Sonic Foundry Reports Record Third Quarter Results

Sonic Foundry[R], Inc. (NASDAQ: SOFO), the leading developer and marketer of digital media and Internet software tools, services, and systems, today announced its financial results for the fiscal third quarter and nine months ending June 30, 2000.

For the quarter ending June 30, 2000, revenues grew $2.7 million, or more than 64% to a record $6.9 million during the quarter, compared with $4.2 million reported for the similar period ending June 30, 1999. The Company also reported that revenues totaled $18.0 million for the nine months ending June 30, 2000, an increase of approximately 85%, versus total revenue of $9.7 million for the comparative nine-month period ending June 30, 1999. The record increase in revenues during the recently completed quarter was heavily attributed to the contributions of the Company's Media Services division, which accounted for $1.6 million or more than triple the amount reported in the preceding quarter. Additionally, increased sales were generated from the launch of its Vegas[TM] Video editing software product, continued growth from online and catalog initiatives, new and ongoing partner and distributor relationships, and transactions with OEM partners.

"With the acquisitions of STV Communications and International Image, our Media Services division will continue its unique focus on serving high-end entertainment and corporate clients who strive for a digital solution in media capture, archiving, and distribution," stated Rimas P. Buinevicius, Sonic Foundry's chairman and chief executive officer. "Likewise, this same technology, through our systems initiative, is beginning to take hold as we begin our effort of selling and integrating our enterprise technology directly at the client site."

The Company posted a net loss for the fiscal third quarter 2000 of $7.5 million, or $.35 per diluted share excluding the amortization of noncash acquisition charges. Other noncash and integration related charges accounted for approximately 1/3 of the $7.5 million. The Company recorded goodwill and other intangible assets associated with the acquisitions of STV Communications and International Image, Inc. Total resulting amortization expenses were $6.8 million, bringing the total net loss to $14.3 million or $.66 per share. The former STV Communications contributed $2.5 million to the total loss, or $.12 per share. Additionally, the Company reported increased expenses related to engineering and development of new software products and product enhancements and media enterprise systems development, as well as marketing related initiatives to the launch of its Vegas Video product, expanded presence of Sonic Foundry's Media Services division at trade shows, and further development of the Company's online and catalog sales.

After adjusting net losses for total noncash and integration related charges, the Company projects its financial resources are sufficient to meet its operating needs.

"Our engineering and marketing efforts, including those for our latest Vegas Video product and enterprise systems media development, are laying the groundwork for future market leadership," commented Rimas P. Buinevicius, Sonic Foundry's chairman and chief executive officer. "Our goal is to continue to provide the most innovative and state-of-the-art technologies so as to better serve our clients and customers."

Recent Highlights

Acquisitions

• STV Communications was acquired in April, 2000, for $79 million in a stock-for-stock transaction. This powerful combination allows Sonic Foundry to be a single source Internet media solutions company, offering software, encoding, syndication, webcasting, and consulting services.
• The International Image acquisition was effective in June, 2000, in a $22 million stock, cash, and debt transaction and is expected to be finalized in August, 2000. This merger offers the world's media marketplace a single source for digitizing and managing their media assets—particularly high-bandwidth, high-definition content—while providing auto-formatting of the same media for a wide variety of compressed and encoded formats. The complete service offering will range from traditional media production solutions for the television and film industries to broadband digitization for HDTV, digitization and formatting for the emerging video-on-demand market, and encoding and digitization for newly emerging streaming and wireless formats.

Key Customers

• Sonic Foundry provided further consulting and services to Sony Corporation.
• Best Buy stores implemented a nationwide promotional program to promote SIREN[TM] Jukebox.
• Sonic Foundry and Yamaha partnered to provide Sonic Foundry's ACID[TM] Style, Sound Forge[R] XP 4.5, and SIREN[TM] XPress to be included with Yamaha Pro Audio's AW4416 Digital Audio Workstation.
• Sonic Foundry and Pinnacle Systems, Inc. signed an agreement to provide Stream Anywhere[TM] LE and ACID[TM] Style software products with Pinnacle's Targa 3100, DVD2000, and other high-end offerings.
• RealNetworks agreed to provide Sonic Foundry's Sound Forge XP 4.5 to its online customer base as a new product offering.

Financial Change

• The Company announced a move from AMEX (SFO) to NASDAQ (SOFO) to provide increased leverage in the technology sector.

New Product Initiatives

• Sonic Foundry announced the launch of Vegas Video, Sonic Foundry's PC-based, multitrack video-editing system. A complete system, Vegas Video integrates video editing, video compositing, audio editing, and advanced encoding tools into one application.
• Sonic Foundry launched SIREN Jukebox 1.5, providing enhanced capabilities to capture, encode, organize, and burn music to CDs.
• Sonic Foundry continues to develop new products and services across a broad spectrum of terrestrial, wireless, and satellite applications.

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


                                           June 30,  September 30,
                                             2000         1999
                                         ------------------------
Assets                                   (Unaudited)
Current assets:
   Cash and cash equivalents                 $36,528       $5,889
   Accounts receivable, net of allowances
    of $1,240 and $1,315 at June 30, 2000
    and September 30, 1999, respectively       9,337        3,704
   Accounts receivable - other                   366           57
   Revenues in excess of billings                389           -
   Inventories                                 1,701        1,041
   Prepaid expenses and other
    current assets                             2,155          880
   Prepaid advertising                         2,000           -
                                         ------------------------
      Total current assets                    52,476       11,571

Property and equipment:
   Land                                           95          190
   Buildings and improvements                  2,630        1,738
   Equipment                                  12,791        2,218
   Furniture and fixtures                        398          202
                                         ------------------------
      Total property and equipment            15,914        4,348
   Less accumulated depreciation               2,033          923
                                         ------------------------
      Net property and equipment              13,881        3,425

Other assets:
  Goodwill and other purchase
   intangibles, net                           79,079           -
  Capitalized software development
   costs, net                                    640          643
  Long term investment                           514          514
  Other assets                                   678          556
                                         ------------------------
      Total other assets                      80,911        1,713
                                         ------------------------
Total assets                                $147,268      $16,709
                                         ========================

These financial statements reflect adjustments for a 2-for-1 stock
split.


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


                                           June 30,  September 30,
                                             2000         1999
                                         ------------------------
Liabilities and stockholders' equity     (Unaudited)
Current liabilities:
   Accounts payable                          $ 3,553      $ 1,867
   Accrued liabilities                       $10,178          812
   Current portion of long-term
    obligations                                5,008           49
                                         ------------------------
      Total current liabilities               18,739        2,728

   Long-term obligations, net of
    current portion                            2,754          654
   Subordinated debt                              -         4,580
   Other liabilities                             158           -

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;
    21,654 and 12,994 shares issued and
    outstanding at June 30, 2000 and
    September 30, 1999                           217          130
   Common stock to be issued                   6,900           -
   Common stock warrants and options           8,882        1,012
   Treasury stock                               (150)          -
   Additional paid-in capital                141,152       15,271
   Currency translations                         (14)          -
   Accumulated deficit                       (26,441)      (7,466)
   Unearned compensation                      (4,929)        (200)
                                         ------------------------
Total stockholders' equity                   125,617        8,747
                                         ------------------------
Total liabilities and
 stockholders' equity                       $147,268      $16,709
                                         ========================

These financial statements reflect adjustments for a 2-for-1 stock
split.


                 Sonic Foundry, Inc. and Subsidiaries
                 Consolidated Statement of Operations
               (in thousands except for per share data)
                              (Unaudited)


                              Three Months Ended    Nine Months Ended
                                   June 30,              June 30,
                               2000       1999       2000       1999
                             -----------------------------------------
Revenue:
Software license fees        $  5,247   $  4,223   $ 15,976   $  9,739
Media services                  1,627         -       2,030         -
                             -----------------------------------------
  Total revenue                 6,874      4,223     18,006      9,739

Cost of revenue:
Cost of software license fees   1,220        993      3,424      2,514
Cost of media services          1,773         -       2,247         -
                             -----------------------------------------
  Total cost of revenue         2,993        993      5,671      2,514
                             -----------------------------------------

Gross margin                    3,881      3,230     12,335      7,225

Operating expenses:
Selling and marketing
 expenses                       5,843      3,175     13,954      7,218
General and administrative 
 expenses                       3,864        833      7,039      2,595
Product development expenses    2,238        544      4,950      1,760
Amortization of goodwill and
 other purchase intangibles     6,793         -       6,793         -
                             -----------------------------------------
  Total operating expenses     18,738      4,552     32,736     11,573
                             -----------------------------------------
Loss from operations          (14,857)    (1,322)   (20,401)    (4,348)

Other income (expense):
Interest expense                  (45)       (14)      (270)       (19)
Interest and other income         593         50      1,688        192
                             -----------------------------------------
  Total other income              548         36      1,418        173
                             -----------------------------------------
Net loss before taxes         (14,309)        -     (18,983)        -
  Income tax benefit                8         -           8         -
                             -----------------------------------------
Net loss                     $(14,301)  $ (1,286)  $(18,975)  $ (4,175)
                             =========================================

Loss per common share -
   Basic and diluted         $   (.66)  $  (0.24)  $  (1.10)  $  (0.78)   
                             =========================================

These financial statements reflect adjustments for a 2-for-1 stock
split.