10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly period ended December 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  ☒           No   ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☒            No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

        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  ☒

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

Class	Outstanding January 31, 2021
Common Stock, $0.01 par value	8,012,279

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, 2020.

2

TABLE OF CONTENTS

		PAGE NO.
PART I	FINANCIAL INFORMATION	2
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets – December 31, 2020 and September 30, 2020	4
	Condensed Consolidated Statements of Operations – Three months ended December 31, 2020 and 2019	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) - Three months ended December 31, 2020 and 2019	6
	Condensed Consolidated Statements of Stockholders' Deficit - Three months ended December 31, 2020 and 2019	7
	Condensed Consolidated Statements of Cash Flows – Three months ended December 31, 2020 and 2019	8
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 6.	Exhibits	31
Signatures		34

3

Item 1

Sonic Foundry, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share data)

(Unaudited)

	December 31,			September 30,
	2020			2020
Assets
Current assets:
Cash and cash equivalents	$	5,845		$	7,619
Accounts receivable, net of allowances of $258 & $236		5,260			6,250
Inventories		1,214			1,167
Investment in sales-type lease, current		217			275
Capitalized commissions, current		373			440
Prepaid expenses and other current assets		1,048			1,065
Total current assets		13,957			16,816
Property and equipment:
Leasehold improvements		1,136			1,128
Computer equipment		8,213			7,960
Furniture and fixtures		1,444			1,366
Total property and equipment		10,793			10,454
Less accumulated depreciation and amortization		7,596			7,295
Property and equipment, net		3,197			3,159
Other assets:
Investment in sales-type lease, long-term		78			76
Capitalized commissions, long-term		72			100
Right-of-use assets under operating leases		1,827			2,081
Other long-term assets		499			397
Total assets	$	19,630		$	22,629
Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	891		$	2,689
Accrued liabilities		2,374			2,565
Unearned revenue		9,053			10,402
Current portion of finance lease obligations		100			119
Current portion of operating lease obligations		1,482			1,425
Current portion of notes payable and warrant debt, net of discounts		1,038			1,104
Total current liabilities		14,938			18,304
Long-term portion of unearned revenue		1,717			1,736
Long-term portion of finance lease obligations		68			89
Long-term portion of operating lease obligations		344			665
Long-term portion of notes payable and warrant debt, net of discounts		2,399			2,673
Derivative liability, at fair value		71			66
Other liabilities		160			144
Total liabilities		19,697			23,677
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; 8,012,279 and 7,965,325 shares issued, respectively and 7,999,563 and 7,952,609 shares outstanding, respectively		80			80
Additional paid-in capital		209,283			209,022
Accumulated deficit		(208,887	)		(209,519	)
Accumulated other comprehensive loss		(374	)		(462	)
Treasury stock, at cost, 12,716 shares		(169	)		(169	)
Total stockholders’ deficit		(67	)		(1,048	)
Total liabilities and stockholders’ deficit	$	19,630		$	22,629

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 December 31,
	2020			2019
Revenue:
Product and other	$	2,161		$	2,055
Services		7,004			5,960
Total revenue		9,165			8,015
Cost of revenue:
Product and other		813			831
Services		1,598			1,348
Total cost of revenue		2,411			2,179
Gross margin		6,754			5,836
Operating expenses:
Selling and marketing		3,010			3,396
General and administrative		1,198			1,441
Product development		1,741			1,590
Total operating expenses		5,949			6,427
Income (loss) from operations		805			(591	)
Non-operating expenses:
Interest expense, net		(29	)		(263	)
Other expense, net		11			15
Total non-operating expenses		(18	)		(248	)
Income (loss) before income taxes		787			(839	)
Income tax (expense) benefit		(155	)		19
Net income (loss)	$	632		$	(820	)
Dividends on preferred stock		—			—
Net income (loss) attributable to common stockholders	$	632		$	(820	)
Income (loss) per common share
– basic	$	0.08		$	(0.12	)
– diluted	$	0.08		$	(0.12	)
Weighted average common shares
– basic		7,963,775			6,736,643
– diluted		8,336,028			6,736,643

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 December 31,
	2020		2019
Net income (loss)	$	632	$	(820	)
Other comprehensive income (loss)
Foreign currency translation adjustment		88		(8	)
Comprehensive income (loss)	$	720	$	(828	)

See accompanying notes to the condensed consolidated financial statements.

6

Sonic Foundry, Inc.

Condensed Consolidated Statements of Stockholders' Deficit

(in thousands)

(Unaudited)

										Accumulated
					Additional					other
			Common		paid-in		Accumulated			comprehensive			Treasury
	Preferred stock		stock		capital		deficit			loss			stock			Total
Balance, September 30, 2019	$	—	$	67	$	203,735	$	(209,340	)	$	(546	)	$	(169	)	$	(6,253	)
Stock compensation		—		—		52		—			—			—			52
Foreign currency translation adjustment		—		—		—		—			(8	)		—			(8	)
Net loss		—		—		—		(820	)		—			—			(820	)
Balance, December 31, 2019	$	—	$	67	$	203,787	$	(210,160	)	$	(554	)	$	(169	)	$	(7,029	)

										Accumulated
					Additional					other
			Common		paid-in		Accumulated			comprehensive			Treasury
	Preferred stock		stock		capital		deficit			loss			stock			Total
Balance, September 30, 2020	$	—	$	80	$	209,022	$	(209,519	)	$	(462	)	$	(169	)	$	(1,048	)
Stock compensation		—		—		119		—			—			—			119
Issuance of common stock		—		—		142		—			—			—			142
Foreign currency translation adjustment		—		—		—		—			88			—			88
Net income		—		—		—		632			—			—			632
Balance, December 31, 2020	$	—	$	80	$	209,283	$	(208,887	)	$	(374	)	$	(169	)	$	(67	)

7

Sonic Foundry, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Three Months Ended
	December 31,
	2020			2019
Operating activities
Net income (loss)	$	632		$	(820	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of other intangibles		19			94
Depreciation and amortization of property and equipment		268			227
Provision for doubtful accounts - including financing receivables		22			9
Stock-based compensation expense related to stock options and warrants		119			52
Deferred loan interest to related party		—			123
Remeasurement loss on derivative liability		5			2
Changes in operating assets and liabilities:
Accounts receivable		1,079			1,137
Inventories		(42	)		(351	)
Investment in sales-type lease		63			33
Capitalized commissions		95			87
Prepaid expenses and other current assets		45			216
Right-of-use assets under operating leases		285			289
Operating lease obligations		(295	)		(289	)
Other long-term assets		(91	)		5
Accounts payable and accrued liabilities		(2,053	)		(136	)
Other long-term liabilities		12			(6	)
Unearned revenue		(1,431	)		(1,090	)
Net cash used in operating activities		(1,268	)		(418	)
Investing activities
Purchases of property and equipment		(287	)		(59	)
Net cash used in investing activities		(287	)		(59	)
Financing activities
Payments on notes payable		(368	)		(250	)
Proceeds from exercise of common stock options		142			—
Payments on finance lease obligations		(41	)		(70	)
Net cash used in financing activities		(267	)		(320	)
Changes in cash and cash equivalents due to changes in foreign currency		48			13
Net decrease in cash and cash equivalents		(1,774	)		(784	)
Cash and cash equivalents at beginning of year		7,619			4,295
Cash and cash equivalents at end of period	$	5,845		$	3,511
Supplemental cash flow information:
Interest paid	$	20		$	253
Income taxes paid, foreign		44			81
Non-cash financing and investing activities:
Property and equipment financed by finance lease or accounts payable		—			36

See accompanying notes to the condensed consolidated financial statements.

8

Sonic Foundry, Inc.

Notes to Condensed Consolidated Financial Statements

December 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, 2020 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 three month period ended December 31, 2020 are not necessarily indicative of the results that might be expected for the year ending September 30, 2021.

Impacts of COVID-19

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.  While we are unable to accurately predict the full impact that COVID-19 will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration, severity and impact of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as those of our key business partners, vendors and other counterparties for an indefinite period of time.  To support the health and well-being of our employees, business partners and communities, a vast majority of our employees have been working remotely since mid-March 2020 and continue to do so for the foreseeable future. 

COVID-19 has had negative impacts on our operations and the future impacts of the pandemic and any corresponding economic results are largely unknown and rapidly evolving.  Beginning in March 2020 and continuing through today, the in-person 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 response to the cancellations, the Company introduced a new virtual events platform as an alternate solution for our customers. In addition, the closure of educational institutions globally and the negative financial impact on their funding, could impact 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.

Restructuring and exit activities

The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company accounts for on-going benefit arrangements, such as those documented by employment agreements, in accordance with Accounting Standards Codification 712 ("ASC 712") Nonretirement Postemployment Benefits. Under ASC 712, liabilities for postemployment benefits are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company accounts for one-time employment benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations. When applicable, the Company records such costs into operating expense.

During the quarter ended December 31, 2020, the Company expensed involuntary termination benefits of $101 thousand under ASC 420 compared to zero in the same quarter last year.

Investment in Sales-Type Lease

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

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

Investment in sales-type lease, gross:
2021	$	218
2022		78
Gross investment in sales-type lease		296
Less: Unearned income		(1	)
Total investment in sales-type lease	$	295
Current portion of total investment in sales-type lease	$	217
Long-term portion of total investment in sales-type lease		78
	$	295

9

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):

	December 31,			September 30,
	2020			2020
Raw materials and supplies	$	282		$	267
Finished goods		1,054			1,022
Less: Obsolescence reserve		(122	)		(122	)
	$	1,214		$	1,167

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 December 31, 2020 and September 30, 2020, the Company has recorded a liability of $138 thousand and $134 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):

December 31, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	71	$	—	$	71

10

September 30, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	66	$	—	$	66

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 Non-Recurring 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 D. 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 approximated the fair value based on calculating the present value of expected future cash flows (Level 3). The non-recurring fair value measurements were performed as of the date of issuance of the note purchase agreement and warrant. The discount was being amortized over the life of the related debt until May 2020, at which time the debt was extinguished and exchanged for the Company's common stock.

Financial Instruments Not Measured at Fair Value

The Company's other financial instruments consist primarily of cash and cash equivalents, accounts receivable, investment in sales-type lease, accounts payable, debt instruments and 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 months ended December 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.

11

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

	Three Months Ended
	December 31,
	2020		2019
Expected life	4.7 years		4.5 years
Risk-free interest rate	0.33	%	1.63	%
Expected volatility	82.61	%	72.40	%
Expected forfeiture rate	14.18	%	15.05	%
Expected exercise factor	1.2		1.2
Expected dividend yield	0	%	0	%

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

				Weighted-		Weighted-Average
				Average		Remaining Contractual
	Options			Exercise Price		Period in Years
Outstanding at October 1, 2020		1,707,515		$	5.09		4.6
Granted		489,250			3.29		9.9
Exercised		(59,670	)		2.39		0.1
Forfeited		(168,409	)		7.34		0.0
Outstanding at December 31, 2020		1,968,686			4.53		6.5
Exercisable at December 31, 2020		1,256,704					4.6

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

				Weighted-Average
				Grant Date Fair
Non-vested Options	Options			Value
Non-vested at October 1, 2020		339,897		$	0.60
Granted		489,250			1.55
Vested		(141,336	)		0.78
Forfeited		(8,745	)		0.58
Non-vested at December 31, 2020		679,066		$	1.33

The weighted average grant date fair value of options granted during the three months ended December 31, 2020 was $1.55. As of December 31, 2020, there was $510 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation cost of $394 thousand. The cost is expected to be recognized over a weighted-average remaining life of 1.9 years.

Stock-based compensation recorded in the three months ended December 31, 2020 was $119 thousand. Stock-based compensation recorded in the three months ended December 31, 2019 was $52 thousand. There was $142 thousand in cash received from exercises under all stock option plans and warrants during the three months ended December 31, 2020 and zero during the same period in 2019. There were no tax benefits realized for tax deductions from option exercises in either of the three month period ended December 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 300,000 common shares may be issued. The board passed a resolution in December 2020 to increase the share count by an additional 100,000 shares. A total of 106,710 shares are available to be issued under the plan as December 31, 2020. The Company recorded stock compensation expense under this plan of less than $1 thousand for each of the three month period ended December 31, 2020 and 2019.

12

Preferred Stock and Dividends

A total of zero shares of Preferred Stock, Series A were issued and outstanding as of December 31, 2020 and 2019.

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
	December 31,
	2020		2019
Denominator for basic net income (loss) per share - weighted average common shares		7,963,775		6,736,643
Effect of dilutive options and warrants (treasury method)		372,253		—
Denominator for diluted net income (loss) per share - adjusted weighted average common shares		8,336,028		6,736,643
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		1,132,365		2,124,738

Liquidity

At December 31, 2020, approximately $3.1 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 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 December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", ("ASU 2019-12"). The amendments in this ASU affect entities within the scope of Topic 740. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2020. 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 must adopt all the amendments in the same period. The Company is currently evaluating the guidance and its impact to the financial statements.

Accounting standards that have been issued but are not yet effective by the FASB or other standards-setting bodies that do not require adoption until a future date, which are not discussed above, are not expected to have a material impact on the Company’s financial statements upon adoption.

13

2. Related Party Transactions

During the three months ended December 31, 2020, the Company incurred fees of $32 thousand to a law firm, a partner of which is a director and stockholder of the Company. The Company incurred similar fees of $110 thousand during the three months ended December 31, 2019. The Company had accrued liabilities of $10 thousand and $36 thousand for unbilled services to the same law firm at December 31, 2020 and September 30, 2020, respectively.

On May 13, 2020, the Company entered into a debt conversion agreement with Mr. Burish to convert all outstanding debt owed to Mr. Burish into common stock at a conversion price of $5.00 per share. The total debt amount, including accrued interest and fees, of $5.6 million was converted into 1,114,723 shares of common stock. The transaction was recommended by the Company's Special Committee of Independent and Disinterested Directors, unanimously approved by all disinterested directors of the Company, and ratified by shareholders at the Company's most recent shareholder meeting. Silverwood Partners, the Special Committee's financial advisor, issued a fairness opinion in connection with the transaction.

Mr. Burish beneficially owns more than 5% of the Company’s common stock. Mr. Burish also serves as the Chairman of the Board of Directors. An affiliated party beneficially owns more than 5% of the Company's common stock. All transactions with Mr. Burish and with the affiliated party were approved by a Special Committee of Disinterested and Independent Directors.

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3. Commitments

Inventory Purchase Commitments

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product for hardware inventory, as well as services to support our hosting environment, which are not recorded on the Company's condensed consolidated balance sheet. At December 31, 2020, the Company had an obligation to purchase $199 thousand of Mediasite product and $237 thousand of services during fiscal 2021, and $422 thousand during fiscal 2022 and 2023.

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 includes any initial direct costs incurred. We use the implicit rate when it is readily determinable. Otherwise, the present value of future minimum lease payments is determined using the Company's incremental borrowing rate. The incremental borrowing rate is based on the interest rate of the Company's most recent borrowing.

The lease term we use for the valuation of our right-of-use assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense is recognized on a straight-line basis over the expected lease term for operating leases. Amortization expense of the right-of-use asset for finance leases is recognized on a straight-line basis over the lease term and interest expense for finance leases is recognized based on the incremental interest rate.

Right-of-use assets and lease liabilities are recognized for our leases. Right-of-use assets under finance leases are included in property and equipment on the condensed consolidated balance sheets and have a net carrying value of $191 thousand at September 30, 2020 and $152 thousand at December 31,2020.

We have operating lease arrangements with lease and non-lease components. The non-lease components in our arrangements are not significant when compared to the lease components. For all operating leases, we account for the lease and non-lease components as a single component.

As of December 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
2021 (remaining)	$	1,208		$	85
2022		472			80
2023		105			8
2024		111			5
2025		35			—
Thereafter		70			—
Total		2,001			178
Less: imputed interest		(175	)		(10	)
Total	$	1,826		$	168

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Adoption of ASC 842

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

	Three Months Ended December 31, 2020
Operating lease costs	$	337
Variable operating lease costs		16
Total operating lease cost	$	353
Finance lease cost:
Amortization of right-of-use assets	$	40
Interest on lease liabilities		4
Total finance lease cost	$	44

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):

	Three Months Ended December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	347
Operating cash outflows for finance leases		4
Financing cash outflows for finance leases		41

Other information related to leases was as follows:

	December 31, 2020
Weighted average remaining lease term (in years)
Operating leases		2.1
Finance leases		1.7
Weighted average discount rate
Operating leases		9.39	%
Finance leases		7.46	%

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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 without penalty as of May 14, 2019. 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 December 31, 2020, and September 30, 2020, the estimated fair value of the derivative liability associated with the warrants issued in connection with the 2018 Loan and Security Agreement, was $71 thousand and $66 thousand, respectively. Included in other expense, the remeasurement loss on the derivative liability during the three months ended December 31, 2020 was $5 thousand compared to remeasurement loss of $2 thousand during the three months ended December 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 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 months ended December 31, 2020, the Company recorded accretion of discount expense associated with the warrants issued with the PFG V loan of $6 thousand compared to $5 thousand in the same periods last year. In addition, $14 thousand amortization of the debt discount was recorded in the current three month period compared to $14 thousand in the prior year. At December 31, 2020, the carrying value of the PFG V Debt and the Warrant Debt (inclusive of its conversion feature) were $417 thousand and $178 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 months ended December 31, 2020, the Company recorded interest expense of $13 thousand associated with recognition of the back-end fee compared to $13 thousand during the three months ended December 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 months ended December 31, 2020, non-cash interest expense of $18 thousand related to the effective interest rate on the PFG V loan was recorded compared to $3 thousand in the three months ended December 31, 2019.

On March 11, 2019, Sonic Foundry, Inc. entered into a Consent, Waiver & Modification to the 2018 Loan and Security Agreement dated May 11, 2018 (the "Modification") with Partners for Growth V, L.P. ("PFG"). Under the Modification: PFG waived the Company's default on the Minimum EBITDA financial covenant for the quarterly reporting period ending December 31, 2018; 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 December 31, 2020, the Company was in compliance with all covenants per the 2018 Loan and Security Agreement, as modified.

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The existing terms of the PFG loan in terms of amortization, interest rate, payment schedule and maturity date are unchanged.

At December 31, 2020, a gross balance of $417 thousand was outstanding on the term debt with PFG V with an effective interest rate of sixteen-and-six-tenths percent (16.60%). At September 30, 2020, a gross balance of $667 thousand 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 provided for subordinated secured promissory notes (the "Subordinated Promissory Notes") in an aggregate original principal amount of up to $5,000,000. Mr. Burish acquired 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 accrued interest at the variable per annum rate equal to the Prime Rate (as defined) plus four percent (4.00%). The outstanding principal balance of the Subordinated Promissory Notes, plus all unpaid accrued interest, plus all outstanding and unpaid obligations, was set to mature on February 28, 2024 (the "Maturity Date"). Principal installments of $100,000 were to begin monthly on August 31, 2020, and continue through the Maturity Date. The Note Purchase Agreement dated February 28, 2019 was subordinated to the existing PFG loan.

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

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The proceeds from the Note Purchase Agreement were allocated between the Subordinated Promissory Notes and the Burish Warrant based on their relative fair value on the date of issuance. The warrant was treated together as a debt discount on the Subordinated Notes Payable and was accreted to interest expense under the effective interest rate method over the five-year term of the Subordinated Notes Payable. During the first fiscal quarter of 2020, the Company recorded accretion of discount expense associated with the Subordinated Promissory Notes of $34 thousand.

The non-cash effective interest expense was calculated on the net balance of the Subordinated Promissory Notes, Burish Warrant, and related loan origination fees, on a monthly basis. During the three months ended December 31, 2019, $15 thousand of non-cash interest benefit related to the effective interest rate on the Subordinated Promissory Notes was recorded.

February 28, 2019 Warrant

Coincident with execution of the Note Purchase Agreement, the Company entered into a Warrant Agreement ("Burish Warrant") with Mr. Burish. Pursuant to the terms of the Burish 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 Burish Warrant.

May 13, 2020 Debt Conversion Agreement

On May 13, 2020, the Company entered into a debt conversion agreement with Mr. Burish to convert all outstanding debt owed to Mr. Burish into common stock at a conversion price of $5.00 per share. The net carrying value of $5.0 million, including principal and accrued interest of $5.6 million less debt discount and loan origination fees of $596 thousand, was converted into 1,114,723 shares of common stock. The debt conversion was treated as a debt extinguishment, and resulted in a net loss of $26 thousand.

Paycheck Protection Program (PPP) Loan Dated April 20, 2020

Following the approval of the Board of Directors, the Company and First Business Bank entered into a $2.3 million Promissory Note (the "Promissory Note") under the Paycheck Protection Program (PPP) contained within the new Coronavirus Aid, Relief, and Economic Security (CARES) Act. The PPP loan has a term of two years for those companies receiving loan proceeds prior to June 5, 2020, is unsecured, and is guaranteed by the U.S. Small Business Administration ("SBA"). The loan carries a fixed interest rate of 1% per annum. Under the terms of the CARES Act, the Company will be eligible for and intends to apply for forgiveness of all loan proceeds used for payroll costs, rent, utilities, and other qualifying expenses during the eight-week or twenty-four week period ("covered period") following receipt of the loan, provided the Company maintains its employment and compensation within certain parameters during such period, and provided further that not more than 40% of the amount forgiven can be attributable to non-payroll costs. The Company must apply for forgiveness within 10 months from the end of the covered period. First Business Bank will then have 60 days to review the application and submit it to the SBA and the SBA will have 90 days from receipt of the application to review and render a decision back to the lender. If the borrower does not apply for loan forgiveness within the 10 month time frame, or if the SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred and the borrower must begin paying principal and interest. If this occurs, the lender must notify the borrower of the amount and the date the first payment is due. The SBA began accepting applications for forgiveness from lenders on August 10, 2020 when the development of its new software-as-a-service platform went live. As of December 31, 2020 the full amount of the loan has been split between short-term and long-term notes payable of $482 thousand and $1.8 million, respectively, as well as short-term accrued interest of $16 thousand. The Company plans to apply for 100% forgiveness in Q2-2021.

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 accrued interest at an annual rate of 1.475%. Beginning in January 2020, principal payments in 12 equal monthly installments, plus accrued interest were made. The principal has been paid in full as of December 30, 2020.

At December 31, 2020 and September 30, 2020, no balance was outstanding on the line of credit with Mitsui Sumitomo Bank. The credit facility is related to Mediasite K.K., and accrues interest at an annual rate of approximately one-and-one half percent (1.575%). The available line of credit at December 31, 2020 was $485 thousand and matures on March 1, 2021.

On August 20, 2020, Mediasite K.K. and Sumitomo Mitsui Banking Corporation entered into a $379 thousand Promissory Note under an initiative by the Japanese Finance Corporation government institution in response to the Cabinet Decision entitled "Emergency Economic Measures to Cope With COVID-19." Extending financial relief to organizations impacted by COVID-19, the loan has a term of three years and carries a fixed interest rate of 0.46% per annum. Government subsidies provided through the Japanese Finance Corporations will provide interest relief throughout the term of the loan. In addition, the loan agreement includes a three year grace period with principal payments deferred through the end of the loan, which is September 30, 2023. As of September 30, 2020 the full amount of the loan has been included in long-term notes payable.

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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 December 31, 2020 or September 30, 2020, and has not recognized any interest or penalties in the Condensed Consolidated Statements of Operations for either of the three or three months ended December 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.

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6. Revenue

Disaggregation of Revenues

The following tables summarize revenues from contracts with customers for the three months ended December 31, 2020 and 2019, respectively, (in thousands) by subsidiary, which includes the parent (SOFO), our Netherlands location (SFI) and our Japanese location (MSKK) :

Three months ended December 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,315	$	86	$	80	$	(134	)	$	1,347
Software		787		101		59		(147	)		800
Shipping		13		1		—		—			14
Product and other total		2,115		188		139		(281	)		2,161
Support		1,806		179		239		(216	)		2,008
Hosting		1,477		258		704		(63	)		2,376
Events		1,053		17		872		—			1,942
Installs & training		417		10		251		—			678
Services total		4,753		464		2,066		(279	)		7,004
Total revenue	$	6,868	$	652	$	2,205	$	(560	)	$	9,165

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Three months ended December 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,046	$	66	$	15	$	(73	)	$	1,054
Software		714		189		37		(56	)		884
Shipping		116		1		—		—			117
Product and other total		1,876		256		52		(129	)		2,055
Support		2,010		155		318		(192	)		2,291
Hosting		1,006		120		376		—			1,502
Events		1,318		62		672		—			2,052
Installs & training		114		1		—		—			115
Services total		4,448		338		1,366		(192	)		5,960
Total revenue	$	6,324	$	594	$	1,418	$	(321	)	$	8,015

Transaction price allocated to future performance obligations

As of December 31, 2020, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately $4.0 million in the next three months, $9.1 million in the next twelve months, and the remaining $1.7 million thereafter.

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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 months ended December 31, 2020, revenues recognized related to the amount included in the unearned revenues balance at the beginning of the period was $4.2 million compared to $4.3 million recognized during the  three months ended December 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 months ended December 31, 2020, amortization expense related to the amount included in the capitalized commissions at the beginning of the period was $215 thousand compared to $203 thousand recognized during the three months ended December 31, 2019.

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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, 2020 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, 2020), 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.

COVID-19 has had both positive and 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 2020 and continuing through this quarter and beyond, the in-person events portion of our business continues to be impacted by cancellations and/or postponements due to social distancing protocols enacted to stem the spread of the virus. While there was a return in the current quarter to the type of smaller, in-person web events that are common for our Japan subsidiary, the events business in the US remains primarily a virtual events initiative, which has been a growing portion of our events business. 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.

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Restructuring and exit activities

The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company accounts for on-going benefit arrangements, such as those documented by employment agreements, in accordance with Accounting Standards Codification 712 ("ASC 712") Nonretirement Postemployment Benefits. Under ASC 712, liabilities for postemployment benefits are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company accounts for one-time employment benefit arrangements in accordance with ASC 420 Exit or Disposal Cost Obligations. When applicable, the Company records such costs into operating expense.

During the fourth quarter of fiscal 2020, the Company expensed involuntary termination benefits of $705 thousand under ASC 712. During the quarter ended December 31, 2020, the Company expensed involuntary termination benefits of $101 thousand under ASC 420 compared to zero in the same quarter last year. No further expenses relating to this restructuring are anticipated in future quarters.

RESULTS OF OPERATIONS

Revenue

Revenue from our business includes the sale of Mediasite recorders and server software products and related services contracts, such as customer support, installation, customization services, training, content hosting and event services. We market our products to educational institutions, corporations and government agencies that need to deploy, manage, index and distribute video content on Internet-based networks. We reach both our domestic and international markets through reseller networks, a direct sales effort and partnerships with system integrators.

Q1-2021 compared to Q1-2020

Revenue in Q1-2021 increased $1.2 million, or 14% to $9.2 million, from Q1-2020 revenue of $8.0 million. Revenue consisted of the following:

• Product and other revenue from sale of Mediasite recorder units and server software increased 5% to $2.2 million in Q1-2021 from $2.1 million in Q1-2020. Unit sales in Q1-2021 were slightly higher due to a small number of hardware refresh orders both here and in Japan.  Average selling price was slightly lower in Q1-2021 as compared to Q1-2020 even though the rack to mobile ratio shifted. This is due to a larger mix of the rack-mounted pro recorder in the current quarter as opposed to the lower priced units.

	Q1-2021		Q1-2020
Recorders sold		232		203
Rack units to mobile units ratio		18.33 to 1		9.15 to 1
Average sales price, excluding service (000’s)	$	5.40	$	5.80
Refresh Units		116		64

•   Service revenue represents the portion of fees charged for Mediasite customer support contracts amortized over the length of the contract, typically 12 months, as well as training, installation, events and content hosting services. Services revenue increased $1.0 million or 18% from $6.0 million in Q1-2020 to $7.0 million in Q1-2021 primarily due to increases in hosting and professional services.

• At December 31, 2020, $10.8 million of revenue was deferred, of which we expect to recognize $9.0 million in the next twelve months, including approximately $4.0 million in the quarter ending March 31, 2021. At September 30, 2020, $12.1 million of revenue was deferred.

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

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Gross Margin

Q1-2021 compared to Q1-2020

Gross margin for Q1-2021 was $6.8 million or 74% of revenue compared to Q1-2020 gross margin of $5.8 million or 73%. The significant components of cost of revenue include:

• Product costs. Product costs consist of costs associated with our Mediasite recorder hardware, freight, labor and certain allocated costs. These costs were $813 thousand in Q1-2021 and $831 thousand in Q1-2020, resulting in gross margin on products of 62% and 60%, respectively.

• Services costs. Service costs consist of staff wages for tech support, hosting and events, operating costs for events and hosting, as well as depreciation expense for hosting infrastructure. These costs were $1.6 million in Q1-2021 and $1.3 million in Q1-2020, resulting in gross margin on services of 77% for both periods. .

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.

Q1-2021 compared to Q1-2020

Selling and marketing expenses decreased $386 thousand or 11% from $3.4 million in Q1-2020 to $3.0 million in Q1-2021. Differences in the major categories include:

• Salary, commissions, and benefits expense decreased by $94 thousand as a result of reduced headcount.

• Travel expenses, including entertainment and meals, decreased by $126 thousand due to COVID-19.

26

• Selling and marketing expenses for Sonic Foundry International and Mediasite KK accounted for $195 thousand and $692 thousand respectively, an aggregate increase of $71 thousand from Q1-2020

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.

Q1-2021 compared to Q1-2020

G&A expenses decreased $243 thousand or 17% from $1.4 million in Q1-2020 to $1.2 million in Q1-2021. Differences in the major categories include:

• Increase in compensation and benefits of $280 thousand due to an increase in option expense as well as a bonus accrual for employees..

• Decrease in professional fees of of $286 thousand, which relates primarily to a reduction in auditing fees and consulting services..

• G&A expenses for Sonic Foundry International and Mediasite KK accounted for $24 thousand and $159 thousand respectively, an aggregate decrease of $74 thousand from Q1-2020.

We anticipate G&A headcount to remain consistent throughout the remainder of the fiscal year.

27

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.

Q1-2021 compared to Q1-2020

Product development expenses increased by $151 thousand, or 9% from $1.6 million in Q1-2020 to $1.7 million in Q1-2021. Differences in the major categories include:

• Increase in compensation and benefits of $99 thousand as a result of additional headcount at the end of fiscal 2020.

• Product development expense for Sonic Foundry International and Mediasite KK accounted for $96 thousand and $87 thousand respectively, an aggregate decrease of $5 thousand compared to Q1-2020

We anticipate product development headcount to remain consistent throughout the remainder of the fiscal year. We do not anticipate that any fiscal 2021 software development efforts will qualify for capitalization.

Other Income and Expense, Net

Interest expense for the three months ended December 31, 2020 was $29 thousand, a decrease of $234 thousand from the same period last year. The YTD decrease over the prior year is mainly a result of the Burish debt to equity conversion, which occurred on May 13, 2020. The Company also recorded $14 thousand of interest expense for the three months ended December 31, 2020 related to the accretion of discounts on the PFG Loan and Warrant Debt compared to $14 thousand for the three months ended December 31, 2019. The Company also recorded amortization expense related to the back-end fee on the PFG loan of $13 thousand for the three months ended December 31, 2020 compared to $13 thousand for the same period last year. The Company also recorded zero interest expense during the three months ended December 31, 2020 related to the accretion of discounts on the Burish notes payable compared to $34 thousand for the three months ended December 31, 2019.

During the three months ended December 31, 2020, a loss in fair value of $5 thousand 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 $2 thousand during the three months ended December 31, 2019. The fair value of the derivative liability is measured at fair value based on a Black Scholes option pricing model with assumptions for stock price, exercise price, volatility, expected term, risk free interest rate and dividend yield.

28

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 in the consolidated statements of operations.

For the three months ended December 31, 2020, the Company's foreign currency translation adjustment was a gain of $88 thousand compared to a loss of $8 thousand for the three months ended December 31, 2019.

During the three months ended December 31, 2020, the Company recorded an aggregate transaction loss of $5 thousand compared to an aggregate gain of $15 thousand and for the three months ended December 31, 2019. The aggregate transaction gain or loss is included in the other expense line of the condensed consolidated statements of operations.

Liquidity and Capital Resources

The Company’s primary sources of liquidity are its cash from operations and debt and equity financing. During the first three months of fiscal 2021, the Company used $1.3 million of cash from operating activities compared with $418 thousand used in the same period of fiscal 2020.

Capital expenditures were $287 thousand in the first three months of fiscal 2021 compared to $59 thousand in the same period in fiscal 2020.

The Company used $267 thousand of cash for financing activities during the first three months of fiscal 2021. Payments on notes payable of $368 thousand and payments on finance lease obligations of $41 thousand were offset by proceeds from stock option exercises of $142 thousand. For the same period in fiscal 2020, the Company used $320 thousand, which included $250k in payments on the PFG note and $70 thousand in payments on finance lease obligations.

At December 31, 2020, the Company had $3.4 million outstanding, net of warrant debt and debt discounts, related to notes payable with PFG V, the Mediasite KK term debt and the PPP loan. During the current quarter, the Company made principal payments of $250 thousand on the PFG V debt, and $118 thousand on the Mediasite KK term debt.

At December 31, 2020, approximately $3.1 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 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.

29

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, 2020. At December 31, 2020, none of the Company’s $3.7 million in outstanding debt is variable rate, therefore, an increase in the level of interest rates would not have any 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 December 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 December 31, 2020.

Changes in Internal Controls

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

30

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, 2020 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.

31

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.

32

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 with the March 31, 2020 Form 10-Q and hereby incorporated by reference.
10.38	Lease Agreement between Mediasite KK, as tenant, and Maida Housing Corporation, as landlord, dated April 1, 2014, filed with the March 31, 2020 Form 10-Q and hereby incorporated by reference.
10.39	Term Loan Agreement dated January 30, 2020 between Mediasite KK and Sumitomo Mitsui Banking, filed with the March 31, 2020 Form 10-Q and hereby incorporated by reference.
10.40	First Amendment to Note Modification Agreement dated March 24, 2020 between Sonic Foundry, Inc. and Mark Burish, filed with the March 31, 2020 Form 10-Q and hereby incorporated by reference.
10.41	Term Loan Agreement dated April 20, 2020 between Sonic Foundry, Inc. and First Business bank, filed as Exhibit 10.1 to the Form 8-K filed on April 23, 2020 and hereby incorporated by reference.
10.42	Debt Conversion Agreement dated May 13, 2020 between Sonic Foundry, Inc. and Mark Burish, filed with the March 31, 2020 Form 10-Q and hereby incorporated by reference.
10.43	Employment Agreement dated October 8, 2020 between Sonic Foundry, Inc. and Kelsy Boyd, filed as Exhibit 10.1 to the Form 8-K filed on October 15, 2020, and hereby incorporated by reference.
10.44	Employment Agreement dated October 20, 2020 between Sonic Foundry, Inc. and Joseph Mozden, Jr., filed as Exhibit 10.1 to the Form 8-K filed on October 22, 2020, and hereby incorporated by reference.
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32	Section 906 Certification of Chief Executive Officer and Chief Financial Officer
101	The following materials from the Sonic Foundry, Inc. Form 10-Q for the quarter ended December 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

33

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

February 11, 2021	By:	/s/ Joe Mozden, Jr.
		Joe Mozden, Jr.
		Chief Executive Officer
February 11, 2021	By:	/s/ Kelsy L. Boyd
		Kelsy L. Boyd
		Chief Financial Officer

34

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Joe Mozden, Jr., the CEO of Sonic Foundry, Inc., certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 11, 2021

By:	/s/ Joe Mozden, Jr.
By:	Joe Mozden, Jr.
Title:	CEO

EX-31.2

Exhibit 31.2

I, Kelsy L. Boyd, the CFO of Sonic Foundry, Inc., certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: February 11, 2021

By:	/s/ Kelsy L. Boyd
By:	Kelsy L. Boyd
Title:	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 December 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:  February 11, 2021

By:	/s/ Joe Mozden, Jr.
By:	Joe Mozden, Jr.
Title:	Chief Executive Officer
By:	/s/ Kelsy L. Boyd
By:	Kelsy L. Boyd
Title:	Chief Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Dec. 31, 2020	Jan. 31, 2021
Document Information [Line Items]
Entity Registrant Name	SONIC FOUNDRY INC
Entity Central Index Key	0001029744
Trading Symbol	sofo
Current Fiscal Year End Date	--09-30
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		8,012,279
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Dec. 31, 2020
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(g) Security	Common stock par value $0.01 per share

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Current assets:
Cash and cash equivalents	$ 5,845	$ 7,619
Accounts receivable, net of allowances of $258 & $236	5,260	6,250
Inventories	1,214	1,167
Investment in sales-type lease, current	217	275
Capitalized commissions, current	373	440
Prepaid expenses and other current assets	1,048	1,065
Total current assets	13,957	16,816
Property and equipment:
Leasehold improvements	1,136	1,128
Computer equipment	8,213	7,960
Furniture and fixtures	1,444	1,366
Total property and equipment	10,793	10,454
Less accumulated depreciation and amortization	7,596	7,295
Property and equipment, net	3,197	3,159
Other assets:
Investment in sales-type lease, long-term	78	76
Capitalized commissions, long-term	72	100
Right-of-use assets under operating leases	1,827	2,081
Other long-term assets	499	397
Total assets	19,630	22,629
Current liabilities:
Accounts payable	891	2,689
Accrued liabilities	2,374	2,565
Unearned revenue	9,053	10,402
Current portion of finance lease obligations	100	119
Current portion of operating lease obligations	1,482	1,425
Current portion of notes payable and warrant debt, net of discounts	1,038	1,104
Total current liabilities	14,938	18,304
Long-term portion of unearned revenue	1,717	1,736
Long-term portion of finance lease obligations	68	89
Long-term portion of operating lease obligations	344	665
Long-term portion of notes payable and warrant debt, net of discounts	2,399	2,673
Derivative liability, at fair value	71	66
Other liabilities	160	144
Total liabilities	19,697	23,677
Commitments and contingencies
Stockholders’ deficit:
Preferred stock
Common stock, $.01 par value, authorized 10,000,000 shares; 8,012,279 and 7,965,325 shares issued, respectively and 7,999,563 and 7,952,609 shares outstanding, respectively	80	80
Additional paid-in capital	209,283	209,022
Accumulated deficit	(208,887)	(209,519)
Accumulated other comprehensive loss	(374)	(462)
Treasury stock, at cost, 12,716 shares	(169)	(169)
Total stockholders’ deficit	(67)	(1,048)
Total liabilities and stockholders’ deficit	19,630	22,629
Series A Preferred Stock [Member]
Stockholders’ deficit:
Preferred stock
Series B Preferred Stock [Member]
Stockholders’ deficit:
Preferred stock

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Accounts receivable, allowances	$ 258	$ 236
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	500,000	500,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	8,012,279	7,965,325
Common stock, shares outstanding (in shares)	7,999,563	7,952,609
Treasury stock, shares (in shares)	12,716	12,716
Series A Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	4,500	4,500
Preferred stock, shares issued (in shares)	0	0
Preferred stock, liquidation preference (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares outstanding (in shares)	0	0
Preferred stock, dividend rate	9.00%	9.00%
Series B Preferred Stock [Member]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	1,000,000	1,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, liquidation preference (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, dividend rate	5.00%	5.00%

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenue:
Revenue	$ 9,165	$ 8,015
Cost of revenue:
Cost of revenue	2,411	2,179
Gross margin	6,754	5,836
Operating expenses:
Selling and marketing	3,010	3,396
General and administrative	1,198	1,441
Product development	1,741	1,590
Total operating expenses	5,949	6,427
Income (loss) from operations	805	(591)
Non-operating expenses:
Interest expense, net	(29)	(263)
Other expense, net	11	15
Total non-operating expenses	(18)	(248)
Income (loss) before income taxes	787	(839)
Income tax (expense) benefit	(155)	19
Net income (loss)	632	(820)
Dividends on preferred stock
Net income (loss) attributable to common stockholders	$ 632	$ (820)
Income (loss) per common share
– basic (in dollars per share)	$ 0.08	$ (0.12)
– diluted (in dollars per share)	$ 0.08	$ (0.12)
Weighted average common shares
– basic (in shares)	7,963,775	6,736,643
– diluted (in shares)	8,336,028	6,736,643
Product and Other [Member]
Revenue:
Revenue	$ 2,161	$ 2,055
Cost of revenue:
Cost of revenue	813	831
Service [Member]
Revenue:
Revenue	7,004	5,960
Cost of revenue:
Cost of revenue	$ 1,598	$ 1,348

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Net income (loss)	$ 632	$ (820)
Other comprehensive income (loss)
Foreign currency translation adjustment	88	(8)
Comprehensive income (loss)	$ 720	$ (828)

XML

Condensed Consolidated Statements of Stockholders' Deficit (Unaudited) - USD ($) $ in Thousands	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Treasury Stock [Member]	Total
Balance at Sep. 30, 2019		$ 67	$ 203,735	$ (209,340)	$ (546)	$ (169)	$ (6,253)
Stock compensation			52				52
Foreign currency translation adjustment					(8)		(8)
Net income (loss)				(820)			(820)
Balance at Dec. 31, 2019		67	203,787	(210,160)	(554)	(169)	(7,029)
Balance at Sep. 30, 2020		80	209,022	(209,519)	(462)	(169)	(1,048)
Stock compensation			119				119
Foreign currency translation adjustment					88		88
Net income (loss)				632			632
Issuance of common stock			142				142
Balance at Dec. 31, 2020		$ 80	$ 209,283	$ (208,887)	$ (374)	$ (169)	$ (67)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Operating activities
Net income (loss)	$ 632	$ (820)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of other intangibles	19	94
Depreciation and amortization of property and equipment	268	227
Provision for doubtful accounts - including financing receivables	22	9
Stock-based compensation expense related to stock options and warrants	119	52
Deferred loan interest to related party		123
Remeasurement loss on derivative liability	5	2
Changes in operating assets and liabilities:
Accounts receivable	1,079	1,137
Inventories	(42)	(351)
Investment in sales-type lease	63	33
Capitalized commissions	95	87
Prepaid expenses and other current assets	45	216
Right-of-use assets under operating leases	285	289
Operating lease obligations	(295)	(289)
Other long-term assets	(91)	5
Accounts payable and accrued liabilities	(2,053)	(136)
Other long-term liabilities	12	(6)
Unearned revenue	(1,431)	(1,090)
Net cash used in operating activities	(1,268)	(418)
Investing activities
Purchases of property and equipment	(287)	(59)
Net cash used in investing activities	(287)	(59)
Financing activities
Payments on notes payable	(368)	(250)
Proceeds from exercise of common stock options	142	0
Payments on finance lease obligations	(41)	(70)
Net cash used in financing activities	(267)	(320)
Changes in cash and cash equivalents due to changes in foreign currency	48	13
Net decrease in cash and cash equivalents	(1,774)	(784)
Cash and cash equivalents at beginning of year	7,619	4,295
Cash and cash equivalents at end of period	5,845	3,511
Supplemental cash flow information:
Interest paid	20	253
Income taxes paid, foreign	44	81
Non-cash financing and investing activities:
Property and equipment financed by finance lease or accounts payable		$ 36

XML

Note 1 - Basis of Presentation and Significant Accounting Policies

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

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, 2020

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 

three

month period ended

December 31, 2020

are

not

necessarily indicative of the results that might be expected for the year ending

September 

30,

2021.

Impacts of COVID-

19

On

March 11, 2020,

the World Health Organization declared the outbreak of a novel coronavirus (COVID-

19

) as a pandemic, which has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.  While we are unable to accurately predict the full impact that COVID-

19

will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration, severity and impact of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as those of our key business partners, vendors and other counterparties for an indefinite period of time.  To support the health and well-being of our employees, business partners and communities, a vast majority of our employees have been working remotely since mid-

March 2020

and continue to do so for the foreseeable future. 

COVID-

19

has had negative impacts on our operations and the future impacts of the pandemic and any corresponding economic results are largely unknown and rapidly evolving.  Beginning in

March 2020

and continuing through today, the in-person 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 response to the cancellations, the Company introduced a new virtual events platform as an alternate solution for our customers. In addition, the closure of educational institutions globally and the negative financial impact on their funding, could impact 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.

Restructuring and exit activities

The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an on-going benefit arrangement or under a

one

-time benefit arrangement. The Company accounts for on-going benefit arrangements, such as those documented by employment agreements, in accordance with Accounting Standards Codification

712

("ASC

712"

)

Nonretirement Postemployment Benefits

. Under ASC

712,

liabilities for postemployment benefits are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company accounts for

one

-time employment benefit arrangements in accordance with ASC

420

Exit or Disposal Cost Obligations

. When applicable, the Company records such costs into operating expense.

During the quarter ended

December 31, 2020,

the Company expensed involuntary termination benefits of

$101

thousand under ASC

420

compared to

zero

in the same quarter last year.

Investment in Sales-Type Lease

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

3

-

5

years.

Investment in sales-type leases consists of the following (in thousands) as of

December 31, 2020

:

Investment in sales-type lease, gross:
2021	$	218
2022		78
Gross investment in sales-type lease		296
Less: Unearned income		(1	)
Total investment in sales-type lease	$	295
Current portion of total investment in sales-type lease	$	217
Long-term portion of total investment in sales-type lease		78

$ 295

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):

	December 31,			September 30,
	2020			2020
Raw materials and supplies	$	282		$	267
Finished goods		1,054			1,022
Less: Obsolescence reserve		(122	)		(122	)

$ 1,214 $ 1,167

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 

December 31, 2020

and

September 30, 2020

, the Company has recorded a liability of 

$138

 thousand and

$134

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):

December 31, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	71	$	—	$	71

September 30, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	66	$	—	$	66

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 Non-Recurring 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 D. 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 approximated the fair value based on calculating the present value of expected future cash flows (Level

3

). The non-recurring fair value measurements were performed as of the date of issuance of the note purchase agreement and warrant. The discount was being amortized over the life of the related debt until

May 2020,

at which time the debt was extinguished and exchanged for the Company's common stock.

Financial Instruments

Not

Measured at Fair Value

The Company's other financial instruments consist primarily of cash and cash equivalents, accounts receivable, investment in sales-type lease, accounts payable, debt instruments and 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

months ended

December 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:

	Three Months Ended
	December 31,
	2020		2019
Expected life	4.7 years		4.5 years
Risk-free interest rate	0.33	%	1.63	%
Expected volatility	82.61	%	72.40	%
Expected forfeiture rate	14.18	%	15.05	%
Expected exercise factor	1.2		1.2
Expected dividend yield	0	%	0	%

A summary of option activity at

December 31, 2020

and changes during the

three

months then ended is presented below:

				Weighted-		Weighted-Average
				Average		Remaining Contractual
	Options			Exercise Price		Period in Years
Outstanding at October 1, 2020		1,707,515		$	5.09		4.6
Granted		489,250			3.29		9.9
Exercised		(59,670	)		2.39		0.1
Forfeited		(168,409	)		7.34		0.0
Outstanding at December 31, 2020		1,968,686			4.53		6.5
Exercisable at December 31, 2020		1,256,704					4.6

A summary of the status of the Company's non-vested options and changes during the 

three

month period ended

December 31, 2020

is presented below:

				Weighted-Average
				Grant Date Fair
Non-vested Options	Options			Value
Non-vested at October 1, 2020		339,897		$	0.60
Granted		489,250			1.55
Vested		(141,336	)		0.78
Forfeited		(8,745	)		0.58
Non-vested at December 31, 2020		679,066		$	1.33

The weighted average grant date fair value of options granted during the 

three

months ended

December 31, 2020

was

$1.55.

As of

December 31, 2020

, there was

$510

thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation cost of

$394

 thousand. The cost is expected to be recognized over a weighted-average remaining life of

1.9

years.

Stock-based compensation recorded in the 

three

months ended

December 31, 2020

was

$119

thousand. Stock-based compensation recorded in the 

three

months ended

December 31, 2019

was

$52

thousand. There was

$142

thousand in cash received from exercises under all stock option plans and warrants during the

three

months ended

December 31, 2020

and

zero

during the same period in

2019

. There were

no

tax benefits realized for tax deductions from option exercises in either of the

three

month period ended

December 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

300,000

common shares

may

be issued. The board passed a resolution in

December 2020

to increase the share count by an additional

100,000

shares. A total of

106,710

shares are available to be issued under the plan as

December 31, 2020.

The Company recorded stock compensation expense under this plan of less than

$1

thousand for each of the

three

month period ended

December 31, 2020

and

2019

.

Preferred Stock and Dividends

A total of

zero

shares of Preferred Stock, Series A were issued and outstanding as of

December 31, 2020

and

2019.

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
	December 31,
	2020		2019
Denominator for basic net income (loss) per share - weighted average common shares		7,963,775		6,736,643
Effect of dilutive options and warrants (treasury method)		372,253		—
Denominator for diluted net income (loss) per share - adjusted weighted average common shares		8,336,028		6,736,643
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		1,132,365		2,124,738

Liquidity

At

December 31, 2020

, approximately

$3.1

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 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

December 2019,

the FASB issued ASU

2019

-

12,

"Income Taxes (Topic

740

): Simplifying the Accounting for Income Taxes", ("ASU

2019

-

12"

). The amendments in this ASU affect entities within the scope of Topic

740.

For public business entities, the amendments in this ASU are effective for fiscal years beginning after

December 15, 2020,

and interim periods within fiscal years beginning after

December 15, 2020.

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 must adopt all the amendments in the same period. The Company is currently evaluating the guidance and its impact to the financial statements.

Accounting standards that have been issued but are

not

yet effective by the FASB or other standards-setting bodies that do

not

require adoption until a future date, which are

not

discussed above, are

not

expected to have a material impact on the Company's financial statements upon adoption.

XML

Note 2 - Related Party Transactions

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

2.

Related Party Transactions

During the

three

months ended

December 31, 2020

, the Company incurred fees of

$32

thousand to a law firm, a partner of which is a director and stockholder of the Company. The Company incurred similar fees of

$110

thousand during the 

three

months ended

December 31, 2019

. The Company had accrued liabilities of

$10

thousand and

$36

thousand for unbilled services to the same law firm at

December 31, 2020

and

September 30, 2020,

respectively.

On

May 13, 2020,

the Company entered into a debt conversion agreement with Mr. Burish to convert all outstanding debt owed to Mr. Burish into common stock at a conversion price of

$5.00

per share. The total debt amount, including accrued interest and fees, of

$5.6

million was converted into

1,114,723

shares of common stock. The transaction was recommended by the Company's Special Committee of Independent and Disinterested Directors, unanimously approved by all disinterested directors of the Company, and ratified by shareholders at the Company's most recent shareholder meeting. Silverwood Partners, the Special Committee's financial advisor, issued a fairness opinion in connection with the transaction.

Mr. Burish beneficially owns more than

5%

of the Company's common stock. Mr. Burish also serves as the Chairman of the Board of Directors. An affiliated party beneficially owns more than

5%

of the Company's common stock. All transactions with Mr. Burish and with the affiliated party were approved by a Special Committee of Disinterested and Independent Directors.

XML

Note 3 - Commitments

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Commitments Disclosure [Text Block]

3.

Commitments

Inventory Purchase Commitments

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product for hardware inventory, as well as services to support our hosting environment, which are

not

recorded on the Company's condensed consolidated balance sheet. At

December 31, 2020

, the Company had an obligation to purchase

$199

 thousand of Mediasite product and

$237

thousand of services during fiscal

2021,

and

$422

thousand during fiscal

2022

and

2023.

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 includes any initial direct costs incurred. We use the implicit rate when it is readily determinable. Otherwise, the present value of future minimum lease payments is determined using the Company's incremental borrowing rate. The incremental borrowing rate is based on the interest rate of the Company's most recent borrowing.

The lease term we use for the valuation of our right-of-use assets and lease liabilities

may

include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense is recognized on a straight-line basis over the expected lease term for operating leases. Amortization expense of the right-of-use asset for finance leases is recognized on a straight-line basis over the lease term and interest expense for finance leases is recognized based on the incremental interest rate.

Right-of-use assets and lease liabilities are recognized for our leases. Right-of-use assets under finance leases are included in property and equipment on the condensed consolidated balance sheets and have a net carrying value of

$191

thousand at

September 30, 2020

and

$152

thousand at

December

31,2020.

We have operating lease arrangements with lease and non-lease components. The non-lease components in our arrangements are

not

significant when compared to the lease components. For all operating leases, we account for the lease and non-lease components as a single component.

As of

December 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
2021 (remaining)	$	1,208		$	85
2022		472			80
2023		105			8
2024		111			5
2025		35			—
Thereafter		70			—
Total		2,001			178
Less: imputed interest		(175	)		(10	)
Total	$	1,826		$	168

Adoption of ASC

842

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

	Three Months Ended December 31, 2020
Operating lease costs	$	337
Variable operating lease costs		16
Total operating lease cost	$	353
Finance lease cost:
Amortization of right-of-use assets	$	40
Interest on lease liabilities		4
Total finance lease cost	$	44

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):

	Three Months Ended December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	347
Operating cash outflows for finance leases		4
Financing cash outflows for finance leases		41

Other information related to leases was as follows:

	December 31, 2020
Weighted average remaining lease term (in years)
Operating leases		2.1
Finance leases		1.7
Weighted average discount rate
Operating leases		9.39	%
Finance leases		7.46	%

XML

Note 4 - Credit Arrangements

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

4.

Credit Arrangements

Partners for Growth V, L.P.

On

May 

11,

2018,

Sonic Foundry, Inc., entered into a Loan and Security Agreement (the

“2018

Loan and Security Agreement”) with Partners for Growth V, L.P. (“PFG V”).

The

2018

Loan and Security Agreement 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 without penalty as of

May 14, 2019.

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 

December 31, 2020

, and

September 30, 2020

, the estimated fair value of the derivative liability associated with the warrants issued in connection with the

2018

Loan and Security Agreement, was 

$71

 thousand and

$66

 thousand, respectively. Included in other expense, the remeasurement loss on the derivative liability during the

three

months ended

December 31, 2020

was 

$5

thousand compared to remeasurement loss of

$2

 thousand during the

three

months ended

December 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 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

months ended

December 31, 2020

, the Company recorded accretion of discount expense associated with the warrants issued with the PFG V loan of 

$6

thousand compared to

$5

thousand in the same periods last year. In addition, 

$14

thousand amortization of the debt discount was recorded in the current

three

month period compared to

$14

thousand in the prior year. At 

December 31, 2020

, the carrying value of the PFG V Debt and the Warrant Debt (inclusive of its conversion feature) were 

$417

thousand and 

$178

 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

months ended

December 31, 2020

, the Company recorded interest expense of 

$13

thousand associated with recognition of the back-end fee compared to

$13

thousand during the

three

months ended

December 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

months ended

December 31, 2020

, non-cash interest expense of

$18

 thousand related to the effective interest rate on the PFG V loan was recorded compared to

$3

thousand in the

three

months ended

December 31, 2019.

On

March 11, 2019,

Sonic Foundry, Inc. entered into a Consent, Waiver & Modification to the

2018

Loan and Security Agreement dated

May 11, 2018 (

the "Modification") with Partners for Growth V, L.P. ("PFG"). Under the Modification: PFG waived the Company's default on the Minimum EBITDA financial covenant for the quarterly reporting period ending

December 31, 2018;

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 

December 31, 2020

, the Company was in compliance with all covenants per the

2018

Loan and Security Agreement, as modified.

The existing terms of the PFG loan in terms of amortization, interest rate, payment schedule and maturity date are unchanged.

At 

December 31, 2020

, a gross balance of 

$417

thousand was outstanding on the term debt with PFG V with an effective interest rate of

sixteen

-and-

six

-tenths percent (

16.60%

). At 

September 30, 2020

, a gross balance of

$667

thousand 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 provided for subordinated secured promissory notes (the "Subordinated Promissory Notes") in an aggregate original principal amount of up to 

$5,000,000.

Mr. Burish acquired 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 accrued interest at the variable per annum rate equal to the Prime Rate (as defined) plus

four

percent (

4.00%

). The outstanding principal balance of the Subordinated Promissory Notes, plus all unpaid accrued interest, plus all outstanding and unpaid obligations, was set to mature on

February 28, 2024 (

the "Maturity Date"). Principal installments of 

$100,000

 were to begin monthly on

August 31, 2020,

and continue through the Maturity Date. The Note Purchase Agreement dated

February 28, 2019

was subordinated to the existing PFG loan.

At each anniversary of the Closing, an administration fee will be payable to Mr. Burish equal to

0.5%

of the purchase price less principal payments made.

The proceeds from the Note Purchase Agreement were allocated between the Subordinated Promissory Notes and the Burish Warrant based on their relative fair value on the date of issuance. The warrant was treated together as a debt discount on the Subordinated Notes Payable and was accreted to interest expense under the effective interest rate method over the 

five

-year term of the Subordinated Notes Payable. During the

first

fiscal quarter of

2020,

the Company recorded accretion of discount expense associated with the Subordinated Promissory Notes of 

$34

thousand.

The non-cash effective interest expense was calculated on the net balance of the Subordinated Promissory Notes, Burish Warrant, and related loan origination fees, on a monthly basis. During the

three

months ended

December 31, 2019,

$15

thousand of non-cash interest benefit related to the effective interest rate on the Subordinated Promissory Notes was recorded.

February 28, 2019

Warrant

Coincident with execution of the Note Purchase Agreement, the Company entered into a Warrant Agreement ("Burish Warrant") with Mr. Burish. Pursuant to the terms of the Burish 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 Burish Warrant.

May 13, 2020

Debt Conversion Agreement

On

May 13, 2020,

the Company entered into a debt conversion agreement with Mr. Burish to convert all outstanding debt owed to Mr. Burish into common stock at a conversion price of

$5.00

per share. The net carrying value of

$5.0

million, including principal and accrued interest of

$5.6

million less debt discount and loan origination fees of

$596

thousand, was converted into

1,114,723

shares of common stock. The debt conversion was treated as a debt extinguishment, and resulted in a net loss of

$26

thousand.

Paycheck Protection Program (PPP) Loan Dated

April 20, 2020

Following the approval of the Board of Directors, the Company and First Business Bank entered into a

$2.3

million Promissory Note (the "Promissory Note") under the Paycheck Protection Program (PPP) contained within the new Coronavirus Aid, Relief, and Economic Security (CARES) Act. The PPP loan has a term of

two

years for those companies receiving loan proceeds prior to

June 5, 2020,

is unsecured, and is guaranteed by the U.S. Small Business Administration ("SBA"). The loan carries a fixed interest rate of

1%

per annum. Under the terms of the CARES Act, the Company will be eligible for and intends to apply for forgiveness of all loan proceeds used for payroll costs, rent, utilities, and other qualifying expenses during the

eight

-week or

twenty-four

week period ("covered period") following receipt of the loan, provided the Company maintains its employment and compensation within certain parameters during such period, and provided further that

not

more than

40%

of the amount forgiven can be attributable to non-payroll costs. The Company must apply for forgiveness within

10

months from the end of the covered period. First Business Bank will then have

60

days to review the application and submit it to the SBA and the SBA will have

90

days from receipt of the application to review and render a decision back to the lender. If the borrower does

not

apply for loan forgiveness within the

10

month time frame, or if the SBA determines that the loan is

not

eligible for forgiveness (in whole or in part), the PPP loan is

no

longer deferred and the borrower must begin paying principal and interest. If this occurs, the lender must notify the borrower of the amount and the date the

first

payment is due. The SBA began accepting applications for forgiveness from lenders on

August 10, 2020

when the development of its new software-as-a-service platform went live. As of

December 31, 2020

the full amount of the loan has been split between short-term and long-term notes payable of

$482

thousand and

$1.8

million, respectively, as well as short-term accrued interest of

$16

 thousand. The Company plans to apply for

100%

forgiveness in

Q2

-

2021.

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 accrued interest at an annual rate of

1.475%.

Beginning in

January 2020,

principal payments in

12

equal monthly installments, plus accrued interest were made. The principal has been paid in full as of 

December 30, 2020.

At

December 31, 2020

and

September 30, 2020

,

no

balance was outstanding on the line of credit with Mitsui Sumitomo Bank. The credit facility is related to Mediasite K.K., and accrues interest at an annual rate of approximately

one

-and-

one

half percent (

1.575%

). The available line of credit at

December 31, 2020

was

$485

thousand and matures on

March 1, 2021.

On

August 20, 2020,

Mediasite K.K. and Sumitomo Mitsui Banking Corporation entered into a

$379

thousand Promissory Note under an initiative by the Japanese Finance Corporation government institution in response to the Cabinet Decision entitled "Emergency Economic Measures to Cope With COVID-

19."

Extending financial relief to organizations impacted by COVID-

19,

the loan has a term of

three

years and carries a fixed interest rate of

0.46%

per annum. Government subsidies provided through the Japanese Finance Corporations will provide interest relief throughout the term of the loan. In addition, the loan agreement includes a

three

year grace period with principal payments deferred through the end of the loan, which is

September 30, 2023.

As of

September 30, 2020

the full amount of the loan has been included in long-term notes payable.

XML

Note 5 - Income Taxes

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Income Tax Disclosure [Text Block]

5.

Income Taxes

The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had

no

accruals for interest and penalties on the Company's Condensed Consolidated Balance Sheets at

December 31, 2020

or

September 30, 2020

, and has

not

recognized any interest or penalties in the Condensed Consolidated Statements of Operations for either of the

three

or 

three

months ended

December 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

Note 6 - Revenue

3 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

6.

Revenue

Disaggregation of Revenues

The following tables summarize revenues from contracts with customers for the

three

months ended

December 31, 2020

and

2019

, respectively, (in thousands) by subsidiary, which includes the parent (SOFO), our Netherlands location (SFI) and our Japanese location (MSKK) :

Three months ended December 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,315	$	86	$	80	$	(134	)	$	1,347
Software		787		101		59		(147	)		800
Shipping		13		1		—		—			14
Product and other total		2,115		188		139		(281	)		2,161
Support		1,806		179		239		(216	)		2,008
Hosting		1,477		258		704		(63	)		2,376
Events		1,053		17		872		—			1,942
Installs & training		417		10		251		—			678
Services total		4,753		464		2,066		(279	)		7,004
Total revenue	$	6,868	$	652	$	2,205	$	(560	)	$	9,165

Three months ended December 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,046	$	66	$	15	$	(73	)	$	1,054
Software		714		189		37		(56	)		884
Shipping		116		1		—		—			117
Product and other total		1,876		256		52		(129	)		2,055
Support		2,010		155		318		(192	)		2,291
Hosting		1,006		120		376		—			1,502
Events		1,318		62		672		—			2,052
Installs & training		114		1		—		—			115
Services total		4,448		338		1,366		(192	)		5,960
Total revenue	$	6,324	$	594	$	1,418	$	(321	)	$	8,015

Transaction price allocated to future performance obligations

As of

December 31, 2020

, the aggregate amount of the transaction price that is allocated to our future performance obligations was approximately

$4.0

 million in the next

three

months,

$9.1

million in the next

twelve

months, and the remaining

$1.7

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

months ended

December 31, 2020

, revenues recognized related to the amount included in the unearned revenues balance at the beginning of the period was 

$4.2

 million compared to

$4.3

million recognized during the  

three

months ended

December 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

months ended

December 31, 2020

, amortization expense related to the amount included in the capitalized commissions at the beginning of the period was 

$215

thousand compared to

$203

thousand recognized during the 

three

months ended

December 31, 2019

.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Dec. 31, 2020

Accounting Policies [Abstract]

Effect of Covid-19 Pandemic [Policy Text Block]

Impacts of COVID-

19

On

March 11, 2020,

the World Health Organization declared the outbreak of a novel coronavirus (COVID-

19

) as a pandemic, which has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns.  While we are unable to accurately predict the full impact that COVID-

19

will have on our results from operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration, severity and impact of the pandemic and containment measures, our compliance with these measures has impacted our day-to-day operations and could disrupt our business and operations, as well as those of our key business partners, vendors and other counterparties for an indefinite period of time.  To support the health and well-being of our employees, business partners and communities, a vast majority of our employees have been working remotely since mid-

March 2020

and continue to do so for the foreseeable future. 

COVID-

19

has had negative impacts on our operations and the future impacts of the pandemic and any corresponding economic results are largely unknown and rapidly evolving.  Beginning in

March 2020

and continuing through today, the in-person 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 response to the cancellations, the Company introduced a new virtual events platform as an alternate solution for our customers. In addition, the closure of educational institutions globally and the negative financial impact on their funding, could impact 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.

Costs Associated with Exit or Disposal Activity or Restructuring [Policy Text Block]

Restructuring and exit activities

The determination of when the Company accrues for involuntary termination benefits under restructuring plans depends on whether the termination benefits are provided under an on-going benefit arrangement or under a

one

-time benefit arrangement. The Company accounts for on-going benefit arrangements, such as those documented by employment agreements, in accordance with Accounting Standards Codification

712

("ASC

712"

)

Nonretirement Postemployment Benefits

. Under ASC

712,

liabilities for postemployment benefits are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company accounts for

one

-time employment benefit arrangements in accordance with ASC

420

Exit or Disposal Cost Obligations

. When applicable, the Company records such costs into operating expense.

During the quarter ended

December 31, 2020,

the Company expensed involuntary termination benefits of

$101

thousand under ASC

420

compared to

zero

in the same quarter last year.

Lessor, Leases [Policy Text Block]

Investment in Sales-Type Lease

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

3

-

5

years.

Investment in sales-type leases consists of the following (in thousands) as of

December 31, 2020

:

Investment in sales-type lease, gross:
2021	$	218
2022		78
Gross investment in sales-type lease		296
Less: Unearned income		(1	)
Total investment in sales-type lease	$	295
Current portion of total investment in sales-type lease	$	217
Long-term portion of total investment in sales-type lease		78

Inventory, Policy [Policy Text Block]

Inventory

Inventory consists of raw materials and supplies used in the assembly of Mediasite recorders and finished units. Inventory of completed units and spare parts are carried at the lower of cost or net realizable value, with cost determined on a

first

-in,

first

-out basis. An obsolescence reserve has been established to account for slow moving inventory.

Inventory consists of the following (in thousands):

	December 31,			September 30,
	2020			2020
Raw materials and supplies	$	282		$	267
Finished goods		1,054			1,022
Less: Obsolescence reserve		(122	)		(122	)

Asset Retirement Obligation [Policy Text Block]

Asset Retirement Obligation

An asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset is recognized as a liability in the period in which it is incurred or becomes determinable, with an associated increase in the carrying amount of the related long-term asset.  The cost of the tangible asset, including the initially recognized asset retirement cost, is depreciated over the useful life of the asset.  As of 

December 31, 2020

and

September 30, 2020

, the Company has recorded a liability of 

$138

 thousand and

$134

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, Policy [Policy Text Block]

Fair Value of Financial Instruments

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

one

of the following levels:

Level

1

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

Level

2

Inputs: Inputs other than quoted prices included in Level

1

inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level

3

Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are

not

available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date.

The hierarchy gives the highest priority to Level

1,

as this level provides the most reliable measure of fair value, while giving the lowest priority to Level

3.

Financial Liabilities Measured at Fair Value on Recurring Basis

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

December 31, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	71	$	—	$	71

September 30, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	66	$	—	$	66

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 Non-Recurring 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 D. 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 approximated the fair value based on calculating the present value of expected future cash flows (Level

3

). The non-recurring fair value measurements were performed as of the date of issuance of the note purchase agreement and warrant. The discount was being amortized over the life of the related debt until

May 2020,

at which time the debt was extinguished and exchanged for the Company's common stock.

Financial Instruments

Not

Measured at Fair Value

The Company's other financial instruments consist primarily of cash and cash equivalents, accounts receivable, investment in sales-type lease, accounts payable, debt instruments and 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 Costs, Policy [Policy Text Block]

Legal Contingencies

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

No

legal contingencies were recorded or were required to be disclosed for the

three

months ended

December 31, 2020

or

2019

.

Share-based Payment Arrangement [Policy Text Block]

Stock Based Compensation

The Company uses a lattice valuation model to account for all employee stock options granted. The lattice valuation model is a more flexible analysis to value options because of its ability to incorporate inputs that change over time, such as actual exercise behavior of option holders. The Company uses historical data to estimate the option exercise and employee departure behavior in the lattice valuation model. Expected volatility is based on historical volatility of the Company's stock. The Company considers all employees to have similar exercise behavior and therefore has

not

identified separate homogeneous groups for valuation. The expected term of options granted is derived from the output of the option pricing model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods the options are expected to be outstanding is based on the U.S. Treasury yields in effect at the time of grant. Forfeitures are based on actual behavior patterns. The expected exercise factor and forfeiture rates are calculated using historical exercise and forfeiture activity for the previous

three

years.

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

	Three Months Ended
	December 31,
	2020		2019
Expected life	4.7 years		4.5 years
Risk-free interest rate	0.33	%	1.63	%
Expected volatility	82.61	%	72.40	%
Expected forfeiture rate	14.18	%	15.05	%
Expected exercise factor	1.2		1.2
Expected dividend yield	0	%	0	%

A summary of option activity at

December 31, 2020

and changes during the

three

months then ended is presented below:

				Weighted-		Weighted-Average
				Average		Remaining Contractual
	Options			Exercise Price		Period in Years
Outstanding at October 1, 2020		1,707,515		$	5.09		4.6
Granted		489,250			3.29		9.9
Exercised		(59,670	)		2.39		0.1
Forfeited		(168,409	)		7.34		0.0
Outstanding at December 31, 2020		1,968,686			4.53		6.5
Exercisable at December 31, 2020		1,256,704					4.6

A summary of the status of the Company's non-vested options and changes during the 

three

month period ended

December 31, 2020

is presented below:

				Weighted-Average
				Grant Date Fair
Non-vested Options	Options			Value
Non-vested at October 1, 2020		339,897		$	0.60
Granted		489,250			1.55
Vested		(141,336	)		0.78
Forfeited		(8,745	)		0.58
Non-vested at December 31, 2020		679,066		$	1.33

The weighted average grant date fair value of options granted during the 

three

months ended

December 31, 2020

was

$1.55.

As of

December 31, 2020

, there was

$510

thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation cost of

$394

 thousand. The cost is expected to be recognized over a weighted-average remaining life of

1.9

years.

Stock-based compensation recorded in the 

three

months ended

December 31, 2020

was

$119

thousand. Stock-based compensation recorded in the 

three

months ended

December 31, 2019

was

$52

thousand. There was

$142

thousand in cash received from exercises under all stock option plans and warrants during the

three

months ended

December 31, 2020

and

zero

during the same period in

2019

. There were

no

tax benefits realized for tax deductions from option exercises in either of the

three

month period ended

December 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

300,000

common shares

may

be issued. The board passed a resolution in

December 2020

to increase the share count by an additional

100,000

shares. A total of

106,710

shares are available to be issued under the plan as

December 31, 2020.

The Company recorded stock compensation expense under this plan of less than

$1

thousand for each of the

three

month period ended

December 31, 2020

and

2019

.

Preferred Stock and Dividends [Policy Text Block]

Preferred Stock and Dividends

A total of

zero

shares of Preferred Stock, Series A were issued and outstanding as of

December 31, 2020

and

2019.

Earnings Per Share, Policy [Policy Text Block]

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
	December 31,
	2020		2019
Denominator for basic net income (loss) per share - weighted average common shares		7,963,775		6,736,643
Effect of dilutive options and warrants (treasury method)		372,253		—
Denominator for diluted net income (loss) per share - adjusted weighted average common shares		8,336,028		6,736,643
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		1,132,365		2,124,738

Liquidity [Policy Text Block]

Liquidity

At

December 31, 2020

, approximately

$3.1

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 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.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

December 2019,

the FASB issued ASU

2019

-

12,

"Income Taxes (Topic

740

): Simplifying the Accounting for Income Taxes", ("ASU

2019

-

12"

). The amendments in this ASU affect entities within the scope of Topic

740.

For public business entities, the amendments in this ASU are effective for fiscal years beginning after

December 15, 2020,

and interim periods within fiscal years beginning after

December 15, 2020.

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 must adopt all the amendments in the same period. The Company is currently evaluating the guidance and its impact to the financial statements.

Accounting standards that have been issued but are

not

yet effective by the FASB or other standards-setting bodies that do

not

require adoption until a future date, which are

not

discussed above, are

not

expected to have a material impact on the Company's financial statements upon adoption.

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Note 1 - Basis of Presentation and Significant Accounting Policies (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Investment in Sales-type Leases [Table Text Block]

Investment in sales-type lease, gross:
2021	$	218
2022		78
Gross investment in sales-type lease		296
Less: Unearned income		(1	)
Total investment in sales-type lease	$	295
Current portion of total investment in sales-type lease	$	217
Long-term portion of total investment in sales-type lease		78

Schedule of Inventory, Current [Table Text Block]

	December 31,			September 30,
	2020			2020
Raw materials and supplies	$	282		$	267
Finished goods		1,054			1,022
Less: Obsolescence reserve		(122	)		(122	)

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

December 31, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	71	$	—	$	71

September 30, 2020	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	66	$	—	$	66

Schedule of Share-based Payment Award, Employee Stock Purchase Plan, Valuation Assumptions [Table Text Block]

	Three Months Ended
	December 31,
	2020		2019
Expected life	4.7 years		4.5 years
Risk-free interest rate	0.33	%	1.63	%
Expected volatility	82.61	%	72.40	%
Expected forfeiture rate	14.18	%	15.05	%
Expected exercise factor	1.2		1.2
Expected dividend yield	0	%	0	%

Share-based Payment Arrangement, Option, Activity [Table Text Block]

				Weighted-		Weighted-Average
				Average		Remaining Contractual
	Options			Exercise Price		Period in Years
Outstanding at October 1, 2020		1,707,515		$	5.09		4.6
Granted		489,250			3.29		9.9
Exercised		(59,670	)		2.39		0.1
Forfeited		(168,409	)		7.34		0.0
Outstanding at December 31, 2020		1,968,686			4.53		6.5
Exercisable at December 31, 2020		1,256,704					4.6

Schedule of Nonvested Share Activity [Table Text Block]

				Weighted-Average
				Grant Date Fair
Non-vested Options	Options			Value
Non-vested at October 1, 2020		339,897		$	0.60
Granted		489,250			1.55
Vested		(141,336	)		0.78
Forfeited		(8,745	)		0.58
Non-vested at December 31, 2020		679,066		$	1.33

Schedule of Weighted Average Number of Shares [Table Text Block]

	Three Months Ended
	December 31,
	2020		2019
Denominator for basic net income (loss) per share - weighted average common shares		7,963,775		6,736,643
Effect of dilutive options and warrants (treasury method)		372,253		—
Denominator for diluted net income (loss) per share - adjusted weighted average common shares		8,336,028		6,736,643
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		1,132,365		2,124,738

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Note 3 - Commitments (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Lessee, Lease Liability, Maturity [Table Text Block]

	Operating Leases			Finance Leases
2021 (remaining)	$	1,208		$	85
2022		472			80
2023		105			8
2024		111			5
2025		35			—
Thereafter		70			—
Total		2,001			178
Less: imputed interest		(175	)		(10	)
Total	$	1,826		$	168

Lease, Cost [Table Text Block]

	Three Months Ended December 31, 2020
Operating lease costs	$	337
Variable operating lease costs		16
Total operating lease cost	$	353
Finance lease cost:
Amortization of right-of-use assets	$	40
Interest on lease liabilities		4
Total finance lease cost	$	44

Supplement Cash Flow Information [Table Text Block]

	Three Months Ended December 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	347
Operating cash outflows for finance leases		4
Financing cash outflows for finance leases		41

	December 31, 2020
Weighted average remaining lease term (in years)
Operating leases		2.1
Finance leases		1.7
Weighted average discount rate
Operating leases		9.39	%
Finance leases		7.46	%

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Note 6 - Revenue (Tables)

3 Months Ended

Dec. 31, 2020

Notes Tables

Disaggregation of Revenue [Table Text Block]

Three months ended December 31, 2020
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,315	$	86	$	80	$	(134	)	$	1,347
Software		787		101		59		(147	)		800
Shipping		13		1		—		—			14
Product and other total		2,115		188		139		(281	)		2,161
Support		1,806		179		239		(216	)		2,008
Hosting		1,477		258		704		(63	)		2,376
Events		1,053		17		872		—			1,942
Installs & training		417		10		251		—			678
Services total		4,753		464		2,066		(279	)		7,004
Total revenue	$	6,868	$	652	$	2,205	$	(560	)	$	9,165

Three months ended December 31, 2019
	SOFO		SFI		MSKK		Eliminations			Total
Revenue:
Hardware	$	1,046	$	66	$	15	$	(73	)	$	1,054
Software		714		189		37		(56	)		884
Shipping		116		1		—		—			117
Product and other total		1,876		256		52		(129	)		2,055
Support		2,010		155		318		(192	)		2,291
Hosting		1,006		120		376		—			1,502
Events		1,318		62		672		—			2,052
Installs & training		114		1		—		—			115
Services total		4,448		338		1,366		(192	)		5,960
Total revenue	$	6,324	$	594	$	1,418	$	(321	)	$	8,015

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Note 1 - Basis of Presentation and Significant Accounting Policies (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020
Asset Retirement Obligation, Ending Balance	$ 138	$ 138		$ 134
Litigation Settlement, Amount Awarded to Other Party		$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share)		$ 1.55
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	510	$ 510
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Total Forfeiture Adjusted Amount	$ 394	$ 394
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)		1 year 328 days
Share-based Payment Arrangement, Expense		$ 119	52
Proceeds from Stock Options Exercised		142	0
Share-based Payment Arrangement, Expense, Tax Benefit		$ 0	$ 0
Preferred Stock, Shares Issued, Total (in shares)	0	0		0
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 5,845	$ 5,845		$ 7,619
Japan and the Netherlands [Member]
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 3,100	$ 3,100
Series A Preferred Stock [Member]
Preferred Stock, Shares Issued, Total (in shares)	0	0	0	0
Preferred Stock, Shares Outstanding, Ending Balance (in shares)	0	0	0	0
Employee Stock Purchase Plan [Member]
Share-based Payment Arrangement, Expense		$ 1	$ 1
Common Stock, Capital Shares Reserved for Future Issuance (in shares)	300,000	300,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized (in shares)	100,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant (in shares)	106,710	106,710
Minimum [Member]
Lessor, Sales-type Lease, Term of Contract (Year)	3 years	3 years
Maximum [Member]
Lessor, Sales-type Lease, Term of Contract (Year)	5 years	5 years
One-time Termination Benefits [Member]
Restructuring Charges, Total		$ 101	$ 0

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Note 1 - Basis of Presentation and Significant Accounting Policies - Investment in Sales-type Leases (Details) $ in Thousands	Dec. 31, 2020 USD ($)
2021	$ 218
2022	78
Gross investment in sales-type lease	296
Less: Unearned income	(1)
Total investment in sales-type lease	295
Current portion of total investment in sales-type lease	217
Long-term portion of total investment in sales-type lease	78
Net Investment in Lease, Noncurrent	$ 295

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Note 1 - Basis of Presentation and Significant Accounting Policies - Inventory (Details) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Raw materials and supplies	$ 282	$ 267
Finished goods	1,054	1,022
Less: Obsolescence reserve	(122)	(122)
Inventory, Net, Total	$ 1,214	$ 1,167

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Note 1 - Basis of Presentation and Significant Accounting Policies - Financial Liabilities Measured at Fair Value on Recurring Basis (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Derivative liability	$ 71	$ 66
Fair Value, Inputs, Level 1 [Member]
Derivative liability
Fair Value, Inputs, Level 2 [Member]
Derivative liability	71	66
Fair Value, Inputs, Level 3 [Member]
Derivative liability

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Note 1 - Basis of Presentation and Significant Accounting Policies - Fair Value Assumptions for Stock Options Granted (Details)	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Expected life (Year)	4 years 255 days	4 years 182 days
Risk-free interest rate	0.33%	1.63%
Expected volatility	82.61%	72.40%
Expected forfeiture rate	14.18%	15.05%
Expected exercise factor	120.00%	120.00%
Expected dividend yield	0.00%	0.00%

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Note 1 - Basis of Presentation and Significant Accounting Policies - Option Activity (Details) - $ / shares	3 Months Ended	12 Months Ended
	Dec. 31, 2020	Sep. 30, 2020
Options, Outstanding at beginning of year (in shares)	1,707,515
Weighted Average Exercise Price, Outstanding Balance (in dollars per share)	$ 5.09
Weighted Average Remaining Contractual Period in Years, Outstanding Ending Balance (Year)	6 years 182 days	4 years 219 days
Options, Granted (in shares)	489,250
Weighted Average Exercise Price, Granted (in dollars per share)	$ 3.29
Weighted Average Remaining Contractual Period in Years, Granted (Year)	9 years 328 days
Options, Exercised (in shares)	(59,670)
Weighted Average Exercise Price, Exercised (in dollars per share)	$ 2.39
Weighted Average Remaining Contractual Period in Years, Exercised (Year)	36 days
Options, Forfeited (in shares)	(168,409)
Weighted Average Exercise Price, Forfeited (in dollars per share)	$ 7.34
Weighted Average Remaining Contractual Period in Years, Forfeited (Year)	0 years
Options, Outstanding at end of year (in shares)	1,968,686	1,707,515
Weighted Average Exercise Price, Outstanding Balance (in dollars per share)	$ 4.53	$ 5.09
Options, Exercisable at end of year (in shares)	1,256,704
Weighted Average Remaining Contractual Period in Years, Exercisable Ending Balance (Year)	4 years 219 days

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Note 1 - Basis of Presentation and Significant Accounting Policies - Summary of Status of Company's Non-vested Shares (Details)	3 Months Ended
	Dec. 31, 2020 $ / shares shares
Non-vested options (in shares) | shares	339,897
Weighted-Average Grant Date Fair Value, Non-vested Balance (in dollars per share) | $ / shares	$ 0.60
Options, Granted (in shares) | shares	489,250
Weighted-Average Grant Date Fair Value, Non-vested granted (in dollars per share) | $ / shares	$ 1.55
Non-vested options, vested (in shares) | shares	(141,336)
Weighted-Average Grant Date Fair Value, vested (in dollars per share) | $ / shares	$ 0.78
Non-vested options, forfeited (in shares) | shares	(8,745)
Weighted-Average Grant Date Fair Value, forfeited (in dollars per share) | $ / shares	$ 0.58
Non-vested options (in shares) | shares	679,066
Weighted-Average Grant Date Fair Value, Non-vested Balance (in dollars per share) | $ / shares	$ 1.33

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Note 1 - Basis of Presentation and Significant Accounting Policies - Computation of Basic and Diluted Weighted Average Shares Used in Earnings Per Share Calculations (Details) - shares	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
– basic (in shares)	7,963,775	6,736,643
Effect of dilutive options and warrants (treasury method) (in shares)	372,253
– diluted (in shares)	8,336,028	6,736,643
Options, warrants and convertible shares outstanding during each period, but not included in the computation of diluted net loss per share because they are antidilutive (in shares)	1,132,365	2,124,738

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Note 2 - Related Party Transactions (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended
	May 13, 2020	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020
Board of Directors Chairman [Member] | Minimum [Member]
Percentage of Common Stock		5.00%
Board of Directors Chairman [Member] | Conversion of Debt to Common Stock [Member]
Debt Instrument, Convertible, Conversion Price (in dollars per share)	$ 5
Debt Conversion, Original Debt, Amount	$ 5,600
Debt Conversion, Converted Instrument, Shares Issued (in shares)	1,114,723
Affiliated Entity [Member] | Minimum [Member]
Percentage of Common Stock		5.00%
Incurred Fees [Member] | Law Firm Whose Partner is a Director and Stockholder [Member]
Related Party Transaction, Expenses from Transactions with Related Party		$ 32	$ 110
Accrued Liability for Unbilled Services [Member] | Law Firm Whose Partner is a Director and Stockholder [Member]
Due to Related Parties, Current, Total		$ 10		$ 36

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Note 3 - Commitments (Details Textual) - USD ($) $ in Thousands	Dec. 31, 2020	Sep. 30, 2020
Recorded Unconditional Purchase Obligation, Total	$ 199
Recorded Unconditional Purchase Obligation, to be Paid, Year One	237
Recorded Unconditional Purchase Obligation, to be Paid, Year Two	422
Recorded Unconditional Purchase Obligation, to be Paid, Year Three	422
Finance Lease, Right-of-Use Asset, after Accumulated Amortization, Total	$ 152	$ 191
Office Space Lease Agreement, June 28, 2011 [Member]
Lessee, Operating Lease, Renewal Term (Year)	3 years

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Note 3 - Commitments - Maturities of Operating and Finance Lease (Details) $ in Thousands	Dec. 31, 2020 USD ($)
2021 (remaining), operating lease	$ 1,208
2021 (remaining), finance lease	85
2022, operating lease	472
2022, finance lease	80
2023, operating lease	105
2023, finance lease	8
2024, operating lease	111
2024, finance lease	5
2025, operating lease	35
2025, finance lease
Thereafter, operating lease	70
Thereafter, finance lease
Total, operating lease	2,001
Total, finance lease	178
Less: imputed interest, operating lease	(175)
Less: imputed interest, finance lease	(10)
Total, operating lease	1,826
Total, finance lease	$ 168

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Note 3 - Commitments - Supplement Information Related to Leases (Details) $ in Thousands	3 Months Ended
	Dec. 31, 2020 USD ($)
Operating lease costs	$ 337
Variable operating lease costs	16
Total operating lease cost	353
Amortization of right-of-use assets	40
Interest on lease liabilities	4
Total finance lease cost	$ 44

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Note 3 - Commitments - Supplement Cash Flow Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Operating cash outflows for operating leases	$ 347
Operating cash outflows for finance leases	4
Financing cash outflows for finance leases	$ 41	$ 70
Operating leases (Year)	2 years 36 days
Finance leases (Year)	1 year 255 days
Operating leases	9.39%
Finance leases	7.46%

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Note 4 - Credit Arrangements (Details Textual)				1 Months Ended	3 Months Ended
	Aug. 20, 2020 USD ($)	May 13, 2020 USD ($) $ / shares shares	Feb. 28, 2019 USD ($)	Aug. 31, 2020 USD ($)	Dec. 31, 2020 USD ($) $ / shares shares	Dec. 31, 2019 USD ($)	Mar. 31, 2021	Nov. 30, 2020	Sep. 30, 2020 USD ($) $ / shares	May 31, 2020	Apr. 20, 2020 USD ($)	Jan. 30, 2020 USD ($)	Apr. 25, 2019 $ / shares shares	Mar. 11, 2019 USD ($)	Feb. 14, 2019 USD ($) $ / shares	Jan. 31, 2019 USD ($) $ / shares	Jan. 04, 2019 USD ($)	May 14, 2018 USD ($)	May 11, 2018 USD ($) $ / shares shares
Derivative Liability, Noncurrent					$ 71,000				$ 66,000
Derivative, Gain (Loss) on Derivative, Net, Total					$ (5,000)	$ (2,000)
Common Stock, Par or Stated Value Per Share (in dollars per share) | $ / shares					$ 0.01				$ 0.01
Director [Member]
Administration Fee Payable, Percentage of Purchase Price Less Principal Payments			0.50%
Board of Directors Chairman [Member] | Conversion of Debt to Common Stock [Member]
Debt Instrument, Convertible, Conversion Price (in dollars per share) | $ / shares		$ 5
Debt Conversion, Converted Instrument, Shares Issued (in shares) | shares		1,114,723
February 28, 2019 Warrant [Member] | Director [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares) | shares					728,155								728,155
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares					$ 1.18								$ 1.18
Partners For Growth VL.P. [Member] | Warrant to Purchase Common Stock [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in shares) | shares																			66,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in dollars per share) | $ / shares																			$ 2.57
Exchange Price of Warrant																			$ 250,000
PFG V Debt [Member]
Long-term Debt, Gross					$ 2,300,000
Warrant Debt [Member]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability, Issuances					$ 156,000
Burish Notes, Net of Discount [Member] | Fair Value, Inputs, Level 3 [Member]
Debt Instrument, Interest Rate, Stated Percentage					16.60%
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Liability Value, Ending Balance									$ 667,000
Subordinated Promissory Notes [Member]
Debt Instrument, Term (Year)					5 years
Amortization of Debt Discount (Premium)						34,000
Non-Cash Interest Expense, Debt						(15,000)
Debt Instrument, Basis Spread on Variable Rate			4.00%
Debt Instrument, Periodic Payment, Principal				$ 100,000
May 13, 2020 Debt Conversion Agreement [Member] | Board of Directors Chairman [Member]
Long-term Debt, Gross		$ 5,600,000
Debt Instrument, Face Amount		5,000,000
Debt Instrument, Unamortized Discount (Premium) and Debt Issuance Costs, Net, Total		596,000
Gain (Loss) on Extinguishment of Debt, Total		$ (26,000)
Paycheck Protection Program CARES Act [Member]
Debt Instrument, Face Amount											$ 2,300,000
Notes Payable, Current, Total					$ 482,000
Notes Payable, Noncurrent, Total					1,800,000
Interest Payable					16,000
Paycheck Protection Program CARES Act [Member] | Forecast [Member]
Debt Instrument, Percentage of Debt Forgiveness Application							100.00%
Term Loan [Member]
Debt Instrument, Interest Rate, Stated Percentage												1.475%
Debt Instrument, Face Amount												$ 460,000
Debt Instrument, Number of Equal Monthly Installment												12
Promissory Note [Member] | Mediasite K.K. and Mitsui Sumitomo Bank [Member]
Debt Instrument, Interest Rate, Stated Percentage	0.46%
Debt Instrument, Term (Year)	3 years
Debt Instrument, Face Amount	$ 379,000
Debt Instrument, Grace Period (Year)	3 years
Partners For Growth VL.P. [Member]
Derivative Liability, Noncurrent					71,000				66,000
Derivative, Gain (Loss) on Derivative, Net, Total					(5,000)	(2,000)
Partners For Growth VL.P. [Member] | Loan and Security Agreement 2018 [Member]
Debt Instrument, Covenants, Minimum Coverage Ratio								0.9		0.7
Debt Instrument, Covenant, Minimum Qualifying Revenue														$ 13,000,000
Partners For Growth VL.P. [Member] | Loan and Security Agreement 2018 [Member] | Revolving Credit Facility [Member] | Subsidiaries [Member] | JAPAN
Debt Instrument, Covenant, Maximum Subsidiary Indebtedness														1,000,000
Partners For Growth VL.P. [Member] | PFG V Debt [Member]
Long-term Debt, Total					417,000
Long-term Debt, Gross					$ 417,000
Debt Instrument, Term (Year)					3 years
Accretion Expense					$ 6,000	5,000
Amortization of Debt Discount (Premium)					14,000	14,000
Interest Expense, Debt, Total					13,000	13,000
Partners For Growth VL.P. [Member] | PFG V Debt [Member] | Maximum [Member]
Debt Instrument, Fee Amount					150,000
Partners For Growth VL.P. [Member] | Warrant Debt [Member]
Long-term Debt, Gross					$ 178,000
Debt Instrument, Term (Year)					5 years
Mitsui Sumitomo Bank [Member]
Line of Credit Facility, Interest Rate at Period End					1.575%
Line of Credit Facility, Maximum Borrowing Capacity					$ 485,000
Term Loan [Member] | Partners For Growth VL.P. [Member] | Loan and Security Agreement 2018 [Member]
Long-term Debt, Total																		$ 2,500,000
Debt Instrument, Number of Equal Monthly Principal Installments																		30
Debt Instrument, Fee Amount																			$ 150,000
Term Loan Tranche 1 [Member] | Partners For Growth VL.P. [Member] | Loan and Security Agreement 2018 [Member]
Long-term Debt, Total																		$ 2,000,000
Debt Instrument, Interest Rate, Stated Percentage																		10.75%
Term Loan Tranche 2 [Member] | Partners For Growth VL.P. [Member] | Loan and Security Agreement 2018 [Member]
Long-term Debt, Total																		$ 500,000
Senior Notes [Member] | Senior Secured Promissory Note [Member]
Debt Instrument, Covenant, Maximum Subsidiary Indebtedness														$ 1,200,000
Senior Notes [Member] | Subordinated Promissory Notes [Member]
Debt Instrument, Interest Rate, Stated Percentage															9.25%	9.25%	9.25%
Debt Instrument, Face Amount			$ 5,000,000												$ 1,000,000	$ 1,000,000	$ 1,000,000
Common Stock, Par or Stated Value Per Share (in dollars per share) | $ / shares															$ 1.30	$ 1.30
Senior Notes [Member] | Initial Notes [Member]
Debt Instrument, Face Amount			3,000,000
Senior Notes [Member] | Additional Notes [Member]
Debt Instrument, Face Amount			$ 1,000,000
Senior Notes [Member] | Partners For Growth VL.P. [Member] | PFG V Debt [Member]
Non-Cash Interest Expense, Debt					18,000	$ 3,000
Line of Credit [Member] | Mitsui Sumitomo Bank [Member]
Long-term Line of Credit, Total					$ 0				$ 0

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Note 5 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Sep. 30, 2020
Income Tax Examination, Penalties and Interest Accrued, Total	$ 0		$ 0
Income Tax Examination, Penalties and Interest Expense, Total	$ 0	$ 0

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Note 6 - Revenue 1 (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenue, Remaining Performance Obligation, Amount	$ 1,700
Contract with Customer, Liability, Revenue Recognized	4,200	$ 4,300
Capitalized Contract Cost, Amortization	$ 215	$ 203

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Note 6 - Revenue 2 (Details Textual) $ in Thousands	Dec. 31, 2020 USD ($)
Revenue, Remaining Performance Obligation, Amount	$ 1,700
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-01-01
Revenue, Remaining Performance Obligation, Amount	$ 4,000
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Month)	90 days
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01
Revenue, Remaining Performance Obligation, Amount	$ 9,100
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period (Month)	1 year

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Note 6 - Revenue - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Revenue	$ 9,165	$ 8,015
Hardware [Member]
Revenue	1,347	1,054
Software [Member]
Revenue	800	884
Shipping [Member]
Revenue	14	117
Product and Other [Member]
Revenue	2,161	2,055
Service Support [Member]
Revenue	2,008	2,291
Service Hosting [Member]
Revenue	2,376	1,502
Service Events [Member]
Revenue	1,942	2,052
Service Installs and Training [Member]
Revenue	678	115
Service [Member]
Revenue	7,004	5,960
Intersegment Eliminations [Member]
Revenue	(560)	(321)
Intersegment Eliminations [Member] | Hardware [Member]
Revenue	(134)	(73)
Intersegment Eliminations [Member] | Software [Member]
Revenue	(147)	(56)
Intersegment Eliminations [Member] | Shipping [Member]
Revenue
Intersegment Eliminations [Member] | Product and Other [Member]
Revenue	(281)	(129)
Intersegment Eliminations [Member] | Service Support [Member]
Revenue	(216)	(192)
Intersegment Eliminations [Member] | Service Hosting [Member]
Revenue	(63)
Intersegment Eliminations [Member] | Service Events [Member]
Revenue
Intersegment Eliminations [Member] | Service Installs and Training [Member]
Revenue
Intersegment Eliminations [Member] | Service [Member]
Revenue	(279)	(192)
SOFO [Member] | Operating Segments [Member]
Revenue	6,868	6,324
SOFO [Member] | Operating Segments [Member] | Hardware [Member]
Revenue	1,315	1,046
SOFO [Member] | Operating Segments [Member] | Software [Member]
Revenue	787	714
SOFO [Member] | Operating Segments [Member] | Shipping [Member]
Revenue	13	116
SOFO [Member] | Operating Segments [Member] | Product and Other [Member]
Revenue	2,115	1,876
SOFO [Member] | Operating Segments [Member] | Service Support [Member]
Revenue	1,806	2,010
SOFO [Member] | Operating Segments [Member] | Service Hosting [Member]
Revenue	1,477	1,006
SOFO [Member] | Operating Segments [Member] | Service Events [Member]
Revenue	1,053	1,318
SOFO [Member] | Operating Segments [Member] | Service Installs and Training [Member]
Revenue	417	114
SOFO [Member] | Operating Segments [Member] | Service [Member]
Revenue	4,753	4,448
SFI [Member] | Operating Segments [Member]
Revenue	652	594
SFI [Member] | Operating Segments [Member] | Hardware [Member]
Revenue	86	66
SFI [Member] | Operating Segments [Member] | Software [Member]
Revenue	101	189
SFI [Member] | Operating Segments [Member] | Shipping [Member]
Revenue	1	1
SFI [Member] | Operating Segments [Member] | Product and Other [Member]
Revenue	188	256
SFI [Member] | Operating Segments [Member] | Service Support [Member]
Revenue	179	155
SFI [Member] | Operating Segments [Member] | Service Hosting [Member]
Revenue	258	120
SFI [Member] | Operating Segments [Member] | Service Events [Member]
Revenue	17	62
SFI [Member] | Operating Segments [Member] | Service Installs and Training [Member]
Revenue	10	1
SFI [Member] | Operating Segments [Member] | Service [Member]
Revenue	464	338
MSKK [Member] | Operating Segments [Member]
Revenue	2,205	1,418
MSKK [Member] | Operating Segments [Member] | Hardware [Member]
Revenue	80	15
MSKK [Member] | Operating Segments [Member] | Software [Member]
Revenue	59	37
MSKK [Member] | Operating Segments [Member] | Shipping [Member]
Revenue
MSKK [Member] | Operating Segments [Member] | Product and Other [Member]
Revenue	139	52
MSKK [Member] | Operating Segments [Member] | Service Support [Member]
Revenue	239	318
MSKK [Member] | Operating Segments [Member] | Service Hosting [Member]
Revenue	704	376
MSKK [Member] | Operating Segments [Member] | Service Events [Member]
Revenue	872	672
MSKK [Member] | Operating Segments [Member] | Service Installs and Training [Member]
Revenue	251
MSKK [Member] | Operating Segments [Member] | Service [Member]
Revenue	$ 2,066	$ 1,366