Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2022

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. The Company continues to follow guidelines outlined by the CDC and local county protocol. On August 2, 2021, the Company returned to in-person working. The Company implemented a newly developed hybrid module to allow employees to work 60% in office and 40% from home.

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. The Company has implemented new products and new approaches to deliver existing products to grow revenue.  In response to the cancellations of in-person events, the Company introduced a new virtual events platform as an alternate solution for our customers. Full return to in-person events is anticipated to return in summer 2022. In addition, the Company is confident the pandemic will accelerate the Company's new product strategy.

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.

For the three and six months ended March 31, 2022,the Company expensed involuntary termination benefits of $16 thousand and $16 thousand under ASC 420 compared to $0 and $101 thousand during the same periods 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 March 31, 2022:

Investment in sales-type lease, gross:
2022	$	204
2023		187
2024		186
2025		77
Gross investment in sales-type lease		654
Less: Unearned income		—
Total investment in sales-type lease	$	654
Current portion of total investment in sales-type lease	$	278
Long-term portion of total investment in sales-type lease		376
	$	654

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):

	March 31,			September 30,
	2022			2021
Raw materials and supplies	$	263		$	301
Finished goods		968			247
Less: Obsolescence reserve		(106	)		(106	)
	$	1,125		$	442

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  March 31, 2022 and September 30, 2021, the Company has recorded a liability of $90 thousand and $129 thousand, respectively, for retirement obligations associated with returning the MSKK leased property to the respective lessors upon the termination of the lease arrangement. At September 30, 2021, asset retirement obligations were included in short-term liabilities and paid off during Q1 2022. A new asset retirement obligation was recorded for the new MSKK office lease and is 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):

March 31, 2022	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	23	$	—	$	23

September 30, 2021	Level 1		Level 2		Level 3		Total Fair Value
Derivative liability	$	—	$	53	$	—	$	53

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). 

Financial Instruments Not Measured at Fair Value

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

Legal 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 six months ended March 31, 2022 or 2021.

Research, Development, and Computer Software, Policy [Policy Text Block]

Software Development Cost

Software development costs incurred in conjunction with product development are charged to research and development expense until technological feasibility is established. Thereafter, until the product is released for sale, software development costs are capitalized and reported at the net realizable value of the related product. Until the first quarter of 2022, the period between achieving technological feasibility of the Company’s products and the general availability of the products has been short. During the three months ended March 31, 2022 and six months ended March 31, 2022, the Company capitalized approximately $626 thousand and $954 thousand, respectively, in software development costs related to new products as technological feasibility was established during the period, and this is included in other long term assets on the balance sheet.

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. There are a number of options subject to performance vesting. The Company evaluates these options on a quarterly basis to assess the probability of vesting. Compensation costs are recorded for options that are probable of vesting. 

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

	Six Months Ended
	March 31,
	2022		2021
Expected life (in years)		5.3		4.7
Risk-free interest rate		1.07 - 1.87%		0.33% - 0.40%
Expected volatility		64.83% - 65.49%		82.26% - 83.29%
Expected forfeiture rate		14.65% - 15.03%		14.18%
Expected exercise factor		2.0		1.2
Expected dividend yield		0.00%		0.00%

A summary of option activity at March 31, 2022 and changes during the six months then ended is presented below:

				Weighted-		Weighted-Average
				Average		Remaining Contractual
	Options			Exercise Price		Period in Years
Outstanding at October 1, 2021		1,853,479		$	4.44		4.60
Granted		851,250			3.23		9.87
Exercised		(66,851	)		1.59		6.90
Forfeited and cancelled		(158,519	)		5.92		—
Outstanding at March 31, 2022		2,479,359		$	4.00		7.16
Exercisable at March 31, 2022		1,348,377		$	4.63		5.34

A summary of the status of the Company’s non-vested options and changes during the six month period ended March 31, 2022 is presented below:

				Weighted-Average
				Grant Date Fair
Non-vested Options	Options			Value
Non-vested at October 1, 2021		583,458		$	1.40
Granted		851,250			1.43
Vested		(272,900	)		1.06
Forfeited		(26,009	)		1.40
Non-vested at March 31, 2022		1,135,799		$	1.50

The weighted average grant date fair value of options granted during the six months ended March 31, 2022 was $1.43. As of March 31, 2022, there was $1.1 million of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation cost of $797 thousand. The cost is expected to be recognized over a weighted-average remaining life of 2.5 years.

Stock-based compensation expense recorded in the three and six months ended March 31, 2022 was $188 thousand and $409 thousand, respectively. Stock-based compensation expense recorded in three months and six months ended March 31, 2021 was $165 and $283 thousand, respectively. There was $47 thousand and $105 thousand in cash received from transactions under all stock option plans during the three and six months ended March 31, 2022 and $67 thousand and $210 thousand during the three and six months ended March 31, 2021. There were no tax benefits realized for tax deductions from option exercises in either of the three or six month periods ended March 31, 2022 or 2021. The Company currently expects to satisfy share-based awards with registered shares available to be issued.

The Company also has an Employee Stock Purchase Plan ("Purchase Plan") under which an aggregate of 300,000 common shares may be issued. A total of 92,057 shares are available to be issued under the plan at March 31, 2022. The Company recorded stock compensation expense under this plan of $3 thousand and $6 thousand for the three and six month periods ended March 31, 2022 compared to $6 thousand and $7 for the three and six month periods ended March 31, 2021. Cash received for the issuance of the Purchase Plan in the three and six month periods ended March 31, 2022 was $20 thousand and $20 thousand compared to $9 thousand and $9 thousand for the three and six month periods ended March 31, 2021.

Preferred Stock and Dividends [Policy Text Block]

Preferred Stock and Dividends

No shares of Preferred Stock, Series A and Series B were issued and outstanding as of March 31, 2022 or 2021.

Stockholders' Equity, Policy [Policy Text Block]

Common Stock Transactions

On July 20, 2021, the Company entered into a transaction with four investors on identical terms pursuant to which they agreed to purchase, and the Company agreed to issue and sell, an aggregate of 945,946 shares at a price of $3.70 per share (total of $3,500,000). The Company closed on the issuance and sale on July 27, 2021. The Company and the investors also entered into (i) warrant agreements pursuant to which the investors have the right to purchase 141,892 shares at a price of $5.50 per share on or before July 20, 2026 and, (ii) registration rights agreements (“Rights Agreement”) whereby the Company agreed to file a registration statement with the U.S. Securities and Exchange Commission (the “Commission”) within six months after the effective date of the Rights Agreement and further agreed to use its commercially reasonable efforts to have the registration statement declared effective and to ensure that the registration statement remains effective throughout the term of the Rights Agreement.

The investors above included Mr. Mark Burish, the Company’s chairman and largest shareholder who purchased $1,250,000 of common stock for a total of 337,838 shares and 50,676 warrants. The Company’s special committee of disinterested directors met several times to discuss and negotiate the terms of the above transactions, including the participation of Mr. Burish. The special committee unanimously approved such terms.

On April 19, 2022, the Company closed a public offering of 1,700,000 shares of its common stock at a public offering price of $2.55 per share. Gross proceeds before deducting underwriting discounts and commissions and other offering expenses were approximately $4.3 million. See Note 7. Subsequent Events for more details.

Uplisting to Nasdaq Capital Market

On  January 24, 2022 the Company announced that the Nasdaq Stock Market LLC (“Nasdaq”) had approved its application for uplisting the Company’s common stock to the Nasdaq Capital Market. Sonic Foundry’s common stock commenced trading on the Nasdaq Capital Market at the opening of the market on Tuesday,  January 25, 2022, under the Company’s former ticker symbol “SOFO.”

Increase in Authorized Shares of Common Stock

On  February 2, 2022 the Company's Board of Directors approved a resolution to increase the authorized number of shares of common stock of the Company, par value $.01 per share, from 15,000,000 to 25,000,000.

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, 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				Six Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Denominator for basic net income (loss) per share - weighted average common shares		9,114,451		8,040,513		9,095,810		8,001,723
Effect of dilutive options and warrants (treasury method)		—		517,275		—		450,190
Denominator for diluted net income (loss) per share - adjusted weighted average common shares		9,114,451		8,557,788		9,095,810		8,451,913
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		2,919,809		1,036,907		2,919,809		1,289,407

Liquidity [Policy Text Block]

Liquidity

At March 31, 2022, approximately $2.2 million of cash and cash equivalents was held by the Company's foreign subsidiaries.

The Company completed a common stock issuance to certain investors totaling $3.5 million, net of $88 thousand expenses, on July 27, 2021. The proceeds of the stock issuance were intended to satisfy the initial listing requirements of the Nasdaq Capital Market. On April 19, 2022, the Company closed a public offering of common stock issurance of totaling $4.3 million, net of $300 thousand expenses. The proceeds of the stock issuance will be invested in the Company's new products, GLX and Vidable.

  The Company will likely evaluate lease opportunities to finance equipment purchases in the future and support working capital needs and will likely seek additional equity financing opportunities. However, there are no assurances that these will be on terms acceptable to the Company.

The Company believes its cash position plus available resources is adequate to accomplish its business plan through at least the next 12 months.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", ("ASU 2016-13"). The amendments in this ASU affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments are effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of the amendment is permitted, including adoption in any interim periods for which financial statement have not yet issued. The Company is currently evaluating the guidance and its impact to the financial statements.

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

Recent Adopted Accounting Pronouncements

Income Taxes (ASC Topic 740)

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", ("ASU 2019-12"). On October 1, 2021, the company adopted ASU 2019-12. The primary effect of adopting this update relates to making tax accounting more simple. The ASU removes the following exceptions to the general principles in ASC 740 and eliminates the need for an entity to analyze whether they apply in a given accounting period:

● Exception to the incremental approach for intra-period tax allocation

● Exceptions to accounting for basis differences when there are ownership changes in foreign investments

● Exception in interim-period income tax accounting for year-to-date losses that exceed anticipated losses

The ASU also improves how financial statement preparers apply income tax-related guidance and simplifies U.S. GAAP when accounting for:

● Franchise taxes that are partially based on income

● Transactions with a government that results in a step-up in the tax basis of goodwill

● Separate financial statements of legal entities that are not subject to tax

● Enacted changes in tax laws in interim periods

The ASU also clarifies the existing guidance with respect to where the tax benefit of tax-deductible dividends on employee stock ownership plan shares should be recorded in the income statement.

The implementation of this standard did not result in a material impact to the Company's consolidated financial statements.