Tweet
Sonic Foundry's Troubles Continue
Sonic Foundry Inc. will appeal a Jan. 15 ruling that would remove its stock from the Nasdaq National Market.
Within 45 days, executives at the Madison software and digital media firm will need to convince a hearing panel that it has a sound plan to meet requirements that would get its stock above the $1 minimum bid price for the long run. A date for the hearing has not been set.
If the Nasdaq Hearing Panel of independent business representatives turns down the appeal, the company plans to apply to transfer its listing to the Nasdaq SmallCap Market, request shareholder approval or a reverse stock split, or both.
Meanwhile, industry watchers and investors wait at the edge of their seats to hear what Sonic Foundry will do to raise cash.
Calls to Sonic Foundry officials were not returned this week.
The firm continues to consider offers to sell parts of the business to erase debt. It needs to eliminate $7.2 million in convertible debt as well as a $1 million bridge loan given to the company last November from chairman and CEO Rimas Buinevicius' brother. This loan is backed by nearly all the assets of the company and is due, with $250,000 in interest, by March.
"I think we're all waiting on pins and needles to find out what this partial sale of assets will produce," said investor Ray Unger, of Unger Capital Management Inc. "As an investor, obviously, I would like to see them clear up this convertible issue they have and end up with cash on the balance sheet. That's the most important thing that would give people the confidence that Sonic is going to be an ongoing company for the duration."
Selling pieces of the firm could bring in between $50 million and $100 million, Buinevicius has said, more than the current $15.7 million market value.
But Ernst & Young, the company's independent auditors, recently released an opinion that raised doubt about the company's ability to continue.
Phil Leigh, vice president of technology research at Raymond James & Associates, stopped short of predicting Sonic Foundry's demise, saying the Ernst & Young opinion "speaks for itself."
One thing is clear: To stay afloat, Sonic Foundry needs to raise cash, experts and investors said.
Sonic Foundry has blamed its woes on a continued market funk and economic downturn.
But Leigh blames the company's trouble, in part, on its own missteps.
"It's very hard to compete for consumer software without a strong distribution channel," Leigh said. "The markets that Sonic has been seeking to grow in with its software have been consumer markets, whereas in the past the products were primarily sold to recording studios, and professional customers."
Leigh said the company didn't have the financial resources to give its award-winning software the retail presence it needed in big stores including Best Buy. And that hurt sales.
Other businesses Sonic Foundry is in have been hit by a market slowdown, Leigh said. And its newest technology, Media Site, although promising, has yet to have a mass appeal.
"Three years ago, everyone was anxious. Companies felt more compelled to do things with Internet video than they do now," Leigh said. "Internet video will continue to grow but now, there is no compelling urgency."
Throughout the Nasdaq appeal process, Sonic Foundry's stock (SOFO) will continue to trade on the national market. Within a month, the firm is expected to wrap up a sale.
In the meantime, people wait and wonder.
"They always announce these great deals they made and it doesn't seem to get reflected in the business," said stockholder Judith Guyot. "They should figure it out or call it quits."
Published: 2:19 PM 1/22/03