Sonic Foundry Reports Record First Quarter 2000 Revenues

Sonic Foundry, Inc. (Nasdaq: SOFO), today announced that revenues grew 82% to $5.1 million for the first fiscal quarter ended December 31, 1999, from $2.8 million reported for the same period last year. Revenues from the Company's consumer line of ACID[TM] products continue to drive revenue growth, as well as contributions from the recent introductions of Vegas[TM], SIREN[TM] Jukebox, and Stream Anywhere[TM].

The Company posted a net loss for the first quarter 2000 of $2.2 million, or $0.33 per share, compared with a net loss of $1.4 million, or $0.52 per share, for the comparable period last year. While gross margins improved, operating expenses such as the promotion of streaming media products and services, as well as investments in research and development to support the new Sonic Foundry Media Services[TM] division, drove expenses higher.

"We continue to see strong revenue growth from our key software products ACID, Vegas, and Sound Forge[R] as well as interest in the new additions to our product line," said Rimas Buinevicius, Sonic Foundry's Chairman and Chief Executive Officer. "Building on the success of these products, we are very excited about the potential for our Media Services division. We have received an enormous amount of interest in our media encoding services, and we believe our marketing efforts, as well as the interest we've had in implementing full-scale media production systems, will open additional doors with both the top-tier and middle-level media content owners.

"We plan to continue to invest in building the infrastructure necessary to deliver a full service and system offering to clients wishing to convert large catalogs of audio and video content for delivery over the Web," continued Buinevicius. "We expect Sonic Foundry Media Services revenues to grow at a much higher rate than our software revenues have traditionally grown."

Recent Highlights

Media Services Deals

During the quarter, Sonic Foundry's Media Services division inked deals with LAUNCH.com (Nasdaq: LAUN) and Atomic Pop. The popular Internet music site, LAUNCH.com, will employ Sonic Foundry to provide audio and video encoding services in support of its library of interviews with and performances by big-name artists. Atomic Pop, known as an innovator in the digital delivery of music, selected Sonic Foundry to encode and convert its entire catalog of music for Internet distribution.

Groundbreaking Drew Carey Show Web Cast

In November, ABC's "The Drew Carey Show" made history as the first television comedy or drama to feature streaming video over the Internet at the same time the show aired. In a groundbreaking move, the show actually integrated the Internet into the plot while airing. Sonic Foundry's advanced encoding technology played a key role in making this possible. The visibility of this project has generated significant customer interest in Sonic Foundry.

Increased Recognition

The marketplace is beginning to recognize the tremendous potential market for delivering entertainment and informational content via the Web and the integral role Sonic Foundry will play in turning that potential into reality. Recent announcements in the online media space including the announced merger of AOL and Time Warner and the pending acquisition of Intervu by Akamai has brought market awareness to this important sector of the Internet infrastructure market.

                             SONIC FOUNDRY, INC.
                                BALANCE SHEETS

                                          December 31,       September 30,
                                             1999                1999
    Assets                                (Unaudited)
    Current assets:
      Cash and cash equivalents           $2,825,652          $5,889,107
      Marketable securities                       --                  --
      Accounts receivable, net of
       allowances of $1,059,581 and
       $1,314,750 at December 31, 1999
       and September 30, 1999,
       respectively                        4,762,984           3,760,720
      Inventories                          1,356,254           1,040,927
      Prepaid expenses and other
       current assets                      1,452,135             880,123
    Total current assets                  10,397,025          11,570,877


    Property and equipment:
      Land                                    95,000             190,000
      Buildings and improvements           1,501,056           1,737,962
      Equipment                            3,361,565           2,218,113
      Furniture and fixtures                 239,918             202,187
                                           5,197,539           4,348,262
      Less accumulated depreciation        1,116,527             923,051
    Net property and equipment             4,081,012           3,425,211

    Other assets:
      Capitalized software
       development costs, net                519,083             643,220
      Long term investment                   513,787             513,787
      Other assets                           845,693             556,165
    Total other assets                     1,878,563           1,713,172
    Total assets                         $16,356,600         $16,709,260


                               SONIC FOUNDRY, INC.
                                  BALANCE SHEETS

                                         December 31,         September 30,
    Liabilities and stockholders'            1999                 1999
     equity                               (Unaudited)
    Current liabilities:
      Accounts payable                    $2,937,707          $1,866,821
      Accrued liabilities                    837,795             812,401
      Current portion of long-term
       obligations                           110,785              48,569
    Total current liabilities              3,886,287           2,727,791

    Long-term obligations                  2,187,454           5,234,525

    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 20,000,000 shares;
       6,974,231 and 6,497,249 shares
       issued and outstanding at
       December 31, 1999 and
       September 30, 1999                     69,743              64,973
      Common stock warrants and
       options                             1,827,375           1,011,375
      Additional paid-in capital          18,229,850          15,336,252
      Accumulated deficit                 (9,669,108)         (7,465,656)
      Unearned compensation                 (175,001)           (200,000)
    Total stockholders' equity            10,282,859           8,746,944
    Total liabilities and
     stockholders' equity                $16,356,600         $16,709,260


                               SONIC FOUNDRY, INC.
                             STATEMENTS OF OPERATIONS
                                   (Unaudited)

                                                 Three Months Ended
                                                    December 31,
                                             1999                 1998

    Net revenues:
      Software license fees               $5,067,348          $2,755,567
      Services                                36,204                  --
        Total net revenues                 5,103,552           2,755,567

    Cost of revenues:
      Cost of software license fees        1,054,641             820,422
      Cost of services                       103,394                  --
        Total cost of revenues             1,158,035             820,422
        Gross profit                       3,945,517           1,935,145

    Selling and marketing expenses         4,055,983           2,072,391
    General and administrative
     expenses                              1,452,232             774,896
    Product development expenses           1,190,500             557,634
                                           6,698,715           3,404,921
    Loss from operations                  (2,753,198)         (1,469,776)

    Other income (expense):
      Interest expense                      (166,466)             (3,595)
      Interest and other income              716,212              91,581
                                             549,746              87,986

    Loss before income taxes              (2,203,452)         (1,381,790)
    Income tax expense                            --                  --
    Net Loss                             $(2,203,452)        $(1,381,790)

    Loss per common share:
      Basic                                   $(0.33)             $(0.52)
      Diluted                                 $(0.33)             $(0.52)