Sonic Foundry Announces Fourth Quarter and Annual Results

Sonic Foundry[R] Inc. (NASDAQ: SOFO), a leading provider of rich media software, systems and services, today announced its financial results for the fiscal fourth quarter and fiscal year ended September 30, 2001.
The Company reported revenues for the year ended September 30, 2001 of $26.3 million compared to revenues of $27.4 million for fiscal 2000. Cash management efforts implemented in December 2000 served to reduce the operating use of cash from $7.8 million in the December 2000 quarter to $0.7 million in the just completed September 2001 quarter. Total cash on hand at September 30, 2001 was $7.8 million. For the quarter ended September 30, 2001, revenues were in line with revised guidance of $5.4 million with software sales contributing $2.9 million of the total revenues for the quarter while media services generated $2.5 million. Before goodwill, restructuring and other charges losses were reduced to $2.5 million or $0.11 per diluted common share for the quarter, down from $7.4 million or $0.34 per share for the prior year quarter.
"We've made significant moves strategically over the last year to position Sonic Foundry as an important industry leader in the rich media marketplace, said Rimas P. Buinevicius, Chairman and CEO. "While unforeseen world events have caused a momentary pause in our business cycle, we're confident that our strengthened offerings have positioned us well for the long term. Specifically, our newly acquired and integrated Media Systems business unit is evolving to meet a number of key opportunities in the government marketplace. In this sector, demand is building for rapid capture and analysis of digital media, areas the Company has demonstrated domain expertise. Likewise, opportunities in the corporate marketplace are opening up as specific IT solutions are being sought as alternatives to conventional information transfer."
Key milestones for the Company's Fiscal 2001 year included:

• Strengthening the Company's system and technology offering through the recent addition and integration of MediaSite, Inc.;
• Product development and distribution for Sony's Screenblast.com;
• Continuing development and service roll out for the Company's Media Services division, including continuing expansion into rich media service offerings;
• Major release upgrades for Sound Forge and ACID product lines;
• Building the Company's direct contact list to nearly 1 million potential customers representing more than a 100% annual growth rate;
• Continuing operational improvements resulting in nearly a 50% year over year reduction in the use of cash.

The Company posted a non-cash charge of $1 million during the quarter ended September 30, 2001 to record an impairment in value of Internet advertising credits received in connection with the issuance of $1 million common stock in March 2000. The Company also refined the estimated value of equipment identified in the December 2000 restructuring plan as no longer necessary in operations. The adjustments resulted in an additional restructuring charge in the September 2001 quarter of $1.2 million. Additionally, the Company plans to adopt new accounting rules regarding business combinations and the amortization of intangible assets during the first fiscal quarter of 2002. Under the new rules, the Company will cease the amortization of goodwill and would annually assess its carrying value. The Company plans to retain an independent appraisal firm during the current quarter as part of its assessment and, depending on the outcome, anticipates recording a reduction of goodwill during that quarter in accordance with the adoption of the new rules or alternatively, may reflect a non-cash impairment charge to goodwill in the quarter ended September 30, 2001.
For the current quarter, losses including non-cash amortization of goodwill, restructuring and other charges were $11.4 million or $0.51 per diluted share as compared to $15.9 million or $0.73 per share for the same period of the prior year. For the current year, losses including non-cash amortization of goodwill and restructuring and other charges were $49.9 million or $2.25 per diluted share and $34.9 million or $1.89 per share for the prior year.
Sonic Foundry will host a conference call today to discuss fiscal year end results at 10:00 am CST/11:00 am EST. A live webcast and replay of the conference call can be accessed at www.vcall.com.

                          Sonic Foundry, Inc.
                      Consolidated Balance Sheets
                 (in thousands except for share data)


                                      September 30,     September 30,
                                           2001              2000
                                      --------------------------------

Assets
Current Assets:
 Cash and cash equivalents               $    7,809       $    21,948
 Accounts receivable, net of
  allowances of $1,075 and $1,209             4,065             9,075
    
 Accounts receivable, other                      26               355
 Revenues in excess of billings  
  for software license fees                       -               105
 Inventories                                  1,118             1,906
 Prepaid expenses and other
  current assets                              1,085             1,591
 Prepaid advertising                              -             1,000
                                      --------------------------------
Total current assets                         14,103            35,980

Property and equipment:
  Land                                            -                95
  Buildings and improvements                  2,409             3,186
  Equipment                                  13,823            15,370
  Furniture and fixtures                        542               504
  Assets held for sale                           40                 -
                                      --------------------------------
    Total property and equipment             16,814            19,155
Less accumulated depreciation                 5,010             3,071
                                      --------------------------------
    Net property and equipment               11,804            16,084

Other assets:
 Goodwill and other intangibles, net         44,732            73,632
 Capitalized software
  development costs, net                         73               518
 Long term investment                           514               514
 Other assets                                   457                97
                                      --------------------------------
 Total other assets                          45,776            74,761
                                      --------------------------------
Total assets                            $    71,683        $  126,825
                                      ================================

Liabilities and stockholders' equity 
Current liabilities:
 Accounts payable                       $     2,316        $    5,231
 Unearned revenue                                83                 -
 Accrued liabilities                          1,719             2,819
 Accrued restructuring charges                  345                 -
 Current portion of long-term debt            4,003             4,300
 Current portion of capital
  lease obligations                           1,216             1,477
                                      --------------------------------
Total current liabilities                     9,682            13,827

 Long-term obligations,
  net of current portion                        217               923
 Capital lease obligations,
  net of current portion                        525             1,703
 Other liabilities                               28                 6

Stockholders' equity:
 Preferred stock, $.01 par value,
  authorized 5,000,000 shares;
  none issue 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; 22,345,503 and
  21,904,574 issued and
  22,317,753 and
  21,876,824 outstanding
  at September 30, 2001 and 2000                223               219
 Common stock to be issued                    5,375             5,579
 Additional paid-in capital                 148,188           148,290
 Accumulated deficit                        (92,248)          (42,388)
 Receivable for common stock issued             (34)              (72)
 Cumulative foreign currency 
   translations/adjustments                       7               137
 Unearned compensation                         (130)           (1,249)
 Treasury stock, at cost,
  27,750 shares                                (150)             (150)
                                      --------------------------------
Total stockholders' equity                   61,231           110,366
                                      --------------------------------
Total liabilities and
 stockholders' equity                     $  71,683        $  126,825
                                      ================================


                          Sonic Foundry, Inc.
                 Consolidated Statements of Operations
               (in thousands except for per share data)


                             Three Months Ended   Twelve Months Ended
                                September 30,        September 30,
                          -------------------------------------------
                               2001       2000       2001       2000
                          -------------------------------------------
Revenue:
Software license fees       $  2,868   $  6,549   $ 15,550   $ 22,526
Media services                 2,541      2,823     10,734      4,852
                          -------------------------------------------
    Total revenue              5,409      9,372     26,284     27,378

Cost of revenue:
Cost of software
 license fees                    821      2,068      5,187      5,493
Cost of media services         1,651      2,519      7,733      5,177
                          -------------------------------------------
 Total cost of revenue         2,472      4,587     12,920     10,670
                          -------------------------------------------
Gross margin                   2,937      4,785     13,364     16,708

Operating expenses:
Selling and marketing
 expenses                      1,413      6,309     11,554     19,893
General and administrative
 expenses                      2,231      3,401     10,053      9,982
Product development
  expenses                     1,674      2,502      7,986      7,868
Restructuring and other
 charges                       2,191      1,000      5,973      1,000
Amortization of goodwill
 and other intangibles         6,726      7,507     27,478     14,300
                          --------------------------------------------
 Total operating expense      14,235     20,719     63,044     53,043
                          --------------------------------------------
Loss from operations         (11,298)   (15,934)   (49,680)   (36,335)

Other income (expense):
Interest expense                  (2)      (348)      (615)      (618)
Interest and other income        (75)       335        435      2,031
                          --------------------------------------------
 Total other income
 (expense)                       (77)       (13)      (180)     1,413
                          --------------------------------------------
Net loss                   $ (11,375) $ (15,947) $ (49,860) $ (34,922)
                          ============================================

Per common share:
Net loss per
 common share
 - basic and diluted       $   (0.51)  $   (0.73) $  (2.25)   $ (1.89)
                          ============================================