<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
(AMENDING ITEM 7)
CURRENT 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 registrant as specified in its charter)
MARYLAND 39-1783372
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1617 Sherman Avenue, Madison, WI 53704
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(Address of principal executive offices)
(608)256-3133
-------------
(Registrant's telephone
number including area code)
<PAGE>
This Amendment No. 1 hereby amends Item 7 of the Current Report on Form 8-K
filed on August 28, 2000 by Sonic Foundry, Inc. ("Sonic Foundry") relating to
the acquisition of International Image, Inc. ("I2"). The following financial
statements required by Item 7 are filed as part of this report:
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
(a) Financial Statements of Business Acquired
Report of Independent Public Accountants.................. F-3
Balance Sheet - May 31, 2000.............................. F-4
Statement of Operations For the Year Ended
May 31, 2000............................................ F-5
Statement of Retained Earnings for the Year Ended
May 31, 2000............................................ F-6
Statement of Cash Flows For the Year Ended
May 31, 2000............................................. F-7
Notes to Financial Statements............................. F-8
(b) Pro Forma Financial Information
Unaudited Pro Forma Condensed Consolidated Statements of
Operations For the Nine Months Ended June 30, 2000...... F-12
Unaudited Pro Forma Condensed Consolidated Statements of
Operations For the Year Ended September 30, 1999........ F-13
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements..................................... F-14
</TABLE>
(c) Exhibits
Number Description
------ -----------
2.1* Share Purchases Agreement, dated as of June 1, 2000, by and among the
Registrant, Sonic Foundry (Nova Scotia), Inc., Charles Ferkranus, Michael
Ferkranus, 1096159 Ontario Limited, 1402083 Ontario Limited, Dan McLellan,
Curtis Staples, Bank of Montreal Capital Corp., Roynat Inc., and DGC
Entertainment Ventures Corp. (Schedules and exhibits have been omitted
pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby
undertakes to furnish supplemental copies of the omitted schedules and
exhibits upon request by the Securities and Exchange Commission.)
23.1 Independent Accountants' Consent
99.1* Press Release dated August 28, 2000 regarding closing of International
Image, Inc.
99.2* Press Release dated May 24, 2000 regarding signing of letter of intent to
acquire International Image, Inc.
* Previously filed
F-2
<PAGE>
Auditors' Report
To the shareholders of
International Image Services Inc.
We have audited the consolidated balance sheet of International Image Services
Inc. as at May 31, 2000 and the consolidated statements of retained earnings
(deficit), income and cash flow for the year then ended. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at May 31, 2000 and
the results of its operations and cash flow for the year then ended in
accordance with generally accepted accounting principles.
Toronto, Canada.
July 21, 2000. Chartered Accountants.
F-3
<PAGE>
International Image, Inc.
Balance Sheet
May 31, 2000
<TABLE>
<CAPTION>
<S> <C>
In Canadian dollars May 31,
------------------- 2000
Assets
Current assets:
Cash and cash equivalents $ 66,378
Trade receivables 3,114,196
Inventories 186,163
Prepaid expenses 253,560
----------
Total current assets 3,620,297
Advances 143,079
Deferred financing costs (Note 2) 136,718
Capital assets (Note 3) 5,085,105
----------
Total assets $8,985,199
==========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $1,057,752
Income tax payable 57,717
Current portion of long term debt (Note 4) 1,837,000
----------
Total current liabilities 2,952,469
Long term debt (Note 4) 2,964,634
Promissory note payable - related party, non-interest bearing 250,000
Loans payable (Note 5) 2,128,814
Deferred rent 193,279
Future income tax liability 44,000
----------
Total liabilities 8,533,196
Share capital (Note 6) 7,575
Contributed surplus 4,756
Deferred foreign exchange gain 222,426
Retained earnings 217,246
----------
Net shareholders' equity 452,003
----------
Total liabilities and shareholders' equity $8,985,199
==========
</TABLE>
Other information (Note 7)
See accompanying notes.
F-4
<PAGE>
International Image, Inc.
Statement of Operations
For the Year Ended May 31, 2000
<TABLE>
<CAPTION>
In Canadian dollars
-------------------
<S> <C>
Revenue
Sales $15,546,246
-----------
Direct costs
Purchases 2,208,058
Production wages 3,083,171
-----------
5,291,229
-----------
Balance available for indirect costs and expenses 10,255,017
-----------
Indirect costs and expenses
Amortization - capital assets 1,306,899
- deferred financing costs 77,854
Salaries - selling and administration 4,220,158
Interest - long-term debt 687,228
- other 27,130
Advertising and promotion 182,595
Office and general 710,547
Automobile and travel 494,072
Repairs and maintenance 464,443
Rent 571,298
Bad debts 16,371
Telephone 152,387
Professional and consulting services 306,070
Gain on disposal of assets (33,720)
-----------
9,183,332
-----------
Income before income tax 1,071,685
-----------
Income tax (Note 7) - current 230,405
- future (35,000)
-----------
195,405
-----------
Net income (loss) for the year $ 876,280
===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
International Image, Inc.
Statement of Retained Earnings
For the Year Ended May 31, 2000
<TABLE>
<CAPTION>
<S> <C>
In Canadian dollars
-------------------
Balance, beginning of year $(659,034)
Net income (loss) for the year 876,280
---------
Balance, end of year $ 217,246
=========
</TABLE>
See accompanying notes.
F-6
<PAGE>
International Image, Inc.
Statement of Cash Flows
For the Year Ended May 31, 2000
In Canadian dollars
-------------------
Cash from (required by):
Operating activities
Net income for the year $ 876,280
Items not involving cash
Deferred foreign exchange gain 46,802
Deferred rent (13,448)
Amortization - capital assets 1,306,899
- deferred financing costs 77,854
Gain on disposal of assets (33,720)
Future income taxes (35,000)
----------
Working capital from operations 2,225,667
Net change in non-cash working capital balances
related to operations 100,430
----------
Cash from operations 2,326,097
----------
Investing activities
Purchase of capital assets, net (227,951)
Advances (25,159)
----------
(253,110)
----------
Financing activities
Increase (decrease) - long-term debt (1,364,502)
- loan payable 1,361
-----------
(1,363,141)
-----------
Change in cash during the year 709,846
Cash (bank indebtedness), beginning of year (643,468)
-----------
Cash (bank indebtedness), end of year $ 66,378
===========
Other information:
Income taxes paid $ 317,810
Interest paid $ 714,358
See accompanying notes.
F-7
<PAGE>
International Image, Inc.
Notes to Financial Statements
For the Year Ended May 31, 2000
1. Significant accounting policies
(a) Principles of consolidation
These consolidated financial statements are prepared in Canadian
currency and include the accounts of International Image Services Inc.
and its wholly owned subsidiary International Image Services
Corporation.
All inter-company balances and transactions have been eliminated on
consolidation.
(b) Revenue recognition
Revenue is recognized on the percentage of completion method.
(c) Amortization
Capital assets are stated at cost. Amortization is recorded at rates
calculated to charge the cost of the assets to operations over their
estimated useful lives. Maintenance and repairs are charged to
operations as incurred. Gains and losses on disposals are calculated
on the remaining net book value at the time of disposal and included
in income.
Amortization of production equipment, office furniture and computer
equipment is charged to operations on the declining balance basis at
20% per annum.
Leaseholds are amortized on the straight-line basis over the term of
the lease.
Deferred financing costs are amortized on the straight-line basis over
five years.
Deferred rent is amortized on the straight-line basis over the term of
the lease.
(d) Inventory
Inventory is valued at the lower of cost and net realizable value.
(e) Research and development
Research and development costs are expensed as incurred.
F-8
<PAGE>
International Image, Inc.
Notes to Financial Statements
For the Year Ended May 31, 2000
(g) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities,
revenue and expenditures during the year. Actual results could differ from
these estimates.
2. Deferred financing costs
Deferred financing costs represent expenses incurred in connection with
corporate financing.
2000
--------
Cost $394,163
Accumulated amortization 257,445
--------
$136,718
========
3. Capital assets
Accumulated
Cost amortization Net
---------- ------------ ----------
Production equipment $9,751,669 $6,082,554 $3,669,115
Office furniture 600,353 388,128 212,225
Computer equipment 581,491 365,210 216,281
Leaseholds 2,301,746 1,314,262 987,484
---------- ---------- ----------
$13,235,259 $8,150,154 $5,085,105
=========== ========== ==========
Capital assets include production equipment acquired under capital leases with
an approximate cost of $3,700,000 and net book value of $1,900,000.
F-9
<PAGE>
International Image, Inc.
Notes to Financial Statements
For the Year Ended May 31, 2000
4. Long-term debt
2000
----------
Equipment loan $ -
Bank loans 975,471
Debenture 1,900,000
Equipment capital leases 1,881,163
Business development loan 30,000
Other 15,000
----------
4,801,634
Less: Current portion 1,837,000
----------
$2,964,634
==========
F-10
<PAGE>
ITEM 7 (b)
PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma financial statements relate to Sonic Foundry's
June 1, 2000 acquisition of International Image, Inc. ("I2") The transaction
will be accounted for under the purchase method of accounting. Under the
purchase method of accounting, the purchase price is allocated to the assets
acquired and liabilities assumed based on estimated fair values. The acquisition
is valued at approximately $22 million based on the average closing price of
Sonic Foundry's common stock for the 4 day period before May 24, 2000. The
amount of the consideration issued to the former shareholders and option holders
of I2 was determined by arms-length negotiations between the parties.
Sonic Foundry's fiscal year ends on September 30. The Unaudited Pro Forma
Condensed Consolidated Statements of Operations for the year ended September 30,
1999 and the nine months ended June 30, 2000 reflect the combined historical
financial position with pro forma adjustments as though the acquisition of I2
had occurred on October 1, 1998. The Pro Forma Condensed Consolidated Statements
of Operations are based on the following: 1) historical results of operations of
Sonic Foundry for the year ended September 30, 1999 derived from audited
financial statements included in the Sonic Foundry 1999 Annual Report on Form
10-K; 2) historical results of I2 derived from unaudited financial statements
for the year ended September 30, 1999; 3) unaudited financial statements of
Sonic Foundry and I2 for the nine months ended June 30, 2000. The Pro Forma
Financial Statements and the accompanying notes ("Pro Forma Financial
Information") should be read in conjunction with, and are qualified by, the
historical financial statements and notes thereto of Sonic Foundry and I2.
The Pro Forma Financial Information is intended for informational purposes only
and is not necessarily indicative of the combined results that would have
occurred had the acquisition taken place on October 1, 1998 nor is it
necessarily indicative of results that may occur in the future.
F-11
<PAGE>
a
SONIC FOUNDRY, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended June 30, 2000
(in thousands except per share data)
<TABLE>
<CAPTION>
(1) Pro Forma
Sonic Foundry I2 Adjustments Pro Forma
------------- ----- ------------ ---------
<S> <C> <C> <C> <C>
Revenue:
--------
Software license fees $ 15,976 - $ 15,976
Media services 2,890 9,358 (801) B 11,447
----------------------------------------------------
Total revenue 18,866 9,358 (801) 27,423
Cost of revenue:
----------------
Cost of software license fees 3,424 - 3,424
Cost of media services 3,092 3,465 (376) B 6,181
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Total cost of revenue 6,516 3,465 (376) 9,605
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Gross margin 12,350 5,893 (425) 17,818
Operating expenses 29,466 4,945 (376) B 34,035
Goodwill and other intangible amortization 19,427 - 3,190 A 22,617
(435) B (435)
----------------------------------------------------
Total expenses 48,893 4,945 2,379 56,217
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Income/(Loss) from operations (36,543) 948 (2,804) (38,399)
Other income/(expense), net 1,432 (450) (33) B 949
----------------------------------------------------
Net loss $(35,111) 498 (2,837) (37,450)
====================================================
Per common share:
Basic and diluted net loss per share $ (1.82) $ (2.00)
============= ============
</TABLE>
(1) Balances include pro-forma adjustments from Form 8-K/A dated June 19, 2000.
See accompanying notes.
F-12
<PAGE>
SONIC FOUNDRY, INC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended September 30, 1999
(in thousands except per share data)
<TABLE>
<CAPTION>
Pro Forma
Sonic Foundry(1) I2 Adjustments Pro Forma
------------- -- ------------ ---------
<S> <C> <C> <C> <C>
Revenue:
--------
Software license fees $ 14,829 $ - $ - $ 14,829
Media services 1,470 9,942 - 11,412
-------------------------------------------------
Total revenue 16,299 9,942 - 26,241
Cost of revenue:
----------------
Cost of software license fees 3,389 - - 3,389
Cost of media services 1,449 3,892 - 5,341
-------------------------------------------------
Total cost of revenue 4,838 3,892 - 8,730
-------------------------------------------------
Gross margin 11,461 6,050 - 17,511
Operating expenses 21,303 5,152 - 26,455
Goodwill and other intangible
amortization 25,269 - 4,253 A 29,522
-------------------------------------------------
Total expenses 46,572 5,152 4,253 55,977
-------------------------------------------------
Income/(Loss) from operations (35,111) 898 (4,253) (38,466)
Other income/(expense), net 174 (542) (368)
-------------------------------------------------
Net loss $(34,937) $ 356 $ (4,253) $(38,834)
=================================================
Per common share:
Basic and diluted net loss per share $ (4.48) $ (4.63)
=========== ===========
</TABLE>
(1) Balance include pro forma adjustments from Form 8-K/A dated June 19, 2000.
See accompanying notes.
F-13
<PAGE>
SONIC FOUNDRY, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) To record the June 1, 2000 acquisition of International Image, Inc. ("I2").
A summary of the purchase price for the acquisition is as follows:
(dollars in thousands)
<TABLE>
<S> <C>
Stock and exchangeable shares 6,900
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Cash 7,446
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Note Payable 4,000
-------------------------------------------------------------------------------------
Direct acquisition costs 1,071
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Accounts payable and
-------------------------------------------------------------------------------------
Other liabilities assumed 2,661
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Total purchase price 22,078
-------------------------------------------------------------------------------------
</TABLE>
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Cash acquired, net 44
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Other current assets 2,309
-------------------------------------------------------------------------------------
Equipment 3,393
-------------------------------------------------------------------------------------
Goodwill 9,421
-------------------------------------------------------------------------------------
Goodwill Traditional Operations 4,711
-------------------------------------------------------------------------------------
Assembled workforce 2,200
-------------------------------------------------------------------------------------
Total allocated price 22,078
-------------------------------------------------------------------------------------
</TABLE>
Purchase accounting adjustments include:
(a) the recognition of goodwill, goodwill traditional business and assembled
workforce. Goodwill will be amortized equally over a three year life. Goodwill
traditional business will be amortized equally over seven years. Assembled
workforce will be amortized equally over a five year life.
(b) the elimination of II's June, 2000 results already included in our
consolidated amounts.
(2) Pro forma basic and diluted net loss per share are computed by dividing the
pro forma net loss attributable to common shareholders by the pro forma
weighted average number of common shares outstanding. Potentially dilutive
securities were not taken into account because their effects would be anti-
dilutive. A reconciliation of shares used to compute historical basic and
diluted net loss per share to shares used to compute pro forma basic and
diluted net loss per share is as follows:
F-14
<PAGE>
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------------------------------------------------------------------------
Nine months ended Year ended
--------------------------------------------------------------------------------------------------------------
June 30, 2000 September 30, 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares used to compute historical basic
and diluted net loss per share 17,313 5,687
--------------------------------------------------------------------------------------------------------------
Shares issued in STV acquisition 1,405 2,107
--------------------------------------------------------------------------------------------------------------
Shares issued in acquisition (including
exchangeable shares not yet exchanged) 600 600
--------------------------------------------------------------------------------------------------------------
Shares used to compute pro forma basic
And diluted net loss per share 19,318 8,394
--------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Other Information
In March, 2000 the board of directors of Sonic Foundry approved a 2-for-1 split
of the Company's common stock to shareholders of record as of April 7, 2000.
Shares used for the computation of basic and diluted net income (loss) per share
in the pro forma condensed consolidated financial statements are presented post-
split.
F-15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SONIC FOUNDRY, INC.
By: /s/ Ken Minor, CFO
F-16
