sheets as of March 31, 2020.

February 28, 2019 Warrant

Coincident with execution of the Note Purchase Agreement, the Company entered into a Warrant Agreement ("Warrant") with Mr. Burish. Pursuant to the terms of the Warrant, the Company issued to Mr. Burish a warrant to purchase up to 728,155 shares of common stock of the Company at an exercise price of $1.18 per share, subject to certain adjustments.

On April 25, 2019, Mr. Burish exercised his warrant to purchase 728,155 shares of common stock of the Company at an exercise price of $1.18 per share. A special committee of disinterested and independent directors approved the issuance of the Subordinated Promissory Notes and the Warrant.

Other Indebtedness

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.

At March 31, 2020, $347 thousand was outstanding on the term loan with Mitsui Sumitomo Bank. The term loan accrues interest at an annual rate of approximately one-and-one-half percent (1.475%).

At March 31, 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%).

XML

Basis of Presentation and Significant Accounting Policies Basis of Presentation and Significant Accounting Policies - Financing Receivables and Investment in Sales-Type Lease (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Sep. 30, 2019
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross investment in sales-type lease		$ 526
Financing receivable (write-off of financing receivable)		526
Allowance (write-off of allowance) on financing receivables		$ 526
2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross investment in sales-type lease	$ 13
Financing receivable (write-off of financing receivable)	13
2021
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross investment in sales-type lease	147
Financing receivable (write-off of financing receivable)	147
2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross investment in sales-type lease	13
Financing receivable (write-off of financing receivable)	13
Gross investment in sales-type lease
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross investment in sales-type lease	173
Less: Unearned income	3
Total investment in sales-type lease	170
Current portion of total investment in sales-type lease	11
Long-term portion of total investment in sales-type lease	159
Financing receivable (write-off of financing receivable)	173
Restatement Adjustment
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross investment in sales-type lease	(526)
Financing receivable (write-off of financing receivable)	(526)
Allowance (write-off of allowance) on financing receivables	$ (526)

XML

Label	Element	Value
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ 1,691,000
AOCI Attributable to Parent [Member]
Stockholders' Equity Attributable to Parent	us-gaap_StockholdersEquity	(676,000)
Common Stock [Member]
Stockholders' Equity Attributable to Parent	us-gaap_StockholdersEquity	51,000
Treasury Stock [Member]
Stockholders' Equity Attributable to Parent	us-gaap_StockholdersEquity	(169,000)
Preferred Stock [Member]
Stockholders' Equity Attributable to Parent	us-gaap_StockholdersEquity	1,651,000
Additional Paid-in Capital [Member]
Stockholders' Equity Attributable to Parent	us-gaap_StockholdersEquity	200,130,000
Retained Earnings [Member]
Stockholders' Equity Attributable to Parent	us-gaap_StockholdersEquity	(205,728,000)
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	1,691,000
Receivable For Common Stock Issued [Member]
Stockholders' Equity Attributable to Parent	us-gaap_StockholdersEquity	$ (26,000)

XML

Basis of Presentation and Significant Accounting Policies

6 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Significant Accounting Policies

Financial Statements

The accompanying condensed consolidated financial statements are unaudited and have been prepared on a basis substantially consistent with the Company's audited financial statements as of and for the year ended September 30, 2019 included in the Company's Annual Report on Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the Company’s financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. Operating results for the six month period ended March 31, 2020 are not necessarily indicative of the results that might be expected for the year ending September 30, 2020.

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 represents 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 receivables 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 the period ended March 31, 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 consists of the following (in thousands) as of March 31, 2020:

Investment in sales-type lease, gross:
2020	$	13
2021	147
2022	13
Gross investment in sales-type lease	173
Less: Unearned income	3
Total investment in sales-type lease	$	170
Current portion of total investment in sales-type lease	$	11
Long-term portion of total investment in sales-type lease	159
	$	170

Inventory

Inventory consists of raw materials and supplies used in the assembly of Mediasite recorders and finished units. Inventory of completed units and spare parts are carried at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis. An obsolescence reserve has been established to account for slow moving inventory.

Inventory consists of the following (in thousands):

	March 31, 2020			September 30, 2019
Raw materials and supplies	$	230		$	163
Finished goods	402			395
Less: Obsolescence reserve	(30		)	—
	$	602		$	558

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 March 31, 2020 and September 30, 2019, the Company has recorded a liability of $130 thousand and $129 thousand, respectively, for retirement obligations associated with returning the MSKK leased property to the respective lessors upon the termination of the lease arrangement. Asset retirement obligations are included in other-long term liabilities on the condensed consolidated balance sheets.

Fair Value of Financial Instruments

In determining the fair value of financial assets and liabilities, the Company currently utilizes market data or other assumptions that it believes market participants would use in pricing the asset or liability in the principal or most advantageous market, and adjusts for non-performance and/or other risk associated with the Company as well as counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 Inputs: Unadjusted quoted prices which are available in active markets for identical assets or liabilities accessible to the Company at the measurement date.

Level 2 Inputs: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The hierarchy gives the highest priority to Level 1, as this level provides the most reliable measure of fair value, while giving the lowest priority to Level 3.

Financial Liabilities Measured at Fair Value on Recurring Basis

The fair value of the bifurcated conversion feature represented by the warrant derivative liability associated with the PFG 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):

March 31, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	72	$	—	$	72

September 30, 2019	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	9	$	—	$	9

The gain or loss related to the fair value remeasurement on the derivative liability is included in the other (expense) line on the condensed consolidated statements of operations.

Financial Liabilities Measured at Fair Value on a Nonrecurring Basis

The initial fair values of PFG debt and warrant debt (see Note 4) were based on the present value of expected future cash flows and assumptions about current interest rates and the creditworthiness of the Company (Level 3). 

The Mr. Mark Burish ("Mr. Burish") warrant was measured at fair value using a Black Scholes model and the remaining fair value was allocated to the related Mr. Burish note purchase agreement (see Note 4) which management believes materially approximates the fair value based on calculating the present value of expected future cash flows (Level 3). The non-recurring fair value measurements were performed as of the date of issuance of the note purchase agreement and warrant. The discount is being amortized over the life of the related debt.

Financial Instruments Not Measured at Fair Value

The Company's other financial instruments consist primarily of cash and cash equivalents, accounts receivable, investment in sales-type lease, financing receivables, accounts payable and debt instruments and capital lease obligations. The book values of cash and cash equivalents, accounts receivable, investment in sales-type lease, and accounts payable are considered to be representative of their respective fair values due their short term nature. The carrying value of debt including the current portion, approximates fair market value as the variable and fixed rate approximates the current market rate of interest available to the Company.

Legal Contingencies

When legal proceedings are brought or claims are made against the Company and the outcome is uncertain, we are required to determine whether it is probable that an asset has been impaired or a liability has been incurred. If such impairment or liability is probable and the amount of loss can be reasonably estimated, the loss must be charged to earnings.

No legal contingencies were recorded or were required to be disclosed for the three or six months ended March 31, 2020 or 2019.

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:

	Six Months Ended March 31,
	2020	2019
Expected life	4.5 years	4.3 years
Risk-free interest rate	1.41% - 1.63%	2.48% - 2.93%
Expected volatility	72.40% - 73.46%	60.19% - 66.05%
Expected forfeiture rate	15.05% - 15.38%	13.51% - 14.76%
Expected exercise factor	1.2	1.2
Expected dividend yield	0%	0%

A summary of option activity at March 31, 2020 and changes during the six months then ended is presented below:

	Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Period in Years
Outstanding at October 1, 2019	1,654,429		$	5.62	4.9
Granted	184,750		1.18		9.6
Exercised	(1,000	)	0.66		8.7
Forfeited	(54,700	)	4.07		4.3
Outstanding at March 31, 2020	1,783,479		5.20		4.9
Exercisable at March 31, 2020	1,416,998		6.21		3.8

A summary of the status of the Company’s non-vested options and changes during the six month period ended March 31, 2020 is presented below:

Non-vested Options	Options		Weighted-Average Grant Date Fair Value
Non-vested at October 1, 2019	357,114		$	0.77
Granted	184,750		0.51
Vested	(153,049	)	0.97
Forfeited	(22,334	)	0.55
Non-vested at March 31, 2020	366,481		$	0.57

The weighted average grant date fair value of options granted during the six months ended March 31, 2020 was $0.51. As of March 31, 2020, there was $131 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation cost of $95 thousand. The cost is expected to be recognized over a weighted-average remaining life of 2.2 years.

Stock-based compensation recorded in the three and six months ended March 31, 2020 was $34 thousand and $86 thousand. Stock-based compensation recorded in the three and six months ended March 31, 2019 was $57 thousand and $219 thousand. There was $1 thousand in cash received from exercises under all stock option plans and warrants during the three and six months ended March 31, 2020 and zero during the same periods in 2019. There were no tax benefits realized for tax deductions from option exercises in either of the three and six month periods ended March 31, 2020 or 2019. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

The Company also has an Employee Stock Purchase Plan ("Purchase Plan") under which an aggregate of 200,000 common shares may be issued. A total of 23,007 shares are available to be issued under the plan. The Company recorded stock compensation expense under this plan of $1 thousand for each of the three and six month periods ended March 31, 2020 and 2019.

Preferred Stock and Dividends

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

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:

	Three Months Ended March 31,		Six Months Ended March 31,
	2020	2019	2020	2019
Denominator for basic net income (loss) per share - weighted average common shares	6,785,180	5,278,500	6,760,779	5,232,449
Effect of dilutive options (treasury method)	148,047	—	—	—
Denominator for diluted net income (loss) per share - adjusted weighted average common shares	6,933,227	5,278,500	6,760,779	5,232,449
Options, warrants and convertible shares outstanding during each period, but not included in the computation of diluted net loss per share because they are antidilutive	1,933,990	2,076,083	2,082,037	2,076,083

Liquidity

At March 31, 2020, approximately $1.5 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 lease opportunities to finance equipment purchases in the future and anticipate continuing to utilize proceeds from the note purchase agreement to support working capital needs. We may also seek additional equity financing but there are no assurances that these will be on terms acceptable to the Company.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurements", ("ASU 2018-13"). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe the ASU will have a significant impact on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", ("ASU 2018-15"). ASU 2018-15 aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in ASU 2018-15 are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2018, the FASB issued ASU 2018-18, "Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606", ("ASU 2018-18"). ASU 2018-18 provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606. The amendments in ASU 2018-18 are effective for all public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", ("ASU 2019-04"). ASU 2019-04 identifies certain areas that need clarification and correction in each of these Topics. For Topic 326, for entities that have adopted ASU 2016-13, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within fiscal those fiscal years. Early adoption is permitted in any interim period after issuance as long as the entity has adopted the amendments in ASU 2016-13. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2019, the FASB issued ASU 2019-08, "Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606)", ("ASU 2019-08"). This ASU requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. For entities that have not yet adopted the amendments in ASU 2018-07, the amendments in this Update are effective for public business entities in fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the guidance and its impact to the financial statements.

In November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)", ("ASU 2019-10"). This ASU addressed effective dates of the aforementioned major Accounting Standards Updates as a result of the challenges implementation of major standards poses for private companies, smaller reporting companies, and not-for-profit organizations. ASU 2019-10 is a major update which would first be effective for bucket-one entities, which are public entities that are Securities and Exchange Commission ("SEC") filers, excluding entities eligible to be smaller reporting companies under the SEC's definition. The Company does qualify as a smaller reporting company under the SEC's definition. Financial Instruments - Credit Losses (Topic 326) is currently not effective for any entities; ASU 2019-10 changes the effective date of this update for all other public companies (including smaller reporting companies) to be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Because Derivatives and Hedging (Topic 815) and Leases (Topic 842) are already effective for public business entities the Board retained the effective date for those entities, including smaller reporting companies.

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, 2021, and interim periods within fiscal years beginning after December 15, 2022. 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.

In January 2020, the FASB issued ASU 2020-01, "Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)", ("ASU 2020-01"). The amendments in this ASU affect all entities that apply the guidance in Topics 321, 323, and 815 and either (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting. For public business entities, the amendments in this ASU are effective for fiscal year beginning after December 15, 2020, and interim periods with those fiscal years. The amendments in this ASU should be applied prospectively. Under a prospective transition, an entity should apply the amendments at the beginning of the interim period that includes the adoption date. 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

Leases (ASC Topic 842, Leases ("ASC 842"))

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 three and six months ended March 31, 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 condensed 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 condensed consolidated balance sheets. Leases previously identified as sales-type leases, where the Company is a lessor, continue to be reported on the condensed consolidated balance sheets. Refer to Note 3 - Commitments for additional disclosures related to our leasing activities.

Other Accounting Pronouncements

In July 2017, the FASB issued ASU 2017-11, "Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)", ("ASU 2017-11"). This update was issued to address complexities in accounting for certain equity-linked financial instruments containing down round features. The amendment changes the classification analysis of these financial instruments (or embedded features) so that equity classification is no longer precluded. The amendments in ASU 2017-11 are effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging Topic 815): Targeted Improvements to Accounting for Hedging Activities", ("ASU 2017-12"). This update was issued to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments in ASU 2017-12 are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting", ("ASU 2018-07"). The standard addresses aspects of the accounting for nonemployee share-based payment transactions. The amendments in ASU 2018-07 are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, and was adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments", ("ASU 2019-04"). ASU 2019-04 identifies certain areas that need clarification and correction in each of these Topics. For Topic 815, for entities that have not yet adopted ASU 2017-12 as of the issuance date of this ASU, the effective dates and transition requirements for the amendments to Topic 815 are the same as the effective dates and transition requirements in ASU 2017-12. The amendments for Topic 815 in ASU 2019-04 were adopted by the Company as of October 1, 2019. The implementation of this standard did not result in a material impact to its consolidated financial statements.

XML

Commitments - Additional Information (Detail) $ in Millions	Mar. 31, 2020 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Purchase which is not recorded on Company's Balance Sheet	$ 0.3
Operating lease term	3 years

XML

Basis of Presentation and Significant Accounting Policies - Summary of Status of Company's Non-Vested Shares (Detail)	6 Months Ended
	Mar. 31, 2020 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options, Outstanding Beginning Balance (in shares)	1,654,429
Shares, Granted (in shares)	184,750
Options, Forfeited (in shares)	(54,700)
Options, Outstanding Ending Balance (in shares)	1,783,479
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted-Average Grant Date Fair Value, Granted (in usd per share) | $ / shares	$ 0.51
Non-Vested Stock Options
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options, Outstanding Beginning Balance (in shares)	357,114
Shares, Granted (in shares)	184,750
Shares, Vested (in shares)	(153,049)
Options, Forfeited (in shares)	(22,334)
Options, Outstanding Ending Balance (in shares)	366,481
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted-Average Grant Date Fair Value, Non-vested Beginning Balance (in usd per share) | $ / shares	$ 0.77
Weighted-Average Grant Date Fair Value, Granted (in usd per share) | $ / shares	0.51
Weighted-Average Grant Date Fair Value, Vested (in usd per share) | $ / shares	0.97
Weighted-Average Grant Date Fair Value, Forfeited (in usd per share) | $ / shares	0.55
Weighted-Average Grant Date Fair Value, Non-vested Ending Balance (in usd per share) | $ / shares	$ 0.57

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Sep. 30, 2019
Accounts receivable, allowances	$ 135	$ 0
Inventory, reserves	$ 30	$ 0
Preferred stock, par value (usd per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	500,000	500,000
Preferred stock, issued (in shares)	0	0
Common stock, par value (usd per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	6,749,359	6,749,359
Common stock, shares outstanding (in shares)	6,736,643	6,736,643
Treasury stock, shares (in shares)	12,716	12,716
9% Preferred Stock, Series A, Voting, Cumulative, Convertible
Preferred stock, par value (usd per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	4,500	4,500
Preferred stock, issued (in shares)	0	0
5% Preferred Stock, Series B, Voting, Cumulative, Convertible
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock liquidation preference, par value (usd per share)	$ 0.01	$ 0.01
Preferred stock, issued (in shares)	0	0
Preferred stock, dividend rate (usd per share)	5.00%	5.00%

XML

Basis of Presentation and Significant Accounting Policies - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019	Sep. 30, 2019
Basis of Presentation and Significant Accounting Policies [Line Items]
Cash and cash equivalents	$ 4,586,000		$ 4,586,000			$ 4,295,000
Asset retirement obligation	130,000		$ 130,000		$ 129,000
Weighted average grant date fair value of options granted (in usd per share)			$ 0.51
Unrecognized non vested stock based compensation	131,000		$ 131,000
Estimated forfeitures for unrecognized non vested stock based compensation	95,000		$ 95,000
Expected weighted average life of forfeited cost			2 years 2 months 12 days
Stock-based compensation			$ 86,000	$ 219,000
Proceeds from exercise of common stock	1,000	$ 0	1,000	0
Tax benefits realized for tax deductions from option exercises	$ 0	0	$ 0	0
Expected shares issued (in shares)	200,000		200,000
Shares available to issue (in shares)	23,007		23,007
Stock-based compensation	$ 1,000	1,000	$ 1,000	1,000
Employee Stock Option
Basis of Presentation and Significant Accounting Policies [Line Items]
Stock-based compensation		$ 57,000	$ 86,000	$ 219,000
Maximum
Basis of Presentation and Significant Accounting Policies [Line Items]
Investment in sales-type lease, term	5 years		5 years
Minimum
Basis of Presentation and Significant Accounting Policies [Line Items]
Investment in sales-type lease, term	3 years		3 years
Foreign
Basis of Presentation and Significant Accounting Policies [Line Items]
Cash and cash equivalents	$ 1,500,000		$ 1,500,000

XML

Commitments (Tables)

6 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Maturities of Operating Lease Liabilities

As of March 31, 2020, future maturities of operating and finance lease liabilities for the fiscal years ended September 30 are as follows (in thousands):

	Operating Leases			Finance Leases
2020 (remaining)	$	688		$	88
2021	1,026			128
2022	292			79
2023	94			8
2024	102			5
Thereafter	101			—
Total	2,303			308
Less: imputed interest	(303		)	(23		)
Total	$	2,000		$	285

Maturities of Finance Lease Liabilities

As of March 31, 2020, future maturities of operating and finance lease liabilities for the fiscal years ended September 30 are as follows (in thousands):

	Operating Leases			Finance Leases
2020 (remaining)	$	688		$	88
2021	1,026			128
2022	292			79
2023	94			8
2024	102			5
Thereafter	101			—
Total	2,303			308
Less: imputed interest	(303		)	(23		)
Total	$	2,000		$	285

Effect of Adoption ASC 842

As a result of applying the modified retrospective method to adopt ASC 842, the following amounts on our condensed 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		ASC 842 adoption			Adjusted
	September 30, 2019		adjustments			October 1, 2019
Right-of-use assets under operating leases	—		2,533			2,533
Total assets	$	15,180	$	2,533		$	17,713
Current portion of operating lease obligations	$	—	$	1,314		$	1,314
Accrued liabilities	2,216		(44		)	2,172
Total current liabilities	13,831		1,270			15,101
Long-term portion of operating lease obligations	—		1,263			1,263
Total liabilities	$	21,433	$	2,533		$	23,966

Supplemental Information Related To Leases

Supplemental information related to leases is as follows (in thousands, except lease term and discount rate):

	Six Months Ended March 31, 2020
Operating lease costs	$	662
Variable operating lease costs	29
Total operating lease cost	$	691
Finance lease cost:
Amortization of right-of-use assets	$	106
Interest on lease liabilities	12
Total finance lease cost	$	118

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):

	Six Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	679
Operating cash outflows for finance leases	12
Financing cash outflows for finance leases	123

Other information related to leases was as follows:

	March 31, 2020
Weighted average remaining lease term (in years)
Operating leases	2.6
Finance leases	2.3
Weighted average discount rate
Operating leases	11.82	%
Finance leases	7.14	%

XML

Revenue

6 Months Ended

Mar. 31, 2020

Revenue from Contract with Customer [Abstract]

Revenue

Revenue

Disaggregation of Revenues

The following tables summarize revenues from contracts with customers for the three and six months ended March 31, 2020 and 2019, respectively, (in thousands):

Three months ended March 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,563	$	153	$	181	$	(124	)	$	1,773
Software	883		64		194		(178		)	963
Shipping	74		2		—		—			76
Product and other total	2,520		219		375		(302		)	2,812
Support	1,887		136		919		(168		)	2,774
Hosting	1,132		160		321		—			1,613
Events	705		12		655		—			1,372
Installs & training	94		1		—		—			95
Services total	3,818		309		1,895		(168		)	5,854
Total revenue	$	6,338	$	528	$	2,270	$	(470	)	$	8,666

Six months ended March 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	2,609	$	219	$	196	$	(197	)	$	2,827
Software	1,597		253		231		(234		)	1,847
Shipping	190		3		—		—			193
Product and other total	4,396		475		427		(431		)	4,867
Support	3,897		291		1,237		(360		)	5,065
Hosting	2,138		280		697		—			3,115
Events	2,023		74		1,327		—			3,424
Installs & training	208		2		—		—			210
Services total	8,266		647		3,261		(360		)	11,814
Total revenue	$	12,662	$	1,122	$	3,688	$	(791	)	$	16,681

Three months ended March 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	784	$	35	$	376	$	(189	)	$	1,006
Software	618		124		120		(159		)	703
Shipping	87		—		—		—			87
Product and other total	1,489		159		496		(348		)	1,796
Support	1,961		145		976		(241		)	2,841
Hosting	1,062		115		513		—			1,690
Events	850		38		742		—			1,630
Installs & training	29		11		—		—			40
Services total	3,902		309		2,231		(241		)	6,201
Total revenue	$	5,391	$	468	$	2,727	$	(589	)	$	7,997

Six Months Ended March 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,598	$	174	$	385	$	(300	)	$	1,857
Software	1,260		239		318		(276		)	1,541
Shipping	148		1		—		—			149
Product and other total	3,006		414		703		(576		)	3,547
Support	3,948		334		1,222		(472		)	5,032
Hosting	2,116		264		866		—			3,246
Events	2,081		76		1,394		—			3,551
Installs & training	108		15		—		—			123
Services total	8,253		689		3,482		(472		)	11,952
Total revenue	$	11,259	$	1,103	$	4,185	$	(1,048	)	$	15,499

Transaction price allocated to future performance obligations

ASC 606 allows for the use of certain practical expedients, which we have elected and applied to measure our future performance obligations as of March 31, 2020.

As of March 31, 2020, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $3.6 million in the next three months, $9.5 million in the next twelve months, and the remaining $2.1 million thereafter.

Disclosures related to our contracts with customers

Timing may differ between the satisfaction of performance obligations and the invoicing and collection of amounts related to our contracts with customers. We record assets for amounts related to performance obligations that are satisfied but not yet billed and/or collected. Liabilities are recorded for amounts that are collected in advance of the satisfaction of performance obligations. These liabilities are classified as current and non-current unearned revenue.

Unearned revenues

Unearned revenues represent our obligation to transfer products or services to our client for which we have received consideration, or an amount of consideration is due, from the client. During the three and six months ended March 31, 2020, revenues recognized related to the amount included in the unearned revenues balance at the beginning of the period was $2.4 million and $6.7 million compared to $2.6 million and $6.9 million recognized during the three and six months ended March 31, 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 three and six months ended March 31, 2020, amortization expense recognized related to the amount included in the capitalized commissions at the beginning of the period was $127 thousand and $330 thousand compared to $147 thousand and $396 thousand recognized during the three and six months ended March 31, 2019.

XML

Commitments - Schedule of Lease Payments Under Topic 842 (Details) $ in Thousands	Mar. 31, 2020 USD ($)
Operating Leases
2020 (remaining)	$ 688
2021	1,026
2022	292
2023	94
2024	101
2025	102
Total	2,303
Less: imputed interest	(303)
Total	2,000
Finance Leases
2020 (remaining)	88
2021	128
2022	79
2023	8
2024	5
Thereafter	0
Total	308
Less: imputed interest	(23)
Total	$ 285

XML

Credit Arrangements - Narrative (Detail)					3 Months Ended		6 Months Ended		12 Months Ended
	Mar. 11, 2019 USD ($)	Feb. 28, 2019 USD ($)	May 11, 2018 USD ($) $ / shares shares	Dec. 14, 2015 USD ($)	Mar. 31, 2020 USD ($) $ / shares	Mar. 31, 2019 USD ($)	Mar. 31, 2020 USD ($) $ / shares	Mar. 31, 2019 USD ($)	Sep. 30, 2018 USD ($)	Mar. 27, 2020 USD ($)	Jan. 30, 2020 USD ($)	Sep. 30, 2019 USD ($) $ / shares	Apr. 25, 2019 $ / shares shares	Feb. 14, 2019 USD ($) $ / shares	Jan. 31, 2019 USD ($) $ / shares	Jan. 04, 2019 USD ($)	Nov. 08, 2018 USD ($)	Apr. 16, 2018 $ / shares shares
Line of Credit Facility [Line Items]
Derivative liability, at fair value					$ 72,000		$ 72,000					$ 9,000
Common stock, par value (usd per share) | $ / shares					$ 0.01		$ 0.01					$ 0.01						$ 2.15
Number of securities called by warrants or rights (in shares) | shares													728,155					232,558
Exercise price of warrant (in usd per share) | $ / shares													$ 1.18					$ 2.50
Interest expense, net					$ (218,000)	$ (227,000)	$ (481,000)	$ (381,000)
Accretion expense					33,000	13,000	67,000	13,000
Partners For Growth V, L.P. [Member]
Line of Credit Facility [Line Items]
Long-term debt			$ 2,500,000
Debt instrument fee			$ 150,000		150,000		150,000
Number of securities called by warrants or rights (in shares) | shares			66,000
Exercise price of warrant (in usd per share) | $ / shares			$ 2.57
Gain on derivative								8,000
Loss on derivative					61,000		63,000	15,000
Interest expense, net					(13,000)	(13,000)	(25,000)	(25,000)
Non-cash interest expense					3,000		1,000
Tranche One | Partners For Growth V, L.P. [Member]
Line of Credit Facility [Line Items]
Long-term debt			$ 2,000,000
Debt instrument, interest rate, percentage			10.75%									16.60%
Prepayment fee			1.00%
Tranche Two | Partners For Growth V, L.P. [Member]
Line of Credit Facility [Line Items]
Long-term debt																	$ 500,000
Warrant | Partners For Growth V, L.P. [Member]
Line of Credit Facility [Line Items]
Derivative liability, at fair value					72,000		$ 72,000					$ 9,000
Debt Instrument, Redemption, Period One [Member] | Partners For Growth V, L.P. [Member]
Line of Credit Facility [Line Items]
Exchange price of warrants (in usd per share)			$ 250,000
Subordinated Promissory Notes
Line of Credit Facility [Line Items]
Debt term							5 years
Accrued anniversary fee					6,000		$ 12,000
PFG Debt | Partners For Growth V, L.P. [Member]
Line of Credit Facility [Line Items]
Debt interest expense term							3 years
Amortization of debt discount (premium)					14,000	13,000	$ 28,000	27,000
PFG V Debt, Net of Discount
Line of Credit Facility [Line Items]
Liability					1,200,000		1,200,000
PFG V Debt, Net of Discount | Level 3
Line of Credit Facility [Line Items]
Disbursement of Tranche 2, net of discount				$ 2,300,000					$ 156,000
Liability					1,200,000		$ 1,200,000					1,700,000
Warrant Debt | Partners For Growth V, L.P. [Member]
Line of Credit Facility [Line Items]
Debt interest expense term							5 years
Warrant Debt | Level 3
Line of Credit Facility [Line Items]
Liability					160,000		$ 160,000
Warrant Debt, PFG V | Level 3
Line of Credit Facility [Line Items]
Amortization and accretion expense					6,000	$ 5,000	11,000	$ 9,000
Warrant
Line of Credit Facility [Line Items]
Long-term debt					674,000		674,000
Term Loan
Line of Credit Facility [Line Items]
Debt instrument, interest rate, percentage											1.475%
Face amount of debt					$ 347,000		$ 347,000				$ 460,000
Subordinated note payable | Senior Secured Promissory Notes
Line of Credit Facility [Line Items]
Maximum subsidiary indebtedness	$ 1,000,000
Minimum qualifying revenue	13,000,000	$ 13,000,000
Debt instrument, interest rate, percentage					12.40%		12.40%
Face amount of debt		5,000,000
Liability					$ 5,000,000		$ 5,000,000					5,000,000
Monthly installment amount		$ 100,000
Interest expense, debt					13,000		2,000
Subordinated note payable | Senior Secured Promissory Notes | Consent, Waiver, & Modification To Loan And Security Agreement, Tranche Four
Line of Credit Facility [Line Items]
Maximum subsidiary indebtedness	1,000,000
Subordinated note payable | Senior Secured Promissory Notes | Consent, Waiver, & Modification To Loan And Security Agreement, Tranche Five
Line of Credit Facility [Line Items]
Maximum subsidiary indebtedness	$ 1,000,000
Subordinated note payable | Senior Secured Promissory Notes | December through May
Line of Credit Facility [Line Items]
Minimum coverage ratio	0.7	0.7
Subordinated note payable | Senior Secured Promissory Notes | June through November
Line of Credit Facility [Line Items]
Minimum coverage ratio	0.9	0.9
Subordinated note payable | Initial Notes
Line of Credit Facility [Line Items]
Face amount of debt		$ 3,000,000
Subordinated note payable | Additional Notes, Tranche One
Line of Credit Facility [Line Items]
Face amount of debt		$ 1,000,000
Secured Debt | Promissory Note
Line of Credit Facility [Line Items]
Debt instrument, interest rate, percentage										1.00%				9.25%	9.25%	9.25%
Face amount of debt										$ 2,000,000				$ 1,000,000	$ 1,000,000	$ 1,000,000
Common stock, par value (usd per share) | $ / shares														$ 1.30	$ 1.30
Prime Rate | Subordinated note payable | Senior Secured Promissory Notes
Line of Credit Facility [Line Items]
Basis spread on variable rate		4.00%
ASC 606 Adoption Adjustments | Noncurrent Liabilities | Subordinated note payable | Senior Secured Promissory Notes
Line of Credit Facility [Line Items]
Accrued interest liability					(25,000)		(25,000)
ASC 606 Adoption Adjustments | Current Liabilities | Subordinated note payable | Senior Secured Promissory Note, First Amendment
Line of Credit Facility [Line Items]
Accrued interest liability					25,000		25,000
ASC 606 Adoption Adjustments | Current Liabilities | Subordinated note payable | Senior Secured Promissory Notes
Line of Credit Facility [Line Items]
Accrued interest liability					$ 549,000		$ 549,000					259,000
Mitsui Sumitomo Bank
Line of Credit Facility [Line Items]
Annual interest rate					1.575%		1.575%
Mitsui Sumitomo Bank | Line of Credit
Line of Credit Facility [Line Items]
Notes payable outstanding					$ 0		$ 0					$ 0
JAPAN | Subordinated note payable | Senior Secured Promissory Notes
Line of Credit Facility [Line Items]
Maximum subsidiary indebtedness	$ 1,000,000

XML

Revenue - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019
Revenue from Contract with Customer [Abstract]
Revenue recognized	$ 2,400	$ 2,600	$ 6,700	$ 6,900
Capitalized commissions	$ 127	$ 147	$ 330	$ 396

XML

Basis of Presentation and Significant Accounting Policies (Tables)

6 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Financing Receivables

Investment in sales-type leases consists of the following (in thousands) as of March 31, 2020:

Investment in sales-type lease, gross:
2020	$	13
2021	147
2022	13
Gross investment in sales-type lease	173
Less: Unearned income	3
Total investment in sales-type lease	$	170
Current portion of total investment in sales-type lease	$	11
Long-term portion of total investment in sales-type lease	159
	$	170

Inventory

Inventory consists of the following (in thousands):

	March 31, 2020			September 30, 2019
Raw materials and supplies	$	230		$	163
Finished goods	402			395
Less: Obsolescence reserve	(30		)	—
	$	602		$	558

Fair Value, Liabilities Measured on Recurring Basis

Financial liabilities measured at fair value on a recurring basis are summarized below (in thousands):

March 31, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	72	$	—	$	72

September 30, 2019	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	9	$	—	$	9

Fair Value Assumptions for Stock Options Granted

The fair value of each option grant is estimated using the assumptions in the following table:

	Six Months Ended March 31,
	2020	2019
Expected life	4.5 years	4.3 years
Risk-free interest rate	1.41% - 1.63%	2.48% - 2.93%
Expected volatility	72.40% - 73.46%	60.19% - 66.05%
Expected forfeiture rate	15.05% - 15.38%	13.51% - 14.76%
Expected exercise factor	1.2	1.2
Expected dividend yield	0%	0%

Summary of Option Activity

A summary of option activity at March 31, 2020 and changes during the six months then ended is presented below:

	Options		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Period in Years
Outstanding at October 1, 2019	1,654,429		$	5.62	4.9
Granted	184,750		1.18		9.6
Exercised	(1,000	)	0.66		8.7
Forfeited	(54,700	)	4.07		4.3
Outstanding at March 31, 2020	1,783,479		5.20		4.9
Exercisable at March 31, 2020	1,416,998		6.21		3.8

Summary of Status of Company's Non-vested Shares

A summary of the status of the Company’s non-vested options and changes during the six month period ended March 31, 2020 is presented below:

Non-vested Options	Options		Weighted-Average Grant Date Fair Value
Non-vested at October 1, 2019	357,114		$	0.77
Granted	184,750		0.51
Vested	(153,049	)	0.97
Forfeited	(22,334	)	0.55
Non-vested at March 31, 2020	366,481		$	0.57

Computation of Basic and Diluted Weighted Average Shares Used in Earnings Per Share Calculations

The following table sets forth the computation of basic and diluted weighted average shares used in the earnings per share calculations:

	Three Months Ended March 31,		Six Months Ended March 31,
	2020	2019	2020	2019
Denominator for basic net income (loss) per share - weighted average common shares	6,785,180	5,278,500	6,760,779	5,232,449
Effect of dilutive options (treasury method)	148,047	—	—	—
Denominator for diluted net income (loss) per share - adjusted weighted average common shares	6,933,227	5,278,500	6,760,779	5,232,449
Options, warrants and convertible shares outstanding during each period, but not included in the computation of diluted net loss per share because they are antidilutive	1,933,990	2,076,083	2,082,037	2,076,083

XML

Income Taxes

6 Months Ended

Mar. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accruals for interest and penalties on the Company’s Condensed Consolidated Balance Sheets at March 31, 2020 or September 30, 2019, and has not recognized any interest or penalties in the Condensed Consolidated Statements of Operations for either of the three or six months ended March 31, 2020 or 2019.

The Company’s tax rate differs from the expected tax rate each reporting period as a result of permanent differences, the valuation allowance, and international tax items.

XML

Subsequent Event (Details) - USD ($) $ / shares in Units, $ in Millions	May 13, 2020	Apr. 27, 2020	Mar. 27, 2020	Feb. 14, 2019	Jan. 31, 2019	Jan. 04, 2019
Common stock | Director | Subsequent Event
Subsequent Event [Line Items]
Sale of stock, price per share (USD per share)		$ 5.00
Convertible secured debt	$ 5.6
Conversion price (usd per share)	$ 5.00
Promissory Note | Secured Debt
Subsequent Event [Line Items]
Face amount of debt			$ 2.0	$ 1.0	$ 1.0	$ 1.0
Debt instrument, interest rate, percentage			1.00%	9.25%	9.25%	9.25%

XML

Commitments - Effect of Adoption ASC 842 (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Oct. 01, 2019	Sep. 30, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right-of-use assets under operating leases	$ 1,972	$ 2,533
Total assets	17,477	17,713	$ 15,180
Current portion of operating lease obligations		1,314
Accrued liabilities	1,649	2,172	2,216
Total current liabilities	16,326	15,101	13,831
Long-term portion of operating lease obligations		1,263
Total liabilities	$ 24,308	23,966	$ 21,433
Accounting Standards Update 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right-of-use assets under operating leases		2,533
Total assets		2,533
Current portion of operating lease obligations		1,314
Accrued liabilities		(44)
Total current liabilities		1,270
Long-term portion of operating lease obligations		1,263
Total liabilities		$ 2,533

XML

Income Taxes - Additional Information (Detail) - USD ($)	6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Sep. 30, 2019
Income Tax Disclosure [Abstract]
Accruals of interest and penalties	$ 0		$ 0
Recognized interest or penalties	$ 0	$ 0

XML

Basis of Presentation and Significant Accounting Policies - Summary of Option Activity (Detail) - $ / shares	6 Months Ended	12 Months Ended
	Mar. 31, 2020	Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Options, Outstanding Beginning Balance (in shares)	1,654,429
Options, Granted (in shares)	184,750
Options, Exercised (in shares)	(1,000)
Options, Forfeited (in shares)	(54,700)
Options, Outstanding Ending Balance (in shares)	1,783,479	1,654,429
Options, Exercisable Ending Balance (in shares)	1,416,998
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted Average Exercise Price, Outstanding Beginning Balance (in usd per share)	$ 5.62
Weighted Average Exercise Price, Granted (in usd per share)	1.18
Weighted Average Exercise Price, Exercised (in usd per share)	0.66
Weighted Average Exercise Price, Forfeited (in usd per share)	4.07
Weighted Average Exercise Price, Outstanding Ending Balance (in usd per share)	5.20	$ 5.62
Weighted Average Exercise Price, Exercisable Ending Balance	$ 6.21
Weighted Average Remaining Contractual Period in Years, Outstanding Ending Balance	4 years 10 months 24 days	4 years 10 months 24 days
Weighted Average Remaining Contractual Period in Years, Granted	9 years 7 months 6 days
Weighted Average Remaining Contractual Period in Years, Exercised	8 years 8 months 12 days
Weighted Average Remaining Contractual Period in Years, Forfeited	4 years 3 months 18 days
Weighted Average Remaining Contractual Period in Years, Exercisable Ending Balance	3 years 9 months 18 days

XML

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 95	$ (1,486)	$ (725)	$ (3,274)
Foreign currency translation adjustment	5	(17)	(3)	45
Comprehensive income (loss)	$ 100	$ (1,503)	$ (728)	$ (3,229)

XML

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2020	Apr. 30, 2020
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Entity Registrant Name	SONIC FOUNDRY INC
Entity Central Index Key	0001029744
Current Fiscal Year End Date	--09-30
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		6,788,321
Entity Shell Company	false

XML

Basis of Presentation and Significant Accounting Policies - Inventory (Detail) - USD ($) $ in Thousands	Mar. 31, 2020	Sep. 30, 2019
Inventory, Net [Abstract]
Raw materials and supplies	$ 230	$ 163
Finished goods	402	395
Less: Obsolescence reserve	(30)	0
Inventory, Net	$ 602	$ 558

XML

Related Party Transactions

6 Months Ended

Mar. 31, 2020

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

During the three and six months ended March 31, 2020, the Company incurred fees of $148 thousand and $258 thousand to a law firm, a partner of which is a director and stockholder of the Company. The Company incurred similar fees of $85 thousand and $131 thousand during the three and six months ended March 31, 2019. The Company had accrued liabilities for unbilled services of $0 thousand and $30 thousand at March 31, 2020 and September 30, 2019, respectively, to the same law firm.

On November 9, 2017, the Company sold to Mark Burish $500 thousand of Preferred Stock, Series A, at $762.85 per share. Mark Burish is a director of the Company and beneficially owns more than 5% of the Company’s common stock.

On November 17, 2017, the Company entered into an Agreement in which Mr. Burish's right to convert shares of Preferred Stock, Series A, into common stock was waived until shareholder approval for the issuance of Preferred Stock, Series A had been obtained. The right to vote said shares of Preferred Stock, Series A was also waived pending shareholder approval of the issuance. Shareholder approval was obtained on May 17, 2018.

On January 19, 2018, the Company and Mr. Burish entered into a Subscription Agreement (the "Subscription Agreement"). Pursuant to the Subscription Agreement, (i) on January 19, 2018, Mr. Burish purchased a 10.75% Convertible Secured Subordinated Promissory Note for $500,000 in cash; and (ii) on February 15, 2018, the director purchased an additional 10.75% Convertible Secured Promissory Note for $500,000 in cash (each, a “Note”, and collectively, the “Notes”).

On May 17, 2018, following approval by the stockholders of the Company of the conversion of the Notes sufficient to comply with rules and regulations of NASDAQ, the Notes were automatically converted into 1,902 shares of Series A Preferred stock. The number of shares was determined by dividing the total principal and accrued interest due on each Note by $542.13 (the “Conversion Rate”).

On April 16, 2018, the Company issued 232,558 shares of common stock to an affiliated party. The shares were issued at a price of $2.15 per share, representing the closing price on April 13, 2018. On April 16, 2018, the closing price of the Company’s common stock was $2.18 per share. The affiliated party also received warrants to purchase 232,558 shares of common stock at an exercise price of $2.50 per share which expire on April 16, 2025.

On June 8, 2018, 905 shares of Preferred Stock, Series A were automatically converted by the Company into 213,437 shares of common stock. The amount of shares converted represents all preferred shares issued on May 30, 2017 and June 8, 2017, including related dividends.

On August 23, 2018, 717 shares of Preferred Stock, Series A were automatically converted by the Company into 169,485 shares of common stock. The amount of shares converted represents all preferred shares issued on August 23, 2017.

On November 15, 2018, 718 shares of Preferred Stock, Series A were automatically converted by the Company into 169,741 shares of common stock. The amount of shares converted represents all preferred shares issued on November 9, 2017, including related dividends.

On April 25, 2019, Mr. Burish exercised his warrant to purchase 728,155 shares of common stock of the Company at an exercise price of $1.18 per share, which was entered into coincident with the execution of the Note Purchase Agreement on February 28, 2019.

On May 17, 2019, 2,080 shares of Preferred Stock Series A were automatically converted by the Company into 491,753 shares of common stock. The amount of shares converted represents all preferred shares issued on May 17, 2018, including related dividends.

The Company has also been provided with debt financing from Mr. Burish. See Note 4 - Credit Arrangements for additional information on the Warrant issued to, and Note Purchase Agreements, with Mr. Burish as well as accrued interest and the related anniversary fee on the Notes.

Mr. Burish beneficially owns more than 5% of the Company’s common stock. Mr. Burish also serves as the Chairman of the Board of Directors. An affiliated party beneficially owns more than 5% of the Company's common stock. All transactions with Mr. Burish and with the affiliated party were approved by a special committee of disinterested and independent directors.

XML

Related Party Transactions - Additional Information (Detail) - USD ($)							3 Months Ended		6 Months Ended
	May 17, 2019	Nov. 15, 2018	Aug. 23, 2018	Jun. 08, 2018	May 17, 2018	Nov. 09, 2017	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2020	Mar. 31, 2019	Sep. 30, 2019	Apr. 25, 2019	Apr. 16, 2018	Feb. 15, 2018	Jan. 19, 2018
Related Party Transaction [Line Items]
Fees incurred to law firm							$ 148,000	$ 85,000	$ 258,000	$ 131,000
Accrued liabilities for unbilled services							$ 0		$ 0		$ 30,000
Common stock, shares issued (in shares)							6,749,359		6,749,359		6,749,359		232,558
Common stock, par value (usd per share)							$ 0.01		$ 0.01		$ 0.01		$ 2.15
Share price (in usd per share)													$ 2.18
Number of securities called by warrants or rights (in shares)												728,155	232,558
Exercise price of warrant (in usd per share)												$ 1.18	$ 2.50
9% Preferred Stock, Series A, Voting, Cumulative, Convertible
Related Party Transaction [Line Items]
Shares issued upon conversion (in shares)					1,902
Shares converted (in shares)	2,080	718	717	905
9% Preferred Stock, Series A, Voting, Cumulative, Convertible | Director
Related Party Transaction [Line Items]
Sale of stock, consideration received on transaction						$ 500,000
Sale of stock, price per share (USD per share)						$ 762.85
Sale of stock, percentage of ownership after transaction						5.00%
Common stock
Related Party Transaction [Line Items]
Shares issued upon conversion (in shares)	491,753	169,741	169,485	213,437
Convertible Secured Subordinated Promissory Note | Secured Debt | Director
Related Party Transaction [Line Items]
Debt instrument, interest rate, percentage															10.75%
Face amount of debt															$ 500,000
Conversion price (usd per share)															$ 542.13
Additional Convertible Secured Subordinated Promissory Note | Secured Debt | Director
Related Party Transaction [Line Items]
Debt instrument, interest rate, percentage														10.75%
Face amount of debt														$ 500,000