<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended December 31, 1998
-----------------
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-14007
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SONIC FOUNDRY, INC.
-------------------
(Exact name of small business issuer as specified in its charter)
MARYLAND 39-1783372
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
754 Williamson Street, Madison, WI 53703
----------------------------------------
(Address of principal executive offices)
(608)256-3133
-------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's common equity as
of the last practicable date:
Outstanding
Class February 5, 1999
----- ----------------
Common Stock, $0.01 par value 2,665,935
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
<PAGE>
SONIC FOUNDRY, INC.
QUARTERLY REPORT ON FORM 10-QSB
QUARTER ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I-- FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets--December 31, 1998 (Unaudited) and 3
September 30, 1998
Statements of Operations (Unaudited)--three-months ended 5
December 31, 1998 and 1997
Statements of Cash Flows (Unaudited)--three-months 6
ended December 31, 1998 and 1997.
Notes to Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II OTHER INFORMATION 15
EXHIBITS 16
SIGNATURES 18
</TABLE>
2
<PAGE>
Sonic Foundry, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30 December 31
1998 1998
------------------------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,939,533 $ 3,739,101
Marketable securities 3,000,000 3,000,000
Accounts receivable, net of allowances of
$73,344 and $187,461 at September 30, 1998 and
December 31, 1998, respectively 1,690,175 2,289,424
Revenues in excess of billings for software 705,263 1,000,000
license fees
Inventories 316,140 525,830
Prepaid expenses and other current assets 285,703 244,369
------------------------------
Total current assets 12,936,814 10,798,724
Property and equipment:
Land 190,000 190,000
Buildings and improvements 1,491,228 1,585,903
Equipment 1,186,818 1,396,267
Furniture and fixtures 132,802 168,555
------------------------------
3,000,848 3,340,725
Less accumulated depreciation 389,863 496,651
------------------------------
Net property and equipment 2,610,985 2,844,074
Capitalized software development costs, net 401,629 335,198
Other assets 261 174
------------------------------
Total assets $15,949,689 $13,978,170
==============================
</TABLE>
See accompanying notes. 3
<PAGE>
<TABLE>
<CAPTION>
September 30 December 31
1998 1998
------------------------------
<S> <C> <C>
Liabilities and stockholders' equity (Unaudited)
Current liabilities:
Accounts payable 828,086 890,602
Accrued liabilities 316,677 260,484
Current portion of long-term obligations 636,081 31,075
------------------------------
Total current liabilities 1,780,844 1,182,161
Long-term obligations 77,472 69,926
Stockholders' equity:
Preferred Stock, $.01 par value, authorized 5,000,000
shares; none issued and outstanding - -
5% preferred stock, Series B, voting, cumulative,
convertible, $.01 par value (liquidation preference at
par), authorized 10,000,000 shares, issued and
outstanding 7,223,719 shares at September 30, 1998
and December 31, 1998 72,237 72,237
Common stock, $.01 par value, authorized 20,000,000
shares; issued and outstanding 2,665,935 shares at
September 30, 1998 and December 31, 1998 26,660 26,660
Common stock warrant 159,500 176,000
Additional paid-in capital 15,297,096 15,297,096
Accumulated deficit (1,464,120) (2,845,910)
------------------------------
Total stockholders' equity 14,091,373 12,726,083
------------------------------
Total liabilities and stockholders' equity $15,949,689 $13,978,170
==============================
</TABLE>
See accompanying notes. 4
<PAGE>
Sonic Foundry, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1998
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<S> <C> <C>
Software license fees $ 931,477 $ 2,755,567
Cost of software license fees 159,415 820,422
-------------------------------------
772,062 1,935,145
Selling and marketing expenses 649,320 2,072,391
General and administrative expenses 317,275 774,896
Product development expenses 106,884 557,634
-------------------------------------
1,073,479 3,404,921
-------------------------------------
Loss from operations (301,417) (1,469,776)
Other income (expense):
Interest expense (22,090) (3,595)
Interest and other income - 91,581
-------------------------------------
(22,090) 87,986
-------------------------------------
Loss before income taxes (323,507) (1,381,790)
Income tax expense - -
-------------------------------------
Net Loss $ (323,507) $(1,381,790)
=====================================
Loss per common share:
Basic $ (1.36) $ (0.52)
=====================================
Diluted $ (1.36) $ (0.52)
=====================================
</TABLE>
See accompanying notes. 5
<PAGE>
Sonic Foundry, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended December 31,
1997 1998
-----------------------------------
<S> <C> <C>
Operating activities
Net loss $ (323,507) $(1,381,790)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 42,335 106,875
Amortization of capitalized software development costs 29,434 66,431
Noncash charge for common stock warrants - 16,500
Changes in operating assets and liabilities:
Accounts receivable (36,401) (893,986)
Inventories (92,706) (209,690)
Prepaid expenses and other assets (52,381) 41,334
Accounts payable and accrued liabilities 116,100 6,323
-----------------------------------
Total adjustments 6,381 (866,213)
-----------------------------------
Net cash used in operating activities (317,126) (2,248,003)
Investing activities
Purchases of property and equipment (75,104) (339,877)
Capitalized software development costs (124,841) -
-----------------------------------
Net cash used in investing activities (199,945) (339,877)
Financing activities
Proceeds from sale of common stock, net of 627,000 -
issuance costs
Payments on line of credit, net (150,000) -
Payments on long-term debt (6,328) (612,552)
-----------------------------------
Net cash provided by (used) in financing activities 470,672 (612,552)
-----------------------------------
Net decrease in cash (46,399) (3,200,432)
Cash and cash equivalents at beginning of period 114,737 6,939,533
-----------------------------------
Cash and cash equivalents at end of period $ 68,338 $ 3,739,101
===================================
Supplemental cash flow information:
Interest paid $ 23,410 $ 3,595
Noncash transactions --
Conversion of notes payable into common stock 40,000 -
</TABLE>
See accompanying notes. 6
<PAGE>
1. Basis of Presentation and Significant Accounting Policies
Interim Financial Data
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements and
should be read in conjunction with the Company's annual report filed on Form
10-KSB for the fiscal year ended September 30, 1998. In the opinion of
management, all adjustments (consisting only of adjustments of a normal and
recurring nature) considered necessary for a fair presentation of the results of
operations have been included. Operating results for the three-month period
ended December 31, 1998 are not necessarily indicative of the results that might
be expected for the year ended September 30, 1999.
Net Loss Per Share
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1998
---------------------------
<S> <C> <C>
Denominator
Denominator for basic and diluted
loss per share -- weighted average
common shares 237,427 2,665,935
===========================
Securities that could potentially
dilute basic earnings per share in
the future that are not included in
the computation of diluted loss
per share as their impact is
antidilutive (treasury stock method)
Options and warrants 365,839 491,404
Convertible Series B
Preferred Stock 3,439,866 3,611,860
</TABLE>
See accompanying notes. 7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the financial statements and
notes thereto included elsewhere in this form 10-QSB and the Company's annual
report filed on form 10-KSB for the fiscal year ended September 30, 1998. In
addition to historical information, this discussion contains forward-looking
statements such as statements of the Company's expectations, plans, objectives
and beliefs. These statements use such words as "may", "will", "expect",
"anticipate", "believe", "plan", and other similar terminology. Actual results
could differ materially due to changes in the market acceptance of Sonic
Foundry's products, market introduction or product development delays, global
and local business conditions, legislation and governmental regulations,
competition, the Company's ability to effectively maintain and update its
product portfolio, shifts in technology, political or economic instability in
local markets, and currency and exchange rates.
Overview
The Company is a leading provider of audio software products designed to run
under the Windows and Windows NT operating systems. The Company's current
products allow musicians, audio engineers and home users the ability to create,
edit and store audio files and record or master their own audio CD's.
The Company began shipment of Sound Forge, a Windows based audio editing
software program developed by one of the Company's founders, in 1994. By 1996,
the Company had released Sound Forge versions 3.0 and 4.0, which significantly
expanded the effects and processes available in its editor, thereby meeting the
needs of professional musicians and audio engineers. Additionally, the product
line was expanded to include Sound Forge XP, a scaled down version of Sound
Forge, as well as various plug-in products whose functions include noise
reduction, spectrum analysis and batch conversion. In June 1997, the Company
released CD Architect, an audio mastering software product and in August 1997,
offered a convolution algorithm called Acoustic Mirror, which allows users to
map the acoustic signature of any environment upon an audio file. In January
1998 the Company began shipping Soft Encode, a software product which provides
an economical method of authoring Dolby-certified AC-3 files, and in May 1998,
the Company released a music creation software product called ACID. ACID allows
musicians, media professionals, Internet developers and others to compose
royalty free, loop based music. The Company expects the product, which includes
hundreds of pre recorded loops, to have broad-based use among customers who
create and enhance dance music, add background music to videos and develop web
pages. Additionally, in October 1998, the Company introduced consumer versions
of ACID for home entertainment use. Both ACID products are supported by loop
library CD's which offer professionals and consumers a variety of music genres
to choose from when composing music.
See accompanying notes. 8
<PAGE>
In June 1998, the Company completed an initial public offering of 2,097,775
shares of common stock and 1,145,387 common stock purchase warrants. The Company
is using and intends to continue using the net proceeds of the offering of
$13,258,359 for development of new products, capital expenditures, sales and
marketing, expansion of internal operations, potential acquisition activities
and/or joint venture activities and working capital and general corporate
purposes.
In November 1998, the Company announced the beta release of Windows Media On-
demand Producer ("WMODP"), a product utilizing the Company's Vegas technology
and developed under contract with Microsoft Corporation. Designed for both the
experienced web developer and new entrants to the streaming media market, WMODP
delivers production and encoding features for Internet and Intranet content
developers who are deploying media content in areas such as communication,
entertainment and training. Microsoft intends to distribute the final release of
this new encoding tool in early 1999 as a no-charge addition to the Windows
Media tools available on the Microsoft Windows Media Technologies website. While
no revenues will be realized directly from the agreement with Microsoft, the
Company expects to generate greater brand recognition and access to Microsoft
customers. The Company anticipates that certain users of WMODP will require more
features than those found in WMODP and, by retaining the rights to WMODP, the
Company expects to be able to develop and sell these customers upgrades as well
as products from the Company's existing software suite.
The Company invested significant resources in sales, marketing, research and
other operating activities during the last several years. During the quarter
ended December 31, 1998, the Company initiated a marketing campaign for its
consumer products, - ACID Music, ACID DJ and ACID Rock. The Company expects the
benefits of these expenditures to be realized over the next two years. The
Company believes that its success depends largely on developing brand
recognition early in a product's life cycle, building superior technology and
quality into its products and extending its technological lead on the
competition. Accordingly, the Company expects operating costs to increase in the
near future, especially in periods of new product or market introductions.
In light of the Company's limited operating history and rapid improvements in
technology and marketing of its products, the Company believes that its revenues
and operating results, including its gross profit and operating expenses as a
percentage of total net revenues, will vary significantly from period to period.
The Company's efforts in developing OEM bundling arrangements with hardware and
software developers have contributed, and are expected to continue contributing,
to this variability. Such OEM transactions typically have higher margins and
volumes than traditional distribution methods and may be material in certain
periods.
See accompanying notes.
9
<PAGE>
Results of Operations
Three Months Ended December 31, 1997 and 1998
Software License Fees
Revenues consist of fees charged for the licensing of Windows based software
products including Sound Forge, Sound Forge XP, CD Architect, Acoustic Mirror,
Soft Encode, ACID and various plug-in products and music libraries. Software
license fees are recognized upon delivery, net of allowances for estimated
returns, provided that no significant obligations of the Company remain and
collection of the resulting receivable is deemed probable. Revenues from
software license agreements with OEMs are recognized when the software product
has been delivered to the OEM, the fee to the Company is fixed and determinable,
and collectibility is probable. Additionally, revenues include fees recorded
pursuant to long-term contracts, using the percentage of completion method of
accounting, when significant customization or modification is required. Software
license fees increased by $1,825,000 to $2,756,000 for the three-month period
ended December 31, 1998 from $931,000 during the three-month period ended
December 31, 1997. The majority of the increase resulted from the release of the
ACID family of products in 1998 and, to a lesser extent, the introduction of a
product bundle containing the Company's CD Architect and ACID software with
purchased third party recordable compact disc drives. The retail sales sector
saw the greatest increase in revenues, fueled by the October 1998 introduction
of the consumer versions of ACID, including ACID DJ, ACID Rock and ACID Music.
The remainder of the increase was attributable to growth from existing products
driven by expenditures on sales and marketing personnel, advertising and other
product marketing activities.
Software license fees to international customers accounted for 15.8% and 14.7%
of software license fees for the three-month periods ended December 31, 1997 and
1998, respectively.
Cost of Software License Fees
Cost of software license fees increased by $661,000 to $820,000 for the three-
month period ended December 31, 1998 from $159,000 during the three-month period
ended December 31, 1997 and were 17.1% and 29.8% of software license fees during
the 1997 and 1998 periods, respectively. The majority of the increase in both
absolute dollars and as a percentage of net software license fees resulted
primarily from the sales of lower margin Professional CD Factory bundles
containing the Company's CD Architect and ACID software with third party
recordable compact disc drives. Additionally, royalty costs increased both in
absolute dollars and as a percentage of software license fees due to agreements
reached with artists to license the distribution of various audio loops included
in the Company's ACID products. The remainder of the increase in absolute
dollars related to the increased volume of software products sold during the
period.
See accompanying notes. 10
<PAGE>
Selling and Marketing Expenses
Selling and marketing expenses increased by $1,423,000 to $2,072,000 during the
three-month period ended December 31, 1998 from $649,000 during the three-month
period ended December 31, 1997. Selling and marketing expenses as a percentage
of software license fees were 69.7% and 75.2% for the 1997 and 1998 periods,
respectively. Nearly 75% of the increase was due to promotional costs to
introduce the Company's new consumer oriented product line. The promotion
involved significant expenditures at the COMDEX computer show, the worlds'
largest information technology trade show, as well as print and radio
advertisements, concert promotions, store demos and other marketing related
activities. In addition, the Company incurred additional costs associated with
the establishment of a sales and marketing office in Delft Netherlands in the
summer of 1998. The remaining increase related to personnel costs to support the
growth in historical revenues and for future product releases.
General and Administrative Expenses
General and administrative expenses increased by $458,000 to $775,000 during the
three-month period ended December 31, 1998 from $317,000 during the three-month
period ended December 31, 1997. General and administrative expenses as a
percentage of software license fees were 34.1% and 28.1% during the 1997 and
1998 periods, respectively. The increase in absolute dollars related to
increases in wages and related recruitment and benefit costs, professional fees,
depreciation, and other expenses required to build an infrastructure to support
current and future products. The Company was able to support product growth by
adding overhead at a slower rate of increase than revenues and thereby achieved
a reduction in general and administrative expenses as a percentage of software
license fees.
Product Development Expenses
Product development expenses increased by $451,000 to $558,000 during the three-
month period ended December 31, 1998 from $107,000 during the three-month period
ended December 31, 1997. Product development expenses as a percentage of
software license fees were 11.5% and 20.2% for the 1997 and 1998 periods,
respectively. In accordance with SFAS Number 86, the Company capitalizes the
cost of development of software products that have reached the level of
technological feasibility. The Company's ACID product fell into this category
during the three-month period ended December 31, 1997, resulting in
capitalization of $125,000 of development costs. No development costs were
capitalized during the three-month period ended December 31, 1998. The addition
of software engineers to accelerate development of the Company's expanding line
of software products caused the net increase in product development costs
between the two periods.
See accompanying notes. 11
<PAGE>
Income Tax Expense (Benefit)
No Federal or State tax expense was recorded during either of the quarters ended
December 31, 1997 or 1998 due to the Company's Federal and State net operating
loss position. No deferred tax benefit was recorded in the quarter ended
December 31, 1998 as the Company continues to record a valuation allowance equal
to the balance of net deferred tax assets.
Liquidity and Capital Resources
Cash was used in operating activities of $317,000 and $2,248,000 for the three-
month periods ended December 31, 1997 and 1998, respectively. A loss of $324,000
was the primary factor in the use of cash during the 1997 period. The ACID
product launch contributed to a loss and use of cash, of $1,382,000 in 1998.
Additional investments in accounts receivable, inventory and other assets of
$181,000 and $1,062,000 also impacted cash used in operations for the three-
month periods ended December 31, 1997 and 1998, respectively. Cash invested in
such assets for the three-month periods ended December 31, 1997 and 1998 were
partially offset by additional credit obtained from trade creditors of $116,000
and $6,000, respectively. The impact of noncash charges such as depreciation,
amortization, issuance of common stock warrants and deferred tax charges for the
three-month periods ended December 31, 1997 and 1998 totaled $72,000 and
$190,000, respectively.
Cash used in investing activities of $200,000 and $340,000 for the three-month
periods ended December 31, 1997 and 1998, respectively, included purchases of
fixed assets of $75,000 and $340,000, respectively. Leasehold expenditures for
the company's administrative and engineering offices in 1998 and purchases of
computers, furniture and other assets were the primary fixed asset additions.
Cash used in investing activities was also affected by capitalized software
development efforts of $125,000 for the three-month period ended December 31,
1997.
Cash provided by financing activities of $471,000 for the three-month period
ended December 31, 1997 and cash used in financing activities of $613,000 for
the three-month period ended December 31, 1998 was impacted by payments on long-
term debt of $156,000 and $613,000, respectively. The 1997 payments on long-term
debt were more than offset by the issuance of $627,000 of common stock.
In February 1997, the Company entered into a $620,000 construction loan with a
bank to fund the purchase and renovation of a 10,000 square foot facility to
house the Company's expanded operations. On January 8, 1998, the Company
converted the construction loan into a term loan due January 3, 2003. The loan
was paid in full in October 1998.
See accompanying notes. 12
<PAGE>
The Company received the proceeds of a $40,000 unsecured note in August 1997
from relatives of a Company officer. The note paid interest monthly at 15% per
annum and was convertible into Common Stock at $5.00 per share at the election
of the Company. The Company exercised its right and converted the note into
8,000 shares of Common Stock in October 1997.
In June 1998, the Company completed an initial public offering, including over
allotment shares, of 2,097,775 shares of common stock at a price of $7.50 per
share and 1,145,387 common stock purchase warrants at a price of $0.10 each. The
net proceeds to the Company from the offering, after deduction of underwriting
discounts and other expenses relating to the offering, were approximately
$13,258,359. The Company is using and intends to continue using the net proceeds
for development of new products, capital expenditures, sales and marketing,
expansion of internal operations, acquisition activities and / or joint venture
activities and working capital and general corporate purposes.
Although the Company has no substantial commitments for capital expenditures,
management anticipates there will be a need for increased capital expenditures
and lease commitments in the next 12 months consistent with the anticipated
growth in operations and infrastructure.
The Company has significantly increased its operating expenses since its
inception and expects the need for significant investment in marketing and other
support staff and associated costs to continue. Management believes that the net
proceeds of the initial public offering completed in June 1998 and cash provided
by operations will enable it to meet its operational and capital requirements
for at least the next 12 months.
Year 2000 Impact
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. The Year 2000 issue creates risk for the Company from
unforeseen problems in its own computer systems and from third parties,
including customers, vendors, and manufacturers, with whom the Company deals.
Failures of the Company's and/or third parties' computer systems could have a
material impact on the Company's ability to conduct its business.
The Company believes its software products are year 2000 compliant. The
Company's products obtain date information, such as creation dates and
modification dates, directly from the computer's operating system. Microsoft
Corporation has stated that their operating systems will continue to operate
into the twenty-first century.
With regard to the Company's internal processing and operational systems, the
Company has designed a Year 2000 readiness plan including the following steps:
(i) conducting an
See accompanying notes. 13
<PAGE>
inventory of the Company's internal systems, including information technology
systems and non-information technology and the systems acquired or to be
acquired by the Company from third parties; (ii) assessing and prioritizing any
required remediation; (iii) remediating any problems by repairing or, if
appropriate, replacing the non-compliant systems; (iv) testing of all remediated
systems for Year 2000 compliance; and (v) developing contingency plans that may
be employed in the event that any system used by the Company is unexpectedly
affected by an unanticipated Year 2000 problem. The Company has completed the
inventory and assessment phases of this plan. Although the Company has not
discovered any material operational issues or costs associated with preparing
internal systems for the Year 2000, there can be no assurance that the Company
will not experience material adverse effects from undetected errors or the
failure of such systems to be Year 2000 compliant. Any such failures could have
a material adverse effect on the Company's business, financial condition and
results of operations.
In addition to assessing its own systems, the Company has reviewed its
dependence on its vendors, service providers and third party business partners.
The Company believes there are numerous sources and alternatives to vendors for
which it relies on for products or services. Further, no customer accounts for
more than 10% of the Company's revenues. Despite the Company's lack of
dependence, there can be no guarantee that the Company will not be adversely
impacted by non-compliance of one or more vendors, service providers or
customers. The actual impact on the Company resulting from non-compliance of
these entities cannot be determined at this time.
To date, the Company has expended an immaterial amount in conjunction with its
Year 2000 readiness plan. The Company further expects that the cost of
completing the Year 2000 readiness plan, including replacement of any necessary
computer systems, will not be material.
See accompanying notes. 14
<PAGE>
PART II--OTHER INFORMATION
ITEM
1. Legal Proceedings--None
2. Changes in Securities--None
(a) None
(b) None
(c) None
(d) The information in this paragraph 2(d) relates to the registrant's
Registration Statement on Form SB-2, Registration No. 333-46005 (the
"Registration Statement").
<TABLE>
<S> <C>
Aggregate Offering Price of Common Stock Sold $15,733,312.50
Aggregate Offering Price of Warrants Sold 114,538.70
--------------
Total Gross Proceeds to Company $15,847,851.20
Expenses of Offering:
Underwriting Discount $ 1,378,763.05
Underwriting Non-Accountable Expense Allowance 475,435.54
Other Expenses 735,294.00
--------------
Net Proceeds $13,258,358.61
--------------
Uses of Proceeds:
Repayment of Indebtedness 1,000,000.00
Product Development Expenses 653,000.00
Selling and Marketing Expenses 2,033,000.00
Facilities and Other Capital Expenditures 1,285,000.00
Working Capital and General Corporate Purposes 1,548,000.61
Temporary Investments:
Marketable Securities 3,000,000.00
Cash and Cash Equivalents 3,739,101.00
--------------
Total Uses of Proceeds $13,258,358.61
--------------
</TABLE>
3. Defaults upon Senior Securities--None
4. Submission of Matters to a vote of Security Holders--None
5. Other Information--None
6. Exhibits and Reports on Form 8-k
(a) Exhibit (see exhibit list)
(b) Reports on Form 8-k--None
See accompanying notes. 15
<PAGE>
ITEM 6(a) EXHIBIT LIST
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Registrant,
filed as Exhibit No. 3.1 to the Registration Statement, and hereby
incorporated by reference.
3.2 Amended and Restated By-Laws of the Registrant, filed as Exhibit No.
3.2 to the Registration Statement, and hereby incorporated by
reference.
4.1 Specimen Common Stock Certificate, filed as Exhibit No. 4.1 to the
Registration Statement, and hereby incorporated by reference.
4.2 Form of Warrant Agreement, including Warrant Certificate, filed as
Exhibit No. 4.2 to the Registration Statement, and hereby
incorporated by reference.
4.3 Form of Representatives' Warrant Agreement, including Specimen
Representatives' Warrant Certificate, filed as Exhibit No. 4.3 to the
Registration Statement, and hereby incorporated by reference.
10.1 Registrant's 1995 Stock Option Plan, filed as Exhibit No. 10.1 to the
Registration Statement, and hereby incorporated by reference.
10.2 Registrant's Non-Employee Directors' Stock Option Plan, filed as
Exhibit No. 10.2 to the Registration Statement, and hereby
incorporated by reference.
10.3 Commercial Lease between Registrant and The Williamson Center, LLC
regarding 740 and 744 Williamson Street, Madison, Wisconsin dated
January 20, 1998, filed as Exhibit No. 10.3 to the Registration
Statement, and hereby incorporated by reference.
10.4 Employment Agreement between Registrant and Rimas Buinevicius dated
as of November 30, 1997 and effective as of January 1, 1997, filed as
Exhibit No. 10.4 to the Registration Statement, and hereby
incorporated by reference.
10.5 Employment Agreement between Registrant and Monty R. Schmidt dated as
of November 30, 1997 and effective as of January 1, 1997, filed as
Exhibit No. 10.5 to the Registration Statement, and hereby
incorporated by reference.
10.6 Employment Agreement between Registrant and Curtis J. Palmer dated as
of November 30, 1997 and effective as of January 1, 1997, filed as
Exhibit No. 10.6 to the Registration Statement, and hereby
incorporated by reference.
10.7 Digital Audio System License Agreement between Registrant and Dolby
See accompanying notes. 16
<PAGE>
Laboratories Licensing Corporation dated July 28, 1997, filed as Exhibit
No. 10.7 to the Registration Statement, and hereby incorporated by
reference.
10.8 Digital Audio System License Agreement between Registrant and Dolby
Laboratories Licensing Corporation dated July 28, 1997, filed as Exhibit
No. 10.8 to the Registration Statement, and hereby incorporated by
reference.
10.9 Start-up Agreement between Registrant and Ingram Micro Inc. dated October
16, 1997, filed as Exhibit No. 10.9 to the Registration Statement, and
hereby incorporated by reference.
10.10 Form of Lock-up Agreement between Registrant and all directors, officers,
and non-selling stockholders, filed as Exhibit No. 10.10 to the
Registration Statement, and hereby incorporated by reference.
10.11 Form of Lock-up Agreement between Registrant and all selling
stockholders, filed as Exhibit No. 10.11 to the Registration Statement,
and hereby incorporated by reference.
10.12 Software License Agreement, effective as of September 29, 1998, between
Registrant and Hewlett-Packard Company -- CONFIDENTIAL MATERIAL FILED
SEPARATELY
27.1 Financial Data Schedule
See accompanying notes.
17
<PAGE>
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, 1999 By: /s/ Rimas P. Buinevicius
------------------------
Rimas P. Buinevicius
Chairman and Chief
Executive Officer
February 11, 1999 By: /s/ Kenneth A. Minor
------------------------
Kenneth A. Minor
Chief Financial Officer
February 11, 1999 By: /s/ Frederick Kopko
------------------------
Frederick Kopko
Secretary
See accompanying notes.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
December 31, 1998 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,739,101
<SECURITIES> 3,000,000
<RECEIVABLES> 2,476,885
<ALLOWANCES> 187,461
<INVENTORY> 525,830
<CURRENT-ASSETS> 10,798,724
<PP&E> 3,340,725
<DEPRECIATION> 496,651
<TOTAL-ASSETS> 13,978,170
<CURRENT-LIABILITIES> 1,182,161
<BONDS> 69,926
0
72,237
<COMMON> 26,660
<OTHER-SE> 12,627,186
<TOTAL-LIABILITY-AND-EQUITY> 13,978,170
<SALES> 2,755,567
<TOTAL-REVENUES> 2,755,567
<CGS> 820,422
<TOTAL-COSTS> 820,422
<OTHER-EXPENSES> 3,404,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,595
<INCOME-PRETAX> (1,381,790)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,381,790)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,381,790)
<EPS-PRIMARY> (0.52)
<EPS-DILUTED> (0.52)
</TABLE>
