SONIC FOUNDRY INC - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly period ended March 31, 2004

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

Commission File Number 1-14007

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, Suite 775, Madison, WI 53703

(Address of principal executive offices)

(608)443-1600

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

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


Class		Outstanding May 6, 2004
Common Stock, $0.01 par value		29,577,800

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		PAGE NO.
*PART I*	*FINANCIAL INFORMATION*

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets – March 31, 2004(Unaudited) and September 30, 2003	3

	Consolidated Statements of Operations (Unaudited) – Three months and six months ended March 31, 2004 and 2003	4

	Consolidated Statements of Cash Flows (Unaudited) – Six months ended March 31, 2004 and 2003.	5

	Notes to Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	15

*PART II*	*OTHER INFORMATION*

Item 6.	Exhibits and Reports on Form 8-K	15

Sonic Foundry, Inc.

Consolidated Balance Sheets

(in thousands except for share data)


	March 31, 2004			September 30, 2003
	(unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	4,043		$	12,623
Short-term investments		7,000			—
Accounts receivable, net of allowances of $30 and $40		602			508
Accounts receivable, other		2			139
Inventories		68			111
Prepaid expenses and other current assets		419			214

Total current assets		12,134			13,595
Property and equipment:
Leasehold improvements		129			132
Computer equipment		853			741
Furniture and fixtures		151			96

Total property and equipment		1,133			969
Less accumulated depreciation		490			381

Net property and equipment		643			588
Other assets:
Goodwill and other intangibles, net		7,701			7,726
Capitalized software development costs, net of amortization of $648 and $508		752			892

Total other assets		8,453			8,618

Total assets	$	21,230		$	22,801

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	696		$	1,065
Accrued liabilities		676			1,263
Unearned revenue		354			194
Current portion of capital lease obligations		28			48

Total current liabilities		1,754			2,570

Deferred rent		30			—

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, none issued and outstanding		—			—
Common stock, $.01 par value, authorized 100,000,000 shares; 29,599,550 and 28,684,449 issued and 29,529,300 and 28,614,199 outstanding at March 31, 2004 and September 30, 2003, respectively		296			287
Additional paid-in capital		169,235			168,106
Accumulated deficit		(149,891	)		(147,532	)
Receivable for common stock issued		(26	)		(462	)
Treasury stock, at cost, 70,250 shares		(168	)		(168	)

Total stockholders’ equity		19,446			20,231

Total liabilities and stockholders’ equity	$	21,230		$	22,801

See accompanying notes

Sonic Foundry, Inc

Statements of Operations

(in thousands except for share data)

(Unaudited)


	Three Months Ended March 31,						Six Months Ended March 31,
	2004			2003			2004			2003
Continuing Operations
Revenue:
Product sales	$	691		$	192		$	1,294		$	365
Customer support fees		90			26			156			26
Other		160			—			390			—

Total revenue		941			218			1,840			391
Cost of revenue		431			186			755			343

Gross margin		510			32			1,085			48

Operating expenses:
Selling and marketing expenses		798			560			1,546			1,487
General and administrative expenses		644			652			1,325			1,363
Product development expenses		393			336			761			806

Total operating expense		1,835			1,548			3,632			3,656

Loss from operations		(1,325	)		(1,516	)		(2,547	)		(3,608	)
Other income (expense), net		22			(4	)		56			1

Loss from continuing operations		(1,303	)		(1,520	)		(2,491	)		(3,607	)

Discontinued operations:
Loss from operations of discontinued operations including $0 and $89 of income tax benefit in the three and six months ended March 31, 2003		—			(585	)		—			(1,845	)
Gain on disposal of discontinued operations		12			—			132			—

Income (loss) from discontinued operations		12			(585	)		132			(1,845	)

Net loss	$	(1,291	)	$	(2,105	)	$	(2,359	)	$	(5,452	)

Loss per common share:
Continuing operations	$	(0.04	)	$	(0.05	)	$	(0.08	)	$	(0.13	)
Discontinued operations		(0.00	)		(0.03	)		(0.00	)		(0.07	)

Net loss per common share – basic and diluted	$	(0.04	)	$	(0.08	)	$	(0.08	)	$	(0.20	)

See accompanying notes

Sonic Foundry, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Six months ended March 31,
	2004			2003
Operating activities
Net loss	$	(2,359	)	$	(5,452	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of discontinued operations		(132	)		—
Amortization of intangible assets and capitalized software development costs		165			225
Depreciation and amortization of property and equipment		109			1,656
Amortization of debt discount and debt issue costs		—			2,006
Noncash compensation charges and charges for stock warrants and options		114			49
Loss on sale of property and equipment		—			12
Changes in operating assets and liabilities:
Accounts receivable		(94	)		583
Accounts receivable, other		137			(48	)
Inventories		43			(41	)
Prepaid expenses and other assets		(164	)		222
Accounts payable, accrued liabilities and deferred rent		(926	)		(828	)
Unearned revenue		160			25

Total adjustments		(588	)		3,861

Net cash used in operating activities		(2,947	)		(1,591	)

Investing activities
Purchase of short-term investments		(7,000	)		—
Proceeds from sale of discontinued operations, net		132			—
Proceeds from sale of property and equipment		—			15
Purchases of property and equipment		(164	)		(37	)

Net cash used in investing activities		(7,032	)		(22	)

Financing activities
Proceeds from issuance of common stock, net of issuance costs		1,419			38
Proceeds from debt issuances		—

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