Sonic Foundry Inc.
Annual Report 2010

sonic foundryannual report 2010

©2011 Sonic Foundry, Inc. All rights reserved.  
Sonic Foundry and the Sonic Foundry logo are registered  
trademarks of Sonic Foundry, Inc. Mediasite and the Mediasite  
logo are registered trademarks of Sonic Foundry, Inc.  
All other trademarks are the property of their respective owners.

Fellow shareholders,

Today I write to report on the outstanding progress we have made at Sonic Foundry for the 2010 fiscal 
year. Our company continued to deliver a substantial and steady improvement in operating results. 
We broke into the black on a net income basis for the final two quarters of  the year and demonstrated 
continued positive improvements in the more important business metrics we track. All of  these results 
are on top of  the operating result improvements we highlighted during quarterly earnings webcasts in 
recent years.

The dedication and leadership of  our management team, the trust and confidence of  our customer 
base, the high quality of  our product line, the expansion of  new service offerings and the introduction 
of  efficient sales and marketing techniques all have contributed to helping us manage through a difficult 
economic period and emerge stronger than when it began.

Our recent efforts have established us as world experts in the webcasting, hybrid event and lecture  
capture arenas and our performance in 2010 provides the strongest confirmation yet that we are on 
the right track.

2010 milestones included:

   Hosting our 4th Annual UNLEASH Mediasite User Conference in Madison, Wisconsin

   Selection as Global Market Share Leader in Lecture Capture by Frost & Sullivan for the third  

consecutive time

   Being voted Best Webcasting/Presentations Solution in the Streaming Media Readers’ Choice  
  Awards for the fourth consecutive year

   Receiving certification as the first rich media webcasting platform for the U.S. Department  
  of  Defense

   Forging a technology partnership with TechSmith, where customers can manage their Camtasia  
  Relay content managed within our Mediasite knowledge platform

   Hosting two dozen clients in our monthly best practices webcast series highlighting our  

customers’ successes

   Delivering a variety of  hybrid events, conference recordings and high-profile product launches

   Introducing our new Mediasite mobile recorder, the lightest, leanest mobile webcasting appliance  

in its class

  Expanding the scale and scope of  customer deployments both in the US and internationally

  Steady progression of  net income, revenue, billings and cash from operations improvements  

throughout the entire year

 
 
 
 
For the last two years we have maintained our focus in a turbulent economy: concentrating on our 
fundamentals and feeding our obsession for strong customer relationships. We maintained a long term 
view on growing the business and building a platform which delivers on both the current and future 
needs of  our customers. This unrelenting passion for listening to our customers is what drives our  
innovation and allows us to morph our offerings into different flavors tailored specifically for our clientele.

By listening to the customer, we enhanced our service offerings and, with minimal investment  
resources available, we established an accelerating business unit that addresses the needs of  corporations  
and associations. This flexibility provides Sonic Foundry with a very solid, sustainable business model 
going forward.

Of  course the higher education market has remained a key area of  concentration for Sonic Foundry. 
We are witnessing a monumental transformation in how education is delivered in an online learning 
environment. A renaissance is taking place within education where blended learning is now viewed as 
an important means to gain efficiency in both teaching and training. We take great pride in realizing 
we have established ourselves as the preeminent leader in the space. Mediasite technology has evolved 
to become the gold standard in the industry and what all other systems are benchmarked against.

More importantly, we value the faith our customers have placed in us to deliver the highest level of  
product and services to meet their needs. I am confident that our efforts in 2011 and beyond will  
continue to exceed their expectations.

The passion and fire of  the company’s employees has never been higher. While it can be a challenge to 
maintain an optimistic attitude with outside economic or political forces at play, we have always strived 
to maintain a positive outlook on how we run our business and how we serve our customers. This  
philosophy allowed us to weather numerous bumps in the road over the years and our employee base 
remains a seasoned, confident bunch that is passionate about achieving our next series of  goals.

The culmination of  our hard work and performance yielded improvements to the key measuring stick 
shareholder’s care about most: stock price. I’m happy to report that in 2010 Sonic Foundry ranked 
at the very top of  Wisconsin-based public companies, and for that matter, finished the calendar year 
among the top 100 Nasdaq stocks in terms of  share price performance. The investors who benefited 
are those who have taken a fundamental view of  our business and recognize the prospects for growth 
on the horizon. We offer a unique story for a micro-cap company, a story based not solely on speculation 
and potential but also now founded on fundamental operating principles as well.

It’s been a pleasure leading this organization through another significant milestone and I look forward 
to generating substantial company growth and earnings in the future.

Respectfully,

Rimas Buinevicius 
Chairman and CEO

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SONIC FOUNDRY, INC. 
222 W. Washington Avenue 
Madison, Wisconsin 53703 

PROXY STATEMENT 

January 25, 2011 

The  Board  of  Directors  of  Sonic  Foundry,  Inc.,  a  Maryland  corporation  (“Sonic”),  hereby  solicits  the  enclosed 
proxy.  Unless instructed to the contrary on the proxy, it is the intention of the persons named in the proxy to vote 
the proxies:  

FOR the election of Frederick H. Kopko, Jr. as Director for a term expiring in 2016;  

FOR  the  approval,  by  a  non-binding  advisory  vote,  of  the  compensation  paid  by  the  Company  to  its  Named 
Executive Officers; 

FOR the selection, by a non-binding advisory vote, of the frequency at which the stockholders of the Company 
will be asked to approve, by a non-binding advisory vote, the compensation paid by the Company to its Named 
Executive Officers; 

FOR  a  Proposal  to  amend  the  2008  Sonic  Foundry  Employee  Stock  Purchase  Plan  to  increase  the  number  of 
common shares subject to the plan from 50,000 to 100,000; and  

FOR the ratification of the appointment of Grant Thornton LLP as independent auditors of Sonic for the fiscal 
year ending September 30, 2011.   

In the event that the nominee for director becomes unavailable to serve, which management does not anticipate, the 
persons named in the proxy reserve full discretion to vote for any other person who may be nominated.  Proxies may 
also be authorized by telephone or over the Internet by following the instructions on the proxy card. Any stockholder 
giving a proxy may revoke the same at any time prior to the voting of such proxy.  This Proxy Statement and the 
accompanying proxy are being mailed on or about January 31, 2011.   

Each stockholder will be entitled to one vote for each share of Common Stock standing in his or her name on our 
books at the close of business on January 14, 2011 (the “Record Date”).  Only holders of issued and outstanding 
shares of Sonic's common stock as of the close of business on the Record Date are entitled to notice of and to vote at 
the  Annual  Meeting,  including  any  adjournment  or  postponement  thereof.    On  that  date,  we  had  outstanding  and 
entitled  to  vote  3,712,699  shares  of  Common  Stock,  held  by  approximately  7,200  stockholders,  of  which 
approximately 6,700 were held in street name.   

QUORUM; VOTES REQUIRED  

Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspector of elections appointed for 
the Annual Meeting and will determine whether or not a quorum is present.  Where, as to any matter submitted to 
the  stockholders  for  a  vote, proxies  are  marked  as  abstentions  (or  stockholders  appear  in  person  but  abstain  from 
voting), such abstentions will be treated as shares that are present and entitled to vote for purposes of determining 
the  presence  of  a  quorum.    If  a  broker  indicates  on  the  proxy  that  it  does  not  have  discretionary  authority  as  to 
certain shares to vote on a particular matter and has not received instructions from the beneficial owner, which is 
known as a broker non-vote, such shares will also be considered present for purposes of a quorum, provided that the 
broker exercises discretionary authority on any other matter in the Proxy. A majority of the shares of Common Stock 
issued,  outstanding  and  entitled  to  vote  at  the  Annual  Meeting,  present  in  person  or  represented  by  proxy,  shall 
constitute a quorum at the Annual Meeting.  The election of the Director requires a plurality of the votes present and 
entitled to vote.  Therefore, the director who receives the most votes will be elected.  Neither an abstention nor a 
withheld vote will affect the outcome of the election.  The amendment of the Employee Stock Purchase Plan, the 
non-binding  advisory  vote  of  the  compensation  paid  by  the  Company  to  its  Named  Executive  Officers,  and  the 
ratification of the appointment of Grant Thornton LLP, require the affirmative vote of the holders of a majority of 
1 

 
 
 
 
 
 
 
 
 
 
 
 
 
the votes cast at the Annual Meeting.  If you abstain from voting on any of these proposals, it will have the same 
effect as a vote against the proposal. A plurality of the votes cast at the Annual Meeting is required to select, by a 
non-binding advisory vote, the frequency at which the stockholders of the Company will be asked to approve, by a 
non-binding advisory vote, the compensation paid by the Company to its Named Executive Officers. If you abstain 
from voting on this proposal, it will have no effect on the outcome of the proposal. 

The  New  York  Stock  Exchange  ("NYSE")  has  rules  that  govern  brokers  who  have  record  ownership  of  listed 
company  stock  held  in  brokerage  accounts  for  their  clients  who  beneficially  own  the  shares.  Under  these  rules, 
brokers who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on 
certain  discretionary  matters  but  do  not  have  discretion  to  vote  uninstructed  shares  as  to  certain  other  non-
discretionary matters. A broker may return a proxy card on behalf of a beneficial owner from whom the broker has 
not received instructions that casts a vote with regard to discretionary matters but expressly states that the broker is 
not  voting  as  to  non-discretionary  matters.  The  broker's  inability  to  vote  with  respect  to  the  non-discretionary 
matters with respect to which the broker has not received instructions from the beneficial owner is referred to as a 
"broker non-vote". Under current NYSE interpretations, the proposal to ratify the appointment of Grant Thornton, 
LLP  as  our  independent  auditor  is  considered  a  discretionary  matter,  and  the  other  proposals  are  consider  non-
discretionary matters. 

DATE, TIME AND PLACE OF ANNUAL MEETING 

The Annual Meeting will be held on March 3, 2011 at 9:00 a.m. (Central time) at the Monona Terrace Community 
and Convention Center, One John Nolen Drive, Madison, Wisconsin 53703. 

PROPOSAL ONE: ELECTION OF DIRECTORS 

Our Amended and Restated Articles of Incorporation and Bylaws provide that the Board of Directors shall be divided 
into five classes, with each class having a five-year term.  Directors are assigned to each class in accordance with a 
resolution or resolutions adopted by the Board of Directors.  Vacancies on the Board of Directors resulting from death, 
resignation, disqualification, removal or other causes may be filled by either the affirmative vote of the holders of a 
majority of the then-outstanding shares or by the affirmative vote of a majority of the remaining directors then in office, 
even if less than a quorum of the Board of the Directors.  Newly created directorships resulting from any increase in the 
number of directors may, unless the Board of Directors determines otherwise, be filled only by a majority vote of the 
entire Board of Directors.  A director elected by the Board of Directors to fill a vacancy (including a vacancy created 
by  an  increase  in  the  number  of  directors)  shall  serve  until  the  next  annual  meeting  of  stockholders  or  until  such 
director’s successor is elected and qualified. 

Our Amended and Restated Articles of Incorporation provide that the number of directors, which shall constitute the 
whole  Board  of  Directors,  shall  be  not  less  than  three  or  more  than  twelve.    Our  currently  authorized  number  of 
directors is seven.  The seat on the Board of Directors currently held by Frederick H. Kopko, Jr. is designated as a Class 
III  Board  seat,  with  term  expiring  as  of  the  Annual  Meeting.    The  Board  of  Directors  has  nominated  Frederick  H. 
Kopko, Jr. as a Class III Director for election at the Annual Meeting. 

If  elected  at  the  Annual  Meeting,  Mr.  Kopko  would  serve until  the  2016 Annual  Meeting  and until  his  successor  is 
elected and qualified or until his earlier death, resignation or removal. 

2 

 
 
 
 
 
 
 
 
 
 
 
 
Nominees for Director for a Five-Year term expiring on the 2016 Annual Meeting 

Frederick H. Kopko, Jr.   

Mr.  Kopko,  age  55,  has  been  corporate  Secretary  from  April  1997  to  February  2001  and  has  been  a  Director  since 
December 1995. Mr. Kopko is a partner of the law firm of McBreen & Kopko, Chicago, Illinois, and has been a partner 
of that firm since January 1990. He has been a Director of Mercury Air Group, Inc. since 1992. Mr. Kopko received a 
B.A. degree in economics from the University of Connecticut, a J.D. degree from the University of Notre Dame Law 
School, and an M.B.A. degree from the University of Chicago. 

The disinterested members of the Board of Directors unanimously recommend a vote FOR the election of Mr. 
Kopko as Class III Director. 

DIRECTORS CONTINUING IN OFFICE 

Rimas P. Buinevicius  

Term Expires in 2012 

Mr. Buinevicius, age 48, has been the Chairman of the Board since October 1997 and Chief Executive Officer since 
January  1997.  In  addition  to  his  organizational  duties,  Mr.  Buinevicius  is  a  recognized  figure  in  the  rich  media 
industry focused on the convergence of technology, digital media and entertainment.   Mr. Buinevicius joined Sonic 
in 1994 as General Manager and Director of Marketing. Prior to joining Sonic, Mr. Buinevicius spent the majority of 
his professional career in the fields of biomedical and industrial control research and development.  Mr. Buinevicius 
earned  an  M.B.A.  degree  from  the  University  of  Chicago;  a  Master's  degree  in  Electrical  Engineering  from  the 
University of Wisconsin, Madison; and a Bachelor's degree in Electrical Engineering from the Illinois Institute of 
Technology, Chicago.  Mr. Buinevicius is a recipient of Ernst and Young’s Entrepreneur of the Year award. 

Monty R. Schmidt  

Term Expires in 2013 

Mr. Schmidt, age 46, has been the Chief Technology Officer since July 2003 and served as President from March 1994 
to  July  2003  and  as  a  Director  since  February  1994.  Throughout  his  tenure  at  Sonic  Foundry,  Mr.  Schmidt  has 
spearheaded a variety of engineering and strategic initiatives that have helped grow Sonic from the one person startup 
he  founded  in  1991.      In  addition  to  acting  as  an  industry  liaison,  Mr.  Schmidt  is  responsible  for  managing  and 
facilitating  technology  development  and  utilization.    Prior  to  joining  Sonic,  Mr.  Schmidt  served  in  software  and 
hardware engineering capacities for companies in the medical and food service equipment industries.  Mr. Schmidt has 
a B.S. degree in Electrical Engineering from the University of Wisconsin, Madison.  

Gary R. Weis  

Term Expires in 2013 

Mr. Weis, age 63, has been a Director of Sonic since February 2004 and was President, Chief Executive Officer and 
a  Director  of  Cometa  Networks,  a  wireless  broadband  Internet  access  company  from  March  2003  to  April  2004. 
From  May  1999  to  February  2003  he  was  Senior  Vice  President  of  Global  Services  at  AT&T  where  he  was 
responsible for one of the world's largest data and IP networks, serving more than 30,000 businesses and providing 
Internet  access  to  more  than  one  million  individuals  worldwide.  While  at  AT&T,  Mr.  Weis  also  was  CEO  of 
Concert, a joint venture between AT&T and British Telecom. Previously, from January 1995 to May 1999 he was 
General Manager of IBM Global Services, Network Services. Mr. Weis served as a Director from March 2001 to 
February 2003 of AT&T Latin America, a facilities-based provider of telecom services in Brazil, Argentina, Chile, 
Peru  and  Columbia.  Mr.  Weis  earned  BS  and  MS  degrees  in  Applied  Mathematics  and  Computer  Science  at  the 
University of Illinois, Chicago.  

David C. Kleinman 

Term Expires in 2014 

Mr.  Kleinman,  age  75,  has  been  a  Director  of  Sonic  since  December  1997  and  has  taught  at  the  Chicago  Booth 
School  of  Business  at  the  University  of  Chicago  since  1971,  where  he  is  now  Adjunct  Professor  of  Strategic 
3 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
Management. Mr. Kleinman was a Director (trustee) of the Columbia Acorn Trust, and its predecessors from 1972 
to December 2010 (where he was a member of the Committee on Investment Performance, a member of the Audit 
Committee and a member of the Compliance Committee); a Director (trustee) of the Wanger Advisors Trust from 
2005 to December 2010; a Director and non-executive chair of the Board since 1984 of North Lime Holdings and its 
wholly owned subsidiary, Irex Corporation, a contractor and distributor of insulation materials; and a Director since 
1993  of  Plymouth  Tube  Company,  a  manufacturer  of  metal  tubing  and  metal  extrusions  (where  he  serves  on  the 
Audit  Committee).  From  1999  to  2006,  he  was  a  member  of  the  Advisory  Board  of  DSC  Logistics,  a  logistics 
management and warehousing firm. From May 1997 to February 2004, Mr. Kleinman served as a Director of AT&T 
Latin  America  and  predecessor  companies,  a  facilities-based  provider  of  telecom  services  in  Brazil,  Argentina, 
Chile,  Peru  and  Columbia  (where  he  was  chair  of  the  Audit  Committee  and  a  member  of  the  Compensation 
Committee). From 1994 to 2005, he was a director of Wisconsin Paper and Products Company, a jobber of paper 
and  paper  products.  From  1964  to  1971,  Mr. Kleinman  was  a  member  of  the  finance  staff  of  the  Ford  Motor 
Company.   

Paul S. Peercy  

Term Expires in 2014 

Mr. Peercy, age 70, has been a Director of Sonic since February 2004. Since September 1999, Mr. Peercy has served 
as dean of the University of Wisconsin-Madison College of Engineering. Since 2001 Mr. Peercy has been a member 
of the National Academy of Engineering. In 2000, then-Wisconsin Governor Tommy Thompson named Mr. Peercy 
to  the  Wisconsin  Technology  and  Entrepreneurship  Council.  From  August  1995  to  September  1999,  Mr.  Peercy 
served as president of SEMI/SEMATECH, an Austin, Texas-based non-profit consortium of more than 160 of the 
nation’s  suppliers  to  the  semiconductor  industry.  Prior  to  that  position  he  was  director  of  Microelectronics  and 
Photonics at Sandia National Laboratories in Albuquerque, New Mexico. He is the author or co-author of more than 
175 technical papers and the recipient of two patents. Mr. Peercy is a Director and member of the audit committee of 
Bemis Company, Inc, a manufacturer of flexible packaging and pressure sensitive materials.  Mr. Peercy received a 
BA degree in Physics from Berea College and MS and PhD degrees in Physics from the University of Wisconsin - 
Madison.  

Mark D. Burish   

Term Expires in 2015 

Mr. Burish, age 57, is a founder and shareholder of the law firm of Hurley, Burish & Stanton, Madison, WI, which 
he helped start in 1983.  He is the founder and CEO of Our House Senior Living, LLC, Milestone Senior Living, 
LLC and Milestone Management Services, LLC which he started in 1997.  Mr. Burish received his BA degree in 
communications from Marquette University in 1975 and his JD degree from the University of Wisconsin in 1978. 

When  considering  whether  the  Board  of  Directors  and  nominees  thereto  have  the  experience,  qualifications, 
attributes  and  skills,  taken  as  a  whole,  to  enable  the  Board  of  Directors  to  satisfy  its  oversight  responsibilities 
effectively  in  light  of  our  business  and  structure,  the  Board  of  Directors  focused  primarily  on  the  information 
discussed  in  each  of  the  Board  members'  biographical  information  set  forth  on  pages  three  and  four.  Each  of  the 
Company's  directors  possesses  high  ethical  standards,  acts  with  integrity  and  exercises  careful,  mature  judgment. 
Each  is  committed  to  employing  his  skills  and  abilities  to  aid  the  long-term  interests  of  the  stakeholders  of  the 
Company.  In addition, each of our directors has exhibited judgment and skill, and has either been actively involved 
with  the  Company  for  a  considerable  period  of  time  or  has  experience with  other organizations of  comparable  or 
greater  size.  In  particular,  Mr.  Kopko  has  had  extensive  experience  with  companies  comparable  in  size  to  Sonic 
Foundry,  including  currently  serving  as  a  director  of  Mercury  Air  Group,  Inc.  and  fills  a  valuable  need  with 
experience in securities and other business law.  Mr. Buinevicius is a recognized figure in the rich media industry 
and has sixteen years experience with the Company.  Likewise, Mr. Schmidt is an industry leader in the rich media 
market and has twenty years experience with the Company.  Mr. Weis also has had experience in both developing 
and established companies, having served as a CEO and Director of Cometa Networks and in several positions at 
AT&T,  including  Senior  Vice  President  of  Global  Services.  Mr.  Kleinman  has  significant  experience  serving  on 
boards of directors of various companies, has significant experience in finance and strategic management through 
his employment with the Chicago Booth School of Business at the University of Chicago where he also obtained 
valuable  market  insight  to  the  Company’s  largest  customer  base.    Mr.  Peercy  shares  that  same  market  expertise 

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through serving the University of Wisconsin in his role as dean of the engineering school and also has significant 
business  and  technical  experience  obtained  at  positions  including  his  role  as  director  of  Microelectronics  and 
Photonics  at  Sandia  National  Laboratories  and  through  his  role  as  president  of  SEMI/SEMATECH.    Mr.  Burish 
brings additional valuable legal experience to the Board as well as experience obtained through founding multiple 
companies. 

Director Independence 

CORPORATE GOVERNANCE 

Through  its  listing  requirements  for  companies  with  securities  listed  on  the  NASDAQ  Capital  Market,  the 
NASDAQ  Stock  Market  (“NASDAQ”)  requires  that  a  majority  of  the  members  of  our  Board  be  independent,  as 
defined under NASDAQ’s rules. The NASDAQ rules have both objective tests and a subjective test for determining 
who  is  an  “independent  director.”   The  objective  tests  state,  for  example,  that  a  director  is  not  considered 
independent if he or she is an employee of the Company or has engaged in various types of business dealings with 
the Company. The subjective test states that an independent director must be a person who lacks a relationship that 
in  the  opinion  of  the  Board  would  interfere  with  the  exercise  of  independent  judgment  in  carrying  out  the 
responsibilities of a director. The Board has made a subjective determination as to each independent director that no 
relationship exists that, in the opinion of the Board, would interfere with the exercise of independent judgment in 
carrying  out  the  responsibilities  of  a  director.  In  making  these  determinations,  the  Board  reviews  information 
provided by the directors in an annual questionnaire with regard to each director’s business and personal activities as 
they relate to the Company. Based on this review and consistent with NASDAQ’s independence criteria, the Board 
has  affirmatively  determined  that Mark  D.  Burish,  David  C.  Kleinman,  Paul  S.  Peercy,  and  Gary  R.  Weis,  are 
independent. 

Related Person Transaction 

The Board has adopted a Related Person Transaction Policy (the “Policy”), which is a written policy governing the 
review and approval or ratification of Related Person Transactions, as defined in SEC rules. 

Under the Policy, each of our directors and executive officers must notify the Chairman of the Audit Committee in 
writing  of  any  new  potential  Related  Person  Transaction  involving  such  person  or  an  immediate  family  member. 
The  Audit  Committee  will  review  the  relevant  facts  and  circumstances  and  will  approve  or  ratify  the  transaction 
only if it determines that the transaction is in, or is not inconsistent with, the best interests of the Company.  The 
Related Party Transaction must then be approved by the independent directors.  In determining whether to approve 
or  ratify  a  Related  Person  Transaction,  the  Audit  Committee  and  the  independent  directors  may  consider,  among 
other  things,  the  benefits  to  the  Company;  the  impact  on  the  director’s  independence  (if  the  Related  Person  is  a 
director or an immediate family member); the availability of other sources for comparable products or services; the 
terms of the transaction; and the terms available to unrelated third parties or to employees generally. There were no 
new Related Person Transactions in the fiscal year ended September 30, 2010 (“Fiscal 2010”). 

Board Leadership Structure and Role in Risk Oversight 

 Rimas P. Buinevicius, our Chief Executive Officer, serves as Chairman of the Board.  The Company believes that 
having  our  CEO  serve  as  Chairman  is  an  appropriate  leadership  structure  at  the  current  time  because 
Mr. Buinevicius  has  extensive  knowledge  of  the  Company  and  the  webcasting,  lecture  capture  and  knowledge 
management  industry.  In  determining  the  structure,  the  Board  considered  the  (1)  access  and  candor  of 
communications that the outside Board members have with the members of management; (2) the frequent meetings 
and  telephonic  conversations  outside  Board  members  have  without  members  of  management  present;  and  the  (3) 
candor and dynamics of discussion at Board meetings.  

Our business and affairs are managed under the direction of our board, which is the Company’s ultimate decision-
making  body,  except  with  respect  to  those  matters  reserved  to  our  stockholders.  Our  Board’s  key  mission  is  to 
maximize long-term stockholder value. Our Board establishes our overall corporate policies, selects and evaluates 
5 

 
 
 
 
 
 
 
 
our  executive  management  team  (which  is  charged  with  the  conduct  of  our  business),  and  acts  as  an  advisor  and 
counselor  to  executive  management.  Our  board  also  oversees  our  business  strategy  and  planning,  as  well  as  the 
performance of management in executing its business strategy and assessing and managing risks.  

What is the Board’s role in risk oversight?  
The board takes an active role in monitoring and assessing the Company’s risks, which include risks associated with 
operations, credit, financing and capital investments. Management is responsible for the Company’s day-to-day risk 
management  activities  and  our  board’s  role  is  to  engage  in  informed  risk  oversight.  Management,  through  its 
disclosure committee, compiles an annual ranking of risks to which the Company could be subjected and reviews 
the results of this risk assessment with the audit committee. Any significant risks are then reviewed by the board and 
assigned  for  oversight.  In  fulfilling  this  oversight  role,  our  board  focuses  on  understanding  the  nature  of  our 
enterprise risks,  including our  operations  and  strategic direction,  as well  as  the  adequacy  of our risk  management 
process  and  overall  risk  management  system.  There  are  a  number  of  ways  our  board  performs  this  function, 
including the following:  

•  at  its  regularly  scheduled  meetings,  the  board  receives  management  updates  on  our  business  operations,

financial results and strategy and discusses risks related to the business;  

• 

the  audit  committee  assists  the  board  in  its  oversight  of  risk  management  by  discussing  with  management,
particularly,  the  Chief  Financial  Officer,  our  guidelines  and  policies  regarding  financial  and  enterprise  risk
management and risk appetite, including major risk exposures, and the steps management has taken to monitor
and control such exposures; and  

• 

through  management  updates  and  committee  reports,  the  board  monitors  our  risk  management  activities,
including the annual risk assessment process, risks relating to our compensation programs, and financial and
operational risks being managed by the Company.  

The  compensation  committee  also  has  oversight  responsibility  for  risks  and  exposures  related  to  employee 
compensation  programs  and  management  succession  planning,  and  assesses  whether  the  organization’s 
compensation  practices  encourage  risk  taking  that  would  have  a  material  adverse  effect  on  the  Company.  The 
committee  periodically  reviews  the  structure  and  elements  of  our  compensation  programs  and  its  policies  and 
practices  that  manage  or  mitigate  such  risk,  including  the  balance  of  short-term  and  long-term  incentives,  use  of 
multiple performance measures, and a multi-year vesting schedule for long-term incentives. Based on these reviews, 
the committee believes our compensation programs do not encourage excessive risk taking.  

Board Structure and Meetings 

The  Board  met  six  times  during  Fiscal  2010.    The  Board  also  acted  by  written  consent  from  time  to  time.  All 
directors attended at least 75% of the total number of Board meetings and committee meetings on which they serve 
(during  the  period  in  which  each  director  served).   In  addition,  NASDAQ  marketplace  rules contemplate  that  the 
independent members of our Board will meet during the year in separate closed meetings referred to as “executive 
sessions”  without  any  employee  director  or  executive  officer  present.   Executive  sessions  were  usually  held  after 
regularly scheduled Board meetings during Fiscal 2010. 

The Board of Directors has four standing committees, the Audit Committee, the Executive Compensation Committee, 
the Nominations Committee and the Operations Analysis Committee.   

Sonic has a standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange 
Act  of  1934,  as  amended  (the  “Exchange  Act”).  Messrs.  Kleinman  (chair),  Weis  and  Burish  serve  on  the  Audit 
Committee.    Sonic’s  Board  of  Directors  has  determined  that  all  members  of  Sonic’s  Audit  Committee  are 
“independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act and as defined under 
6 

 
 
 
 
 
 
 
 
 
 
 
Nasdaq  listing  standards.    The  Audit  Committee  provides  assistance  to  the  Board  in  fulfilling  its  oversight 
responsibility including: (i) internal and external financial reporting, (ii) risks and controls related to financial reporting, 
and  (iii)  the  internal  and  external  audit  process.    The  Audit  Committee  is  also  responsible  for  recommending  to  the 
Board the selection of our independent public accountants and for reviewing all related party transactions.  The Audit 
Committee  met  five  times  in  Fiscal  2010.    A  copy  of  the  charter  of  the  Audit  Committee  is  available  on  Sonic’s 
website. 

Sonic's Board of Directors has determined that, due to his affiliation with the Chicago Booth School of Business at the 
University  of  Chicago,  and  due  to  his  current  and  past  service  as  a  director  on  numerous  company  boards,  and 
membership on numerous audit committees, including past or present chair, along with his other academic and business 
credentials, Mr. Kleinman has the requisite experience and applicable background to meet Nasdaq standards requiring 
financial sophistication of at least one member of the audit committee.  Sonic's Board of Directors has also determined 
that  neither  Mr.  Kleinman  nor  any  other  member  of  the  Audit  Committee  is  an  audit  committee  financial  expert  as 
defined by applicable SEC regulations 

The Compensation Committee consists of Messrs. Kleinman (chair), Burish, Peercy and Weis.  The Board of Directors 
has determined that all of the members of the Compensation Committee are “independent” as defined under Nasdaq 
listing  standards.  The  Compensation  Committee  makes  recommendations  to  the  Board  with  respect  to  salaries  of 
employees, the amount and allocation of any incentive bonuses among the employees, and the amount and terms of 
stock options to be granted to executive officers.  The Compensation Committee met three times in Fiscal 2010.  A 
copy of the charter of the Compensation Committee is available on Sonic’s website. 

The Nominations Committee consists of Messrs. Peercy (chair), Burish, Kleinman and Weis.  The Board of Directors 
has  determined  that  all  of  the  members  of  the  Nominations  Committee  are  “independent”  as  defined  under  Nasdaq 
listing standards.  The purpose of the Nominations Committee is to evaluate and recommend candidates for election as 
directors,  make  recommendations  concerning  the  size  and  composition  of  the  Board  of  Directors,  develop  specific 
criteria for director independence, and assess the effectiveness of the Board of Directors.  Our Board of Directors has 
adopted a charter for the Nominations Committee, which is available on Sonic’s website.  The Nominations Committee 
will  review  all  candidates  in  the  same  manner  regardless  of  the  source  of  the  recommendation.    In  recommending 
candidates for election to the Board of Directors, the Nominating Committee reviews each candidate’s qualifications, 
including  whether  a  candidate  possesses  any  of  the  specific  qualities  and  skills  desirable  in  certain  members  of  the 
Board of Directors.  Evaluations of candidates generally involve a review of background materials, internal discussions 
and interviews with selected candidates as appropriate.  Generally the Nominations Committee will consider various 
criteria  in  considering  whether  to  make  a  recommendation.    These  criteria  include  expectations  that  directors  have 
substantial accomplishments in their professional backgrounds and are able to make independent, analytical inquiries 
and  exhibit  practical  wisdom  and  mature  judgment.    Director  candidates  should  possess  the  highest  personal  and 
professional ethics, integrity and values, be committee to promoting the long-term interest of our stockholders and be 
able and willing to devote the necessary time to carrying out their duties and responsibilities as members of the Board.  
While the Board of Directors has not adopted a policy regarding diversity, we also believe our directors should come 
from diverse backgrounds and experience bases in order to promote the representation of diverse views on the Board of 
Directors.  Stockholder recommendations of candidates for Board membership will be considered when submitted to 
Corporate Secretary, Sonic Foundry, Inc., 222 W. Washington Ave., Madison, WI 53703.  When submitting candidates 
for  nomination  to  be  elected  at  Sonic's  annual  meeting  of  stockholders,  stockholders  must  also  follow  the  notice 
procedures and provide the information required by Sonic's bylaws. 

7 

 
 
 
 
 
 
 
In particular, for a stockholder to nominate a candidate for election at the 2012 Annual Meeting of Stockholders, the 
nomination  must  be  delivered  or  mailed  to  and  received  by  Sonic's  Secretary  between  November  3,  2011  and 
December 3, 2011 (or, if the 2012 annual meeting is advanced by more than 30 days or delayed by more than 60 days 
from such anniversary date, not earlier than the close of business on the 120th day prior to such annual meeting and not 
later  than  the  close  of  business  on  the  later  of  the  90th  day  prior  to  such  annual  meeting  or  the  tenth  calendar  day 
following  the  date  on  which  public  announcement  of  the  date of  the  annual  meeting  is  first  made).  The  nomination 
must include the same information as is specified in Sonic's bylaws for stockholder nominees to be considered at an 
annual meeting, including the following: 

•  The stockholder's name and address and the beneficial owner, if any, on whose behalf the nomination is 

proposed; 

•  The stockholder's reason for making the nomination at the annual meeting, and the signed consent of the 

nominee to serve if elected; 

•  The number of shares owned by, and any material interest of, the record owner and the beneficial owner, 

if any, on whose behalf the record owner is proposing the nominee; 

•  A description of any arrangements or understandings between the stockholder, the nominee and any other 

• 

person regarding the nomination; and 
Information regarding the nominee that would be required to be included in Sonic's proxy statement by 
the rules of the Securities and Exchange Commission, including the nominee's age, business experience 
for the past five years and any other directorships held by the nominee. 

The  Operations  Analysis  Committee  consists  of  Messrs.  Weis  (chair)  and  Kleinman.    The  Operations  Analysis 
Committee was established in May 2008 to facilitate communication and provide advisory leadership in planning and 
strategic  growth.  The  Operations  Analysis  Committee  met  in  person  and  held  numerous  informal  and  telephonic 
meetings in Fiscal 2010.   

DIRECTORS COMPENSATION 

Our directors, who are not also our full-time employees, receive an annual retainer of $20,000 in addition to a fee of 
$1,500 for attendance at each meeting of the Board of Directors and $1,000 per committee meeting attended, other than 
the  chair  of  our  Audit  Committee,  Mr.  Kleinman,  who  receives  $2,000  per  Audit  Committee  meeting  attended.  In 
addition, the chair of our Operations Analysis Committee, Mr. Weis, receives compensation of a $12,000 retainer per 
year and Mr. Kleinman receives an annual retainer of $6,000 per year as compensation as a member of the Operations 
Analysis Committee.  The cash compensation paid to the five non- employee directors combined in Fiscal 2010 was 
approximately $197,000. When traveling from out-of-town, the members of the Board of Directors are also eligible for 
reimbursement  for  their  travel  expenses  incurred  in  connection  with  attendance  at  Board  meetings  and  Board 
Committee  meetings.    Directors  who  are  also  employees  do  not  receive  any  compensation  for  their  participation  in 
Board or Board Committee meetings. 

Pursuant  to  the  2008  Sonic  Foundry  Non-Employee  Directors  Stock  Option  Plan  (the  “Directors  Plan”)  we  grant  to 
each non-employee director who is reelected or who continues as a member of the Board of Directors at each annual 
stockholders  meeting  a  stock  option  to  purchase  2,000  shares  of  Common  Stock.  Further,  the  chair  of  our  Audit 
Committee receives an additional stock option grant to purchase 500 shares of Common Stock per year and the chair of 
our Operations Analysis Committee received, on November 3, 2008, a one-time stock option grant to purchase 5,000 
shares of common stock which vest 25% immediately, and 25% on each of 4 months, 16 months and 28 months from 
the date of grant for his role in managing the activities of the Operations Analysis Committee pursuant to Sonic’s Non 
Qualified Stock Option Plan. 

8 

 
 
 
 
 
 
 
 
 
 
The exercise price of each stock option granted was equal to the market price of Common Stock on the date the stock 
option was granted. Stock options issued under the Directors Plan vest fully on the first anniversary of the date of grant 
and  expire  after  ten  years  from  date  of  grant.  An  aggregate  of  50,000  shares  are  reserved  for  issuance  under  the 
Directors Plan.   

If  any  change  is  made  in  the  stock  subject  to  the  Directors  Plan,  or  subject  to  any  option  granted  thereunder,  the 
Directors Plan and options outstanding thereunder will be appropriately adjusted as to the type(s), number of securities 
and price per share of stock subject to such outstanding options. 

The  options  and  warrants  set  forth  above  have  an  exercise  price  equal  to  the  fair  market  value  of  the  underlying 
common stock on the date of grant.  The term of all such options is ten years. 

The  following  table  summarizes  cash  and  equity  compensation  provided  our  non-employee  directors  during  the 
fiscal year ended September 30, 2010. 

Fees Earned 
Or Paid In 
Cash 
($)(1) 
(b) 

Stock 
Awards 
($) 
(c) 

Option 
Awards 
($)(2) 
(d) 

Non-Equity 
Incentive  
Plan Compen-
sation 
($) 
(e) 

Name 
(a) 

Mark D. Burish 
David C. Kleinman 
Frederick H. Kopko 
Paul S. Peercy 
Gary R. Weis 

29,500 
49,000 
29,000 
35,000 
50,000 

  — 
  — 
  — 
  — 
  — 

 8,634 
10,793 
8,634 
8,634 
8,634 

— 
— 
— 
— 
— 

Change in 
Pension  
Value and 
Non-qualified 
Deferred 
Compen- 
sation 
Earnings 
($) 
(f) 

— 
— 
— 
— 
— 

All Other 
Compensation 
($) 
(g) 

— 
— 
— 
— 
— 

Total 
($) 
(h) 

38,134 
59,793 
37,634 
43,634 
58,634 

(1) 
(2) 

The amount reported in column (b) is the total of retainer fees and meeting attendance fees. 
The amount reported in column (d) is the aggregate grant date fair value of options granted during the fiscal 
year ended September 30, 2010 in accordance with FASB ASC Topic 718.  Each director received an option 
award of 2,000 shares on March 4, 2010 at an exercise price of $6.90 with a grant date fair value of $8,634.  In 
addition, Mr. Kleinman received a grant of 500 shares on March 4, 2010 at an exercise price of $6.90 with a 
grant date fair value of $2,159 in connection with his position as chair of the Audit Committee. 

9 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXECUTIVE OFFICERS OF SONIC 

Our  executive  officers,  who  are  appointed  by  the  Board  of  Directors,  hold  office  for  one-year  terms  or  until  their 
respective successors have been duly elected and have qualified.  There are no family relationships between any of the 
executive officers of Sonic. 

Rimas  P.  Buinevicius  is  our  Chairman  of  the  Board  of  Directors  and  Chief  Executive  Officer.  (See  "  Directors 
Continuing in Office ".) 

Monty R. Schmidt is our Chief Technology Officer and a Director. (See " Directors Continuing in Office ".) 

Kenneth A. Minor, age 48, has been our Chief Financial Officer since June 1997, Assistant Secretary from December 
1997  to  February  2001  and  Secretary  since  February  2001.    From  September  1993  to  April  1997,  Mr.  Minor  was 
employed as Vice President and Treasurer for Fruehauf Trailer Corporation, a manufacturer and global distributor of 
truck  trailers  and  related  aftermarket  parts  and  service  where  he  was  responsible  for  financial,  treasury  and  investor 
relations functions. Prior to 1993, Mr. Minor served in various senior accounting and financial positions for public and 
private corporations as well as the international accounting firm of Deloitte Haskins and Sells. Mr. Minor is a certified 
public accountant and has a B.B.A. degree in accounting from Western Michigan University.  

Robert M. Lipps, age 39, has been Executive Vice President of Sales since April 2008, joining Sonic Foundry in April 
2006 as Vice President of International Sales and assuming expanded responsibility for U.S. central sales in 2007. Mr. 
Lipps leads the company’s global sales organization including oversight of domestic, international and channel sales. 
He holds 15 years of sales leadership, business development and emerging market entry expertise in the technology and 
manufacturing  sectors,  including  sales  and  channel  management.   From  January  2004  to  March  2006  he  served  as 
General Manager of Natural Log Homes LLC, a New Zealand based manufacturer of log homes.  From July 1999 to 
Dec  2002  he  served  as  Latin  America  Regional  Manager  of  Adaytum,  a  software  publisher  of  planning  and 
performance management solutions, (acquired by Cognos Software, an IBM Company, in January 2003) and from May 
1996  to  July  1999  he  served  as  International  Sales  Manager  for  Persoft,  a  software  publisher  of  host  access  and 
mainframe connectivity solutions (acquired by Esker software in 1998). Mr. Lipps has a B.S. degree in Marketing from 
the University of Wisconsin at La Crosse. 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 

The  following  table  shows  information  known  to  us  about  the  beneficial  ownership  of  our  Common  Stock  as  of 
January 14, 2011, by each stockholder known by us to own beneficially more than 5% of our Common Stock, each of 
our  executive  officers  named  in  the  Summary  Compensation  Table  (“Named  Executive  Officers”),  each  of  our 
directors, and all of our directors and executive officers as  a group. Unless otherwise noted, the  mailing address for 
these stockholders is 222 West Washington Avenue, Madison, Wisconsin 53703. 

Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power 
with  respect  to  shares.  Shares  of  common  stock  issuable  upon  the  exercise  of  stock  options  or  warrants  exercisable 
within 60 days after January 14, 2011, which we refer to as Presently Exercisable Options, are deemed outstanding for 
computing the percentage ownership of the person holding the options but are not deemed outstanding for computing 
the percentage ownership of any other person. Unless otherwise indicated below, to our knowledge, all persons named 
in the table have sole voting and investment power with respect to their shares of common stock, except to the extent 
authority is shared by spouses under applicable law. The  inclusion of any shares  in this table does not constitute an 
admission of beneficial ownership for the person named below. 

10 

 
 
 
 
 
 
 
 
 
 
 
 
Based on currently available Schedules 13D and 13G filed with the SEC, we do not know of any beneficial owners of 
more than 5% of our Common Stock, other than listed below. 

Name of Beneficial Owner(1) 

Number of Shares of 
Class 
Beneficially Owned 

Common Stock 
Monty R. Schmidt (3) 

Rimas P. Buinevicius(4) 

Mark D. Burish(5) 
33 East Main St. 
Madison, WI 53703 

Kenneth A. Minor(6) 

Frederick H. Kopko, Jr.(7) 
20 North Wacker Drive 
Chicago, IL 60606 

David C. Kleinman(8) 
1101 East 58th Street 
Chicago, IL 60637 

Gary R. Weis(9) 
P.O. Box 272 
Deerfield, IL 60015 

Robert M. Lipps(10) 

Paul S. Peercy(11) 
1415 Engineering Dr 
Madison, WI 53706 

All Executive Officers and Directors as a Group (9 persons)(12) 

335,293 

263,245 

117,000 

50,993 

38,627 

26,500 

23,500 

19,991 

16,040 

890,689 

Percent 
of Class(2) 

9.0% 

6.9 

3.1 

1.4 

1.0 

* 

* 

* 

* 

22.4% 

less than 1%  

* 
(1)  Sonic believes that the persons named in the table above, based upon information furnished by such persons, have 

sole voting and investment power with respect to the number of shares indicated as beneficially owned by them. 

(2)  Applicable percentages are based on 3,712,699 shares outstanding, adjusted as required by rules promulgated by 

(3) 
(4) 

the Securities and Exchange Commission. 
Includes 19,980 shares subject to Presently Exercisable Options.   
Includes  114,500  shares  subject  to  Presently  Exercisable  Options.    Also  includes  15,205  shares  owned  by 
Cleopatra Buinevicius for which Mr. Buinevicius has power of attorney to vote and/or dispose of such shares and 
800 shares owned by Erik Buinevicius for which Mr. Buinevicius has power of attorney to vote and/or dispose of 
such shares.  Ms. Cleopatra Buinevicius is the mother of Mr. Buinevicius and Mr. Erik Buinevicius is the son of 
Mr. Buinevicius.  Mr. Buinevicius disclaims beneficial ownership of such shares. 
(5) 
Includes 2,000 shares subject to Presently Exercisable Options. 
(6) 
Includes 37,594 shares subject to Presently Exercisable Options.   
(7) 
Includes 10,000 shares subject to Presently Exercisable Options. 
(8) 
Includes 23,500 shares subject to Presently Exercisable Options. 
(9) 
Includes 21,000 shares subject to Presently Exercisable Options. 
(10)  Includes 19,916 shares subject to Presently Exercisable Options. 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(11)  Includes 16,000 shares subject to Presently Exercisable Options. 
(12)  Includes an aggregate of 264,490 Presently Exercisable Options. 

Introduction 

Compensation Discussion and Analysis 

This Compensation Discussion and Analysis describes our compensation strategy, policies, programs and practices 
for the executive officers identified in the Summary Compensation Table. Throughout this proxy statement, we refer 
to these individuals, who serve as our Chief Executive Officer, Chief Financial Officer, Chief Technology Officer 
and Executive Vice President of Sales as the “executive officers.” 

The  Compensation  Committee  (“Committee”)  establishes  and  oversees  our  compensation  and  employee  benefits 
programs  and  approves  the  elements  of  total  compensation  for  the  executive  officers.  The  day-to-day  design  and 
administration  of  our  retirement  and  employee  benefit  programs  available  to  our  employees  are  handled  by  our 
Human Resources and Finance Department employees. The Committee is responsible for reviewing these programs 
with management and approving fundamental changes to them. 

Overview and Objectives of our Executive Compensation Program 

The  compensation  program  for  our  executive  officers  is  designed  to  attract,  motivate,  reward  and  retain  highly 
qualified  individuals  who  can  contribute  to  Sonic’s  growth  with  the  ultimate  objective  of  increasing  stockholder 
value.   Our compensation program consists of several forms of compensation:  base salary, annual bonus, long-term 
incentives and limited perquisites and benefits. 

Base  salary  and  annual  bonus  are  cash-based  while  long-term  incentives  consist  of  stock  option  awards.  The 
Committee does not have a specific allocation goal between cash and equity-based compensation or between annual 
and long-term incentive compensation. Instead, the Committee relies on the process described in this discussion and 
analysis in its determination of compensation levels and allocations for each executive officer. 

The Committee does not utilize objective guidelines or formulae, performance targets or short-term changes in our 
stock price to determine the elements and levels of compensation for our executive officers. Instead, it relies upon its 
collective judgment as applied to the challenges confronting Sonic, together with information provided by Sonic and 
independent sources, and the recommendations of our Chief Executive Officer. The Committee also uses subjective 
information when considering the credentials, length of service, experience, consistent performance, and available 
competitive  alternatives  of  our  executive  officers.  The  Committee  receives  and  reviews  a  variety  of  information 
throughout  the  year  to  assist  it  in  directing  the  executive  compensation  program.   Throughout  the  year,  the 
Committee  reviews  financial reports  comparing Sonic’s  performance  on a  year-to-date basis versus  budget  and  at 
each meeting of the Board of Directors the executive officers present an operating report.  

The  recommendations  of  the  Chief  Executive  Officer  play  a  significant  role  in  the  compensation-setting  process. 
The  Chief  Executive  Officer  provides  the  Committee  with  an  annual  overall  assessment  of  Sonic’s  achievements 
and  performance,  his  evaluation  of  individual  performance  and  his  recommendations  for  annual  compensation, 
bonus and long-term incentive awards. The Committee has discretion to accept, reject or modify the Chief Executive 
Officer’s recommendations. 

The Committee determines the compensation for each executive officer in an executive session. 

Market Competitiveness 

The Committee’s target is for total cash compensation to average between the 50th and 75th percentile of published 
compensation data derived from two sources: (i) a peer group of companies that are in our industry, competitors for 
key talent, or with similar financial characteristics; and (ii) published market survey data for companies within our 
revenue range. The peer group data was obtained from the most recently filed proxy statement of 17 publicly-traded 
technology  companies  with  annual  revenues  ranging  from  approximately  $10  million  to  $80  million;  market 
capitalization of $20 million to $40 million and 250 employees or fewer.  The following companies comprised the 

12 

 
 
 
 
peer  group  for  the  study:  CryptoLogic,  MakeMusic,  Inc.,  Majesco  Entertainment,  XATA  Corporation,  Bsquare 
Corporation,  Unify  Corporation,  Versant  Corporation,  Simulations  Plus,  Adept  Technology,  SoundBite 
Communications, Procera Networks, GlobalSCAPE, Broadvision, Bitstream, Evolving Systems, GSE Systems and 
Commtouch Software. Given competitive recruiting pressures, the Committee retains its discretion to deviate from 
this  target  under  appropriate  circumstances.  The  Committee  periodically  receives  updates  of  the  published 
compensation data. 

Pay for Performance 

The  Committee  believes  that  both  long  and  short  term  compensation  of  executive  officers  should  correlate  to 
Sonic’s  overall  financial  performance.   Incentive  payouts  will  be  larger  with  strong  performance  and  smaller  if 
Sonic’s financial results decline. From time to time, extraordinary Board-approved initiatives in a fiscal year, such 
as a restructuring, acquisition, or divestiture, are considered by the Committee in its overall evaluation of Sonic’s 
performance. 

Competitive Benchmarking/Peer Group Analysis 

The Committee reviewed market data from TechAmerica dated August 1, 2010(“TeA”) in various size and industry 
stratifications similar to that of Sonic. 

The second source of compensation data came from a peer group of seventeen public companies that we consider 
similar to our market for sales, or for key talent, or with similar financial or other characteristics such as number of 
employees. The companies in the peer group ranged in market capitalization between $20 million and $40 million, 
had fewer than 250 employees and had revenues between $10 million and $80 million.   

Components of Executive Compensation 

Base Salary 

The  Committee  seeks  to  pay  the  executive  officers  a  competitive  base  salary  in  recognition  of  their  job 
responsibilities for a publicly held company. As noted above, the target compensation range for an executive’s total 
cash compensation (salary and bonus) is between the 50th and 75th percentile of the market data reviewed by the 
Committee. 

As  part  of  determining  annual  increases,  the  Committee  also  considers  the  Chief  Executive  Officer’s 
recommendation regarding individual performance as well as internal equitable considerations. 

In evaluating individual performance, the Committee considers initiative, leadership, tenure, experience, skill set for 
the  particular  position,  knowledge  of  industry  and  business,  and  execution  of  strategy  in  placing  the  individual 
within the range outlined. 

The Committee considered base wage changes for Messrs. Minor and Lipps at a meeting of the Committee held on 
November 24, 2010.   Accordingly, base compensation for Mr. Minor was increased from $241,000 to $248,000 and 
base compensation for Mr. Lipps was increased from $185,000 to $190,550.  Consideration of base wage changes 
for  Messrs.  Buinevicius  and Schmidt  was  deferred  to  a  later  date following  completion  of  the negotiation of new 
employment contracts.  After its review of all sources of market data as described above, the Committee believes 
that the base salaries and the bonuses described below are within its targeted range for total cash compensation.   

13 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bonus 

The Committee typically targets an annual cash bonus as a percentage of total cash compensation within the 50th to 
75th  percentile  of  market  data  as  noted  above.  Recognizing  that  Sonic’s  internal  budgets  are  based  on  pre-
established  financial  goals,  the  evaluation  of  individual  performance  reflects  a  discretionary  assessment  by  the 
Committee  of  each  officer’s  contribution  during  the  year.  The  Committee  may  consider  factors  such  as  general 
economic  conditions,  acquisitions,  divestitures,  or  restructuring  initiatives  that  may  not  have  been  contemplated 
when  the  financial  budgets  were  developed.  To  aid  in  this  evaluation,  the  Chief  Executive  Officer  provides  an 
overview of Sonic’s financial metrics and performance, new product introductions, strategic initiatives, and investor 
relations activities for the year. 

In an effort to conserve cash, management recommended to the Committee that no discretionary bonus be granted 
for  fiscal  2010  performance  to  any  executive  officer.    The  Committee  considered  and  approved  management’s 
recommendation  at  a  Committee  meeting  held  November  24,  2010.    Mr.  Lipps  receives  incentive  compensation 
quarterly based upon achieving predetermined targets for product and services billings set during Sonic’s business 
planning process.  Total incentives paid to Mr. Lipps during fiscal 2010 totaled $73,834. 

Stock Options  

The Committee has a long-standing practice of providing long-term incentive compensation grants to the executive 
officers. The Committee believes that such grants, in the form of stock options, help align our executive officers’ 
interests with those of Sonic’s stockholders. All stock options have been granted under either our 1995 Stock Option 
Plan, the 1999 Non-Qualified Plan or the 2009 Stock Incentive Plan (“Employee Plans”). 

The Committee reviews option grant recommendations by the Chief Executive Officer for each executive officer, 
but  retains  full  discretion  to  accept,  reject  or  revise  each  recommendation.   The  Committee’s  policy  is  to  grant 
options on the date it approves them or such other future date as the Committee may agree at the time of approval. 
The exercise price is determined in accordance with the terms of the Employee Plan and cannot be less than the Fair 
Market Value, as defined in the Plan, of Sonic’s common stock. The Committee typically grants options once a year, 
but may grant options to newly hired executives at other times. 

In  making  its  determinations,  the  Committee  considers  the  number  of  options  or  shares  owned  by  the  executive 
officers. 

On November 24, 2010, the Committee approved option grants to purchase 14,120 shares each to Mssrs. Minor and 
Lipps, representing a value for accounting purposes of approximately $100,000,  to be granted at the closing price of 
Sonic’s stock on November 24, 2010, each of which will vest one third on the first, second and third anniversary of 
the grant.   

Health and Welfare Benefits 

Our officers are covered under the same health and welfare plans, including our 401(k) plan, as salaried employees.   

Employment Agreements 

We entered into employment agreements with Rimas P. Buinevicius and Monty R. Schmidt on substantially the same 
terms as the prior agreements in January 2001.  The employment agreements automatically renew every two years for 
successive two year terms and were last automatically renewed on January 1, 2009.  The salaries of each of Messrs. 
Buinevicius  and  Schmidt  are  subject  to  increase  each  year  at  the  discretion  of  the  Board  of  Directors.  Messrs. 
Buinevicius  and  Schmidt  are  also  entitled  to  incidental  benefits  of  employment  under  the  agreements.  Each  of  the 
employment agreements provides that if (i) Sonic Foundry breaches its duty under such employment agreement, (ii) the 
employee's  status  or  responsibilities  with  Sonic  Foundry  has  been  reduced,  (iii)  Sonic  Foundry  fails  to  perform  its 

14 

 
 
 
 
 
 
 
 
 
 
 
 
obligations under such employment agreement, or (iv) after a Change in Control of Sonic Foundry, Sonic Foundry’s 
financial prospects have significantly declined, the employee may terminate his employment and receive all salary and 
bonus owed to him at that time, prorated, plus three times the highest annual salary and bonus paid to him in any of the 
three  years  immediately  preceding  the  termination.  If  the  employee  becomes  disabled,  he  may  terminate  his 
employment  and  receive  all  salary  owed  to  him  at  that  time,  prorated,  plus  a  lump  sum  equal  to  the  highest  annual 
salary  and  bonus  paid  to  him  in  any  of  the  three  years  immediately  preceding  the  termination.  Pursuant  to  the 
employment  agreements,  each  of  Messrs.  Buinevicius  and  Schmidt  has  agreed  not  to  disclose  our  confidential 
information and not to compete against us during the term of his employment agreement and for a period of two years 
thereafter. Such non-compete clauses may not be enforceable, or may only be partially enforceable, in state courts of 
relevant jurisdictions.  

A "Change in Control" is defined in the employment agreements to mean: (i) a change in control of a nature that would 
have to be reported in our proxy statement, ; (ii) Sonic Foundry is merged or consolidated or reorganized into or with 
another corporation or other legal person and as a result of such merger, consolidation or reorganization less than 75% 
of the outstanding voting securities or other capital interests of the surviving, resulting or acquiring corporation or other 
legal  person  are  owned  in  the  aggregate  by  our  stockholders  immediately  prior  to  such  merger,  consolidation  or 
reorganization; (iii) Sonic Foundry sells all or substantially all of its business and/or assets to any other corporation or 
other legal person, less than 75% of the outstanding voting securities or other capital interests of which are owned in 
the aggregate by our stockholders, directly or indirectly, immediately prior to or after such sale; (iv) any person (as the 
term "person" is used in Section 13(d) (3) or Section 14(d) (2) of the Securities Exchange Act of 1934 (the "Exchange 
Act") had become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor 
rule or regulation promulgated under the Exchange Act) of 25% or more of the issued and outstanding shares of our 
voting  securities;  or  (v)  during  any  period  of  two  consecutive  years,  individuals  who  at  the  beginning  of  any  such 
period constitute our directors cease for any reason to constitute at least a majority thereof unless the election, or the 
nomination or election by our stockholders, of each new director was approved by a vote of at least two- thirds of such 
directors then still in office who were directors at the beginning of any such period. 

In connection with a corporate governance review, Sonic announced on January 10, 2011 that it has decided to pursue 
new employment agreements with Messrs. Buinevicius and Schmidt and in connection therewith, will not be renewing 
their existing employment agreements. 

We  entered  into  employment  agreements  with  Kenneth  A.  Minor  in  October  2007  and  Robert  M.  Lipps  in  August 
2008.  The salaries of each of Messrs. Minor and Lipps are subject to increase each year at the discretion of the Board 
of  Directors.  Messrs.  Minor  and  Lipps  are  also  entitled  to  incidental  benefits  of  employment  under  the  agreements. 
Each of the employment agreements provide that a cash severance payment be made upon termination, other than for 
cause.  In the case of Mr. Minor, such cash severance is equal to the highest cash compensation paid in any of the last 
three fiscal years immediately prior to termination and with respect to Mr. Lipps, such cash severance payment is equal 
to the cash compensation paid in the previous fiscal year immediately prior to termination.  In addition, Mssrs. Minor 
and Lipps will receive immediate vesting of all previously unvested common stock and stock options and have the right 
to voluntarily terminate their employment, and receive the same severance arrangement  detailed above following (i) 
any “person” becoming a “ beneficial” owner of stock of Sonic Foundry representing 50% or more of the total voting 
power  of  Sonic  Foundry’s  then  outstanding  stock;  or,  (ii)  Sonic  Foundry  is  acquired  by  another  entity  through  the 
purchase  of  substantially  all  of  its  assets  or  securities  and  following  such  acquisition,  Rimas  Buinevicius  does  not 
remain  as  Chief  Executive  Officer  and  Chairman  of  the  Board  of  Directors  of  Sonic  Foundry  or  the  acquisition  is 
without the written consent of the Board of Directors of Sonic Foundry; or (iii) Sonic Foundry is merged with another 
entity, consolidated with another entity or reorganized in a manner in which any “person” is or becomes a “beneficial” 
owner of stock of the surviving entity representing 50% or more of the total voting power of the surviving entity’s then 
outstanding  stock;  and  Messrs.  Minor  or  Lipps  is  demoted  without  cause  or  his  duties  are  substantially  altered.  
Pursuant to the employment agreements, each of Messrs. Minor and Lipps has agreed not to disclose our confidential 
information and not to compete against us during the term of his employment agreement and for a period of one year 
thereafter. Such non-compete clauses may not be enforceable, or may only be partially enforceable, in state courts of 
relevant jurisdictions.  

15 

 
 
 
 
 
For illustrative purposes, if Sonic terminated the employment  of Messrs. Buinevicius, Schmidt, Minor and Lipps  (not 
for  cause)  on  September 30,  2010  or  if  Messrs. Buinevicius,  Schmidt,  Minor  and Lipps  elected  to  terminate  their 
employment following a demotion or alteration of duties on September 30, 2010, and a change of control as defined in 
the  employment  agreements  had  occurred,   Sonic   would  be  obligated  to  pay  $1,032,000,   $807,000,  $241,000  and 
$279,000  to  of  Messrs. Buinevicius,  Schmidt,  Minor  and  Lipps,  respectively.  In  addition,  any  non-vested  rights  of 
Messrs. Buinevicius, Schmidt, Minor and Lipps under the Employee Plans, would vest as of the date of employment 
termination.  The  value  of  the  accelerated  vesting  of  the  options  under  these  circumstances  would  be  $33,000  for 
Messrs. Buinevicius and Schmidt; $53,000 for Mr. Minor and $55,000 Mr. Lipps. 

Personal Benefits 

Our executives receive a limited number of personal benefits certain of which are considered taxable income to them 
and which are described in the footnotes to the section of this Proxy Statement entitled “Summary  Compensation 
Table ”. 

Internal Revenue Code Section 162(m) 

Internal Revenue Code Section 162(m) limits the ability of a public company to deduct compensation in excess of 
$1 million paid annually to each of the Chief Executive Officer and each of the other executive officers named in the 
Summary Compensation Table. There are exemptions from this limit, including compensation that is based on the 
attainment of performance goals that are established by the Committee and approved by the Company stockholders. 
No executive officer was affected by this limitation in fiscal 2010. 

COMPENSATION COMMITTEE REPORT 

The  Compensation  Committee  of  Sonic  has  reviewed  and  discussed  the  Compensation  Discussion  and  Analysis 
required  by  Item  402(b) of  Regulation  S-K  with  management  and,  based  on  such  review  and  discussions,  the 
Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included 
in the Proxy Statement. 

COMPENSATION COMMITTEE 

David C. Kleinman, Chair 
Mark D. Burish 
Gary R. Weis 
Paul S. Peercy  

16 

 
 
 
 
 
 
 
 
 
 
The following table sets forth the compensation of our principal executive officer, our principal financial officer and 
our other two executive officers for the fiscal year ended September 30, 2010. 

Summary Compensation 

Name and Principal 
Position 
(a) 

Rimas P. Buinevicius 
Chairman  and  
Chief Executive Officer 

Kenneth A. Minor 
Chief Financial Officer 
and Secretary 

Monty R. Schmidt 
Chief Technology 
Officer 

Robert M. Lipps 
Executive Vice  
President - Sales 

Salary 
($) 
(c) 

344,000 
342,471 
277,539 

241,000 
239,967 
198,243 

269,000 
267,765 
217,952 

185,000 
185,000 
156,346 

Year 
(b) 

2010 
2009 
2008 

2010 
2009 
2008 

2010 
2009 
2008 

2010 
2009 
2008 

Bonus 
($)(1) 
(d) 

— 
— 
30,000 

— 
— 
31,800 

— 
— 
30,000 

— 
— 
— 

Change in 
Pension  
Value and  
Non-qualified 
Deferred 
Compensation 
Earnings 
($) 
(h) 

Stock 
Awards
($) 
(e) 

Option 
Awards
($)(2) 
(f) 

Non-Equity 
Incentive Plan 
Compensation
($) 
(g) 

— 
— 
— 

— 
— 
— 

— 
— 
— 

— 
— 
— 

18,898 
14,772 
42,953 

18,898 
15,660 
103,088 

18,898 
14,772 
42,953 

18,898 
19,376 
69,466 

— 
— 
— 

— 
— 
— 

— 
— 
— 

73,834 
93,552 
65,888 

— 
— 
— 

— 
— 
— 

— 
— 
— 

— 
— 
— 

All Other 
Compen-
sation 
($)(3) 
(i) 

Total 
($) 
(j) 

1,396 
1,766 
1,610 

364,294 
359,009 
352,102 

7,795 
14,799 
7,841 

267,693 
270,426 
340,972 

7,806 
22,819 
8,856 

295,704 
305,356 
299,761 

1,992 
8,649 
6,735 

279,724 
306,577 
298,435 

(1)  The amounts in column (d) represent cash bonuses which were awarded for performance during the prior fiscal 
year.  Fiscal year 2008 bonuses are payable at a future date at the discretion of the executive and coincident with 
the payment to the Company of an equal amount for the exercise of certain options to purchase common stock.   
(2)  The option awards in column (f) represent the aggregate grant date fair value computed in accordance with FASB 
ASC  Topic  718  for  stock  options  granted  during  the  fiscal  year.  The  assumptions  and  methodology  used  in 
calculating  the  compensation  expense  of  the  option  awards  are  provided  in  Sonic’s  Form 10-K.   See  Note  1, 
“Stock Based Compensation” in the Notes to the Consolidated Financial Statements in Sonic’s Form 10-K. The 
amounts in this column represent value attributed to the awards at the date of grant and not necessarily the actual 
value that will be realized by the executive. There can be no assurance that the options will ever be exercised (in 
which case no value will be realized by the executive) or that the value on exercise will equal the ASC Topic 718 
value. 

(3)  The  amount  shown  under  column  (i)  includes  Sonic’s  matching  contribution  under  our  401(k)  plan  of  $2,595, 
$1,566 and $1,992 for Messrs Minor, Schmidt and Lipps.  In addition, Mr. Buinevicius receives a car allowance 
equal  to  $713  per  month  of  which  the  taxable  personal  portion  of  $1,396  is  included  in  this  column.    Messrs. 
Minor and Schmidt receive $650 per month as a car allowance of which the taxable personal portions were $5,200 
and $6,240, respectively.  Mr. Lipps receives a car allowance of $700 per month of which there was no taxable 
personal portion. 

17 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Following table shows the plan-based awards granted to the Named Executive Officers during fiscal 2010. 

Grants of Plan-Based Awards 

Name 
(a) 

Grant 
Date 
(b) 

Threshold 
($) 
(c) 
Rimas P. Buinevicius  12/02/09  — 
12/02/09  — 
Kenneth A. Minor 
12/02/09  — 
Monty R. Schmidt 
12/02/09  — 
Robert M. Lipps 

Estimated Future Payouts 
Under Non-Equity Incentive
Plan Awards 
Target 
($) 
(d) 
— 
— 
— 
— 

Maximum
($) 
 (e) 
— 
— 
— 
— 

Estimated Future Payouts 
Under Equity  
Incentive 
Plan Awards 
Target
($) 
(g) 
— 
— 
— 
— 

Maximum
($) 
 (h) 
— 
— 
— 
— 

Threshold
($) 
(f) 
— 
— 
— 
— 

All other 
stock 
awards: 
Number of
Shares of 
stock or 
units 
(#) 
(i) 
— 
— 
— 
— 

All other 
option 
awards: 
Number of 
Securities 
Underlying 
Options 
(#) 
(j) 
6,000 
6,000 
6,000 
6,000 

Exercise 
or base 
price of 
option 
awards 
($/Sh) 
(1) 
(k) 
5.26 
5.26 
5.26 
5.26 

Grant  
Date fair 
Value of 
Stock and
option 
awards 
($) 
(2) 
(l) 
18,898 
18,898 
18,898 
18,898 

(1)  Sonic grants employee stock options with exercise prices equal to the closing stock price on the date of grant. 
(2)  The amount reported in column (l) represents the grant date fair value of the award following the required FAS 
123(R)  compensation  methodology.    Grant  date  fair  value  is  calculated  using  the  Lattice  method.    See  Note  1, 
“Stock Based Compensation” in the Notes to the Consolidated Financial Statements in Sonic’s Form 10-K for the 
fiscal  year  ended September  30, 2010 for an explanation of the  methodology and assumptions used in the FAS 
123(R)  valuation.    With  respect  to  the  option  grants,  there  can  be  no  assurance  that  the  options  will  ever  be 
exercised (in which case no value will be realized by the executive) or that the value on exercise will equal the 
FAS 123(R) value. 

Sonic grants options to its executive officers under our employee stock option plans. As of September 30, 2010, options 
to  purchase  a  total  of  764,718  shares  were  outstanding  under  the  plans,  and  options  to  purchase  346,799  shares 
remained available for grant thereunder.  

18 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding Equity Awards at Fiscal Year-End 

The following table shows information concerning outstanding equity awards as of September 30, 2010 held by the 
Named Executive Officers. 

Option Awards 

Stock Awards 

Equity 
Incentive 
Plan 
Awards:
Market 
or  
Payout 
Value of 
Unearned 
Shares, 
Units or 
Other 
Rights 
That 
Have Not 
Vested 
($) 
(j) 

Equity 
Incentive 
Plan 
Awards: 
Number  
of  
Unearned 
Shares, 
Units or 
Other 
Rights  
That Have 
Not  
Vested 
(#) 
(i) 

Market 
Value of 
Shares or 
Units of 
Stock  
That  
Have  
Not  
Vested 
($) 
(h) 

Number 
of Shares 
or Units  
of Stock 
That Have
 Not  
Vested 
(#) 
(g) 

Equity 
Incentive  
Plan  
Awards: 
Number 
 of  
Securities 
Underlying 
Unexercised 
Unearned 
Options 
(#) 
(d) 
None 

None 

None 

None 

Number  
of  
Securities 
Underlying 
Unexercised 
Options 
(#) 
Exercisable 
(1)(2) 
(b) 
10,000 
100,000 
5,000 
3,333 
6,000 
0 
2,100 
594 
8,000 
10,000 
5,000 
8,000 
0 
8,000 
1,980 
5,000 
3,333 
6,000 
0 
2,500 
750 
1,000 
1,667 
6,666 
2,000 
0 

Number  
of  
Securities 
Underlying 
Unexercised 
Options 
(#) 
Unexercisable 
(1)(2) 
(c) 
0 
0 
0 
1,667 
0 
6,000 
0 
0 
0 
0 
0 
4,000 
6,000 
0 
0 
0 
1,667 
0 
6,000 
0 
0 
500 
833 
3,334 
4,000 
6,000 

Option 
Exercise 
Price 
($) 
(1)(2) 
(e) 
10.94 
11.20 
14.50 
15.50 
5.00 
5.26 
10.94 
10.10 
11.20 
4.20 
14.50 
15.50 
5.26 
10.94 
10.10 
14.50 
15.50 
5.00 
5.26 
22.60 
37.10 
15.50 
7.50 
7.80 
5.30 
5.26 

Option 
Expiration 
Date 
(1) 
(f) 
12/20/2010 
10/25/2011 
11/26/2014 
12/04/2017 
11/03/2018 
12/2/2019 
12/20/2010 
10/09/2011 
10/25/2011 
05/09/2013 
11/26/2014 
12/04/2017 
12/2/2019 
12/20/2010 
10/09/2011 
11/26/2014 
12/04/2017 
11/03/2018 
12/2/2019 
04/10/2016 
12/07/2016 
12/04/2017 
03/10/2018 
04/16/2018 
11/10/2018 
12/2/2019 

Name 
(a) 
Rimas P. Buinevicius 

Kenneth A. Minor 

Monty R. Schmidt 

Robert M. Lipps 

(1)  All options were granted under either our stockholder approved Employee Stock Option Plans or the Non-

Qualified Stock Option Plan.  All unexercisable options listed in the table become exercisable over a three-year 
period in equal annual installments beginning one year from the date of grant.  

(2)  All options have been adjusted for the one-for-ten reverse stock split of the Company’s shares completed on 

November 16, 2009. 

19 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table shows information concerning option exercises in fiscal 2010 by the Named Executive Officers. 

Option Exercises and Stock Vested 

Option Awards 

Stock Awards 

  Number of 

Shares 
Acquired 
on Exercise 
(#) 

1,000 
5,200 
1,000 

Value 
Realized 
on 
Exercise 
($) 

60 
312 
60 

  Number 
of Shares 
Acquired 
on 
Vesting 
(#) 

— 
— 
— 

Value 
Realized 
on 
Vesting 
($) 

— 
— 
— 

Rimas P. Buinevicius 
Kenneth A. Minor 
Monty R. Schmidt 

Equity Compensation Plan Information 

Plan category 

Equity compensation plans approved 
by security holders  (1) 

Equity compensation plans not 
approved by security holders (2) 

Total  

Number of securities 
to be issued upon 
exercise of 
outstanding options, 
warrants and rights 

Weighted average 
exercise price of 
outstanding 
options, warrants 
and rights 

Number of 
securities 
remaining 
available for 
future issuance 

(a) 

526,611 

238,107 

764,718 

(b) 

11.05 

10.82 

10.98 

(c) 

346,800 

- 

346,800 

(1)  Consists  of  the  Employee  Stock  Option  Plan  and  the  Directors  Stock  Option  Plan.    For  further  information 
regarding these plans, reference is made to Sonic’s 2010 Form 10-K in Note 5 of the financial statements. 
(2)  Consists  of  the  Non-Qualified  Stock  Option  Plan.    For  further  information  regarding  this  plan,  reference  is 

made to Sonic’s 2010 Form 10-K in Note 5 of the financial statements. 

Compensation Committee Interlocks and Insider Participation  

The members of the Executive Compensation Committee of Sonic's Board of Directors for fiscal 2010 were those named 
in the Executive Compensation Committee Report. No member of the Committee was at any time during Fiscal 2010 or 
at any other time an officer or employee of Sonic Foundry, Inc.  

No executive officer of Sonic Foundry, Inc. has served on the board of directors or compensation committee of any other 
entity  that  has  or  has  had  one  or  more  executive  officers  serving  as  a  member  of  the  Board  of  Directors  of  Sonic 
Foundry.  

20 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
PROPOSAL TWO: ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS 

Introduction  

The core of Sonic’s executive compensation policies and practices continues to be to pay for performance. Our 
executive officers are compensated in a manner consistent with our strategy, competitive practice, sound corporate 
governance principles, and stockholder interests and concerns. We believe our compensation program is strongly 
aligned with the long-term interests of our stockholders. We urge you to read the Compensation Discussion and 
Analysis section of this proxy statement for additional details on our executive compensation, including our 
compensation philosophy and objectives and the 2010 compensation of our Named Executive Officers.  

The U.S. Congress has enacted requirements commonly referred to as the “Say on Pay” rules. As required by those 
rules, we are asking you to vote on the adoption of the following resolution:  

BE IT RESOLVED by the stockholders of Sonic Foundry, Inc., that the stockholders approve the 
compensation of Sonic’s Named Executive Officers as disclosed in the proxy statement pursuant to the SEC’s 
compensation disclosure rules.  

As an advisory vote, this Proposal is non-binding. Although the vote is non-binding, the Board of Directors and the 
Compensation Committee value the opinions of our stockholders, and will consider the outcome of the vote when 
making future compensation decisions for our Named Executive Officers.  

Vote Required  

The affirmative vote of a majority of the shares of Sonic common stock cast at the Annual Meeting is required for 
approval of this Proposal.  

Recommendation of the Board of Directors  

The Board of Directors recommends that the stockholders vote FOR Proposal Two.  

PROPOSAL THREE: ADVISORY VOTE ON SELECTION OF FREQUENCY FOR ADVISORY VOTE 
ON EXECUTIVE COMPENSATION 
PROPOSAL  

As part of the “Say on Pay” rules adopted by Congress, the Sonic stockholders may indicate, by a non-binding 
advisory vote, the frequency desired at which they will have an advisory vote on the compensation paid to Sonic’s 
Named Executive Officers. (In other words, how often a proposal similar to this year’s Proposal Two will be 
included in the matters to be voted on at the Annual Meeting.) The choices available under the Say on Pay rules are 
every year, every other year, or every third year.  

Please mark your proxy card to indicate your preference on this Proposal or your abstention if you wish to abstain. If 
you fail to indicate your preference, your shares will be treated as though you chose to abstain on this proposal. A 
plurality of the votes cast on this Proposal will determine the frequency selected by the stockholders. The Board of 
Directors recommends that you select three years as the desired frequency for a stockholder vote on executive 
compensation under the Say on Pay rules.  

The frequency selected by the stockholders for conducting Say on Pay voting at the Annual Meetings of the 
stockholders of the Company is not a binding determination. However, the frequency selected will be given due 
consideration by the Company in its discretion.  

21 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PROPOSAL FOUR: PROPOSAL TO AMEND THE EMPLOYEE STOCK PURCHASE PLAN  

The Board of Directors believe that it is in the best interest of Sonic and its stockholders to amend the 2008 Employee 
Stock Purchase Plan to increase the number of shares of common stock subject to the plan from 50,000 to 100,000.  
The 2008 Employee Stock Purchase Plan was approved at the annual stockholders meeting held March 6, 2008 and in 
the opinion of the Company, enhanced the interest of employees in the continued success of Sonic and served to align 
the interests of the employees and stockholders.  In addition, the Board of Directors is of the opinion that employee 
stock purchase plans provide an aid in recruiting highly qualified and talented employees.  The plan resulted in 5,405, 
17,053 and 27,162 employee purchases of shares during the fiscal 2011, 2010 and 2009, respectively.  At January 14, 
2011 there are 380 shares available for issuance under the plan. 

For these reasons, the Board of Directors authorized the amendment of the 2008 Employee Stock Purchase Plan (the 
"Purchase Plan") to increase the number of shares of common stock subject to the plan from 50,000 to 100,000, subject 
to the approval of stockholders at the Annual Meeting. 

The following is a summary of the material provisions of the Purchase Plan. This summary is qualified in its entirety by 
reference to the specific provisions of the Purchase Plan, the full text of which is attached to this Proxy Statement as 
Exhibit C. 

Summary of the Purchase Plan 

Common Stock Subject To Plan   

Subject to adjustment as provided below, 100,000 shares of Common Stock will be available for issuance under the 
Purchase Plan.  Shares of Common Stock delivered under the Purchase Plan may be authorized and unissued shares or 
reacquired shares.  As of January 14, 2011, the fair market value of one share of Common Stock was $14.55. 

Participation   

Any employee who has completed 90 days of employment with Sonic or any Designated Subsidiary of Sonic on the 
first day of each offering period will be eligible to participate in the Purchase Plan.  A Designated Subsidiary of Sonic 
is any majority-owned subsidiary of Sonic that has been designated by the Board of Directors as eligible to participate 
in the Purchase Plan with respect to its Employees.  An employee of Sonic or a Designated Subsidiary of Sonic who, 
after the grant of an option to purchase, would hold common stock and/or hold outstanding options to purchase stock 
possessing 5% or more of the total combined voting power or value of Sonic will not be eligible to participate.  As of 
January 14, 2011, approximately 82 employees of Sonic would be eligible to participate in the Purchase Plan. 

Purchases Under The Purchase Plan   

Sonic will make a bi-annual offering to eligible employees of options to purchase shares of Common Stock under the 
Purchase Plan on the first trading day of January and July, commencing July 1, 2011.  Each offering period will be for 
a period of six months from the date of offering, and each eligible employee as of the date of offering will be entitled to 
purchase shares of Common Stock at a purchase price equal to the lower of 85% of the fair market value of Common 
Stock  on  the  first  trading  day  of  the  offering  period  or  85%  of  the  fair  market  value  of  Common  Stock  on  the  last 
trading day of the offering period. 

Payment  for  shares  of  Common  Stock  purchased  under  the  Purchase  Plan  will  be  made  by  authorized  payroll 
deductions from an employee's Total Wages. Subject to the terms of the Purchase Plan, eligible employees who desire 
to participate in the Purchase Plan will designate a stated whole percentage of their total wages, up to a maximum of 
10%, to be deducted from their total wages and held by Sonic until the date of purchase.  No participant in the Purchase 
Plan  will  be  permitted  to  purchase  Common  Stock  under  the  Purchase  Plan  if  such  option  would  permit  his  or  her 
rights to purchase stock under the Purchase Plan to accrue at a rate that exceeds $25,000 of the fair market value of 
such  shares  (determined  as  of  the  date  of  grant  of  such  right),  or  that  exceeds  1,000  shares,  for  each  calendar  year 
during which any option granted to such individual under any such plan is outstanding at any time. 

22 

 
 
 
 
 
 
 
 
 
 
 
 
A  participant  will  have  none  of  the  rights  or  privileges  of  a  stockholder  of  Sonic  (including  the  right  to  receive 
dividends) until the shares purchased under the Purchase Plan are fully paid for and issued. 

Withdrawal   

An employee may withdraw from the plan if such request is made at least 30 days prior to the end of a contribution 
period.  Such  withdrawal  request  and  the  refund  of  all  cash  contributions,  without  interest,  will  be  made  as  soon  as 
administratively  feasible  and  all  options  will  be  cancelled.    Once  terminated,  an  employee  will  be  eligible  for 
reenrollment in the plan beginning with the contribution period beginning immediately following the next contribution 
period. 

Termination Of Participation   

An employee's participation in the Purchase Plan will be terminated when he or she: (1) voluntarily elects to withdraw 
his or her entire account; (2) resigns or is discharged from Sonic and all Designated Subsidiaries of Sonic; or (3) dies.   

Administration   

The  Purchase  Plan  will  be  administered  by  the  Compensation  Committee  of  the  Board  or  such  other  committee 
established by the Board of Directors of Sonic (“the Committee”).   

Modification and Termination   

The  Committee  may  terminate  the  Purchase  Plan  at  any  time  or  make  any  amendment  or  modification  it  deems 
advisable. 

Adjustments   

Appropriate and proportionate adjustments will be made in the number and class of shares available under the Purchase 
Plan, and to the rights granted under the Purchase Plan and the prices applicable to such rights, to reflect changes in the 
outstanding stock that occur because of stock dividends, stock splits, recapitalizations, reorganizations, liquidations, or 
other similar events. 

Transferability   

A participant's rights under the Purchase Plan are exercisable only by such participant and may not be transferred in 
any manner.   

Federal Income Tax Consequences 

Sonic has been advised that under current law the federal income tax consequences to participants and Sonic of options 
granted  under  the  Purchase  Plan  would generally  be  as  set  forth  in  the  following  summary.    This  summary  is  not  a 
complete  analysis  of  all  potential  tax  consequences  relevant  to  participants  and  Sonic  and  does  not  describe  tax 
consequences based on particular circumstances.  For these reasons, participants should consult with a tax advisor as to 
any specific questions regarding the tax consequences of participation in the Purchase Plan. 

It is intended that the option to purchase shares of Common Stock granted under the Purchase Plan will constitute an 
option  issued  pursuant  to  an  "employee  stock  purchase  plan"  within  the  meaning  of  Section  423  of  the  Internal 
Revenue  Code  of  1986,  as  amended.    If  shares  are  purchased  under  the  Purchase  Plan,  and  no  disposition  of  these 
shares is made within two years of the date of grant of the option, or within one year after the purchase of the shares, 
then no income will be realized by the employee at the time of the transfer of the shares to such employee. When an 
employee sells or otherwise disposes of the shares, or in the event of his death (whenever occurring) while owning such 
shares,  there  will  be  included  in  his  or  her gross  income,  as  compensation,  an  amount  equal  to  the  lesser  of:  (i)  the 
23 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
amount by which the fair market value of the shares on the first trading day of the offering period exceeds the purchase 
price for the shares, or (ii) the amount by which the fair market value at the time of disposition or death exceeds the 
purchase price per share.  Any further gain will be treated for tax purposes as long-term capital gain, provided that the 
employee  holds  the  shares  for  the  applicable  long-term  capital  gain  holding  period  after  the  last  day  of  the  offering 
period applicable to such shares. 

No deduction will be allowed to Sonic for federal income tax purposes in connection with the grant or exercise of the 
option to purchase shares under the Purchase Plan, provided there is no disposition of shares by a participant within 
either the two-year or the one-year periods referred to above.  If an employee disposes of the shares within either the 
two-year or the one-year periods referred to above, he or she will realize ordinary income in the year of disposition in 
an  amount  equal  to  the  difference  between  the  purchase  price  and  the  fair  market  value  of  the  shares  at  the  time  of 
exercise  of  the  option,  and  Sonic  will  be  entitled  to  a  deduction  in  the  same  amount.  Any  difference  between  the 
amount received upon such a disposition and the fair market value of the shares at the time of exercise of the option 
will be capital gain or loss, as the case may be. 

Plan Benefits 

Participation in the Purchase Plan is voluntary and each eligible employee will make his or her own election whether 
and to what extent to participate in the plan.  It is therefore not possible to determine the benefits or amounts that will 
be received in the future by individual employees or groups of employees under the Purchase Plan. 

Provision to Purchase Additional Shares of Common Stock by Employees and Directors 

Apart from the Plan provisions set forth above, the Committee has the power and authority to allow any Employee 
or director to receive Shares in lieu of cash compensation or cash fees.  In such event, in order to account for the 
non-transferability of any Shares acquired thereunder, the Committee may discount the value of such Shares by up 
to 15% of the then Fair Market Value of unvested Shares of Common Stock.  This portion of the Plan will allow 
Employees and directors the opportunity to acquire Shares in accordance with such special terms and conditions as 
the Committee may establish from time to time, which terms and conditions may modify the terms and conditions of 
the  Plan  set  forth  elsewhere  in  the  Plan.    Without  limiting  the  authority  of  the  Committee,  the  special  terms  and 
conditions which may be established with respect to such Employees and directors who elect to participate in this 
portion of the Plan, and which need not be the same for all such Employees and directors, include but are not limited 
to the right to participate, procedures for elections to participate, the purchase price of any Shares to be acquired, 
and  the  maximum  amount  of  Shares  which  may  be  purchased  by  any  participating  Employee  or  director.    Any 
purchases  made  pursuant  to  the  provisions  of  this  portion  of  the  Plan  shall  not  be  subject  to  the  requirements  of 
Section 423 of the Code and the federal income tax consequences set forth above shall not apply thereto. 

Vote Required 

The amendment of the Purchase Plan requires the approval of a majority of the votes cast at the meeting.  The Board of 
Directors unanimously recommends a vote FOR Proposal 4 to amend the Employee Stock Purchase Plan. 

24 

 
 
 
 
 
 
 
 
 
 
 
 
PROPOSAL FIVE: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS 

The Board of Directors, upon the recommendation of the Audit Committee, has appointed the firm of Grant Thornton 
LLP (“GT”) as independent auditors to audit our financial statements for the year ending September 30, 2011, and has 
further  directed  that  management  submit  the  selection  of  independent  public  accountants  for  certification  by  the 
stockholders at the annual meeting. Representatives of GT are expected to be present at the annual meeting to respond 
to stockholders' questions and to have the opportunity to make any statements they consider appropriate. 

Stockholder ratification of the selection of GT as our independent auditors is not required by our Bylaws or otherwise.  
However, the Board is submitting the selection of GT to the stockholders for ratification as a matter of good corporate 
practice.  If the stockholders fail to ratify the selection, the Board and the Audit Committee will reconsider whether or 
not  to  retain  that  firm.    Even  if  the  selection  is  ratified,  the  Board  and  the  Audit  Committee  in  their  discretion  may 
direct  the appointment of a different independent accounting firm at  any time during the year if  they determine that 
such a change would be in the best interests of Sonic and its stockholders. 

The ratification of the appointment of GT as independent public accountants requires the approval of a majority of the 
votes cast at the meeting. 

Recommendation of Board of Directors 

THE  BOARD  OF  DIRECTORS  UNANIMOUSLY  RECOMMENDS  A  VOTE  FOR  PROPOSAL  5 
RATIFYING THE APPOINTMENT OF GT AS INDEPENDENT AUDITORS FOR SONIC FOUNDRY.  

Relations with Independent Auditors 

GT has served as our independent public accountants since its appointment in July 2004.  As stated in Proposal 5, the 
Board has selected GT to serve as our independent auditors for the fiscal year ending September 30, 2011.   

Audit services  performed by  GT for Fiscal  2010 and 2009 consisted of the examination of our financial statements, 
review of fiscal quarter results, services related to filings with the Securities and Exchange Commission (SEC).  We 
also  retained  GT  to  perform  certain  audit  related  services  associated  with  the  audit  of  our  benefit  plan,  and  tax 
preparation and consultative services associated with the preparation of Federal and State tax returns.  Fiscal 2010 and 
2009 tax fees also included international tax services and additional sales and use tax services.  All fees paid to GT 
were  reviewed,  considered  for  independence  and  upon  determination  that  such  payments  were  compatible  with 
maintaining such auditors’ independence, approved by Sonic’s audit committee prior to performance.  

Fiscal Years 2010 and 2009 Audit Firm Fee Summary 

During fiscal years 2010 and 2009, we retained GT to provide services in the following categories and amounts: 

Audit Fees 
Audit Related 
Tax Fees 
Other Fees 

Years Ended September 30, 
2009 
2010 

$126,260 
11,440 
15,452 
─ 

$ 117,511 
9,360 
36,751 
─ 

25 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
All  of  the  services  described  above  were  approved  by  Sonic’s  audit  committee  prior  to  performance.  The  Audit 
Committee may, in its discretion, delegate to one or more of its members the authority to pre-approve any audit or non-
audit services to be performed by the independent auditors, provided that any such approvals are presented to the Audit 
Committee  at  its  next  scheduled  meeting.    The  audit  committee  has  determined  that  the  payments  made  to  its 
independent accountants for these services are compatible with maintaining such auditors’ independence.  

REPORT OF THE AUDIT COMMITTEE 1 

The Audit Committee's role includes the oversight of our financial, accounting and reporting processes, our system of 
internal  accounting  and  financial  controls  and  our  compliance  with  related  legal  and  regulatory  requirements,  the 
appointment,  engagement,  termination  and  oversight  of  our  independent  auditors,  including  conducting  a  review  of 
their  independence,  reviewing  and  approving  the  planned  scope  of  our  annual  audit,  overseeing  the  independent 
auditors' audit work, reviewing and pre-approving any audit and non-audit services that may be performed by them, 
reviewing  with  management  and  our  independent  auditors  the  adequacy  of  our  internal  financial  controls,  and 
reviewing our critical accounting policies and the application of accounting principles. The Audit Committee held five 
meetings during fiscal 2010.  

Mssrs. Kleinman, Weis and Burish meet the rules of the SEC for audit committee membership and are "independent" 
as that term is used in Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act and under Nasdaq listing standards. In 
August 2009, the Board approved revisions to the Audit Committee Charter to reflect new rules and standards set forth 
in certain SEC regulations as well as changes to Nasdaq listing standards. A copy of the Audit Committee Charter is 
available on Sonic’s website.  

As set forth in the Audit Committee Charter, management of Sonic is responsible for the preparation, presentation and 
integrity  of  Sonic’s  financial  statements  and  for  the  effectiveness  of  internal  control  over  financial  reporting.  
Management and the accounting department are responsible for maintaining Sonic’s accounting and financial reporting 
principles and internal controls and procedures designed to assure compliance with accounting standards and applicable 
laws  and  regulations.    The  independent  auditors  are  responsible  for  auditing  Sonic’s  financial  statements  and 
expressing an opinion as to their conformity with generally accepted accounting principles. 

We  have  reviewed  and  discussed  with  our  independent  auditors,  GT,  matters  required  to  be  discussed  pursuant  to 
Statement  on  Auditing  Standards  No. 61  (Communications  with  Audit  Committees).  We  have  received  from  the 
auditors a formal written statement describing the relationships between the auditor and Sonic that might bear on the 
auditor's independence consistent with applicable requirements of the Public Company Accounting Oversight Board. 
We have discussed with GT matters relating to its independence, including a review of both audit and non-audit fees, 
and considered the compatibility of non-audit services with the auditors' independence.  

The members of the Audit Committee are not full-time employees of Sonic and are not performing the functions of 
auditors or accountants.  As such, it is not the duty or responsibility of the Audit Committee or its members to conduct 
“field work” or other types of auditing or accounting reviews or procedures or to set auditor independence standards.  
Members of the Committee necessarily rely on the information provided to them by management and the independent 
accountants.  Accordingly, the Audit Committee’s considerations and discussions referred to above do not assure that 
the audit of Sonic’s financial statements has been carried out in accordance with generally accepted auditing standards, 
that the financial statements are presented in accordance with generally accepted accounting principles or that Sonic’s 
auditors are in fact “independent”. 

1  The  material  in  this  report  is  not  “soliciting  material”,  is  not  deemed  filed  with  the  SEC,  and  is  not  to  be 
incorporated  by  reference  in  any  of  our  filings  under  the  Securities  Act  of  1933,  as  amended,  or  the  Securities 
Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general 
incorporation language in such filing. 

26 

 
 
 
 
 
 
                                                 
We have reviewed and discussed with management and GT the audited financial statements. We discussed with GT the 
overall scope and plans of their audit. We met with GT, with and without management present, to discuss results of 
their examination and the overall quality of Sonic’s financial reporting.  

Based on the reviews and discussions referred to above and our review of Sonic’s audited financial statements for fiscal 
2010,  we  recommended  to  the  Board  that  the  audited  financial  statements  be  included  in  the  Annual  Report  on 
Form 10-K for the fiscal year ended September 30, 2010, for filing with the SEC.  
Respectfully submitted, 

AUDIT COMMITTEE 
David C. Kleinman, Chair 
Mark D. Burish  
Gary R. Weis 

CERTAIN TRANSACTIONS 

Frederick H. Kopko, Jr., a director and stockholder of Sonic Foundry, is a partner in McBreen & Kopko. Pursuant to 
the 1997 Directors' Stock Option Plan, Mr. Kopko has been granted options to purchase 4,000 shares of Common 
Stock  at  exercise  prices  ranging  from  $17.40  to  $37.60  and  was  granted  options  to  purchase  6,000  shares  of 
Common Stock at exercise prices ranging from $5.50 to $8.00 pursuant to the 2008 Non-Employee Directors Plan.  
During  fiscal  2010,  we  paid  the  Chicago  law  firm  of  McBreen  &  Kopko  certain  compensation  for  legal  services 
rendered subject to standard billing rates. 

Section 16(a) Beneficial Ownership Reporting Compliance 

Section 16(a) of the Securities Exchange Act of 1934 requires Sonic's officers and directors, and persons who own 
more  than  ten  percent  of  the  Common  Stock,  to  file  reports  of  ownership  and  changes  in  ownership  with  the 
Securities and Exchange Commission. Based solely upon a review of Forms 3 and Forms 4 furnished to us pursuant 
to  Rule  16a-3  under  the  Exchange  Act  during  our  most  recent  fiscal  year,  to  Sonic  Foundry's  knowledge,  all 
reporting persons complied with all applicable filing requirements of Section 16(a) of the Securities Exchange Act 
of 1934, as amended, except with respect with Mr. Burish, who inadvertently filed one late Form 4 report. 

Code of Ethics  

Sonic has adopted a Code of Ethics (as defined in Item 406 of Regulation S-K) that applies to its principal executive, 
financial and accounting officers.  Sonic Foundry will provide a copy of its code of ethics, without charge, to any 
investor that requests it.    Requests should be addressed in writing to Mr. Kenneth Minor, Corporate Secretary, 222 
West Washington Ave, Madison, WI 53703. 

COMMUNICATIONS WITH THE BOARD OF DIRECTORS 

Any stockholder who desires to contact our Board or specific members of our Board may do so electronically by 
sending  an  email  to  the  following  address:  directors@sonicfoundry.com.  Alternatively,  a  stockholder  can  contact 
our  Board  or  specific  members  of  our  Board  by  writing  to:  Secretary,  Sonic  Foundry  Incorporated,  222  West 
Washington Avenue, Madison, WI 53703.  

Each communication received by the Secretary will be promptly forwarded to the specified party following normal 
business procedures. The communication will not be opened but rather will be delivered unopened to the intended 
recipient. In  the  case  of communications  to  the  Board or any  group  or  committee  of  Directors,  the  Secretary  will 
open the communication and will make sufficient copies of the contents to send to each Director who is a member of 
the group or committee to which the envelope is addressed. 

27 

 
 
 
 
 
 
 
 
 
 
 
 
 
STOCKHOLDER PROPOSALS FOR 2012 ANNUAL MEETING OF STOCKHOLDERS 

Requirements for Stockholder Proposals to be Considered for Inclusion in Sonic's Proxy Materials. Stockholders of 
Sonic  may  submit  proposals  on  matters  appropriate  for  stockholder  action  at  meetings  of  Sonic's  stockholders  in 
accordance  with  Rule  14a-8  promulgated  under  the  Securities  Exchange  Act  of  1934.  For  such  proposals  to  be 
included in Sonic's proxy materials relating to its 2012 Annual Meeting of Stockholders, all applicable requirements 
of Rule 14a-8 must be satisfied and such proposals must be received by Sonic no later than the anniversary date of 
120  days  prior  to  the  date  of  this  proxy  statement  (September  27,  2011).  Such  proposals  should  be  delivered  to 
Corporate Secretary, Sonic Foundry, Inc., 222 West Washington Avenue, Madison, Wisconsin 53703. 

Requirements for Stockholders Proposals to be Brought Before the Annual Meeting. 
Sonic's bylaws provide that, except in the case of proposals made in accordance with Rule 14a-8, for stockholder 
nominations to the Board of Directors or other proposals to be considered at an annual meeting of stockholders, the 
stockholder must have given timely notice thereof in writing to the Secretary not less than ninety nor more than one 
hundred twenty calendar days prior to the anniversary of the date on which Sonic held its immediately preceding 
annual meeting of stockholders. To be timely for the 2012 Annual Meeting of Stockholders, a stockholder's notice 
must be delivered or mailed to and received by Sonic's Secretary at the principal executive offices of Sonic between 
November 3, 2011 and December 3, 2011. However, in the event that the annual meeting is advanced by more than 
30 days or delayed by more than 60 days from such anniversary date, to be timely, notice by the stockholders must 
be so received not earlier than the close of business on the 120th day prior to such annual meeting and not later than 
the close of business on the later of the 90th day prior to such annual meeting or the tenth calendar day following the 
date  on  which  public  announcement  of  the  date  of  the  annual  meeting  is  first  made.  In  no  event  will  the  public 
announcement of an adjournment of an annual meeting of stockholders commence a new time period for the giving 
of  a  stockholder's  notice  as  provided  above.  A  stockholder's  notice  to  Sonic's  Secretary  must  set  forth  the 
information  required  by  Sonic's  bylaws  with  respect  to  each  matter  the  stockholder  proposes  to  bring  before  the 
annual meeting. 

In addition, the proxy solicited by the Board of Directors for the 2012 Annual Meeting of Stockholders will confer 
discretionary authority to vote on (i) any proposal presented by a stockholder at that meeting for which Sonic has not 
been provided with notice on or prior to the anniversary date of 45 days prior to the date of this proxy statement 
(December  11,  2011)  and  (ii)  any  proposal  made  in  accordance  with  the  bylaws  provisions,  if  the  2011  proxy 
statement briefly describes the matter and how management's proxy holders intend to vote on it, if the stockholder 
does not comply with the requirements of Rule 14a-4(c)(2) under the Securities Exchange Act of 1934. 

OTHER MATTERS 

The Board of Directors has at this time no knowledge of any matters to be brought before this year's Annual Meeting 
other than those referred to above.  However, if any other matters properly come before this year's Annual Meeting, it 
is  the  intention  of  the  persons  named  in  the  proxy  to  vote  such  proxy  in  accordance  with  their  judgment  on  such 
matters. 

28 

 
 
 
 
 
 
 
 
 
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January 25

, 2011   

29 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
WASHINGTON, D.C. 20549 

(Mark One) 

FORM 10-K 

⌧ 

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

For the fiscal period ended September 30, 2010 

OR 

(cid:134) 

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 
(State or other jurisdiction of incorporation or 
organization) 

39-1783372 
(I.R.S. Employer Identification No.) 

222 W. Washington Ave, Madison, WI 53703 
(Address of principal executive offices) 

(608) 443-1600 
(Issuer's telephone number) 

Securities registered pursuant to Section 12(b) of the Act: 

None 

Securities registered pursuant to Section 12(g) of the Act:

Common stock par value $0.01 per share 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.   

Yes  

No 

(cid:57)

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   

Yes  

No 

(cid:57)

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  

(cid:57)  

No 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained 
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements 
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

Yes  

No 

(cid:57)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated 
filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.   

Large accelerated filer 

  Accelerated filer 

  Non-accelerated filer 

Smaller reporting company 

(cid:57)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 

Yes  

No 

(cid:57)

The aggregate market value of the registrant’s common stock held by non-affiliates computed by reference to the 
price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the 
last business day of the Registrant’s most recently completed second fiscal quarter was approximately $23,566,000.  

The number of shares outstanding of the registrant's common equity was 3,641,107 as of November 18, 2010.  

DOCUMENTS INCORPORATED BY REFERENCE 

Portions of the Proxy Statement for the 2010 Annual Meeting of Stockholders are incorporated by reference into 
Part III. A definitive Proxy Statement pursuant to Regulation 14A will be filed with the Commission no later than 
January 28, 2011.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
              TABLE OF CONTENTS  

                   PAGE NO. 

PART I 

Item 1. 
Item 1A. 
Item 1B. 
Item 2. 
Item 3. 

Business .................................................................................................................................  
Risk Factors ...........................................................................................................................  
Unresolved Staff Comments ..................................................................................................  
Properties ...............................................................................................................................  
Legal Proceedings ..................................................................................................................  

4 
18 
29 
29 
29 

PART II

Item 5. 

Item 6. 
Item 7. 

Item 7A. 
Item 8. 

Item 9. 

Item 9A. 
Item 9B. 

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer 
Purchases of Equity Securities ...............................................................................................
Selected Consolidated Financial Data ....................................................................................  
Management's  Discussion  and  Analysis  of  Financial  Condition  and  Results  of 
Operations ..............................................................................................................................
Quantitative and Qualitative Disclosures About Market Risk ...............................................  
Consolidated Financial Statements and Supplementary Data: 
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm ...............  
Consolidated Balance Sheets .................................................................................................  
Consolidated Statements of Operations .................................................................................  
Consolidated Statements of Stockholders' Equity ..................................................................  
Consolidated Statements of Cash Flows ................................................................................  
Notes to Consolidated Financial Statements ..........................................................................  
Changes in and Disagreements with Accountants on Accounting and Financial 
Disclosure ..............................................................................................................................
Controls and Procedures ........................................................................................................  
Other Information ..................................................................................................................  

PART III

Item 10. 
Item 11. 
Item 12. 

Item 13. 
Item 14. 

Directors, Executive Officers and Corporate Governance .....................................................  
Executive Compensation .......................................................................................................  
Security Ownership of Certain Beneficial Owners and Management and Related 
Stockholder Matters ...............................................................................................................
Certain Relationships and Related Transactions, and Director Independence .......................  
Principal Accounting Fees and Services ................................................................................  

30 
33 

34 
41 
42 
42 
43 
44 
45 
46 
47 

61 
61 
61 

62 
62 

62 
62 
63 

Explanatory Note: 

Effective November 16, 2009, Sonic Foundry, Inc. implemented a one-for-ten reverse split of its stock.  All share 
amounts  and  per  share  data  in  this  Annual  Report  on  Form  10-K  have  been  adjusted  to  reflect  this  reverse  stock 
split. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

When  used  in  this  Report,  the  words  “anticipate”,  “expect”,  “plan”,  “believe”,  “seek”,  “estimate”  and  similar 
expressions  are  intended  to  identify  forward-looking  statements.    These  are  statements  that  relate  to  future 
periods and include, but are not limited to, statements about the features, benefits and performance of our Rich 
Media  products,  our  ability  to  introduce  new  product  offerings  and  increase  revenue  from  existing  products, 
expected  expenses  including  those  related  to  selling  and  marketing,  product  development  and  general  and 
administrative, our beliefs regarding the health and growth of the market for our products, anticipated increase 
in our customer base, expansion of our products functionalities, expected revenue levels and sources of revenue, 
expected  impact,  if  any,  of  legal  proceedings,  the  adequacy  of  liquidity  and  capital  resources,  and  expected 
growth in business.  Forward-looking statements are subject to risks and uncertainties that could cause actual 
results  to  differ  materially  from  those  projected.    These  risks  and  uncertainties  include,  but  are  not  limited  to, 
market  acceptance  for  our  products,  our  ability  to  attract  and  retain  customers  and  distribution  partners  for 
existing  and  new  products,  our  ability  to  control  our  expenses,  our  ability  to  recruit  and  retain  employees,  the 
ability of distribution partners to successfully sell our products, legislation and government regulation, shifts in 
technology, global and local business conditions, our ability to effectively maintain and update our products and 
service  portfolio,  the  strength  of  competitive  offerings,  the  prices  being  charged  by  those  competitors,  and  the 
risks  discussed  elsewhere  herein.    These  forward-looking  statements  speak  only  as  of  the  date  hereof.    We 
expressly  disclaim  any  obligation  or  undertaking  to  release  publicly  any  updates  or  revisions  to  any  forward-
looking statements contained herein to reflect any change in our expectations with regard thereto or any change 
in events, conditions or circumstances on which any such statement is based. 

ITEM 1. 

BUSINESS  

Who We Are 

PART I 

Sonic  Foundry,  Inc.  is  a  web  communications  technology  leader,  providing  webcasting,  lecture  capture  and 
knowledge management solutions for higher education institutions, businesses and government agencies worldwide. 
Powered by our patented webcasting platform, Mediasite®, Sonic Foundry empowers people to transform the way 
they  communicate.  We  help  our  customers  connect  within  a  dynamic,  evolving  world  of  shared  knowledge  and 
envision  a  future  where  learners  and  workers  around  the  globe  use  webcasting  to  bridge  time  and  distance; 
accelerate  research,  productivity  and  growth;  and  reduce  the  environmental  impact  of  traditional  education  and 
business  communications.  

Sonic Foundry solutions include: 
•  Mediasite Recorders for capturing multimedia presentations 
•  Mediasite EX Server platform for streaming, archiving and managing online presentation content 
•  Sonic Foundry Event Services for turnkey event webcasting based on the Mediasite platform 
•  Sonic Foundry Services for hosting, installation, training and custom development 
•  Mediasite Customer Assurance for annual hardware and software maintenance and technical support  

Today, nearly 2,000 customers using more than 4,500 Mediasite Recorders in presentation venues around the world 
are capturing hundreds of thousands of multimedia presentations with millions of viewers.  

Sonic Foundry, Inc. was founded in 1991, incorporated in Wisconsin in March 1994 and merged into a Maryland 
corporation  of  the  same  name  in  October  1996.  Our  executive  offices  are  located  at  222  West  Washington  Ave., 
is 
Madison,  Wisconsin  53703  and  our 
www.sonicfoundry.com. In the “Investor Information” section of our website we make available, free of charge, our 
annual  report  on  Form  10-K,  quarterly  reports  on  Form  10-Q,  current  reports  on  Form  8-K  and  amendments  to 
reports required to be filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as soon as 
reasonably practicable after the filing of such reports with the Securities and Exchange Commission. 

is  (608)  443-1600.  Our  corporate  website 

telephone  number 

4 

 
 
 
 
 
 
 
       
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Challenges We Address 

Every  organization  faces  a  fundamental  need  to  communicate  information  efficiently  to  individuals  who  need  it. 
Universities  and  colleges  need  to  connect  lecturers  with  students  for  advanced  learning.  Corporations  strive  for 
successful communication and collaboration among colleagues to provide value to customers. Government agencies 
must keep partners, stakeholders and constituents informed to operate effectively. And yet, communication and e-
learning challenges remain, including: 

Ensuring students’ academic and professional success 
•  Enabling learners to watch or review course material  to improve retention and positively impact grades 
•  Providing distance learners with the same quality education as on-campus students 
•  Helping students balance education, career and family commitments 
• 
•  Capturing complex graphics where visual clarity is essential for learning 

Increasing enrollment without the expense of new classrooms and facilities 

Connecting with a geographically-dispersed audience 
•  Simultaneously addressing people in multiple locations 
•  Holding meetings, conferences and events when it is not feasible for everyone to attend  
•  Transmitting timely information that is crucial for all to receive  
•  Requiring employees, regardless of time zone or schedule, to attend training  

Increasing retention by avoiding distractions, interruptions or absence 

Improving productivity and overall organizational knowledge 
•  Avoiding the need for participants to leave their desks to attend a conference, meeting or training 
•  Maintaining productivity while in training 
•  Reducing time to train new hires 
• 
•  Keeping everyone on the same page to prevent false starts and forgotten directives 
•  Documenting meeting content for later review 
•  Extending the life of annual conferences and regional meetings 
•  Maintaining a rich library of organizational knowledge 
•  Documenting and preserving expertise from a retiring workforce 

Reducing logistical and financial impacts 
•  Cutting travel expenses and carbon footprints 
•  Eliminating repetition of the same presentation to different audiences 
•  Reducing repeated costs for printing, mailing and meeting expenses 
•  Enabling individuals to attend professional conferences in light of travel bans and budget cuts 

Avoiding cumbersome and restrictive technologies 
•  Maintaining the way presenters present without requiring technical expertise in presentation systems 
•  Capturing  and  sharing  knowledge  in  real-time  without  pre-authoring  or  pre-uploading  of  content  or  needing 

substantial post-production time 

•  Removing significant time and specialized expertise to manage presentation systems 

Sonic Foundry Solutions 

Sonic Foundry is changing the way organizations share and use information. Our solutions include: 
•  Mediasite Recorders for capturing multimedia presentations 
•  Mediasite EX Server platform for streaming, archiving and managing online presentation content 
•  Sonic Foundry Event Services for turnkey event webcasting based on the Mediasite platform 
•  Sonic Foundry Services for hosting, installation, training and custom development 
•  Mediasite Customer Assurance for annual hardware and software maintenance and technical support 

5 

 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Mediasite  Recorders  are  designed  with  presenters  in  mind.  They  automatically  record  what  presenters  say  and 
show,  without  changing  how  they  present,  and  webcast  it  online.  Mediasite  Recorders  streamline  the  capture  and 
delivery of any presenters’ video and any presentation images shown from any presentation source such as a laptop, 
tablet PC, document camera, whiteboard or even medical instrumentation.  The result is high resolution, interactive 
presentations  that  can  be  immediately  watched  via  the  web  –  live  or  on-demand.  With  the  industry’s  simplest 
workflow, Mediasite Recorders eliminate time-consuming authoring, slide uploads and post-production work. Plus, 
seamless  integration  with  existing  audio/video  and  educational  technology  means  organizations  can  confidently 
scale multimedia webcasting throughout their academic or corporate enterprise. 

We offer Mediasite Recorders for the following environments: 
•  A  room-based  Mediasite  Recorder  (RL  Series)  for  presentation  facilities  like  conference  and  training  rooms, 

lecture halls, auditoriums and classrooms 

•  A mobile Mediasite Recorder (ML Series) for portability to off-site events, conferences, trade shows or multiple 

venues throughout an organization 

Accompanying all Mediasite Recorders is the Mediasite Editor, a desktop software tool allowing users to edit their 
presentations, if desired, before publishing them to the web.  

Mediasite EX Server is a powerful platform for delivering and managing live and on-demand webcasts. It greatly 
simplifies content management by providing a single system to schedule, catalog, customize, secure, track and 
integrate recorded presentations. It brings order and control to valuable content libraries by making it easy to 
manage hundreds of system users, thousands of recorded hours and as many viewers as needed. 

Mediasite EX Server allows organizations to: 

•  Save time and staffing by scheduling presentations to be automatically recorded without an operator  
•  Automatically  create  customizable  and  searchable  online  content  catalogs  without  web  development  or 

integration skills 

•  Secure presentations and Mediasite system access for authorized users  
•  Customize and brand their presentation content 
• 
•  Support  closed  captions  to  provide  viewers  a  richer  presentation  experience  while  meeting  federal  or  state 

Incorporate audience interactivity through polls and Q&A  

accessibility mandates 

•  Track and report on viewing activity to see who is watching what presentations when and to analyze viewing 
patterns that may correlate to improved learning outcomes, increased performance or program effectiveness 
•  Centrally  monitor  and  control  the  recording functions  of  multiple  Mediasite  Recorders  for  increased  operator 

• 

efficiency 
Integrate  Mediasite  content  into  other  course/learning/content  management  systems,  portals,  blogs  or  online 
communities 

•  Leverage existing network technologies for content distribution efficiency and performance 
•  Reliably scale to meet the webcasting needs of departmental and enterprise-wide implementations alike 
•  Choose  the  deployment  model  that  best  suits  their  environment,  whether  on-premise  or  hosted  in  the  Sonic 

Foundry datacenter 

Sonic Foundry Event Services equips customers with a team of trained technicians who work on-site to webcast 
conferences and events.  Event webcasting: 

•  Enhances attendee experience with online presentation catalogs 
•  Reaches a wider audience, making presentations available to those not able to attend 
•  Brands presentations using organization logos, colors and messages 
•  Provides a real-time record of what took place 
•  Links handout materials with the full presentation, including audio, video and graphics 
•  Offers sample content to entice new attendees to participate 

6 

 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Sonic  Foundry  Services  enable  organizations  to  quickly  and  easily  take  advantage  of  the  Mediasite  platform, 
without  having  to  wade  through  the  IT  or  network  complexities  associated  with  their  own  infrastructure.  Sonic 
Foundry Services include: 

•  Hosting or Software as a Service (SaaS): Our pay-as-you-go service offerings provide content hosting, delivery 
and  management  of  Mediasite  content  using  Sonic  Foundry’s  data  center  and  infrastructure.  These  managed 
services allow organizations of all sizes to jump start their web communications initiatives quickly and simply. 
They  provide  a  low-risk  way  to  implement  online  multimedia  communications  before  bringing  hosting 
requirements in-house and can offer a hassle-free long-term solution.  
Installation: Sonic Foundry provides onsite consulting and installation services to help customers optimize their 
deployment  and  efficiently  integrate  Mediasite  within  their  existing AV  and IT  infrastructures, processes  and 
workflows.   

• 

•  Training:  To  maximize  customers’  return  on  investments,  skilled  trainers  provide  the  necessary  knowledge 
transfer  so  organizations  feel  confident  in  using,  managing  and  leveraging  Mediasite’s  capabilities.  On-site 
training  is  customized  to  specific  requirements  and  skill  levels,  while  online  training  provides  convenient 
anytime access to a web-based catalog of training modules.  

•  Custom  Development:  Sonic  Foundry  streamlines  how  Mediasite  interfaces  with  a  customer’s  specific 
technologies, internal policies, workflow or content delivery systems through project-based development. 

Mediasite  Customer  Assurance  provides  customers  annually  renewable  maintenance  and  support  plans  for  their 
Mediasite solutions – giving them access to Sonic Foundry technical expertise and Mediasite software updates. With 
a Mediasite Customer Assurance contract, customers are entitled to: 

•  Software upgrades and updates for Mediasite Recorders and Servers 
•  Unlimited technical support assistance 
•  Extension of their recorder hardware warranty 
•  Advanced recorder hardware replacement 
•  Authorized  access  to  the  Mediasite  Customer  Assurance  Portal  where  they  can  access  software  downloads, 

documentation, knowledge base articles, tutorials, online training and technical resources at any time.  

Nearly all our customers purchase a Customer Assurance plan when they purchase Mediasite Recorders or Servers.  

What Sets Mediasite Apart? 

•  Market Leadership – Two leading industry analyst firms recognize Sonic Foundry’s Mediasite as the leading, 
best-of-breed platform for lecture capture. Frost & Sullivan awarded Sonic Foundry three consecutive Market 
Share Leadership Awards for Lecture Capture in 2010, 2009 and 2007 (no report was published in 2008). The 
Frost & Sullivan Award for Market Share Leadership is presented to the company that demonstrates excellence 
in capturing the highest market share within its industry and recognizes the company’s leadership position in 
terms of revenues or units. Wainhouse Research also recognizes Mediasite as a streaming and lecture capture 
market  leader  for  distance  education  and  e-learning  in  their  report,  The  Distance  Education  and  e-Learning 
Landscape V2 (December 2008). Among Wainhouse’s evaluation criteria are innovation, market understanding, 
overall  viability,  product  strategy  and  customer  experience.  According  to  the  report,  Sonic  Foundry  ranks 
highest from the perspective of product offering depth and ranks among the leaders in its ability to execute. 
•  Ease  of  use  –  We  believe  that  presenters  should  not  need  to  know  anything  about  the  technology  that  is 
facilitating their online communication. Automated or schedule-based recording simplifies what has previously 
been a technical and complex workflow. As a result, presenters can present as they normally do, which enables 
non-technical,  line  of  business  and  subject  matter  experts  to  feel  comfortable  communicating  via  Mediasite. 
Similarly, viewers need nothing more than a web browser to watch Mediasite presentations. 

•  Comprehensive  content  management  –  We  understand  the  need  to  bring  order  to  a  growing  presentation 
library so content can be found, used and re-purposed to derive maximum value. Organizations must find ways 
to manage that content, and Sonic Foundry believes a complete solution focuses not only on the recording of 
knowledge, but also the retention and management of that knowledge in a system specifically designed for rich 
media.  Mediasite automatically creates searchable online catalogs that index and organize presentations with 

7 

 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

customizable playback experiences.  With integration support for leading enterprise directories, all content can 
be  secured  to allow/deny  access  to  specific  groups  or individuals based  on  roles  and permissions.    Mediasite 
also allows organizations to track and generate reports for every presentation and/or user of the system, letting 
them see exactly who is watching what, when and how long.   

•  Reliability  –  Whether  starting  at  the  department  level  with  a  couple  rooms  or  at  the  enterprise  level  with  a 
campus- or  company-wide  implementation,  Mediasite  was  developed  to  be  the single  platform  to  confidently 
and  reliably  scale  to  organizations’  webcasting  needs.  Nearly  2,000  customers  around  the  world  depend  on 
Mediasite and its proven design to webcast critical information, enrich daily communications and retain their 
organizational knowledge.   

•  Dynamic multimedia experience – The Mediasite experience takes into account different individual learning 
styles – auditory, visual and kinesthetic – providing an interactive format that engages the viewer via different 
modalities to increase content comprehension and retention. Many other webcast solutions focus on PowerPoint 
as the predominant or only source of content and may not support video.  We understand that learning materials 
and supporting visuals come in many different forms, and Mediasite Recorders’ flexible capture options support 
input from any laptop application, tablet PC, whiteboard, document camera, medical instrumentation and more.  
In  November  2006,  the  United  States  Patent  and  Trademark  Office  granted  Sonic  Foundry  a  patent  on 
Mediasite’s unique method to capture and automatically index and synchronize what the presenter says (audio 
and video) with visual aids (RGB-based presentation content) and instantly stream them both over the Internet.  
Mediasite is also the first lecture capture solution to offer a fully Microsoft® Silverlight®-enabled Player which 
provides a more dynamic, user-controlled viewing experience. Adding to Mediasite’s interactivity is the ability 
to incorporate polls, Q&A or links to other related reference materials supporting the learning process. Support 
for  video  closed  captioning  benefits  those  with  hearing  disabilities,  but  also  allows  all  users  to  use  keyword 
search to pinpoint and play back content of interest within a Mediasite presentation.  

•  Software as a Service (SaaS) deployment option – To minimize IT challenges, network infrastructure issues 
and expertise required to install, configure and maintain Mediasite within the enterprise, Sonic Foundry hosting 
provides  organizations  a  low-risk  method  of  using  the  complete  Mediasite  platform  within  a  state-of-the-art 
datacenter. 

•  Customer  support  –  Sonic  Foundry  and  the  growing  Mediasite  community  provide  a  reliable,  collaborative 
support  network  for  all  Mediasite  customers.  Our  breadth  of  field-based  system  engineers  and  responsive 
customer care ensure that customers have readily available resources committed to their success.  The Mediasite 
User  Group  (MUG)  is  one  of  the  most  vibrant,  diverse  and  rapidly  expanding  user  communities  for  lecture 
capture,  online  training  and  e-learning.  MUG  members  share  ideas  and  get  feedback  year-round  from 
community  experts  through  online  forum  discussions,  participate  in  live  quarterly  meetings  to  exchange  best 
practices and network at UNLEASH, the annual Mediasite User Conference.   

Sonic Foundry Solutions in Higher Education and the Enterprise  

Sonic Foundry solutions are rapidly emerging as the standard for recording, delivering and managing one-to-many 
multimedia webcasts for higher education and corporate, healthcare or government enterprises 

Sonic Foundry solutions in higher education:  
Among post-secondary institutions, Mediasite is used for: 
•  Online lectures (blended/hybrid learning): students review content outside of in-class instruction  
•  Distance learning: off-campus students learn remotely online  
•  Continuing education: professionals learn online or supplement classroom experiences  
•  Faculty training and development 
•  Research and collaboration: faculty document and present findings  
•  Recruitment and orientation: campus tours, financial aid instructions  
•  Special events: commencement, guest speakers, sporting events 
•  University business: leadership meetings, alumni relations, outreach 

8 

 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Through interviews, many higher education institutions report that Mediasite: 
• 

Improves student learning outcomes 
o  Lets students watch and re-watch presentations at their convenience, boosting information retention 
o  Replicates the in-class experience for online students or those unable to attend class 
o  Contributes to enhanced grades 
o  Caters to different learning modalities  
•  Enables their institution to remain competitive 

o  Allows quick development and delivery of cost-effective online programs 
o  Supports higher enrollment and/or tuition without new classrooms 
o 
o  Helps attract students and faculty 

Improves student retention and matriculation 

•  Empowers faculty 

o  Allows them to teach as usual without learning new technology 
o  Promotes greater in-class interactivity rather than copious note-taking  
o 
o  Enables knowledge sharing and collaboration with colleagues 
o  Supports time-shifting, letting faculty travel to conferences or present findings without missing class 

Improves student outcomes 

•  Boosts campus outreach 

o  Bolsters recruitment efforts 
o 
o  Enhances alumni relations 

Increases awareness and reach of campus events 

Given the technology pedigree of today’s college students, this move to online learning makes perfect sense as most 
of  these  students  have  never  known  a  world  without  personal  computers  and  the  web.  The  delivery  options  for  a 
modern  education  are  akin  to  the  electronic  delivery  of  music  that  emerged  several  years  ago.  Students  demand 
immediate access to their coursework regardless of time or place.  

Recent  trends  such  as  the  slowing  economy  and  lingering  high  fuel  prices  continue  to  drive  more  students, 
particularly adult learners, to online education – through enrollment in blended or hybrid courses with a traditional 
on-campus  component  or  through  fully  online  distance  learning  programs.    Historically,  graduate  programs  and 
STEM  (science,  technology,  engineering  and  math)-oriented  degree  programs  in  schools  of  medicine,  nursing, 
engineering  or  business  have  comprised  the  majority  of  the  Company’s  academic  customer  base.  We  are  now 
experiencing heightened market demand for lecture capture within undergraduate and community college programs 
as well.  

According  to  the  Sloan  Consortium  report,  Learning  on  Demand:  Online  Education  in  the  United  States,  2009, 
online  enrollments  the  past  several  years  have  been  growing  considerably.  The  17  percent  growth  rate  for  online 
enrollments far exceeds the 1.2 percent growth of the overall higher education student population. In the 2008 fall 
term,  over  4.6  million,  or  more  than  one  in  four  college  and  university  students,  were  taking  at  least  one  online 
course, a 17 percent increase over the previous year.  The economic downturn has also increased demand for online 
courses, with 66 percent of institutions reporting increased demand for new courses and programs, and 73 percent 
seeing increased demand for existing online courses and programs.  Of public institutions, 74 percent believe that 
online  education  is  critical  for  their  long-term  strategy,  along  with  half  of  private  for-profit  and  private  nonprofit 
institutions. 

Community colleges, specifically, have significantly increased their number of blended or hybrid and web-enhanced 
courses.  The Instructional Technology  Council’s  “2009 Distance  Education Survey  Results:  Trends  in  eLearning: 
Tracking the Impact of eLearning at Community Colleges (March 2010)” reported a 22 percent increase for distance 
learning enrollments, substantially higher than overall national campus enrollments, which averaged less than two 
percent  nationally.    The  study  also  showed  that  overall,  74  percent  of  community  colleges  offer  audio/video 
streaming, and another 15 percent plan to offer over the next two years.  Over half of community colleges plan to 
increase the number of “blended/hybrid courses”.  

According to the 2009 Campus Computing survey, more than half of all universities already have a strategic plan for 
lecture capture or are working on one.  And analysts predict the lecture capture market will more than triple over the 

9 

 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

next six years.  Frost & Sullivan analysts estimate lecture capture revenues will reach over $192 million by 2016, 
exhibiting  a  nearly  22  percent  compound  annual  growth  rate  (CAGR)  for  the  six-year  period  (World  Lecture 
Capture Solutions Markets report, 2010). 
In  September  2008,  Sonic  Foundry  sponsored  a  research  project  with  the  University  of  Wisconsin  E-Business 
Institute which  resulted  in  the  study,  Insights  Regarding Undergraduate  Preference for  Lecture  Capture. A  survey 
was  sent  to  29,078  undergraduate  and  graduate  students  at  the  University  of  Wisconsin-Madison  in  April  2008. 
Average response rate exceeded 25 percent. Of the survey participants, a significant number of undergraduates (47 
percent) have taken a class in which lectures were recorded and made available online. Eighty-two percent of the 
undergraduates  in  the  sample  strongly  preferred  a  course  that  records  and  streams  lecture  content  online  versus  a 
course  that  only  features  in-room  instruction.  Students  reported  better  retention,  improved  ability  to  review  for 
exams and greater engagement during classes with lecture capture. Over half of the undergraduates indicated that, 
even after course completion, having course material available online would be important and that there was interest 
in accessing online material in their professional lives. Over 60 percent of the sample was willing to pay for lecture 
capture services. Of those willing to pay, the majority of undergraduates (69 percent) expressed a preference to pay 
on a course-by-course basis rather than having lecture capture fees bundled with existing technology fees. 

Several  universities  have  conducted  their  own  independent  studies  to  assess  the  impact  of  Mediasite  on  student 
performance. Penn State Hershey Medical Center and College of Medicine, a Mediasite campus since January 2004, 
deployed  a  pilot  program  at  the  onset  of  the  2007-2008  academic  year  to  record  lectures  to  first  year  medical 
students. During this academic year, lectures were viewed a total of 22,451 times, averaging 59.1 views per lecture 
by a class of 154 students. Mediasite use increased throughout the academic year, with 97 percent of students using 
Mediasite to review lectures by the semester's end. Almost half of the students surveyed (41 percent) cited reviewing 
complicated  material  as  the  number  one  motivator  for  using  Mediasite.  The  majority  (88  percent)  agreed  that 
Mediasite helps them achieve their educational goals. Much fewer (25 percent) said podcasting had the same effect. 
Faculty members reported that recording their lectures did not decrease class attendance. The survey also revealed a 
correlation between the grading method and the use of Mediasite. Students watch lectures more often via Mediasite 
for classes where grades are awarded as honors, high pass, pass and fail versus simply pass/fail. 

The  Paul  Merage  School  of  Business  at  the  University  of  California,  Irvine,  surveyed  students  in  its  2007-2008 
MBA for Executives and MBA for Health Care Executives programs. Ninety-one percent used Mediasite to view 
lectures,  71  percent  found  they  were  more  engaged  in  lectures  when  they  didn’t  have  to  focus  on  taking  copious 
notes and 83 percent said they learned more in courses when lectures were available on demand. The survey also 
determined that 93 percent of the students would choose an MBA program that produces Mediasite course content 
over  a  school  with  traditional  in-class  instruction  alone.  Furthermore,  82  percent  would  pay  higher  tuition  for  a 
program that streams and archives instruction, with almost half willing to pay between $2,000 and $5,000 more for 
their two-year degree.  

During the spring semester of 2008, the University of New Mexico surveyed almost a thousand undergraduate and 
distance education students about their Mediasite usage and found: 
• 
• 
• 

90 percent of respondents “agreed” or “strongly agreed” that Mediasite should be available for other courses 
62 percent of students used Mediasite at least half of the time or more to review or watch lectures 
77 percent had “good” or “excellent” experiences using Mediasite, and 77 percent of respondents “agreed” or 
“strongly agreed” that Mediasite was easy to use 
85 percent described the quality of the Mediasite recordings as “good” or “excellent” 
42 percent used Mediasite to review lectures due to absence, but several students noted they never missed class 
54 percent used Mediasite to review for quizzes and exams “often” or “always” with 30 percent “always” using 
to review 
67  percent  responded  they  “agreed”  or  “strongly  agreed”  that  Mediasite  improved  their  overall  learning  of 
course content 
56  percent  responded  they  “agreed”  or  “strongly  agreed”  that  Mediasite  improved  their  overall  grade  in  the 
course 

• 
• 
• 

• 

• 

10 

 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

The Dental School at the University of Maryland, Baltimore, also surveyed its dental and dental hygiene students in 
the fall of 2007 and found: 
• 
•  While  students  expressed  a  slight  preference  for  using  Mediasite  and  attending  lectures  on  occasion, 

91 percent responded “strongly agree” or “agree” that lecture capture made it easier for them to learn 

performance was equal to or better than straight lecture attendance 

To remain relevant, colleges and universities are striving to differentiate themselves through technical leadership as 
a means to attract these tech-savvy students, while balancing their campus technology improvements with systems 
that  faculty  will  embrace  and  adopt.  As  a  result,  the  education  market  is  beginning  to  restructure  and  increase 
investments  around  online  learning.  We  believe  the  visible  integration  of  multimedia  learning  content  into  core 
university applications and the success of bundled online learning technology solutions are two healthy indicators 
for the widespread adoption of online campus lectures.  

To date, Sonic Foundry has installed Mediasite in the larger lecture halls and classrooms of campuses nationwide. 
We  now  see  more  and  broader  expansions  and  integrations  of  Mediasite  at  the  campus-wide  level.  Course  and 
learning  management  systems  like  Blackboard®,  Moodle,  Desire2Learn®,  Angel,  or  Sakai  are  ubiquitous  in  the 
education enterprise. As the foundation for e-learning, these systems are rapidly moving beyond simply aggregating 
related course documents (handouts, assignments, course syllabi) to becoming students’ single-source portal for all 
course-related  materials  including  recorded  multimedia  content  like  online  lectures.  Mediasite’s  packaged 
integrations for Blackboard and Moodle, the leading course management systems used in higher education, address 
the need to make learning content accessible to students when and where they need it.  

Sonic Foundry Solutions in the Enterprise:  
Within medium to large corporate, healthcare and government enterprises, Mediasite has numerous applications.  

In corporate enterprises it is used for: 
•  Executive communications: state of the enterprise speeches, all-hands meetings  
•  Workforce development: training, HR briefings, policy documentation 
•  Sales and marketing: demonstrations, product announcements, webinars, channel relations  
• 
•  Customer support: product tutorials, self-guided troubleshooting  
• 
Investor relations: earnings calls, analyst briefings, annual reports 
•  Conferences and events: user group, sales and annual meetings 

Internal knowledge repositories: technical training, research collaboration, user-generated content  

In health-related enterprises it is used for: 
•  Education: continuing medical education, grand rounds, seminars, student/patient simulations 
•  On-demand medical information  
•  Caregiver training 
•  Emergency response coordination 
•  Public health announcements 
•  Research and collaboration  
•  Conferences and events 

In government agencies it is used for:  
•  Program management: relief work, military coordination, emergency preparedness  
•  Community outreach: committee meetings, public safety announcements  
•  Training, workshops and events  
•  Executive and legislative communications: constituent relations, public speeches, debates 

11 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Through interviews across these verticals, enterprise customers report that Mediasite: 
•  Expands training and communications opportunities 

o  Enables them to offer training to more and larger audiences 
o  Captures knowledge from a retiring workforce 
o  Supports the creation and sharing of user-generated content 
o  Aides in building a knowledge library 
o  Extends the life of conferences and events 

•  Cuts travel and meeting expenses 

o  Eliminates redundant speaking engagements 
o  Opens communication channels with dispersed audiences regardless of location or time zone 
o  Provides the ability to address everyone at once  

•  Boosts efficiency 

o  Enables immediate communication of time-sensitive information 
o  Delivers the message directly to the desktop to reduce downtime 
o  Allows participants to watch when it’s convenient to avoid interruptions and increase retention 
o  Reduces new hire training time 

•  Helps build stronger teams 

o  Fosters direct management/employee communications 
o  Supports more frequent, clearer communication with colleagues and staff  
o  Keeps all employees aligned 
o  Cultivates team morale and collaboration 

Less than a decade ago, the only people in the enterprise talking openly about online multimedia were audiovisual 
specialists  in  information  technology  or  media  services  units,  and  even  these  people  were  skeptical  about  what 
benefits streaming would hold for the enterprise. Now, knowledge workers, executives, event planners and people in 
training, sales, human resources and research and development are pushing for online multimedia and webcasting as 
part of their e-learning initiatives. They have a business need to be seen and heard by their colleagues, and the return 
on investment (ROI) for multimedia online learning is real and measurable.  

Claire Schooley, senior analyst with Forrester Research, Inc., wrote in the April 2009 report, The ROI of eLearning, 
“Online  learning earns  companies  a positive  ROI  in  less  than  a  year. If you have  a business  that  is  spread  across 
many locations, it makes good business sense to implement an online learning program as a replacement for some 
face-to-face learning and as a complement to other instructor-led training in the form of blended learning. Whether 
employees take compliance training, desktop skills development, or leadership training, online learning is flexible, 
consistent, and repeatable with minimal travel costs. The keys to success include excellent eLearning content that 
engages the learner; good change management plans for this new way of learning; and technology that is scalable 
and  easy  to  use  to  manage  the  learning.”  She  goes  on  to  state  that  “Outside  of  subject  areas  where  face-to-face 
interaction is necessary, recent research indicates that no significant differences exist in the effectiveness of learning 
through  classroom,  online,  or  self-study.  Self-paced  eLearning  allows  learners  to  assimilate  content  at  their  own 
speed – often 20% to 50% faster than in a classroom” 

Gartner vice president and distinguished analyst, Carol Rozwell, echoes the value of e-learning in the January 2009 
report,  Key  Issues  for  Corporate  Learning  Systems,  2009.    She  states,  “Getting  people  ‘up  to  speed’  quickly  and 
efficiently  is  critical  for  all  roles,  but  especially  for  those  positions  with  a  high  turnover  rate,  such  as  sales  and 
customer  support.  Reducing  ‘time  to  competency’  demands  that  employees,  customers  and  business  partners  are 
connected  to  high-quality  learning  content  so  they  can  achieve  workplace  performance  objectives.  In  times  of 
financial stress, interest in e-learning increases. It gives learners the opportunity for training without the expense of 
travel and it allows the company to support ‘green’ initiatives.” 

The  technology  market  for  enterprise  webcasting  solutions  that  support  many  e-learning  and  business 
communications  initiatives  is  growing  as  well.  In  Wainhouse  Research’s,  Enterprise  Streaming  Products  Market 
Size and Forecast (May 2010), senior analyst and partner, Ira Weinstein, estimates the enterprise streaming products 
market (which includes content capture and management solutions and related services for installation, training and 
support) to be $406 million in 2010. This market will expand to $1.175 billion by 2014 with Weinstein projecting a 
CAGR for the period around 30 percent.  In the September 2010 Enterprise Webcasting Services Market Size and 

12 

 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Forecast  also  by  Wainhouse  Research,  Weinstein  estimates  the  2010  market  for  hosted  streaming  application 
platforms  supporting  live  virtual  events (specifically  excluding  web  conferencing offerings  and  consumer-focused 
video streaming services) to be $313 million . By 2015, Weinstein predicts the market will expand to $1.116 billion, 
exhibiting a 29 percent CAGR over the five-year period, driven by increasing awareness of webcasting as a business 
application and growing acceptance of SaaS/hosted webcasting offerings. 

Future Directions 

Because webcasting and lecture capture are becoming an everyday part of the way people work and learn, we are 
driven  to  shorten  the  time  it  takes  people  not  only  to  capture  and  share  their  information  but  also  to  find  the 
information  they  need.  Today,  leading  universities  use  Mediasite  for  lecture  capture  and  corporations  webcast 
training, executive communications and events. We envision a future where people around the globe use webcasting 
to bridge time and distance; accelerate research, productivity and growth; and reduce the environmental impact of 
traditional education and business communications. As a company, we are helping create the libraries of tomorrow 
with technology that does not compound the world’s information overload. We are working to put a human face on 
all online knowledge, and we believe the world will be more knowledgeable and more connected as a result. 

Supporting this vision, our ongoing innovations center on: 
•  Developing deployment options to meet the webcasting needs for organizations of all sizes.  This includes:  

- 

Significant  investment,  development  and  evolution  of  our  current  Mediasite  hosting  platform  to  provide 
Software  as  a  Service  (SaaS).    This  alternative  to  traditional  on-premise  deployments  provides  an  ideal 
way  to  minimize  IT  challenges  and  potential  webcasting  risks  while  affordably  extending  high 
performance, fault tolerant webcasting to small and large customers alike. 

-  Content capture solutions that economically scale across entire organizations, allowing anyone to record 

and share their knowledge or expertise. 

•  Evolving  Mediasite’s  content  management  capabilities  to  accommodate  organizations’  existing  digital  video 

• 

assets. 
Integrating  with  and  embedding  Mediasite  content  into  enterprise  portals,  learning  and  course  management 
systems, content management repositories, blogs or online communities.   

•  Enabling context-based viewing of webcasts within online environments that enable and encourage discussion 

around the content. 

•  Supporting content playback on popular mobile devices. 
• 

Incorporating keyword search within rich media presentations and across presentation libraries.   

Segment Information 

We  have  determined  that  in  accordance  with  FASB  ASC  280-10,  we  operate  in  only  one  segment  as  we  do  not 
disaggregate profit and loss information on a segment basis for internal management reporting purposes to our chief 
operating decision maker. Therefore, such information is not presented. 

We have included the cash effect of billings not recorded as revenue, which are deferred for GAAP purposes, in 
arriving at non-GAAP net income or loss.  Our services are typically billed and collected in advance of providing 
the service which requires minimal cost to perform in the future.  Billings are a better indicator of customer activity 
and cash flow than revenue is, in management’s opinion, and is therefore used by management as a key operational 
indicator.  Billings is computed by combining revenue with the change in unearned revenue.  Total billings for 
Mediasite product and support outside the United States totaled 19 percent and 28 percent in 2010 and 2009, 
respectively. 

Our largest individual customers are typically value added resellers (“VARs”) and distributors since the majority of 
our  end  users  require  additional  complementary  products  and  services  which  we  do  not  provide.  Accordingly,  in 
fiscal 2010 and 2009 one master distributor, Synnex Corporation (“Synnex”), contributed 32 percent and 29 percent, 
respectively, of total world-wide billings. A second master distributor, Starin Marketing, Inc. (“Starin”), contributed 
22  percent  and  almost  10  percent  of  total  world-wide  billings  in  fiscal  2010  and  2009,  respectively.    As  master 
distributors,  Synnex  and  Starin  fulfill  transactions  to  VARs,  end  users  and  other  distributors.  No  other  customer 
represented over 10 percent in 2010 or 2009. 

13 

 
  
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Sales  

We  sell  and  market  our  offerings  through  a  sales  force  that  manages  a  channel  of  value-added  resellers,  system 
integrators,  consultants  and  distributors.  These  third  party  representatives  specialize  in  understanding  both 
audio/video systems and IT networking. In fiscal 2010, we utilized two master distributors in the U.S. and nearly 
150 resellers, and sold our products to over 1,000 total end users. Our focus has been primarily in the United States 
and  primarily  to  customers  we  have  identified  as  having  the  greatest  potential  for  high  use;  that  is,  organizations 
with presenters, trainers, lecturers, marketers, event planners and leaders who have a routine need to communicate to 
many people in higher education, government, health and certain corporate markets. Despite our primary attention 
on the United States market, reseller and customer interest outside the United States has grown and accordingly, we 
allocated five sales professionals to address international demand. To date, we have sold our products to customers 
in over 40 countries outside the United States. Total billings for Mediasite product and support outside the United 
States totaled 19 percent and 28 percent in fiscal 2010 and 2009, respectively.  

Vertical market expansion: Over half our revenue is realized from the education market. Recent trends such as the 
slowing economy are driving more students, particularly adult learners, to seek online education options. Similarly, 
demand for lecture capture within undergraduate, community college and blended learning programs is beginning to 
demonstrate growth. This development represents an emerging trend beyond the traditional academic customer base 
for the company, which has primarily consisted of graduate, distance learning and technical degree programs.  

For  our  higher  education  as  well  as  corporate,  government  and  association  clients,  we  anticipate  weakening 
economic conditions will expand market demand for more outsourced services versus licensed sales. Over the last 
two years, the company has made extensive capital and technology investments to advance its services model with 
turnkey  event  webcasting,  comprehensive  hosting/Software  as  a  Service  (SaaS),  and  e-commerce  capabilities  that 
position us well to deliver more diversified business services. 

With  our  Event  Services  group,  we  continue  to  see  growing demand  for  conference  and  event  webcasting.  These 
event-based  communication,  education  and  training  applications,  combined  with  outsourced  webcasting  services, 
are expected to drive the company’s corporate sales activities going forward. 

Repeat  orders:  Many  customers  initially  purchase  a  small  number  of  Mediasite  Recorders  to  test  or  pilot  in  a 
department,  school  or  business  unit.  A  successful  pilot  project  and  the  associated  increase  in  webcasting  demand 
from  other  departments  or  schools  leads  to  follow  up,  multiple  Recorder  orders  as  well  as  increased  Mediasite 
Server capacity. In fiscal 2010, 70 percent of billings were to preexisting customers compared to 62 percent in fiscal 
2009. 

Renewals: As is typical in the industry, we offer annual support and maintenance service contract extensions for a 
fee  to  our  customer  base.    Nearly  all  customers  purchase  a  Customer  Assurance  plan  with  their  initial  Mediasite 
Recorders and Servers, and the majority renew their contracts annually. 

Marketing 

Marketing  efforts  span  the  spectrum  of  product  demonstrations,  webinars,  tradeshows,  websites,  public  relations, 
social media, direct mail, e-mail campaigns, newsletters, print and online advertising, sponsorships, Mediasite User 
Group community building, annual user conference, brochures, white papers and analyst relations. We often request 
and  receive  press  release  quotes  and  written  or  multimedia  testimonials  from  satisfied,  high-profile  reference 
customers,  particularly  those  that  demonstrate  innovative  and  valuable  uses  of  the  Mediasite  platform  and  Event 
Services. We solicit respected industry magazines and trade organizations to review our product and use advisors as 
introductions  to  new  channels  or  customers.  We  have  a  large,  growing  database  of  potential  customers  in  the 
education, government and corporate marketplaces and have established a process of targeting specific verticals that 
have a direct and demonstrated need for our offerings. 

14 

 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Operations 

We contract with third parties to build the hardware of our Mediasite Recorders and purchase quantities sufficient to 
fill specific customer orders, including purchases of inventory by resellers. Quantities are maintained in inventory by 
the third party providers and shipped directly to the end customer or reseller. The hardware manufacturers provide a 
limited one-year warranty on the hardware, which we pass on to our customers who purchase a Mediasite Customer 
Assurance support and maintenance plan. We have alternative sources of manufacturing for some of the products we 
produce and believe there are numerous additional sources and alternatives to the existing production process. We 
have  experienced  delays  in  production  of  our  products  and  component  parts  used  in  our  products  in  the  past  and 
expect to seek secondary sources of supply and maintain greater quantities of inventory in the future to mitigate the 
risk of such delays.  To date, we have not experienced any material returns due to product defects.  

OTHER INFORMATION 

Competition 

In  the  lecture  capture  and  webcasting  market  we  face  competition  from  various  companies  that  provide  related,  but 
different, communication technologies. These include:   

•  Web conferencing solutions (e.g. Adobe, Cisco/WebEx, Microsoft and Citrix). Although part of the overall online 
multimedia  communications  landscape,  these  solutions  are  designed  primarily  for  collaborative  communications 
versus  one-to-many  communications  like  Mediasite.  Many  organizations  acknowledge  that  they  need  both 
technologies  –  one-to-many  webcasting  and  collaborative  web  conferencing  –  to  appropriately  address  their 
different communication requirements. 

•  Video conferencing solutions (e.g. Polycom, TANDBERG (now Cisco) and Sony). These solutions are designed 
primarily  for  one-to-one  or  group  communications  with  high  levels  of  interactivity  and  collaboration.  Like  web 
conferencing,  many  organizations  use  both  video  conferencing  and  webcasting.  Mediasite  integrates  with 
videoconferencing  endpoints  from  Polycom  and  TANDBERG  to  record  and  manage  interactive  meetings, 
discussions and distance learning courses alongside other Mediasite content. 

•  Authoring  tools  (e.g.  Accordent    PresenterPLUS,  Camtasia  Studio  and  Microsoft  Producer).  Unlike  webcasting, 
web  conferencing  or  video  conferencing,  which  are  forms  of  online  multimedia  communication  that  capture  and 
distribute/stream  content,  these  solutions  are  production-oriented  tools  designed  to  create  and  edit  multimedia 
content  only.  Some  organizations  will  use  these  desktop  tools  to  create  training  content  by  manually  integrating 
existing audio, video, images, branding and other visual elements into a multimedia presentation which can then be 
published to a web or streaming server for distribution. This process can require a significant amount of production 
effort and user expertise in presentation authoring. 

•  Online  video  services  and  virtual  meeting  platforms  (e.g.  INXPO,  Livestream,  ON24,  Onstream  Media, 
InterCall, Thomson Reuters, Unisfair and Wall Street Webcasting). These companies offer services or SaaS-based 
platforms  that  either  allow  audio  and  video  to  be  captured  from   a  presenter’s  computer  (often  with  supporting 
materials uploaded in advance), produced streaming video services or 2D/3D virtual environments that may or may 
not include rich media webcasts. 

Other vendors such as Echo360, Tegrity, Accordent Technologies and Panopto, provide lecture capture or webcasting 
capabilities, but differ in their technology approach, particularly in the lecture capture arena. Mediasite is an appliance- 
or room-based platform for lecture capture. It provides a full integrated system designed around an automated purpose-
built  recording  appliance  to  capture,  publish  and  manage  rich  media  content.  This  transparent  recording  automation 
means no presenter intervention which leads to the broadest end-user adoption across campuses.  Room-based appliances 
are  capable  of  streaming  live  or  on-demand  and  can  leverage  the  full  breadth  of  in-room  audio/visual  technology.  A 
room-based platform like Mediasite also includes complete content management for captured multimedia presentations.  

Other  lecture  capture  solutions  are  implemented  as  software  applications  designed  to  capture  and  publish  rich  media 
content, but dependent upon a third-party content management platform, typically the institution’s course management 
system. Software applications for lecture capture support on-demand streaming only and require in-room PC integration 

15 

 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

with  varying  levels  of  presenter  intervention  and  recording  knowledge  which  may  lead  to  lower  adoption  rates 
throughout the campus.  

Lastly, laptop-resident desktop tools capture and publish non-rich media (limited video and presentation graphics) and 
like  software  applications  support  only  on-demand  streaming  and  require  a  third-party  content  management  platform. 
Desktop tools require the greatest degree of presenter intervention, technical confidence and support. While prevalent on 
many campuses, these three factors limit the practicality for campus-wide adoption. 

Some current and potential customers have developed  their  own home-grown webcasting or lecture  capture solutions 
which may compete with Mediasite. However, we often find many of these organizations are now looking for a solution 
that requires less internal maintenance and effort, offers comprehensive management capabilities and a less cumbersome 
workflow.  

The more successful we are in the growing market for lecture capture and webcasting, the more competitors are likely to 
emerge. We believe that the principal competitive factors in our market include: 

•  Ease of use and application transparency to the user 
•  Content management and scalability to address enterprise requirements 
•  Reliability and performance  
•  Price 
•  Flexibility to choose live or on-demand webcasting or both 
•  Security of content, applications and services 
•  Ability to integrate with third-party solutions and services 
•  Flexible deployment and acquisition options to suit various budgets 
•  Customer service and support 
•  A significant reference-able customer base  
•  Ability to introduce new products and services to the market in a timely manner 

Intellectual Property 

The status of United States patent protection in the Internet industry is not well defined and will evolve as the U.S. 
Patent and Trademark Office grants additional patents.  Currently two U.S patents that have been issued to us, and 
four U.S. patent applications are pending.  We may seek additional patents in the future.  We do not know if our 
pending patent applications or any future patent application will result in any patents being issued with the scope of 
the  claims  we  seek,  if  such  patents  are  issued  at  all.    We  do  not  know  whether  the  patents  which  were  recently 
approved  or  any  patents  we  may  receive  in  the  future  will  be  challenged,  invalidated  or  be  of  any  value.    It  is 
difficult to monitor unauthorized use of technology, particularly in foreign countries where the laws may not protect 
our proprietary rights as fully as in the United States, and our competitors may independently develop technology 
similar to ours.  We will continue to seek patent and other intellectual property protections, when appropriate, for 
those aspects of our technology that we believe constitute innovations providing significant competitive advantages.  
Our pending, and any future, patent applications may not result in the issuance of valid patents. 

Our success depends in part upon our rights to proprietary technology.  We rely on a combination of copyright, trade 
secret, trademark and contractual protection to establish and protect our proprietary rights.  We have registered eight 
U.S. and four foreign country trademarks.  We require our employees to enter into confidentiality and nondisclosure 
agreements upon commencement of employment.  Before we will disclose any confidential aspects of our services, 
technology  or  business  plans  to  customers,  potential  business  distribution  partners  and  other  non-employees,  we 
routinely require such persons to enter into confidentiality and nondisclosure agreements.  In addition, we require all 
employees, and those consultants involved in the deployment of our services, to agree to assign to us any proprietary 
information,  inventions  or  other  intellectual  property  they  generate,  or  come  to  possess,  while  employed  by  us.  
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain 
and  use  our  services  or  technology.    These  precautions  may  not  prevent  misappropriation  or  infringement  of  our 
intellectual property. 

16 

 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights.  In addition, 
we may be subject to claims of alleged infringement of patents and other intellectual property rights of third parties.  
We  may  be  unaware  of  filed  patent  applications  which  have  not  yet  been  made  public  and  which  relate  to  our 
services. 

Intellectual property claims may be asserted against us in the future.  Intellectual property litigation is expensive and 
time-consuming  and  could  divert  management’s  attention  away  from  running  our  business.    Intellectual  property 
litigation  could  also  require  us  to  develop  non-infringing  technology  or  enter  into  royalty  or  license  agreements.  
These royalty or license agreements, if required, may not be available on acceptable terms, if at all.  Our failure or 
inability  to  develop  non-infringing  technology  or  license  the  proprietary  rights  on  a  timely  basis  would  harm  our 
business. 

Research and Development 

We believe that our future success will depend in part on our ability to continue to develop new business, and to 
enhance  our  existing  business.  Accordingly,  we  invest  a  significant  amount  of  our  resources  in  research  and 
development activities. During each of the fiscal years ended September 30, 2010 and 2009, we spent $3.1 million 
and  $3.5  million,  respectively,  on  internal  research  and  development  activities  in  our  business.  These  amounts 
represent 15% and 19%, respectively, of total revenue in each of those years.  

Employees 

As of September 30, 2010 and 2009, we had 90 and 93 full-time employees, respectively. Our employees are not 
represented by a labor union, nor are they subject to a collective bargaining agreement. We have never experienced 
a work stoppage and believe that our employee relations are satisfactory.  

17 

 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

ITEM 1A.  RISK FACTORS  

YOU  SHOULD  CAREFULLY  CONSIDER  THE  RISKS  DESCRIBED  BELOW  BEFORE  MAKING  AN 
INVESTMENT  DECISION.  THE  RISKS  DESCRIBED  BELOW  ARE  NOT  THE  ONLY  ONES  WE  FACE. 
ADDITIONAL RISKS THAT WE ARE NOT PRESENTLY AWARE OF OR THAT WE CURRENTLY BELIEVE ARE 
IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. OUR BUSINESS COULD BE HARMED BY 
ANY  OR  ALL  OF  THESE  RISKS.  THE  TRADING  PRICE  OF  OUR  COMMON  STOCK  COULD  DECLINE 
SIGNIFICANTLY  DUE  TO  ANY  OF  THESE  RISKS,  AND  YOU  MAY  LOSE  ALL  OR  PART  OF  YOUR 
INVESTMENT.  IN  ASSESSING  THESE  RISKS,  YOU  SHOULD  ALSO  REFER  TO  THE  OTHER  INFORMATION 
CONTAINED OR INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING 
OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. 

Economic conditions could materially adversely affect the Company. 

The  global  economic  crisis  experienced  since  2008  and  any  continuing  unfavorable  economic  conditions  have 
negatively affected, and could continue to negatively affect, our business, operating results or financial condition, 
which could in turn affect our stock price. Weak economic conditions and the resulting impact on the availability of 
public funds along with the possibility of state and local budget cuts and reduced university enrollment could lead to 
a  reduction  in  demand  for  our  products  and  services.    In  addition,  a  prolonged  economic  downturn  could  cause 
insolvency of key suppliers resulting in product delays, inability of customers to obtain credit to finance purchases 
of  the  Company’s  products  and  inability  or  delay  of  our  channel  partners  and  other  customers  to  pay  accounts 
receivable owed to us.   

Economic conditions may have a disproportionate effect on the sale of our products. 

Many of our customers will look at the total A/V equipment and labor cost to outfit a typical conference room or 
lecture hall as one amount for budgetary purposes.  Consequently, although our products represent only a portion of 
the total cost, the cost of the entire project of outfitting a room or conference hall may be considered excessive and 
may  not  survive  budgetary  constraints.    Alternatively,  our  resellers  may  modify  their  quotes  to  end  customers  by 
eliminating  our  products  or  substituting  less  expensive  competitive  products  in  order  to  win  opportunities  within 
budget constraints.  Event service partners may similarly suggest that customers eliminate recording and webcasting 
as  a  means  of  reducing  event  cost.    Consequently,  declines  in  spending  by  government,  educational  or  corporate 
institutions  due  to  budgetary  constraints  may  have  a  disproportionate  impact  on  the  Company  and  result  in  a 
material adverse impact on our financial condition. 

Multiple unit deals needed for continued success. 

We need to sell multiple units to educational, corporate and government institutions in order to sell most efficiently and 
remain  profitable.    In  fiscal  2010,  70%  of  revenue  was  to  existing  customers  compared  to  62%  in  fiscal  2009.    In 
particular,  sales  of  multiple  units  to  corporate  customers  have  lagged  behind  results  achieved  in  the  higher  education 
market; consequently, we have allocated more resources to the higher education market.  While we have addressed  a 
strategy to leverage existing customers and close multiple unit transactions, a customer may choose not to make expected 
purchases of our products.  The failure of our customers to make expected purchases will harm our business. 

Manufacturing disruption or capacity constraints would harm our business.  

We  subcontract  the  manufacture  of  our  recorders  to  one  third-party  contract  manufacturer  and  subcontract  the 
manufacture of our rack-unit recorder and a proprietary component of our recorders to another third-party contract 
manufacturer. Although we believe there are multiple sources of supply from other contract manufacturers as well as 
multiple suppliers of component parts required by the contract manufacturers, a disruption of supply of component 
parts or completed products, even if short term, would have a negative impact on our revenues. Many component 
parts currently have long delivery lead times, requiring careful estimation of production requirements.  Lengthening 
lead times, product design changes and other third party manufacturing disruptions have caused delays in delivery in 
fiscal 2010.  In order to compensate for supply delays, we have sourced components from off-shore sources, used 

18 

 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

cross  component  parts, paid  for  expediting and  currently hold  substantially  larger quantities  of  inventory  than  we 
previously  held.  Each  of  these  strategies  has  increased  our  costs  and  may  not  be  sufficient  to  ensure  against 
production  delays.  We  depend  on  our  subcontract  manufacturers  to  produce  our  products  efficiently  while 
maintaining high levels of quality.  Any manufacturing defects, delay in production or changes in product features 
will  likely  cause  customer  dissatisfaction  and  may  harm  our  reputation.    Moreover,  any  incapacitation  of  the 
manufacturing site due to destruction, natural disaster or similar events could result in a loss of product inventory. 
As a result of any of the foregoing, we may not be able to meet demand for our products, which could negatively 
affect revenues in the quarter of the disruption or longer depending upon the magnitude of the event, and could harm 
our reputation.  

We may need to raise additional capital. 

At September 30, 2010 we had cash of $3.4 million and availability under our line of credit facility with Silicon Valley 
Bank of $2.9 million.  The Company has historically financed its operations primarily through cash from sales of equity 
securities, cash from operations, and to a limited extent, through bank credit facilities.  The Company has a history of 
operating  losses  and  prior  to  fiscal  2010  had  historically  used  cash  in  operations.    The  Company  has  significantly 
reduced its operating expenses over the last two fiscal years, and anticipates operating expenses to grow at less than the 
anticipated rate of increase in revenues in fiscal 2011. The Company believes its cash position and available credit is 
adequate to accomplish its business plan through at least the next twelve months. 

We may evaluate further operating or capital lease opportunities to finance equipment purchases in the future and 
may  utilize  the  Company’s  revolving  line  of  credit  to  support  working  capital  needs.    While  the  Company 
anticipates  that  it  will  be  in  compliance  with  all  provisions  of  the  agreement,  there  can  be  no  assurance  that  the 
existing Loan Agreement will be available to the Company or that additional financing will be available or on terms 
acceptable to the Company.   

The business environment is not currently conducive to raising additional debt or equity financing and may not improve 
in the near term.  If we borrow money, we may incur significant interest charges, which could harm our profitability.  
Holders  of  debt  would  also  have  rights,  preferences  or  privileges  senior  to  those  of  existing  holders  of  our  common 
stock.  If we raise additional equity, the terms of such financing may dilute the ownership interests of current investors 
and cause our stock price to fall significantly.  We may not be able to secure financing upon acceptable terms, if at all.  If 
we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products, take advantage of 
future opportunities or respond to competitive pressures or unanticipated requirements, which could seriously harm our 
business, operating results, and financial condition   

We have only recently achieved profitability. 

While we reached profitability during the last half of fiscal 2010 and generated cash from operations of $593 thousand, 
we  may  not  realize  sufficient  revenues  to  sustain  profitability  on  a  quarterly  or  annual  basis.    For  the  year  ended 
September 30, 2010, we had a gross margin of $15.4 million on revenue of $20.5 million with which to cover selling, 
marketing, product development and general and administrative costs.  Our selling, marketing, product development and 
general and administration costs have historically been a significant percentage of our revenue, due partly to the expense 
of developing leads and the relatively long period required to convert leads into sales associated with selling products 
that  are  not  yet  considered  "mainstream"  technology  investments.    Fluctuations  in  profitability  or  failure  to  maintain 
profitability will likely impact the price of our stock. 

We could lose revenues if there are changes in the spending policies or budget priorities for government funding 
of colleges, universities, schools and other education providers.  

Most of our customers and potential customers are public colleges, universities, schools and other education providers 
who depend substantially on government funding. Accordingly, any general decrease, delay or change in federal, state or 
local  funding  for  colleges,  universities,  schools  and  other  education  providers  could  cause  our  current  and  potential 
customers to reduce their purchases of our products and services, or to decide not to renew service contracts, either of 
which could cause us to lose revenues. In addition, a specific reduction in governmental funding support for products 

19 

 
 
 
 
 
 
 
 
 
  
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

such  as  ours  would  also  cause  us  to  lose  revenues.    The  severe  economic  downturn  experienced  in  the  U.S.  and 
globally has caused many of our clients to experience severe budgetary pressures, which has and will likely continue 
to  have  a  negative  impact  on  sales  of  our  products.  Continuing  unfavorable  economic  conditions  may  result  in 
further budget cuts and lead to lower overall spending, including information technology spending, by our current 
and potential clients, which may cause our revenues to decrease. 

If a sufficient number of customers do not accept our products, our business may not succeed. 

We cannot predict how the market for our products will develop, and part of our strategic challenge will be to convince 
enterprise customers of the productivity, improved communications, cost savings, suitability and other benefits of our 
products.    Our  future  revenue  and  revenue  growth  rates  will  depend  in  large  part  on  our  success  in  delivering  these 
products effectively, creating market acceptance for these products and meeting customer’s needs for new or enhanced 
products.  If we fail to do so, our products will not achieve widespread market acceptance, and we may not generate 
sufficient revenue to offset our product development and selling and marketing costs, which will hurt our business.    

We may not be able to innovate to meet the needs of our target market. 

Our future success will continue to depend upon our ability to develop new products, product enhancements or service 
offerings that address future needs of our target markets and to respond to these changing standards and practices.  The 
success  of  new  products,  product  enhancements  or  service  offerings  depend  on  several  factors,  including  the  timely 
completion, quality and market acceptance of the product, enhancement or service.  Our revenue could be reduced if we 
do not capitalize on our current market leadership by timely developing innovative new products, product enhancements 
or service offerings that will increase the likelihood that our products and services will be accepted in preference to the 
products and services of our current and future competitors.  

If our marketing and lead generation efforts are not successful, our business will be harmed. 

We believe that continued marketing efforts will be critical to achieve widespread acceptance of our products.  Our 
marketing campaigns may not be successful given the expense required.  For example, failure to adequately generate 
and develop sales leads could cause our future revenue growth to decrease.  In addition, our inability to generate and 
cultivate sales leads into large organizations, where there is the potential for significant use of our products, could 
have a material effect on our business.  We may not be able to identify and secure the number of strategic sales leads 
necessary to help generate marketplace acceptance of our products.  If our marketing or lead-generation efforts are 
not successful, our business and operating results will be harmed. 

The length of our sales and deployment cycle is uncertain, which may cause our revenue and operating results to 
vary significantly from quarter to quarter and year to year. 

During our sales cycle, we spend considerable time and expense providing information to prospective customers about 
the use and benefits of our products without generating corresponding revenue.  Our expense levels are relatively fixed in 
the short-term and based in part on our expectations of future revenue.  Therefore, any delay in our sales cycle could 
cause significant variations in our operating results, particularly because a relatively small number of customer orders 
represent a large portion of our revenue. 

Our largest potential sources of revenue are educational institutions, large corporations and government entities that often 
require  long  testing  and  approval  processes  before  making  a  decision  to  purchase  our  products,  particularly  when 
evaluating our  products for  inclusion  in new buildings under construction or high dollar transactions.   In general, the 
process of selling our products to a potential customer may involve lengthy negotiations, collaborations with consultants, 
designers and architects, time consuming installation processes and changes in network infrastructure in excess of what 
we or our VARs are able to provide.  As a result, our sales cycle is unpredictable.  Our sales cycle is also subject to 
delays as a result of customer-specific factors over which we have little or no control, including budgetary constraints 
and internal approval procedures, particularly with customers or potential customers that rely on government funding. 

20 

 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Our products are aimed toward a broadened user base within our key markets and these products are relatively early in 
their  product  life  cycles.    We  cannot  predict  how  the  market  for  our  products  will  develop  and  part  of  our  strategic 
challenge  will  be  to  convince  targeted  users  of  the  productivity,  improved  communications,  cost  savings  and  other 
benefits.    Accordingly,  it  is  likely  that  delays  in  our  sales  cycles  with  these  products  will  occur  and  this  could  cause 
significant variations in our operating results. 

Sales of some of our products have experienced seasonal fluctuations which have affected sequential growth rates 
for these products, particularly in our first fiscal quarter. For example, there is generally a slowdown for sales of our 
products in the higher education and corporate markets in the first fiscal quarter of each year. Seasonal fluctuations 
could negatively affect our business, which could cause our operating results to fall short of anticipated results for 
such quarters.  As such, we believe that quarter-to-quarter comparisons of our revenues, operating results and cash 
flows may not be meaningful and should not be relied upon as an indication of future performance. 

Our operating results are hard to predict as a significant amount of our sales typically occur at the end of a quarter 
and the mix of product and service orders may vary significantly. 

Revenue for any particular quarter is extremely difficult to predict with any degree of certainty. We typically ship 
products within a short time after we receive an order and therefore, we typically do not have an order backlog with 
which to estimate future revenue. In addition, orders from our channel partners are based on the level of demand 
from end-user customers. Any decline or uncertainty in end-user demand could negatively impact end-user orders, 
which  could  in  turn  significantly  negatively  affect  orders  from  our  channel  partners  in  any  given  quarter. 
Accordingly, our expectations for both short and long-term future revenue is based almost exclusively on our own 
estimate  of  future  demand  based  on  the  pipeline  of  sales  opportunities  we  manage,  rather  than  on  firm  channel 
partner orders. Our expense levels are based largely on these estimates. In addition, the majority of our orders are 
received  in  the  last  month  of  a  quarter;  thus,  the  unpredictability  of  the  receipt  of  these  orders  could  negatively 
impact our future results. We historically have received all or nearly all our channel partner orders in the last month 
of a quarter and often in the last few days of the quarter. Accordingly, any significant shortfall in demand for our 
products in relation to our expectations, even if the result was a short term delay in orders, would have an adverse 
impact on our operating results.  

We have experienced growing demand for our hosting and event services as well as a growing preference from our 
corporate customers in purchasing our software as a service (SaaS).  As a result, we expect that service billings as a 
percentage of total billings will continue to grow which we believe will ultimately lead to higher gross margins and 
more recurring revenue.  The percentage of billings represented by service is also likely to fluctuate from quarter to 
quarter  due  to  seasonality  of  event  services  and  other  factors.    Since  services  are  typically  billed  in  advance  of 
providing the service, revenue is initially deferred, leading to reduced current period revenue with a corresponding 
negative impact to profits or losses in periods of significant increase in the percentage of our billings for deferred 
services.   

We are subject to risks associated with our channel partners’ product inventories and product sell-through.  

We sell a significant amount of our products to distributors such as Synnex Corporation and Starin Marketing, Inc., 
as well as other channel partners who maintain their own inventory of our products for sale to dealers and end-users. 
If these channel partners are unable to sell an adequate amount of their inventory of our products in a given quarter 
to dealers and end-users or if channel partners decide to decrease their inventories for any reason, such as a long-
term continuation or increase, in global economic uncertainty and downturn in technology spending, the volume of 
our  sales  to  these  channel  partners  and  our revenue  would be  negatively  affected.  In  addition,  if  channel partners 
decide to purchase more inventory, due to product availability or other reasons, than is required to satisfy end-user 
demand or if end-user demand does not keep pace with the additional inventory purchases, channel inventory could 
grow in any particular quarter, which could adversely affect product revenue in the subsequent quarter. In addition, 
we also face the risk that some of our channel partners have inventory levels in excess of future anticipated sales. If 
such sales do not occur in the time frame anticipated by these channel partners for any reason, these channel partners 
may substantially decrease the amount of product they order from us in subsequent periods, which would harm our 
business.  

21 

 
 
 
 
 
 
  
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

If  stock  balancing  returns  or  price  adjustments  exceed  our  reserves,  our  operating  results  could  be  adversely 
affected. 

We provide some of our distributors with stock balancing return rights, which generally permit our distributors to 
return products, subject to ordering an equal dollar amount of alternate products.  We also provide price protection 
rights  to  most  of  our  distributors.    Price  protection  rights  require  that  we  grant  retroactive  price  adjustments  for 
inventories  of  our  products  held  by  distributors  if  we  lower  our  prices  for  those  products  within  a  specified  time 
period.  To cover our exposure to these product returns and price adjustments, we establish reserves based on our 
evaluation  of  historical  product  trends  and  current  marketing  plans.    However,  we  cannot  be  assured  that  our 
reserves  will  be  sufficient  to  cover  our  future  product  returns  and  price  adjustments.    If  we  inadequately  forecast 
reserves, our operating results could be adversely affected. 

We depend in part on the success of our relationships with third-party resellers and integrators. 

Our  success  depends  on  various  third-party  relationships,  particularly  with  our  international  and  events  services 
operations.  The  relationships  include  third  party  resellers  as  well  as  system  integrators  that  assist  with 
implementations  of  our  products  and  sourcing  of  our  products  and  services.  Identifying  partners,  negotiating  and 
documenting relationships with them and maintaining their relationships require significant time and resources from 
us.  In  addition,  our  agreements  with  our  resellers  and  integrators  are  typically  non-exclusive  and  do  not  prohibit 
them from working with our competitors or from offering competing products or services. We have limited control, 
if any, as to whether these strategic partners devote adequate resources to promoting, selling and implementing our 
products  as  compared  to  our  competitor’s  products.    Our  competitors  may  be  effective  in  providing  incentives  to 
third  parties  to  favor  their  products  or  services.  If  we  are  unsuccessful  in  establishing  or  maintaining  our 
relationships with these third parties, our ability to compete in the marketplace or to maintain or grow our revenue 
could be impaired and our operating results would suffer. 

Our cash flow could fluctuate due to the potential difficulty of collecting our receivables.  

A significant portion of our sales are fulfilled by VARs, regional distributors or master distributors.  As an example, 
54%  of  our  billings  in  2010  were  to  Synnex  Corporation  and  Starin  Marketing  Inc.,  two  master  distributors  who 
fulfill  demand  from  other  distributors,  VARs  or  end-users.    While  our  distributors  and  VARs  typically  maintain 
payment  terms  consistent  with  other  end-users,  a  delay  in  payment  may  occur  as  a  result  of  a  number  of  factors 
including  changes  in  demand,  general  economic  factors,  financial  performance,  inventory  levels  or  disputes  over 
payments.  Any delay from Synnex, Starin, or other large distributors or VARs, could have a material impact on the 
collections of our receivables during a particular quarter.   

We  have  recently  expanded  the  level  of  sales  representation  in  Europe  and  Asia  as  well  as  other  international 
regions.  We offer credit terms to some of our international customers; however, payments tend to go beyond terms 
in certain countries and accounts receivable from most international customers are not eligible for borrowing under 
our revolving line of credit. Therefore, as Europe, Asia and other international regions grow as a percentage of our 
revenue, accounts receivable balances will likely increase as compared to previous years.   

Accounting regulations and related interpretations and policies, particularly those related to revenue recognition, 
cause us to defer revenue recognition into future periods for portions of our products and services.   

Revenue  recognition  for  our  products  and  services  is  complex  and  subject  to  multiple  sources  of  authoritative 
guidance,  some  of  which  are  new,  as  well  as  varied  interpretations  and  implementation  practices  for  such  rules. 
These rules require us to apply judgment in determining revenue recognition in certain situations. Factors that are 
considered in revenue recognition include those such as vendor specific objective evidence (VSOE), the inclusion of 
other services and contingencies to payment terms. We expect that we will continue to defer portions of our product 
and  service  billings  because  of  these  factors,  and  to  the  extent  that  management’s  judgment  is  incorrect  it  could 
result in a significant increase in the amount of revenue deferred in any one period. The amounts deferred may also 
be significant and may vary from quarter to quarter depending on the mix of products sold or contractual terms.  

22 

 
 
 
 
  
  
  
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Additional  changes  in  authoritative  guidance  or  changes  in  practice  in  applying  such  rules  could  also  cause  us  to 
defer the recognition of revenue to future periods or recognize lower revenue. 

Because most of our service contracts are renewable on an annual basis, a reduction in our service renewal rate 
could significantly reduce our revenues.  

Our clients have no obligation to renew their content hosting agreements, customer support contracts or other annual 
service contracts after the expiration of the initial period, which is typically one year, and some clients have elected 
not to do so. A decline in renewal rates could cause our revenues to decline. We have limited historical data with 
respect to rates of renewals, so we cannot accurately predict future renewal rates. Our renewal rates may decline or 
fluctuate as a result of a number of factors, including client dissatisfaction with our products and services, our failure 
to update our products to maintain their attractiveness in the market, deteriorating economic conditions or budgetary 
constraints or changes in budget priorities faced by our clients.  

Because we generally recognize revenues ratably over the term of our service contracts, downturns or upturns in 
service transactions will not be fully reflected in our operating results until future periods.  

We recognize most of our revenues from service contracts monthly over the terms of their agreements, which are 
typically 12 months, although terms have ranged from less than one month to 48 months. As a result, much of the 
service  revenue  we  report  in  each  quarter  is  attributable  to  agreements  entered  into  during  previous  quarters. 
Consequently, a decline in sales, client renewals or market acceptance of our products in any one quarter will not 
necessarily be fully reflected in the revenues in that quarter and will negatively affect our revenues and profitability 
in  future  quarters.  This  ratable  revenue  recognition  also  makes  it  difficult  for  us  to  rapidly  increase  our  revenues 
through  additional  sales  in  any  period,  as  revenues  from  new  clients  must  be  recognized  over  the  applicable 
agreement term.  

There is a great deal of competition in the market for our products, which could lower the demand for our products. 

The market for our products and services is intensely competitive, dynamic and subject to rapid technological change.  
The intensity of the competition and the pace of change are expected to increase in the future.  Increased competition is 
likely to result in price reductions, reduced gross margins and loss of market share, any one of which could seriously 
harm our business.  Competitors vary in size and in the scope and breadth of the products and services offered, many of 
which have greater financial resources than we have.  We encounter competition with respect to different aspects of our 
solution from a variety of sources including:   

•  Web conferencing solutions (e.g. Adobe, Cisco/WebEx, Microsoft and Citrix). Although part of the overall online 
multimedia  communications  landscape,  these  solutions  are  designed  primarily  for  collaborative  communications 
versus  one-to-many  communications  like  Mediasite.  Many  organizations  acknowledge  that  they  need  both 
technologies  –  one-to-many  webcasting  and  collaborative  web  conferencing  –  to  appropriately  address  their 
different communication requirements. 

•  Video conferencing solutions (e.g. Polycom, TANDBERG (now Cisco) and Sony). These solutions are designed 
primarily for one-to-one or group-to-group communications with high levels of interactivity and collaboration. Like 
web  conferencing,  many  organizations  use  both  video  conferencing  and  webcasting.  Mediasite  integrates  with 
videoconferencing  endpoints  from  Polycom  and  TANDBERG  to  record  and  manage  interactive  meetings, 
discussions and distance learning courses alongside other Mediasite content. 

•  Authoring  tools  solutions  (e.g.  Accordent  PresenterPLUS,  Camtasia  Studio  and  Microsoft  Producer).  Unlike 
webcasting,  web  conferencing  or  video  conferencing,  which  are  forms  of  online  multimedia  communication  that 
capture  and  distribute/stream  content,  these  solutions  are  production-oriented  tools  designed  to  create  and  edit 
multimedia  content  only.  Some  organizations  will  use  these  desktop  tools  to  create  training  content  by  manually 
integrating existing audio, video, images, branding and other visual elements into a multimedia presentation which 
can then be published to a web or streaming server for distribution. This process can require a significant amount of 
production effort and user expertise in presentation authoring. 

23 

 
 
 
 
  
  
 
 
  
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

•  Online video services and virtual meeting platforms (e.g.INXPO, Livestream, ON24, Onstream Media, InterCall, 
Thomson Reuters, Unisfair and Wall Street Webcasting). These companies offer services or SaaS-based platforms 
that  either  allow  audio  and  video  to  be  captured  from a  presenter’s  computer  (often  with  supporting  materials 
uploaded  in  advance),  produced  streaming  video  services  or  2D/3D  virtual  environments  that  may  or  may  not 
include rich media webcasts. 

Other vendors such as Echo360, Tegrity, Accordent Technologies and Panopto, provide lecture capture or webcasting 
capabilities, but differ in their technology approach, particularly in the lecture capture arena. Mediasite is an appliance- 
or room-based platform for lecture capture. It provides a fully integrated system designed around an automated purpose-
built  recording  appliance  to  capture,  publish  and  manage  rich  media  content.  This  transparent  recording  automation 
means no presenter intervention which leads to the broadest end-user adoption across campuses. Room-based appliances 
are  capable  of  streaming  live  or  on-demand  and  can  leverage  the  full  breadth  of  in-room  audio/visual  technology.  A 
room-based platform like Mediasite also includes complete content management for captured multimedia presentations.  

Other  lecture  capture  solutions  are  implemented  as  software  applications  designed  to  capture  and  publish  rich  media 
content, but dependent upon a third-party content management platform, typically the institution’s course management 
system. Software applications for lecture capture support on-demand streaming only and require in-room PC integration 
with  varying  levels  of  presenter  intervention  and  recording  knowledge  which  may  lead  to  lower  adoption  rates 
throughout the campus.  

Lastly, laptop-resident desktop tools capture and publish non-rich media (limited video and presentation graphics) and 
like  software  applications  support  only  on-demand  streaming  and  require  a  third-party  content  management  platform. 
Desktop tools require the greatest degree of presenter intervention, technical confidence and support. While prevalent on 
many campuses, these three factors limit the practicality for campus-wide adoption. 

If potential customers or competitors use open source software to develop products that are competitive with our 
products and services, we may face decreased demand and pressure to reduce the prices for our products. 

The  growing  acceptance  and  prevalence  of  open  source  software  may  make  it  easier  for  competitors  or  potential 
competitors  to  develop  software  applications  that  compete  with  our  products,  or  for  customers  and  potential 
customers to internally develop software applications that they would otherwise have licensed from us. One of the 
aspects  of  open  source  software  is  that  it  can  be  modified  or  used  to  develop  new  software  that  competes  with 
proprietary software applications, such as ours. Such competition can develop without the degree of overhead and 
lead time required by traditional proprietary software companies. As open source offerings become more prevalent, 
customers may defer or forego purchases of our products, which could reduce our sales and lengthen the sales cycle 
for our products or result in the loss of current customers to open source solutions. If we are unable to differentiate 
our products from competitive products based on open source software, demand for our products and services may 
decline, and we may face pressure to reduce the prices of our products, which would hurt our profitability. 

Our customers may use our products to share confidential and sensitive information, and if our system security is 
breached, our reputation could be harmed and we may lose customers. 

Our  customers  may  use  our  products  and  services  to  share  confidential  and  sensitive  information,  the  security  of 
which is critical to their business.  Third parties may attempt to breach our security for customer hosted content or 
the networks of our customers.  Customers may take inadequate security precautions with their sensitive information 
and may inadvertently make that information public.  We may be liable to our customers for any breach in security, 
and any breach could harm our reputation and cause us to lose customers.  In addition, customers are vulnerable to 
computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays 
or  loss  of  data.    We  may  be  required  to  expend  significant  capital  and  other  resources  to  further  protect  against 
security breaches or to resolve problems caused by any breach, including litigation-related expenses if we are sued. 

24 

 
 
 
 
 
  
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Operational failures in our network infrastructure could disrupt our remote hosting services, cause us to lose 
clients and sales to potential clients and result in increased expenses and reduced revenues.  

Unanticipated  problems  affecting  our  network  systems  could  cause  interruptions  or  delays  in  the  delivery  of  the 
hosting services we provide to some of our clients. We are not equipped to provide full disaster recovery to all of 
our  hosted  clients.  If  there  are  operational  failures  in  our  network  infrastructure  that  cause  interruptions,  slower 
response times, loss of data or extended loss of service for our remotely hosted clients, we may be required to issue 
credits or pay penalties, current clients may terminate their contracts or elect not to renew them and we may lose 
sales  to  potential  clients.  If  we  determine  that  we  need  additional  hardware  and  systems,  we  may  be  required  to 
make further investments in our network infrastructure.  

The  technology  underlying our products and  services  is  complex  and  may  contain unknown  defects  that  could 
harm our reputation, result in product liability or decrease market acceptance of our products. 

The  technology  underlying  our  products  is  complex  and  includes  software  that  is  internally  developed,  software 
licensed from third parties and hardware purchased from third parties.  These products have, and will in the future, 
contain errors or defects, particularly when first introduced or when new versions or enhancements are released.  We 
may not discover defects that affect our current or new applications or enhancements until after they are sold and our 
insurance coverage may not be sufficient to cover our complete liability exposure.  Any defects in our products and 
services could: 

(cid:131)  Damage our reputation 
(cid:131)  Cause our customers to initiate product liability suits against us 
(cid:131) 
(cid:131)  Cause customers to cancel orders or potential customers to purchase competitive products or services 
(cid:131)  Delay market acceptance of our products 

Increase our product development resources 

If we are viewed only as a commodity supplier, our margins and valuations will shrink. 

We need to provide value-added services in order to avoid being viewed as a commodity supplier.  This entails building 
long-term customer relationships and developing features that will distinguish our products.  Our technology is complex 
and is often confused with other products and technologies in the market place, including video conferencing, streaming 
and collaboration.  If we fail to build long-term customer relationships and develop features that distinguish our products 
in the market place, our margins will shrink and our stock may become less valuable to investors. 

Our success depends upon the proprietary aspects of our technology. 

Our success and ability to compete depend to a significant degree upon the protection of our proprietary technology.  
We currently have two U.S. patents that have been issued to us and four U.S. patent applications that are pending.  
We  may  seek  additional  patents  in  the  future.    Our  current  patent  applications  cover  different  aspects  of  the 
technology used in our products which is important to our ability to compete.  However, it is possible that: 

(cid:131)  Our pending patent applications may not result in the issuance of patents  
(cid:131)  Any patents acquired by or issued to us may not be broad enough to protect us 
(cid:131)  Any issued patent could be successfully challenged by one or more third parties, which could result in our 

loss of the right to prevent others from exploiting the inventions claimed in those patents 

(cid:131)  Current  and  future  competitors  may  independently  develop  similar  technology,  duplicate  our  services  or 

design around any of our patents 

(cid:131)  Effective  patent  protection,  including  effective  legal-enforcement  mechanisms  against  those  who  violate 
our patent-related assets, may not be available in every country in which we do or plan to do business 
(cid:131)  We may not have the resources to enforce our patents or may determine the potential benefits are not worth 

the cost and risk of ultimately being unsuccessful 

25 

 
 
  
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

We  also  rely  upon  trademark,  copyright  and  trade  secret  laws,  which  may  not  be  sufficient  to  protect  our 
intellectual property. 

We  also  rely  on  a  combination  of  laws,  such  as  copyright,  trademark  and  trade  secret  laws,  and  contractual 
restrictions,  such  as  confidentiality  agreements  and  licenses,  to  establish  and  protect  our  technology.    We  have 
registered  eight  U.S.  and  four  foreign  country  trademarks.    These  forms  of  intellectual  property  protection  are 
critically important to our ability to establish and maintain our competitive position.  However, it is possible that: 

(cid:131)  Third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights 
(cid:131)  Laws and contractual restrictions may not be sufficient to prevent misappropriation of our technology or to 

deter others from developing similar technologies 

(cid:131)  Effective  trademark,  copyright  and  trade  secret  protection,  including  effective  legal-enforcement 
mechanisms against those who violate our trademark, copyright or trade secret assets, may be unavailable 
or limited in foreign countries 

(cid:131)  Contractual  agreements  may  not  provide  meaningful  protection  for  our  trade  secrets,  know-how  or  other 
proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade 
secrets, know-how or other proprietary information 

(cid:131)  Other companies may claim common law trademark rights based upon state or foreign laws that precede 

the federal registration of our marks 

(cid:131)  Policing unauthorized use of our services and trademarks is difficult, expensive and time-consuming, and 

we may be unable to determine the extent of any unauthorized use 

Reverse engineering, unauthorized copying or other misappropriation of our proprietary technology could enable third 
parties to benefit from our technology without paying us for it, which would significantly harm our business. 

If other parties bring infringement or other claims against us, we may incur significant costs or lose customers. 

Other companies may obtain patents or other proprietary rights that would limit our ability to conduct our business and 
could assert that our technologies infringe their proprietary rights.  We could incur substantial costs to defend any legal 
proceedings,  even  if  without  merit,  and  intellectual  property  litigation  could  force  us  to  cease  using  key  technology, 
obtain a license or redesign our products.  In the course of our business, we may sell certain systems to our customers, 
and in connection with such sale, we may agree to indemnify these customers from claims made against them by 
third parties for patent infringement related to these systems, which could harm our business. 

If  we  lose  key  personnel  or  fail  to  integrate  replacement  personnel  successfully,  our  ability  to  manage  our 
business could be impaired. 

Our future success depends upon the continued service of our key management, technical, sales and other critical 
personnel. Our officers and other key personnel are employees-at-will, and we cannot assure that we will be able to 
retain them. Key personnel have left our company in the past, sometimes to accept employment with companies that 
sell similar products or services to existing or potential customers of ours.  There will likely be additional departures 
of key personnel from time to time in the future and such departures could result in additional competition, loss of 
customers or confusion in the marketplace. As we seek to replace such departures, or expand our business, the hiring 
of  qualified  sales,  technical  and  support  personnel  has  been  difficult  due  to  the  limited  number  of  qualified 
professionals.    The  loss  of  any  key  employee  could  result  in  significant  disruptions  to  our  operations,  including 
adversely  affecting  the  timeliness  of  product  releases,  the  successful  implementation  and  completion  of  company 
initiatives  and  the  results  of  our  operations.  In  particular,  the  loss  of  the  services  of  our  Chief  Executive  Officer, 
Rimas Buinevicius, or our co-founder and Chief Technology Officer, Monty Schmidt, would harm our business.  In 
addition, we do not have life insurance policies on any of our key employees.  If we lose the services of any of our 
key  employees,  the  integration  of  replacement  personnel  could  be  time  consuming,  may  cause  disruptions  to  our 
operations and may be unsuccessful. 

26 

 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Because  our  business  is  susceptible  to  risks  associated  with  international  operations,  we  may  not  be  able  to 
maintain or increase international sales of our products.  

International  product  and  service  billings  ranged  from  19%  to  28%  of  our  total  billings  in  each  of  the  past  three 
years and are expected to continue to account for a significant portion of our business in the future. However, in the 
future we may be unable to maintain or increase international sales of our products and services. International sales 
are subject to a variety of risks, including:  

(cid:131) 
(cid:131) 

(cid:131) 

difficulties in establishing and managing international distribution channels;  
difficulties in selling, servicing and supporting overseas products, translating products into foreign 
languages and compliance with local hardware requirements;  
the uncertainty of laws and enforcement in certain countries relating to the protection of intellectual 
property or requirements for product certification or other restrictions;  

(cid:131)  multiple and possibly overlapping tax structures;  
(cid:131) 
(cid:131) 

currency and exchange rate fluctuations;  
difficulties in collecting accounts receivable in foreign countries, including complexities in documenting 
letters of credit; and  
economic or political changes in international markets. 

(cid:131) 

We face risks associated with government regulation of the internet and related legal uncertainties. 

Currently, few existing laws or regulations specifically apply to the Internet, other than laws generally applicable to 
businesses.    Many  Internet-related  laws  and  regulations,  however,  are  pending  and  may  be  adopted  in  the  United 
States, in individual states and local jurisdictions and in other countries.  These laws may relate to many areas that 
impact  our  business,  including  encryption,  network  and  information  security,  and  the  convergence  of  traditional 
communication  services,  such  as  telephone  services,  with  Internet  communications,  taxes  and  wireless  networks.  
These types of regulations could differ between countries and other political and geographic divisions both inside 
and  outside  the  United  States.    Non-U.S.  countries  and  political  organizations  may  impose,  or  favor,  more  and 
different  regulation  than  that  which  has  been  proposed  in  the  United  States,  thus  furthering  the  complexity  of 
regulation.  In addition, state and local governments within the United States may impose regulations in addition to, 
inconsistent with, or more strict than federal regulations.  The adoption of such laws or regulations, and uncertainties 
associated  with  their  validity,  interpretation,  applicability  and  enforcement,  may  affect  the  available  distribution 
channels for, and the costs associated with, our products and services.  The adoption of such laws and regulations 
may harm our business. 

Exercise of outstanding options and warrants will result in further dilution. 

The issuance of shares of common stock upon the exercise of our outstanding options and warrants will result in dilution 
to the interests of our stockholders, and may reduce the trading price of our common stock. 

At  September  30,  2010,  we  had  91  thousand  of  outstanding  warrants  and  765  thousand  of  outstanding  stock  options 
granted under our stock option plans, 556 thousand of which are immediately exercisable.   

To the extent that these stock options or warrants are exercised, dilution to the interests of our stockholders will likely 
occur.  Additional options and warrants may be issued in the future at prices not less than 85% of the fair market value of 
the underlying security on the date of grant. Exercises of these options or warrants, or even the potential of their exercise 
may have an adverse effect on the trading price of our common stock.  The holders of our options or our warrants are 
likely to exercise them at times when the market price of the common stock exceeds the exercise price of the securities.  
Accordingly,  the  issuance  of  shares  of  common  stock  upon  exercise  of  the  options  and  warrants  will  likely  result  in 
dilution of the equity represented by the then outstanding shares of common stock held by other stockholders.  Holders 
of our options and warrants can be expected to exercise or convert them at a time when we would, in all likelihood, be 
able to obtain any needed capital on terms, which are more favorable to us than the exercise terms provided, by these 
options and warrants. 

27 

 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

We may need to make acquisitions or form strategic alliances or partnerships in order to remain competitive in our 
market, and potential future acquisitions, strategic alliances or partnerships could be difficult to integrate, disrupt our 
business and dilute stockholder value. 

We  may  acquire  or  form  strategic  alliances  or  partnerships  with  other  businesses  in  the  future  in  order  to  remain 
competitive or to acquire new technologies.  As a result of these acquisitions, strategic alliances or partnerships, we may 
need  to  integrate  products,  technologies,  widely  dispersed  operations  and  distinct  corporate  cultures.    The  products, 
services or technologies of the acquired companies may need to be altered or redesigned in order to be made compatible 
with our software products and services, or the software architecture of our customers.  These integration efforts may not 
succeed or may distract our management from operating our existing business.  Our failure to successfully manage future 
acquisitions, strategic alliances or partnerships could seriously harm our operating results.  In addition, our stockholders 
would be diluted if we finance the acquisition, strategic alliances or partnerships by incurring convertible debt or issuing 
equity securities. 

Our ability to utilize our net operating loss carryforwards may be limited. 

The  use  of  our  net  operating  loss  carryforwards  may  have  limitations  resulting  from  certain  future  ownership 
changes or other factors under Section 382 of the Internal Revenue Code. 

If  our  net  operating  loss  carryforwards  are  limited,  and  we  have  taxable  income  which  exceeds  the  available  net 
operating loss carryforwards for that period, we would incur an income tax liability even though net operating loss 
carryforwards may be available in future years prior to their expiration. Any such income tax liability may adversely 
affect our future cash flow, financial position and financial results. 

Our business is subject to changing regulations regarding corporate governance and public disclosure that will 
increase both our costs and the risk of noncompliance. 

As  a  publicly  traded  company  we  are  subject  to  significant  regulations,  including  the  Sarbanes-Oxley  Act  of  2002.  
While we have developed and instituted a corporate compliance program based on what we believe are the current 
best practices and continue to update the program in response to newly implemented regulatory requirements and 
guidance,  we  cannot  assure  that  we  are  or  will  be  in  compliance  with  all  potentially  applicable  regulations.  
Although our non-affiliate market capitalization was less than $75 million at March 31, 2010 and we were therefore 
not required to have an auditor attestation on our internal controls over financial reporting for fiscal 2010, SEC rules 
may in the future require us to have such an attestation if our non-affiliate market capitalization exceeds a certain 
threshold. We cannot assure that in the future our management or our auditors, will not find a material weakness in 
connection  with  our  internal  control  over  financial  reporting  pursuant  to  Section  404  of  the  Sarbanes-Oxley  Act.  
We also cannot assure that we could correct any such weakness to allow our management to assess the effectiveness 
of  our  internal  control  over  financial  reporting  as  of  the  end  of  our  fiscal  year  in  time  to  enable  our  independent 
registered public accounting firm to attest that such assessment will  have been fairly stated in our Annual Report on 
Form  10-K  to  be  filed  with  the  Securities  and  Exchange  Commission  or  attest  that  we  have  maintained  effective 
internal  control  over  financial  reporting  as  of  the  end  of  our  fiscal  year.    If  we  fail  to  comply  with  any  of  these 
regulations, we could be subject to a range of regulatory actions, fines, or other sanctions or litigation.  In addition, if 
we must disclose any material weakness in our internal control over financial reporting, our stock price may decline. 

Provisions of our charter documents and Maryland law could also discourage an acquisition of our company that 
would benefit our stockholders. 

Provisions of our articles of incorporation and by-laws may make it more difficult for a third party to acquire control of 
our company, even if a change in control would benefit our stockholders.  Our articles of incorporation authorize our 
board of directors, without stockholder approval, to issue one or more series of preferred stock, which could have voting 
and conversion rights that adversely affect or dilute the voting power of the holders of common stock.  Furthermore, our 
articles of incorporation provide for a classified board of directors, which means that our stockholders may vote upon the 
retention  of  only  one  or  two  of  our  seven  directors  each  year.    Moreover,  Maryland  corporate  law  restricts  certain 

28 

 
 
 
  
  
 
  
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

business  combination  transactions  with  “interested  stockholders”  and  limits  voting  rights  upon  certain  acquisitions  of 
“control shares.” 

ITEM 1B. 

UNRESOLVED STAFF COMMENTS  

None 

ITEM 2. 

PROPERTIES  

Our principal office is located in Madison, Wisconsin in a leased facility of approximately 19,000 square feet. The 
building serves as our corporate headquarters, accommodating our general and administrative, product development 
and selling and marketing departments. We believe this facility is adequate and suitable for our needs.  The current 
lease term for this office expires on September 30, 2011.   

ITEM 3. 

LEGAL PROCEEDINGS  

None 

29 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

PART II 

ITEM 5.  MARKET  FOR  REGISTRANT'S  COMMON  EQUITY,  RELATED  STOCKHOLDER 

MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES  

Our common stock was initially traded on the American Stock Exchange under the symbol "SFO," beginning with 
our initial public offering in April of 1998. On April 24, 2000, our common stock began trading on the NASDAQ 
Global Market under the symbol "SOFO." Effective September 16, 2009, we transferred the listing of our common 
stock to the NASDAQ Capital Market.  The following table sets forth, for the periods indicated, the high and low 
sale prices per share of our common stock as reported on the NASDAQ Global or Capital Markets. All share and per 
share data have been adjusted for the one-for-ten reverse stock split which was effective on November 16, 2009. 

Year Ended September 30, 2011: 

First Quarter (through November 18, 2010)  

Year Ended September 30, 2010: 

First Quarter 

Second Quarter 

Third Quarter 

Fourth Quarter 

Year Ended September 30, 2009: 

First Quarter 

Second Quarter 

Third Quarter 

Fourth Quarter 

High 

Low 

$       17.32 

$        9.77 

7.50 

8.21 

7.99 

11.12 

 6.50 

7.60 

8.90 

7.50 

4.50 

4.80 

5.84 

6.81 

      3.21 

4.30 

6.30 

5.00 

The  Company  has  not  paid  any  cash  dividends  and  does  not  intend  to  pay  any  cash  dividends  in  the  foreseeable 
future.  The Company is prohibited from paying any cash dividends pursuant to the terms of the loan and security 
agreement with Silicon Valley Bank. 

At November 18, 2010 there were 454 common stockholders of record and approximately 7,600 total shareholders.  
Many shares are held by brokers and other institutions on behalf of shareholders.  

30 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Equity Compensation Plan Information 

Plan category 

Equity compensation plans approved 
by security holders  (1) 

Equity compensation plans not 
approved by security holders (2) 

Total  

Number of securities 
to be issued upon 
exercise of 
outstanding options, 
warrants and rights 

Weighted average 
exercise price of 
outstanding 
options, warrants 
and rights 

Number of 
securities 
remaining 
available for 
future issuance 

(a) 

526,611 

238,107 

764,718 

(b) 

11.05 

10.82 

10.98 

(c) 

346,800 

- 

346,800 

(1)  Consists  of  the  2009  Stock  Incentive  Plan,  Employee  Incentive  Stock  Option  Plan  and  the  Directors  Stock 
Option  Plans.    For  further  information  regarding  these  plans,  reference  is  made  to  Note  5  of  the  financial 
statements. 

(2)  Consists  of  the  Non-Qualified  Stock  Option  Plan.    For  further  information  regarding  this  plan,  reference  is 

made to Note 5 of the financial statements. 

The  graph  below  compares  the  cumulative  total  stockholder  return  on  our  common  stock  from  September  30,  2005 
through and including September 30, 2010 with the cumulative total return on The NASDAQ Stock Market (US only) 
and the RDG Technology Composite.  The graph assumes that $100 was invested in our common stock on September 
30, 2005 for each of the indexes and that all dividends were reinvested. Unless otherwise specified, all dates refer to the 
last day of each month presented.   The comparisons in the graph below are based on historical data, with our common 
stock  prices  based  on  the  closing  price  on  the  dates  indicated,  and  are  not  intended  to  forecast  the  possible  future 
performance of our common stock. 

31 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Sonic Foundry, Inc., the NASDAQ Composite Index
and the RDG Technology Composite Index

$200

$180

$160

$140

$120

$100

$80

$60

$40

$20

$0

9/05

9/06

9/07

9/08

9/09

9/10

Sonic Foundry, Inc.

NASDAQ Composite

RDG Technology Composite

*$100 invested on 9/30/05 in stock or index, including reinvestment of dividends.
Fiscal year ending September 30.

(A)   RECENT SALES OF UNREGISTERED SECURITIES  

None  

(B)   USE OF PROCEEDS FROM REGISTERED SECURITIES 

None 

(C)   ISSUER PURCHASES OF EQUITY SECURITIES 

None 

32 

 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

ITEM 6. 

SELECTED CONSOLIDATED FINANCIAL DATA  

The  selected  financial  and  operating  data  were  derived  from  our  consolidated  financial  statements.    The  selected 
financial data set forth below is qualified in its entirety by, and should be read in conjunction with, "Management's 
Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and notes 
thereto appearing elsewhere in this annual report on Form 10-K (in thousands except per share data).  All share and 
per share data have been adjusted for the one-for-ten reverse stock split which was effective on November 16, 2009. 

Years Ended September 30, 

2010 

2009 

2008 

2007 

2006 

Statement of Operations Data: 
Revenue 
Cost of revenue 
Gross margin 
Operating expenses 
Income (loss) from operations 
Other income (expense), net 
Provision for income taxes 
Net loss 

$   20,476 
5,065 
15,411 
15,138 
273 
(170) 
(225) 
$       (122) 

$   18,577 
4,331 
14,246 
16,724 
(2,478) 
(25) 
(142) 
$    (2,645) 

$   15,601 
4,205 
11,396 
19,279 
(7,883) 
10 
(256) 
$   (8,129) 

$   16,737 
4,133 
12,604 
19,222 
(6,618) 
248 
(201) 
$    (6,571) 

  $   12,564 
3,215 
9,349 
12,909 
(3,560) 
77 
(56) 
$    (3,539)

Basic net loss per common 

share 

Diluted net loss per common 

$      (0.03) 

$      (0.74) 

$     (2.28) 

$     (1.89) 

$     (1.10) 

share 

$      (0.03) 

$      (0.74) 

$     (2.28) 

$     (1.89) 

$     (1.10) 

Weighted average common 

shares:  - Basic 

- Diluted 

Balance Sheet Data at 
September 30: 

Cash and cash equivalents 
Working capital  
Total assets 
Long-term liabilities 
Stockholders' equity 

3,617,423 
3,617,423 

3,598,040 
3,598,040 

3,557,966 
3,557,966 

3,468,803 
3,468,803 

3,201,531 
3,201,531 

2010 

2009

 2008

2007 

2006

$     3,358 
1,442 
18,267 
3,202 
7,137 

$     2,598 
(344) 
16,173 
1,977 
6,601 

$     3,560 
774 
17,474 
1,610 
8,455 

$    8,008 
7,940 
23,981 
1,825 
15,908 

$     2,751 
2,198
16,912
1,170
10,950

33 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND 

RESULTS OF OPERATIONS  

The financial and business analysis below provides information that Sonic Foundry, Inc. (the Company) believes is 
relevant  to  an  assessment  and  understanding  of  the  Company's  consolidated  financial  position  and  results  of 
operations.  This  financial  and  business  analysis  should  be  read  in  conjunction  with  the  consolidated  financial 
statements and related notes.  

When  used  in  this  Report,  the  words  “anticipate”,  “expect”,  “plan”,  “believe”,  “seek”,  “estimate”  and  similar 
expressions are intended to identify forward-looking statements.  These are statements that relate to future periods 
and  include,  but  are  not  limited  to,  statements  about  the  features,  benefits  and  performance  of  our  products,  our 
ability to introduce new product offerings and increase revenue from existing products, expected expenses including 
those  related  to  selling  and marketing, product development  and general  and  administrative, our  beliefs regarding 
the  health  and  growth  of  the  market  for  products,  anticipated  increase  in  our  customer  base,  expansion  of  our 
products  functionalities,  expected  revenue  levels  and  sources  of  revenue,  expected  impact,  if  any,  of  legal 
proceedings,  the  adequacy  of  liquidity  and  capital  resources,  and  expected  growth  in  business.    Forward-looking 
statements  are  subject  to  risks  and  uncertainties  that  could  cause  actual  results  to  differ  materially  from  those 
projected.    These  risks  and  uncertainties  include,  but  are  not  limited  to,  market  acceptance  for  our  products,  our 
ability to attract and retain customers and distribution partners for existing and new products, our ability to control 
our expenses, our ability to recruit and retain employees, the ability of distribution partners to successfully sell our 
products,  legislation  and  government  regulation,  shifts  in  technology,  global  and  local  business  conditions,  our 
ability to effectively maintain and update our products and service portfolio, the strength of competitive offerings, 
the  prices  being  charged  by  those  competitors,  and  the  risks  discussed  elsewhere  herein.    These  forward-looking 
statements speak only as of the date hereof.  We expressly disclaim any obligation or undertaking to release publicly 
any  updates  or  revisions  to  any  forward-looking  statements  contained  herein  to  reflect  any  change  in  our 
expectations with regard thereto or any change in events, conditions or circumstances on which any such statement 
is based. 

Overview  

Sonic Foundry, Inc. is a technology leader in the emerging web communications marketplace, providing enterprise 
solutions and services that link an information-driven world. The company’s principal product line, Mediasite® is a 
web communication and content management system that automatically and cost-effectively webcasts lectures and 
presentations. Trusted by Fortune 500 companies, top education institutions and Federal, state and local government 
agencies  for  a  variety  of  critical  communication  needs,  Mediasite  is  the  leading  one-to-many  multimedia 
communication solution for capturing knowledge and sharing it online. 

Reverse Stock Split 

Effective November 16, 2009, the Company implemented a one-for-ten reverse stock split of its stock.  All shares 
and per share data in this report have been adjusted to reflect this reverse stock split. 

Critical Accounting Policies  

We have identified the following as critical accounting policies to our Company and have discussed the development, 
selection of estimates and the disclosure regarding them with the audit committee of the board of directors:  

Impairment of long-lived assets; 

(cid:131)  Revenue recognition, allowance for doubtful accounts, and reserves; 
(cid:131) 
(cid:131)  Valuation allowance for net deferred tax assets; and 
(cid:131)  Accounting for stock-based compensation.  

34 

 
 
 
 
 
    
 
 
  
    
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Revenue Recognition, Allowance for Doubtful Accounts and Reserves  

General  

Revenue is recognized when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, 
the  sales  price  is  fixed  or  determinable  and  collectability  is  reasonably  assured.  Revenue  is  deferred  when 
undelivered  products  or  services  are  essential  to  the  functionality  of  delivered  products,  customer  acceptance  is 
uncertain, significant obligations remain, or the fair value of undelivered elements is unknown. The Company does 
not  offer  customers  the  right  to  return  product,  other  than  for  exchange  or  repair  pursuant  to  a  warranty  or  stock 
rotation.    The  Company’s  policy  is  to  reduce  revenue  if  it  incurs  an  obligation  for  price  rebates  or  other  such 
programs  during  the  period  the  obligation  is  reasonably  estimated  to  occur.    The  following  policies  apply  to  the 
Company’s major categories of revenue transactions.  

Products   

Products are considered delivered, and revenue is recognized, when title and risk of loss have been transferred to the 
customer. Under the terms and conditions of the sale, this occurs at the time of shipment to the customer. Product 
revenue currently represents sales of our Mediasite recorders and Mediasite related products such as server software 
revenue. 

Services 

We sell support contracts to our customers, typically one year in length, and record the related revenue ratably over 
the  contractual  period.    Our  support  contracts  cover  phone  and  electronic  technical  support  availability  over  and 
above the level provided by our distribution partners, software upgrades on a when and if available basis, advance 
hardware  replacement  and  an  extension  of  the  standard  hardware  warranty  from  90  days  to  one  year.    The 
manufacturers we contract with to build the units provide a limited one-year warranty on the hardware.  We also sell 
installation,  training,  event  webcasting,  and  customer  content  hosting  services.    Revenue  for  those  services  is 
recognized  when  performed  in  the  case  of  installation,  training  and  event  webcasting  services  and  is  recognized 
ratably over the contract period for content hosting services.  Service amounts invoiced to customers in excess of 
revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met.  

Revenue Arrangements that Include Multiple Elements  

Revenue for transactions that include multiple elements such as hardware, software, installation, training, and post 
customer support is allocated to each element based on vendor-specific objective evidence of the fair value “VSOE” 
in  accordance  with  FASB  ASC-985-605.  Revenue  is  recognized  for  each  element  when  the  revenue  recognition 
criteria have been met for that element.  VSOE is based on the price charged when the element is sold separately. If 
VSOE of fair value does not exist for all elements in a multiple element arrangement, revenue is allocated first to the 
fair value of the undelivered elements and the residual revenue to the delivered elements. The Company recognizes 
revenue  for  delivered  elements  only  when  all  of  the  following  criteria  are  satisfied:  undelivered  elements  are  not 
essential  to  the  functionality  of delivered  elements,  uncertainties  regarding customer  acceptance  are resolved,  and 
the fair value for all undelivered elements is known.  

Reserves 

We  record  reserves  for  stock  rotations,  price  adjustments,  rebates,  and  sales  incentives  to  reduce  revenue  and 
accounts receivable for these and other credits we may grant to customers. Such reserves are recorded at the time of 
sale  and  are  calculated  based  on  historical  information  (such  as  rates  of  product  stock  rotations)  and  the  specific 
terms of sales programs, taking into account any other known information about likely customer behavior. If actual 
customer behavior differs from our expectations, additional reserves may be required. Also, if we determine that we 
can  no  longer  accurately  estimate  amounts  for  stock  rotations  and  sales  incentives,  we  would  not  be  able  to 
recognize revenue until the customers exercise their rights, or such rights lapse, whichever is later. 

35 

 
    
 
   
 
 
  
  
  
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Credit Evaluation and Allowance for Doubtful Accounts 

We perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral. 
We maintain allowances for potential credit losses and such losses have been within our expectations.  

Impairment of long-lived assets  

We assess the impairment of goodwill on an annual basis or whenever events or changes in circumstances indicate that 
the fair value of these assets is less than the carrying value.  

If we determine that the fair value of goodwill is less than its carrying value, based upon the annual test or the existence 
of one or more indicators of impairment, we would then measure impairment based on a comparison of the implied fair 
value of goodwill with the carrying amount of goodwill. To the extent the carrying amount of goodwill is greater than 
the implied fair value of goodwill, we would record an impairment charge for the difference.  

We evaluate all of our long-lived assets, including intangible assets other than goodwill, for impairment in accordance 
with the provisions of FASB ASC-360-10. Long-lived assets and intangible assets other than goodwill are evaluated for 
impairment  whenever  events  or  changes  in  circumstances  indicate  that  the  carrying  value  of  an  asset  may  not  be 
recoverable based on expected undiscounted cash flows attributable to that asset. Should events indicate that any of our 
long-lived assets are impaired; the amount of such impairment will be measured as the difference between the carrying 
value and the fair value of the impaired asset and recorded in earnings during the period of such impairment. We do not 
anticipate impairment of our long-lived assets in the near term based on the results of our evaluation. 

Valuation allowance for net deferred tax assets 

Deferred income taxes are provided for temporary differences between financial reporting and income tax basis of assets 
and liabilities, and are measured using currently enacted tax rates and laws. Deferred income taxes also arise from the 
future benefits of net operating loss carryforwards.  A valuation allowance equal to 100% of the net deferred tax assets 
has been recognized due to uncertainty regarding future realization. 

Accounting for stock-based compensation 

Upon  the  adoption  of  FASB  ASC-718,  the  Company  changed  its  option  valuation  model  from  the  Black-Scholes 
model  to  a  lattice  valuation  model  for  all  stock  options  granted  subsequent  to  September 30,  2005.  The  lattice 
valuation model is a more flexible analysis to value employee options because of its ability to incorporate inputs that 
change over time, such as actual exercise behavior of option holders.  The Company uses historical data to estimate 
the  option  exercise  and  employee  departure  behavior  used  in  the  lattice  valuation  model.    Expected  volatility  is 
based on historical volatility of the Company’s stock.  The Company uses historical data to estimate option exercise 
and  employee  termination  within  the  valuation  model.    The  Company  considers  all  employees  to  have  similar 
exercise behavior and therefore has not identified separate homogenous groups for valuation. The expected term of 
options granted is derived from the output of the option pricing model and represents the period of time that options 
granted are expected to be outstanding. The risk-free rate for periods within the contractual term of the options is 
based on the U.S. Treasury yields in effect at the time of grant. Forfeitures are based on actual behavior patterns. 

Recent Accounting Pronouncements 

In October 2009, the FASB ratified ASC Update No.  2009-13, Multiple-Deliverable Revenue Arrangements ("ASC 
2009-13").    ASC  2009-13,  amends  existing  revenue  recognition  accounting  pronouncements  that  are  currently 
within  the  scope  of  FASB  Accounting  Standards  Codification,  or  ASC,  Subtopic  605-25,  (previously  included 
within EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables).  This consensus provides for two 
significant changes to the existing multiple element revenue recognition guidance.  First,  this guidance deletes the 
requirement to have objective and reliable evidence of fair value  for  undelivered  elements  in  an  arrangement  
and  will result in more deliverables  being  treated as separate units of accounting.  The second change modifies the 
manner in which the transaction consideration is allocated across the separately identified deliverables. 

36 

 
 
   
   
  
   
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

These changes may result in entities recognizing more revenue up-front, and entities will no longer be able to apply 
the  residual  method  and  defer  the  fair  value  of  undelivered  elements.  Upon  adoption  of  these  new  rules,  each 
separate unit of accounting must have a selling price, which can be based on management's estimate  when  there  is  
no    other    means    to  determine  the  fair  value  of  that  undelivered    item,    and    the  arrangement  consideration  is 
allocated based on the elements'  relative  selling  price.  This accounting guidance is effective no later than fiscal 
years beginning on or after June 15, 2010 but may be early adopted as of the first quarter of an entity's fiscal year.  
The Company does not believe this new standard will have a material impact on the financial statements. 

In  October  2009,  the  FASB  ratified  ASC  No.  2009-14,  Applicability  of  SOP  97-2  to  Certain  Arrangements  that 
Include  Software  Elements  (formerly  EITF  Issue  No.  09-3,  Certain  Revenue  Arrangements  that  Include  Software 
Elements), which amends the existing accounting guidance for how entities account for arrangements that include 
both hardware and software, which typically resulted in the sale of hardware being accounted for under the software 
revenue recognition rules.  This accounting guidance changes revenue recognition for tangible products containing 
software elements and non-software elements.  The  tangible  element  of the product  is  always  outside  of  the  
scope of the software revenue recognition rules,  and the software elements of tangible products when the software 
element and  non-software  elements function together to deliver the product's essential functionality are outside of 
the  scope  of  the  software  rules.    As  a  result,  both  the    hardware    and    qualifying    related    software  elements  are 
excluded from the scope  of  the  software  revenue  guidance  and accounted for under the revised multiple-element  
revenue  recognition  guidance.  This accounting guidance is effective for all fiscal years beginning on or after June 
15, 2010 with early adoption permitted.  Entities must adopt ASC 2009-14 and ASC 2009-13 in the same manner 
and at the same time.  The Company does not believe this new accounting guidance will have a material impact on 
the financial statements, but the adoption will result in the Company’s revenue being accounted for under ASC 605-
25. 

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and 
the  Allowance  for  Credit  Losses”  (“ASU  2010-20”).  The  standard  amends  ASC  Topic  310,  “Receivables”  to 
enhance disclosures about the credit quality of financing receivables and the allowance for credit losses by requiring 
an entity to provide a greater level of disaggregated information and to disclose credit quality indicators, past due 
information, and modifications of its financing receivables. ASU 2010-20 is effective for interim and annual fiscal 
years beginning after December 15, 2010 for public entities and for interim and annual fiscal years beginning after 
December 15, 2011 for nonpublic entities. The Company does not expect the adoption of ASU 2010-20 to have a 
material impact on its consolidated financial statements. 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do 
not  require  adoption  until  a  future  date  are  not  expected  to  have  a  material  impact  on  the  Company's  financial 
statements upon adoption. 

RESULTS OF OPERATIONS  

You should read the following discussion of our results of operations and financial condition in conjunction with our 
consolidated financial statements and related notes thereto included in Item 8 of this Annual Report on Form 10-K. 

Revenue  

Revenue  from  our  business  include  the  sales  of  Mediasite  recorders  and  server  software  products  and  related 
services  contracts,  such  as  customer  support,  installation,  training,  content  hosting  and  event  services  sold 
separately.  We market our products to educational institutions, corporations and government agencies that need to 
deploy, manage, index and distribute video content on Internet-based networks.  We reach both our domestic and 
international markets through reseller networks, a direct sales effort and partnerships with system integrators. 

Revenue  in  fiscal  2010  totaled  $20.5  million,  compared  to  $18.6  million  in  fiscal  2009,  an  increase  of  10%.   
Revenue consisted of the following: 

(cid:131)  Product revenue from the sale of Mediasite recorder units and server software increased from $9.6 million 

in fiscal 2009 to $10.5 million in fiscal 2010.  The increase is due to an increase in units sold.   

37 

 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Units sold 
Rack to mobile ratio 
Average sales price, excluding support (000’s) 

2010 
1,023 
1.9 to 1 
$10.1 

2009 
846 
2.1 to 1 
$10.7 

(cid:131)  Services revenue represent the portion of fees charged for Mediasite customer assurance service contracts 
amortized over the length of the contract, typically 12 months, as well as training, installation, event and 
content  hosting  services.    Services  revenue  increased  from  $8.8  million  in  fiscal  2009  to  $9.8  million  in 
fiscal  2010  due  primarily  to  an  increase  in  support  contracts  on  new  Mediasite  recorder  units  as  well  as 
renewals of support contracts entered into during prior years, sales of multi-year support contracts and an 
increase  in  event  services.    At  September  30,  2010  $6.1  million  of  revenue  was  deferred,  of  which  we 
expect to recognize approximately $2.2 million in the quarter ending December 31, 2010. 

(cid:131)  Other revenue relates to freight charges billed separately to our customers. 

Gross Margin  

Total gross margin in fiscal 2010 was $15.4 million or 75% compared to $14.2 million or 77% in fiscal 2009.  Gross 
margin  percentage  decreased  primarily  due  to  a  lower  average  selling  price  and  a  higher  mix  of  lower  margin 
recorders compared to server software. The significant components of cost of revenue include:  

(cid:131)  Material and freight costs for the Mediasite recorders.  Costs for fiscal 2010 Mediasite recorder hardware 
and  other  costs  totaled  $3.4  million  compared  to  $3.0  million  in  fiscal  2009.    Freight  costs  were  $226 
thousand and labor and allocated costs were $712 thousand in fiscal 2010 compared to $155 thousand and 
$683 thousand in fiscal 2009.   

(cid:131)  Services  costs.    Staff  wages  and  other  costs  allocated  to  cost  of  service  revenues  were  $720  thousand  in 
fiscal 2010 and $537 thousand in fiscal 2009, resulting in gross margin on services of 93% in fiscal 2010 
and 94% in fiscal 2009. 

Gross margin percentage is expected to increase in fiscal 2011 as total revenue increases and as the mix of revenue 
continues to reflect a significant percentage of higher margin services revenue.  The Company is exploring 
opportunities to reduce the cost of manufacturing in fiscal 2011 which if successful, would further improve gross 
margin. 

Operating Expenses  

Selling and Marketing Expenses  

Selling  and  marketing  expenses  include  wages  and  commissions  for  sales,  marketing,  business  development  and 
technical support personnel, print advertising and various promotional expenses for our products. Timing of these 
costs  may  vary  greatly  depending  on  introduction  of  new  products  and  services,  entrance  into  new  markets  or 
participation in major tradeshows.  

Selling and marketing expense decreased $844 thousand, or 8% from $10.4 million in fiscal 2009 to $9.5 million in 
fiscal 2010.  Significant differences include: 

(cid:131)  Salaries,  incentive  compensation,  and  benefits  decreased  $519  thousand  over  prior  year.    The  reduction 

reflects adjustments to the incentive compensation plan and benefits in fiscal 2010.   

(cid:131)  Travel expenses decreased by $72 thousand as a result of reduced travel requirements necessary to close 

transactions.   

(cid:131)  Costs  allocated  from  General  and  Administrative  also  decreased  by  $244  thousand  as  a  result  of  lower 

stock compensation expense and lower bonus and depreciation expense. 

38 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

As of September 30, 2010 we had 61 employees in Selling and Marketing, an increase from 60 employees at 
September 30, 2009.  We expect our headcount to slightly increase in fiscal 2011 to support future growth.  

General and Administrative Expenses 

General and administrative (“G&A”) expenses consist of personnel and related costs associated with the facilities, 
finance,  legal,  human  resource  and  information  technology  departments,  as  well  as  other  expenses  not  fully 
allocated to functional areas. 

G&A expenses decreased $368 thousand, or 13%, from $2.9 million in fiscal 2009 to $2.5 million in fiscal 2010. 
Major components of the change include: 

(cid:131)  A  decrease  in  compensation  and  benefits  of  $169  thousand  associated  with  headcount  reductions  and 

adjustments to benefits  

(cid:131)  Professional  fees  decreased  approximately  $163  thousand  due  primarily  to  the  continued  reduction  of 
accounting  and  investor  relations  costs  in  fiscal  2010.    We  have  closely  evaluated  and  reduced  outside 
investor relations costs by eliminating certain outsourced functions. 

(cid:131)  State and local franchise, sales and other taxes decreased in fiscal 2010 by approximately $69 thousand. 

As of September 30, 2010 we had 6 full-time employees in G&A, a decrease from 8 employees at September 30, 
2009.  We do not anticipate growth in G&A headcount in fiscal 2011.  

Product Development Expenses 

Product  development  (R&D) expenses  include  salaries  and wages of  the software  research  and development  staff 
and  an  allocation  of  benefits,  facility  and  administrative  expenses.  Fluctuations  in  product  development  expenses 
correlate directly to changes in headcount. 

R&D expenses decreased $374 thousand, or 11%, from $3.5 million in fiscal 2009 to $3.1 million in fiscal 2010.  
Some significant differences include: 

(cid:131)  Compensation and benefits decreased by $219 thousand over prior year due to lower staffing levels.  
(cid:131)  Costs also decreased by $128 thousand as a result of lower stock compensation expense and lower bonus 

and depreciation expense. 

At September 30, 2010 we had 23 employees, excluding interns, in Product Development compared to 25 
employees at September 30, 2009.  We anticipate slight growth in R&D headcount in fiscal 2011.  No fiscal 2010 
software development efforts qualified for capitalization.  

Other Expense, Net 

Other  income  included  primarily  interest  income  from  investments  in  certificates  of  deposit  and  overnight 
investment vehicles.  Lower interest rates led to a decrease in interest income from $47 thousand in fiscal 2009 to 
$20  thousand  in  fiscal  2010.    Other  expense  primarily  consists  of  interest  costs  related  to  outstanding  debt  and 
amortization  of  a  debt  discount.    An  increased  level  of  debt  during  the  year  increased  interest  expense  from  $72 
thousand in fiscal 2009 to $190 thousand in fiscal 2010.  Interest in fiscal 2010 includes $37 thousand of non-cash 
interest associated with the amortization of debt discount relating to the issuance of warrants. 

Provisions Related to Income Taxes 

The Company records a non-cash deferred tax liability related to goodwill acquired in 2001. The related income tax 
expense for fiscal 2010 was $240 thousand compared to $142 thousand in 2009.  The Company netted an income 
tax refund of $15 thousand against this amount for fiscal 2010. 

39 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

LIQUIDITY AND CAPITAL RESOURCES  

We have funded our operations to date primarily from public and private placement  offerings of equity securities 
and  debt.  On  September  30,  2010  and  2009,  we  had  cash  and  cash  equivalents  of  $3.4  million  and  $2.6  million, 
respectively.  

Cash  provided  by  operating  activities  totaled  $593  thousand  in  fiscal  2010  compared  to  cash  used  in  operating 
activities of $1.5 million in fiscal 2009, an improvement of $2.1 million.  Cash provided in fiscal 2010 was impacted 
by a decrease in the net loss of $2.5 million from $2.6 million to $122 thousand and partially offset by changes in 
non-cash  charges  and  working  capital.    Working  capital  changes  included  the  negative  effects  of  a  $1.3  million 
increase in accounts receivable and an increase in inventory of $101 thousand.  These were partially offset by the 
positive  effects  of  increases  in  unearned  revenue  and  accounts  payable,  accrued  liabilities  and  other  long-term 
liabilities of $801 and $122 thousand, respectively.  During 2009, working capital adjustments included the positive 
effects  of  an  increase  in  unearned  revenue,  and  reductions  in  accounts  receivable  of  $614  thousand  and  $168 
thousand,  respectively.    These  were  offset  by  the  negative  effects  of  a  decrease  in  accounts  payable,  accrued 
liabilities and other long-term liabilities of $771 thousand.   

Cash used in investing activities totaled $464 thousand in fiscal 2010 compared to cash used in investing activities 
of $237 thousand in fiscal 2009.  Investing activities for each of these two years were due to purchases of property 
and equipment. 

The  Company  has  historically  financed  its  operations  primarily  through  cash  from  sales  of  equity  securities,  cash 
from operations, and to a limited extent, through bank credit facilities.  Cash provided by financing activities in 2010 
totaled  $631  thousand  compared  to  $753  thousand  in  2009.    During  fiscal  2010,  financing  activities  included 
proceeds from the issuance of a term note payable of $1.25 million, which was reduced by a simultaneous payment 
on the revolving line of credit of $300 thousand.  The Company believes its cash position is adequate to accomplish 
its business plan through at least the next twelve months. We may evaluate operating or capital lease opportunities to 
finance  equipment  purchases  in  the  future  or  utilization  of  the  Company’s  revolving  line  of  credit  to  support 
working capital needs. If we are unable to meet our covenants at any future date, we could seek additional equity 
financing, or issue additional shares previously registered in our available shelf registration, although we currently 
have no plans to do so.  

On March 5, 2010, the Company executed the $1,250,000 Loan and Security Agreement (the “Term Loan”) with 
Partners for Growth II. L.P. (“PFG”).   The Term Loan bears interest at 11.75% per annum with principal due in 36 
equal  monthly  payments  of  $34,722  beginning  April  1,  2011  and  continuing  through  March  1,  2014  unless  the 
combination of the Company’s cash and availability falls below certain levels, at which point the principal will be 
due in equal payments over the remaining months left in the period ending 36 months from  the date of the Term 
Loan.  Coincident with closing of the Term Loan the Company repaid the outstanding balance of its revolving line 
of credit with Silicon Valley Bank (“SVB”).  The Company maintains the revolving line of credit with SVB and has 
$2.9 million available for borrowing at September 30, 2010. 

Contractual Obligations 

The following summarizes our contractual obligations at September 30, 2010 and the effect those obligations are 
expected to have on our liquidity and cash flow in future periods (in thousands): 

Total 

  Less than 

  Years 2-3 

  Years 4-5 

Contractual Obligations: 
Product purchase commitments 
Operating lease obligations 
Notes payable (a) 

$   934 

509    

2,138 

1 Year
 $  934 
509 
727 

$       ─ 
   ─ 
1,197 

$       ─ 
       ─ 
214 

Over 5 
years
$       ─ 
       ─ 
       ─ 

(a)  Includes fixed and determinable interest payments 

40 

 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  

Derivative Financial Instruments  

We  are  not  party  to  any  derivative  financial  instruments  or  other  financial  instruments  for  which  the  fair  value 
disclosure would be required under FASB ASC-815-10.  Our cash equivalents consist of overnight investments in 
money market funds that are carried at fair value. Accordingly, we believe that the market risk of such investments 
is minimal.  

Interest Rate Risk  

Our cash equivalents are subject to interest rate fluctuations, however, we believe this risk is immaterial due to the 
short-term nature of these investments.  

Our $1.8 million of debt outstanding at September 30, 2010 is fixed rate.  We do not expect that an increase in the 
level  of  interest  rates  would  have  a  material  impact  on  our  Consolidated  Financial  Statements.  We  monitor  our 
positions with, and the credit quality of, the financial institutions that are party to any of our financial transactions. 

Foreign Currency Exchange Rate Risk  

All international sales of our products are denominated in US dollars.  

41 

 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

ITEM 8.  

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  

Report of Independent Registered Public Accounting Firm 

Board of Directors and Stockholders  
Sonic Foundry, Inc.  

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Sonic  Foundry,  Inc.  and  subsidiary  (a 
Maryland  Corporation)  as  of  September  30,  2010  and  2009,  and  the  related  consolidated  statements  of 
operations, stockholders’ equity, and cash flows  for  each  of  the years then ended.  Our audits of the  basic 
financial  statements  included  the  financial  statement  schedule  listed  in  the  index  appearing  under  Item 
15(a)(2).  These financial statements and financial statement schedule are the responsibility of the Company’s 
management. Our responsibility is to express an opinion on these financial statements based on our audits.  

We  conducted  our  audits  in  accordance  with  the  standards  of  the  Public  Company  Accounting  Oversight 
Board  (United  States).  Those  standards  require  that  we  plan  and  perform  the  audit  to  obtain  reasonable 
assurance  about  whether  the  financial  statements  are  free  of  material  misstatement.  The  Company  is  not 
required  to  have,  nor  were  we  engaged  to  perform  an  audit  of  its  internal  control  over  financial  reporting. 
Our audits included consideration  of internal control  over financial reporting as a basis for designing audit 
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the 
effectiveness  of  the  Company’s  internal  control  over  financial  reporting.  Accordingly,  we  express  no  such 
opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures 
in  the  financial  statements,  assessing  the  accounting  principles  used  and  significant  estimates  made  by 
management,  as  well  as  evaluating  the  overall  financial  statement  presentation.  We  believe  that  our  audits 
provide a reasonable basis for our opinion.  

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, 
the  financial  position  of  Sonic  Foundry,  Inc.  as  of  September  30,  2010  and  2009,  and  the  results  of  its 
operations  and  its  cash  flows  for  each  of  the  years  then  ended  in  conformity  with  accounting  principles 
generally  accepted  in  the  United  States  of  America.    Also  in  our  opinion,  the  related  financial  statement 
schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all 
material respects, the information set forth therein. 

/s/ GRANT THORNTON LLP 

Madison, Wisconsin  
November 22, 2010 

42 

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

Assets  
Current assets:  

Cash and cash equivalents 

     Accounts receivable, net of allowances of $105 and $105 

Inventories 
Prepaid expenses and other current assets 

      Total current assets 

Property and equipment: 

Leasehold improvements 
Computer equipment 
Furniture and fixtures 

Total property and equipment 
Less accumulated depreciation and amortization 

Net property and equipment 

Other assets: 
Goodwill  
Other intangibles, net of amortization of $71 and $35 

Total assets 

Liabilities and stockholders' equity  
Current liabilities:  

Revolving line of credit 
Accounts payable 
Accrued liabilities 
Unearned revenue 
Current portion of capital lease obligations 
Current portion of notes payable 
 Total current liabilities 

Long-term portion of unearned revenue 
Long-term portion of notes payable 
Other liabilities 
Deferred tax liability 
  Total liabilities 

Commitments and contingencies 

Stockholders' equity: 

Preferred stock, $.01 par value, authorized 500,000 shares; none issued  
5% preferred stock, Series B, voting, cumulative, convertible, $.01 par value 
(liquidation preference at par), authorized 1,000,000 shares, none issued  
Common stock, $.01 par value, authorized 10,000,000 shares; 3,650,823 and 
3,619,638 shares issued and 3,638,107 and 3,606,922 shares outstanding  

Additional paid-in capital 
Accumulated deficit 
Receivable for common stock issued 
Treasury stock, at cost, 12,716 shares 

Total stockholders' equity 

Total liabilities and stockholders' equity 

See accompanying notes  

43 

September 30, 

2010 

2009 

$      3,358 
5,038 
541 
433 
9,370 

$    2,598 
3,741 
440 
472 
7,251 

980 
2,597 
461 
4,038 
2,801 
1,237 

980 
2,545 
461 
3,986 
2,670 
1,316 

7,576 
84 
$       18,267 

7,576 
30 
$   16,173 

$           -   
       1,138 
752 
5,486 
-   
552 
7,928 

587 
1,040 
85 
1,490 
11,130 

─ 

─ 

37 
185,973 
(178,678) 
(26) 
(169) 
7,137 
$      18,267 

$       300 
       636 
1,047 
4,902 
24 
316 
7,225 

370 
557 
170 
1,250 
9,572 

─ 

─ 

362 
184,990 
(178,556) 
(26) 
(169) 
6,601 
$   16,173 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended September 30, 

2010 

2009 

$    10,477 
9,849 
150 
20,476 

$      9,644 
8,813 
120 
18,577 

4,345 
720 
5,065 
15,411 

9,506 
2,542 
3,090 
15,138 
273 

(190) 
20 
(170) 
103 
(225) 

3,794 
537 
4,331 
14,246 

10,350 
2,910 
3,464 
16,724 
(2,478) 

(72) 
47 
(25) 
(2,503) 
(142) 

$        (122) 

$     (2,645) 

$      (0.03) 
$      (0.03) 

$      (0.74) 
$      (0.74) 

3,617,423 
3,617,423 

3,598,040 
3,598,040 

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

Revenue: 
Product 
Services 
Other 
Total revenue 

Cost of revenue: 
Product 
Services 
Total cost of revenue 
Gross margin 

Operating expenses: 
Selling and marketing  
General and administrative 
Product development 
Total operating expenses 
Income (loss) from operations 

Interest expense 
Other income, net 
Total other expense, net 
Income (loss) before income taxes 
Provision for income taxes 

Net loss 

Loss per common share: 
Basic net loss per common share 
Diluted net loss per common share 

Weighted average common shares   – Basic 

  – Diluted 

See accompanying notes  

44 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Consolidated Statements of Stockholders' Equity 
For the Year Ended September 30, 2010 and 2009 
(in thousands) 

Balance,  
September 30, 2008 

Stock compensation 
Issuance of common 

stock  

Exercise of common 
stock warrants and 
options 

Net loss 
Balance,  
September 30, 2009 

Common 
stock 

Additional 
paid-in 
capital 

Accumulated
Deficit 

  Receivable 
for common 
stock issued 

Treasury 
stock 

Total 

$    357 

$ 184,204 

$  (175,911) 

  $   (26) 

    $ (169) 

  $   8,455  

─ 

3 

2 
─ 

584 

99 

─ 

─ 

103 

 ─ 

─ 
       (2,645) 

─ 

─ 

─ 
─ 

─ 

─ 

─ 
─ 

584 

102 

105 
(2,645) 

     362 

 184,990 

 (178,556) 

     (26) 

  (169) 

  6,601  

One for ten reverse stock 

(325) 

split 

Stock compensation 
Issuance of common 
stock warrants and 
options 

Exercise of common 
stock warrants and 
options 

Net loss 
Balance,  
September 30, 2010 

See accompanying notes

325 

295 

325 

─ 

─ 

─ 

38 

 ─ 

─ 
       (122) 

─ 

─ 

─ 

─ 
─ 

─ 

─ 

─ 

─ 
─ 

─   

295 

325 

38 
(122) 

─ 

─ 

─ 
─ 

$     37 

$185,973 

$ (178,678) 

$     (26) 

$   (169) 

$   7,137 

45 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Consolidated Statements of Cash Flows 
(in thousands) 

Operating activities  

Net loss 
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: 

$      (122) 

$      (2,645) 

Years Ended September 30, 

2010 

2009 

Amortization of other intangibles  
Depreciation and amortization of property and equipment 
Provision for doubtful accounts 
Deferred taxes 
Share-based compensation expense related to stock warrants and options 

  Other non-cash items 

Changes in operating assets and liabilities: 

Accounts receivable 
Inventories 
Prepaid expenses and other assets 
Accounts payable, accrued liabilities and other long-term liabilities 

     Unearned revenue 
Net cash provided by (used in) operating activities 

Investing activities 

Purchases of property and equipment 
Net cash used in investing activities 

Financing activities 

Net proceeds from (payments on) revolving line of credit 
Proceeds from notes payable 
Payments on notes payable 
Payments of loan fees 
Proceeds from issuance of common stock, net of issuance costs 
Proceeds from exercise of common stock options 
Payments on capital leases 
Net cash provided by financing activities 

Net increase (decrease) in cash and cash equivalents 
Cash and cash equivalents at beginning of period 
Cash and cash equivalents at end of period 

Supplemental cash flow information: 

Interest paid 

Non-cash transactions: 

Property and equipment financed by accounts payable or other accrued liabilities 

See accompanying notes

73 
543 
—  
240 
295 
—  

(1,297) 
(101) 
39 
122 
801 
593 

(464) 
(464) 

(300) 
1,250 
(313) 
(90) 
70 
38 
(24) 
631 

16 
615 
(45) 
142 
584 
(3) 

168 
(110) 
(43) 
(771) 
614 
(1,478) 

(237) 
(237) 

300 
638 
(321) 
(25) 
102 
105 
(46) 
753 

760 
2,598 
$       3,358 

(962) 
3,560 
$       2,598 

153 

63 

72 

10 

46 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

1.  Basis of Presentation and Significant Accounting Policies  

Business  

Sonic  Foundry,  Inc.  (the  Company)  is  in  the  business  of  providing  enterprise  solutions  and  services  for  the  web 
communications market. 

Reverse Stock Split 

Effective November 16, 2009, the Company implemented a one-for-ten reverse stock split of its stock.  All shares 
and per share data in this report have been adjusted to reflect this reverse stock split. 

Principles of Consolidation  

The  accompanying  consolidated  financial  statements  include  the  accounts  of  the  Company  and  its  wholly-owned 
subsidiary,  Sonic  Foundry  Media  Systems,  Inc.  All  significant  intercompany  transactions  and  balances  have  been 
eliminated. In 2010 and 2009, net loss equaled comprehensive loss as there were no items of comprehensive income.  

Use of Estimates  

In preparing financial statements in conformity with accounting principles generally accepted in the United States of 
America (US GAAP), management is required to make estimates and assumptions that affect the reported amounts 
of  assets  and  liabilities,  the  disclosure  of  contingent  assets  and  liabilities  at  the  date  of  the  consolidated  financial 
statements  and  the  reported  amounts  of  revenue  and  expense  during  the  period.    Actual  results  could  differ  from 
those estimates.  

Revenue Recognition  

General  

Revenue is recognized when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, 
the  sales  price  is  fixed  or  determinable  and  collectability  is  reasonably  assured.  Revenue  is  deferred  when 
undelivered  products  or  services  are  essential  to  the  functionality  of  delivered  products,  customer  acceptance  is 
uncertain, significant obligations remain, or the fair value of undelivered elements is unknown. The Company does 
not  offer  customers  the  right  to  return  product,  other  than  for  exchange  or  repair  pursuant  to  a  warranty  or  stock 
rotation.    The  Company’s  policy  is  to  reduce  revenue  if  it  incurs  an  obligation  for  price  rebates  or  other  such 
programs  during  the  period  the  obligation  is  reasonably  estimated  to  occur.    The  following  policies  apply  to  the 
Company’s major categories of revenue transactions.  

Products   

Products are considered delivered, and revenue is recognized, when title and risk of loss have been transferred to the 
customer. Under the terms and conditions of the sale, this occurs at the time of shipment to the customer. Product 
revenue currently represents sales of our Mediasite recorder and Mediasite related products such as server software 
revenue.  

Services  

We sell support contracts to our customers, typically one year in length and record the related revenue ratably over 
the  contractual  period.    Our  support  contracts  cover  phone  and  electronic  technical  support  availability  over  and 
above the level provided by our distributors, software upgrades on a when and if available basis, advance hardware 
replacement and an extension of the standard hardware warranty from 90 days to one year.  The manufacturer we 
contract  with  to  build  the  units  performs  hardware  warranty  service.    We  also  sell  installation,  training,  event 
webcasting, and customer content hosting services.  Revenue for those services is recognized when performed in the 

47 

 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
  
  
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

case  of  installation,  training  and  event  webcasting  services  and  is  recognized  ratably  over  the  contract  period  for 
content hosting services.  Service amounts invoiced to customers in excess of revenue recognized are recorded as 
deferred revenue until the revenue recognition criteria are met.  

Revenue Arrangements that Include Multiple Elements  

Revenue for transactions that include multiple elements such as hardware, software, installation, training, and post 
customer  support  is  allocated  to  each  element  based  on  vendor-specific  objective  evidence  of  the  fair  value 
(“VSOE”)  in  accordance  with  FASB  ASC-985-605.  Revenue  is  recognized  for  each  element  when  the  revenue 
recognition criteria have been met for that element.  VSOE is based on the price charged when the element is sold 
separately.  If  VSOE  of  fair  value  does  not  exist  for  all  elements  in  a  multiple  element  arrangement,  revenue  is 
allocated first to the fair value of the undelivered elements and the residual revenue to the delivered elements. The 
Company recognizes revenue for delivered elements only when all of the following criteria are satisfied: undelivered 
elements are not essential to the functionality of delivered elements, uncertainties regarding customer acceptance are 
resolved, and the fair value for all undelivered elements is known.  

Reserves 

We  record  reserves  for  stock  rotations,  price  adjustments,  rebates,  and  sales  incentives  to  reduce  revenue  and 
accounts receivable for these and other credits we may grant to customers. Such reserves are recorded at the time of 
sale  and  are  calculated  based  on  historical  information  (such  as  rates  of  product  stock  rotations)  and  the  specific 
terms of sales programs, taking into account any other known information about likely customer behavior. If actual 
customer behavior differs from our expectations, additional reserves may be required. Also, if we determine that we 
can  no  longer  accurately  estimate  amounts  for  stock  rotations  and  sales  incentives,  we  would  not  be  able  to 
recognize revenue until resellers sell the inventory to the final end user. 

Shipping and Handling  

The  Company’s  shipping  and  handling  costs  billed  to  customers  are  included  in  other  revenue.    Costs  related  to 
shipping and handling are included in cost of revenue and are recorded at the time of shipment to the customer.  

Concentration of Credit Risk and Other Risks and Uncertainties 

The Company’s cash and cash equivalents are deposited with two major financial institutions.  At times, deposits in 
these institutions exceed the amount of insurance provided on such deposits.  The Company has not experienced any 
losses on such amounts and believes that it is not exposed to any significant credit risk on these balances. 

We perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral. 
We  maintain  allowances  for  potential  credit  losses  and  such  losses  have  been  within  our  expectations.      We  had 
billings  for  Mediasite  product  and  support  services  as  a  percentage  of  total  billings  to  one  distributor  of 
approximately 32% in 2010 and 29% in 2009 and to a second distributor of approximately 22% in 2010 and almost 
10% in 2009. 

Cash and Cash Equivalents  

The Company considers all highly liquid investments purchased with an original maturity of three months or less to 
be cash equivalents.   

Trade Accounts Receivable 

The majority of the Company’s accounts receivable are due from entities in, or distributors or value added resellers 
to,  the  education,  corporate  and  government  sectors.    Credit  is  extended  based  on  evaluation  of  a  customer’s 
financial condition and, generally, collateral is not required.  Accounts receivable are typically due within 30 days 
and  are  stated  at  amounts  due  from  customers  net  of  an  allowance  for  doubtful  accounts.    Accounts  outstanding 

48 

 
 
  
  
 
 
 
  
 
  
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

longer than the contractual payment terms are considered to be past due.  The Company determines its allowance by 
considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s 
previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the 
general  economy  and  the  industry  as  a  whole.    The  Company  writes-off  accounts  receivable  when  they  become 
uncollectible,  and  payments  subsequently  received  on  such  receivables  are  credited  to  the  allowance  for  doubtful 
accounts.  Interest is not accrued on past due receivables. 

Inventory Valuation  

Inventory  consists  of  raw  materials  and  supplies  used  in  the  assembly  of  Mediasite  recorders  and  finished  units.  
Inventory of completed units and spare parts are carried at the lower of cost or market, with cost determined on a 
first-in, first-out basis.  

Inventory consists of the following (in thousands):  

Raw materials and supplies 
Finished goods 

Software Development Costs  

September 30, 

2010 

2009 

$       10     
    531 
$     541 

$       10    
    430 
  $     440 

Internal  software  development  costs  are  capitalized  after  technological  feasibility  is  established.    The  capitalized 
cost is then amortized on a straight-line basis over the estimated product life, or on the ratio of current revenue to 
total  projected  product  revenue,  whichever  is  greater.  To  date,  the  period  between  achieving  technological 
feasibility, which the Company has defined as the establishment of a working model, typically occurs when the beta 
testing  commences,  and  the  general  availability  of  such  software  has  been  short  and  software  development  costs 
qualifying  for  capitalization  have  been  insignificant.  Accordingly,  the  Company  has  not  capitalized  any  internal 
software development costs.   

Property and Equipment  

Property  and  equipment  are  recorded  at  cost  and  are  depreciated  using  the  straight-line  method  for  financial 
reporting purposes. The estimated useful lives used to calculate depreciation are as follows:  

Leasehold improvements 
Computer equipment  
Furniture and fixtures 

Impairment of Long-Lived Assets  

Years 
5 to 10 years 
3 to 5 years 
5 to 7 years 

The Company reviews long-lived assets, including property and equipment, capitalized software development costs 
and other intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount 
may not be recoverable.  Goodwill is reviewed for impairment annually. Recoverability of an asset is measured by 
comparing its carrying value to the expected undiscounted cash flows.  An impairment is measured by the amount 
by which the carrying value of the related asset or group of assets exceeds the expected undiscounted cash flows.  
The Company has recognized no such losses as of September 30, 2010.  

Advertising Expense 

Advertising  costs  included  in  selling  and  marketing,  are  expensed  when  the  advertising  first  takes  place. 
Advertising expense was $156 and $113 thousand for years 2010 and 2009, respectively.  

49 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Research and Development Costs 

Research and development costs are expensed in the period incurred. 

Income Taxes  

Deferred income taxes are provided for temporary differences between financial reporting and income tax basis of 
assets and liabilities, and are measured using currently enacted tax rates and laws. Deferred income taxes also arise 
from  the  future  benefits  of  net  operating  loss  carryforwards.    A  valuation  allowance  equal  to  100%  of  the  net 
deferred tax assets has been recognized due to uncertainty regarding the future realization of these assets, excluding 
the deferred tax liability for goodwill amortization.   

The Company also accounts for the uncertainty in income taxes related to the recognition and measurement of a tax 
position and measurement of a tax position taken or expected to be taken in an income tax return.  The Company 
follows  the  applicable  accounting  guidance  on  derecognition,  classification,  interest  and  penalties,  accounting  in 
interim periods, disclosure and transition related to the uncertainty in income tax positions. 

Fair Value of Financial Instruments  

The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts 
payable and debt instruments. The book values of cash and cash equivalents, accounts receivable, debt and accounts 
payable  are  considered  to  be  representative  of  their  respective  fair  values.  The  carrying  value  of  capital  lease 
obligations, including the current portion, approximates fair market value as the fixed rate approximates the current 
market rate of interest available to the Company. 

Stock-Based Compensation 

The Company uses a lattice valuation model to account for all stock options granted subsequent to September 30, 
2005. The lattice valuation model is a more flexible analysis to value options because of its ability to incorporate 
inputs that change over time, such as actual exercise behavior of option holders. The Company uses historical data 
to estimate the option exercise and employee departure behavior in the lattice valuation model. Expected volatility is 
based on historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise 
and  employee  termination  within  the  valuation  model.  The  Company  considers  all  employees  to  have  similar 
exercise behavior and therefore has not identified separate homogenous groups for valuation. The expected term of 
options granted is derived from the output of the option pricing model and represents the period of time that options 
granted are expected to be outstanding. The risk-free rate for periods the options are expected to be outstanding is 
based on the U.S. Treasury yields in effect at the time of grant.  

The fair value of each option grant is estimated using the assumptions in the following table: 

Expected life (years) 
Risk-free interest rate 
Expected volatility 
Expected forfeiture rate 
Expected exercise factor 
Expected dividend yield 

Years Ending September 30, 
2009 
2010 

4.4 – 5.5 years 
0.8% - 1.4% 
83.2% - 87.2% 
15.41%-18.38% 
1.19 – 2.23 
0% 

5.7 – 6.0 years 
1.3% - 1.7% 
80.2% - 87.0% 
12.64% - 14.32% 
2.32 – 2.94 
0% 

50 

 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
          
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Per Share Computation  

Basic and diluted net loss per share information for all periods is presented under the requirements of FASB ASC-
260-10.    Basic  earnings  per  share  has  been  computed  using  the  weighted-average  number  of  shares  of  common 
stock outstanding during the period, less shares that may be repurchased, and excludes any dilutive effects of options 
and warrants.  If the Company had reported net income during the periods presented below, diluted net income per 
share  would  have  been  computed  using  common  equivalent  shares  related  to  outstanding  options  and  warrants  to 
purchase common stock.  The numerator for the calculation of basic and diluted earnings per share is net income 
(loss).    The  following  table  sets  forth  the  computation  of  basic  and  diluted  weighted  average  shares  used  in  the 
earnings per share calculations:  

Denominator for basic earnings per share 
- weighted average common shares 

Years ended September 30, 
2009 

2010 

3,617,423 

3,598,040 

Effect of dilutive options and warrants (treasury method) 

─ 

─ 

Denominator for diluted earnings per share 

- adjusted weighted average common shares 

3,617,423 

3,598,040 

Options and warrants outstanding during each year, but not included in the 
computation of diluted earnings per share because they are antidilutive 

855,792 

816,256 

Reclassifications 

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year 
presentation. 

Recent Accounting Pronouncements 

In October 2009, the FASB ratified ASC Update No.  2009-13, Multiple-Deliverable Revenue Arrangements ("ASC 
2009-13").    ASC  2009-13,  amends  existing  revenue  recognition  accounting  pronouncements  that  are  currently 
within  the  scope  of  FASB  Accounting  Standards  Codification,  or  ASC,  Subtopic  605-25,  (previously  included 
within EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables).  This consensus provides for two 
significant changes to the existing multiple element revenue recognition guidance.  First,  this guidance deletes the 
requirement to have objective and reliable evidence of fair value  for  undelivered  elements  in  an  arrangement  
and  will result in more deliverables  being  treated as separate units of accounting.  The second change modifies the 
manner in which the transaction consideration is allocated across the separately identified deliverables. 

These changes may result in entities recognizing more revenue up-front, and entities will no longer be able to apply 
the  residual  method  and  defer  the  fair  value  of  undelivered  elements.  Upon  adoption  of  these  new  rules,  each 
separate unit of accounting must have a selling price, which can be based on management's estimate  when  there  is  
no    other    means    to  determine  the  fair  value  of  that  undelivered    item,    and    the  arrangement  consideration  is 
allocated based on the elements'  relative  selling  price.  This accounting guidance is effective no later than fiscal 
years beginning on or after June 15, 2010 but may be early adopted as of the first quarter of an entity's fiscal year.  
The Company does not believe this new standard will have a material impact on the financial statements. 

In  October  2009,  the  FASB  ratified  ASC  No.  2009-14,  Applicability  of  SOP  97-2  to  Certain  Arrangements  that 
Include  Software  Elements  (formerly  EITF  Issue  No.  09-3,  Certain  Revenue  Arrangements  that  Include  Software 
Elements), which amends the existing accounting guidance for how entities account for arrangements that include 
both hardware and software, which typically resulted in the sale of hardware being accounted for under the software 
revenue recognition rules.  This accounting guidance changes revenue recognition for tangible products containing 
software elements and non-software elements.  The  tangible  element  of the product  is  always  outside  of  the  

51 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

scope of the software revenue recognition rules,  and the software elements of tangible products when the software 
element and  non-software  elements function together to deliver the product's essential functionality are outside of 
the  scope  of  the  software  rules.    As  a  result,  both  the    hardware    and    qualifying    related    software  elements  are 
excluded from the scope  of  the  software  revenue  guidance  and accounted for under the revised multiple-element  
revenue  recognition  guidance.  This accounting guidance is effective for all fiscal years beginning on or after June 
15, 2010 with early adoption permitted.  Entities must adopt ASC 2009-14 and ASC 2009-13 in the same manner 
and at the same time.  The Company does not believe this new accounting guidance will have a material impact on 
the financial statements; however, revenue will be accounted for under ASC 605-25.   

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and 
the  Allowance  for  Credit  Losses”  (“ASU  2010-20”).  The  standard  amends  ASC  Topic  310,  “Receivables”  to 
enhance disclosures about the credit quality of financing receivables and the allowance for credit losses by requiring 
an entity to provide a greater level of disaggregated information and to disclose credit quality indicators, past due 
information, and modifications of its financing receivables. ASU 2010-20 is effective for interim and annual fiscal 
years beginning after December 15, 2010 for public entities and for interim and annual fiscal years beginning after 
December 15, 2011 for nonpublic entities. The Company does not expect the adoption of ASU 2010-20 to have a 
material impact on its consolidated financial statements. 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do 
not  require  adoption  until  a  future  date  are  not  expected  to  have  a  material  impact  on  the  Company's  financial 
statements upon adoption. 

2.  Commitments  

The  Company  leases  certain  facilities  and  equipment  under  operating  lease  agreements  expiring  at  various  times 
through  September  30,  2011.  Total  rent  expense  related  to  continuing  operations  on  all  operating  leases  was 
approximately $501 thousand and $484 thousand for the years ended September 30, 2010 and 2009, respectively.  
The  Company  has  $509  thousand  due  in  minimum  lease  payments  under  operating  leases  through  September  30, 
2011. 

The  Company  enters  into  unconditional  purchase  commitments  on  a  regular  basis  for  the  supply  of  Mediasite 
product.   The  Company  has  an  obligation  to  purchase  $934  thousand  as  of  September  30,  2010,  which  is  not 
recorded on the Company's Consolidated Balance Sheet.   

The  Company  enters  into  license  agreements  that  generally  provide  indemnification  against  intellectual  property 
claims for its customers as well as indemnification agreements with certain service providers, landlords and other 
parties  in  the  normal  course  of  business.    The  Company  has  not  incurred  any  material  costs  as  a  result  of  such 
indemnifications  and  has  not  accrued  any  liabilities  related  to  such  obligations  in  the  consolidated  financial 
statements. 

3.  Credit Arrangements  

On June 16, 2008, the Company and its wholly-owned subsidiary, Sonic Foundry Media Systems, Inc. (collectively, 
the  “Companies”)  entered  into  an  Amended  and  Restated  Loan  and  Security  Agreement  (the  “Amended  Loan 
Agreement”) with Silicon Valley Bank providing for a credit facility in the form of a $3,000,000 secured revolving 
line  of  credit  and  a  $1,000,000  term  loan.  The  ability  to  borrow  up  to  the  maximum  $3,000,000  amount  of  the 
revolving line of credit is determined by applying an applicable percentage to eligible accounts receivable, which, is 
reduced by, among other things, a reserve.  Prior to the First Amendment, discussed below, the reserve was equal to 
the balance of the term loan when EBITDA, as defined, would have been less than $200,000 during the preceding 
six month period.  The revolving line of credit accrues interest at a per annum rate equal to the following: (i) during 
such  period  that  Sonic  Foundry  maintains  an  Adjusted  Quick  Ratio  (as  defined)  of  greater  than  2.00  to  1.00,  the 
greater  of  one  percentage  point  (1.0%) above  Silicon  Valley’s  prime  rate,  or  seven  percent  (7.0%);  or  (ii) during 
such period that Sonic Foundry maintains an Adjusted Quick Ratio equal to or less than 2.00 to 1.00, the greater of 
one and one-half percent (1.5%) above Silicon Valley’s prime rate, or seven and one-half percent (7.5%). Under the 

52 

 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Amended Agreement, the term loan will continue to accrue interest at a per annum rate equal to the greater of (i) one 
percentage point (1.0%) above Silicon Valley’s prime rate; or (ii) eight and three quarters percent (8.75%).  Prior to 
the First Amendment, the maturity of both the term loan and the revolving line of credit was June 1, 2010.  At the 
maturity date all outstanding borrowings and any unpaid interest thereon must be repaid, and all outstanding letters 
of  credit  must  be  cash  collateralized.  Principal  on  the  term  loan  is  to  be  repaid  in  thirty-six  (36)  monthly 
installments, and prior to the First Amendment, was to be repaid in full on May 1, 2010.  

On April 14, 2009, the Company executed the First Amendment with Silicon Valley Bank.  The First Amendment, 
among other things, a) refinanced the $361,111 outstanding balance of the Term Loan with a new “Term Loan 2” in 
the amount of $1,000,000, due in 36 equal monthly installments of principal and interest; b) modified the method of 
determining  the  requirement  for  a  reserve  under  the  Revolving  Line  for  the  balance  of  the  term  loan  to  require  a 
reserve unless, for three (3) consecutive monthly periods, the ratio of EBITDA to Debt Service, in each case for the 
three (3) month period then ending is greater than or equal to 1.25 to 1.00; c) modified the minimum requirements 
under the EBITDA covenant, but maintained the provision to override such covenant if the Company maintains a 
minimum Quick Ratio of 1.75 to 1.00; and d) extended the maturity date of the Revolving Line to October 1, 2011 
and the Term Loan 2 to April 1, 2012. At September 30, 2010, a balance of $559 thousand was remaining on the 
term loan and no balance was outstanding on the revolving line of credit. At September 30, 2010, there was $2.9 
million available under this credit facility for advances.  The Company believes it can renew the Revolving Line for 
similar terms and amounts. 

The Amended Loan Agreement contains certain financial covenants, including a covenant requiring the Companies 
to maintain certain of their depository, operating and securities accounts with Silicon Valley Bank, and a covenant 
relating to EBITDA (“EBITDA Covenant”); however, the EBITDA Covenant will not have to be satisfied provided 
that  Sonic  Foundry  maintains  an  Adjusted  Quick  Ratio  (as  defined)  greater  than  or  equal  to  1.75  to  1.00.    The 
Amended  Loan Agreement  also  contains  certain other restrictive  loan  covenants,  including  covenants  limiting  the 
Companies’  ability  to  dispose  of  assets,  make  acquisitions,  be  acquired,  incur  indebtedness,  grant  liens,  make 
investments, pay dividends, and repurchase stock.  At September 30, 2010 the Company was in compliance with all 
covenants  in  the  Amended  Loan  Agreement,  as  amended  by  the  First  Amendment  to  the  Amended  and  Restated 
Loan Agreement (“First Amendment”). 

The Amended Loan Agreement contains events of default that include, among others, non-payment of principal or 
interest,  inaccuracy  of  any  representation  or  warranty,  violation  of  covenants,  bankruptcy  and  insolvency  events, 
material judgments, cross defaults to certain other indebtedness, and material adverse changes. The occurrence of an 
event of default could result in the acceleration of the Companies’ obligations under the Amended Loan Agreement.  

Pursuant to the Amended Loan Agreement, the Company and its wholly-owned subsidiary pledged as collateral to 
the Bank substantially all non-intellectual property business assets, and entered into an Intellectual Property Security 
Agreement with respect to intellectual property assets. 

Partners for Growth 

On  March  5,  2010,  Sonic  Foundry,  Inc.,  and  its  wholly-owned  subsidiary,  Sonic  Foundry  Media  Systems,  Inc. 
(“SFMS”) executed the $1,250,000 Loan and Security Agreement (the “Term Loan”).  

The Term Loan bears interest at 11.75% per annum with principal due in 36 equal monthly payments of $34,722 
beginning April 1, 2011 and continuing through March 1, 2014 unless the combination of the Company’s cash and 
availability falls below certain levels, at which point the principal will be due in equal payments over the remaining 
months left in the period ending 36 months from the date of the Term Loan.   

The Term Loan is collateralized by substantially all the Company’s assets, including intellectual property, subject to 
a first lien held by Silicon Valley Bank and requires compliance with an adjusted quick ratio covenant of 1.75:1.00.  
As of September 30, 2010, the Company was in compliance with this covenant.   

53 

 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Coincident with execution of the Term Loan, the Company entered into a Warrant Purchase Agreement (“Purchase 
Agreement”) and a Warrant Agreement (“Warrant”) with PFG.  Pursuant to the terms of the Purchase Agreement, 
PFG purchased a warrant to purchase up to 76,923 shares of common stock of the Company at an exercise price of 
$6.25 per share, subject to certain adjustments, for a purchase price of $3,333.  PFG is entitled to exercise a warrant 
to  purchase  48,077  shares  of  common  stock  at  any  time.    The  remaining  warrant  to  purchase  28,846  shares  of 
common stock is no longer exercisable as of September 30, 2010.   

The  Company  valued  the  warrants  issued  pursuant  to  the  Purchase  Agreement  using  the  Black-Scholes  method 
assuming  a  1)  life  of  seven  years;  2)  volatility  factor  of  86.9%;  3)  risk  free  interest  rate  of  1.38%,  less  $3,333 
proceeds received from PFG.  The resulting $255 thousand value of the warrants is treated as a debt discount and 
netted against the carrying value of the Term Loan on the consolidated balance sheet.  The discount is amortized at a 
constant rate applied to the outstanding balance of the Term Loan with a corresponding increase to non-cash interest 
expense.  At September 30, 2010 the remaining balance of the discount was $217 thousand. 

The annual principal payments on the term loans are as follows: 

Fiscal Year  (in thousands) 

2011 
2012 
2013 
2014 
Total 
Debt discount 
Net total 

$       552        
631 
417 
209 
    1,809 
(217) 
$    1,592 

4. 

Common Stock Warrants  

The Company has issued restricted common stock purchase warrants to various consultants and other third parties. 
Each  warrant  represents  the  right  to  purchase  one  share  of  common  stock.  All  warrants  are  currently  exercisable.  
The  Company  granted  48,077  warrants  in  fiscal  2010  and  did  not  grant  any  warrants  in  fiscal  2009.    All  such 
warrants are either valued and expensed in full at the date of grant or valued at the date of grant and deferred over 
the term of the relevant contract for services. 

Exercise Prices 

September 30, 2010 

Expiration Date 

  Warrants Outstanding at 

$          6.93  
9.90-14.60 
15.40-37.10 

48,077 
32,447 
10,550 
91,074 

2017 
2010 to 2011 
2011to 2012 

5.  Stock Options and Employee Stock Purchase Plan  

On March 5, 2009, Stockholders approved adoption of the 2009 Stock Incentive Plan (the “2009 Plan”).  The 2009 
Plan, beginning October 1, 2009, replaced two former employee stock option plans that terminated coincident with 
the effectiveness of the 2009 Plan.  The Company also maintains a directors' stock option plan under which options 
may be issued to purchase up to an aggregate of 50,000 shares of common stock.  Each non-employee director, who 
is  re-elected  or  who  continues  as  a  member  of  the  board  of  directors  on  each  annual  meeting  date  and  on  each 
subsequent meeting of Stockholders, will be granted options to purchase 2,000 shares of common stock under the 
directors’ plan, or at other times or amounts at the discretion of the Board of Directors.  

54 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

Each option entitles the holder to purchase one share of common stock at the specified option price. The exercise 
price of each option granted under the plans was set at the fair market value of the Company's common stock at the 
respective  grant  date.  Options  vest  at  various  intervals  and  expire  at  the  earlier  of  termination  of  employment, 
discontinuance of service on the board of directors, ten years from the grant date or at such times as are set by the 
Company at the date of grant.  

Compensation cost for options will be recognized in earnings, net of estimated forfeitures, on a straight-line basis 
over the requisite service period. There were no capitalized stock-based compensation costs at September 30, 2010.   

The number of shares available for grant under these plans at September 30 is as follows:  

Qualified 
Employee 
Stock Option 
Plans 

Non-
Qualified 
Stock Option 
Plan 

Director 
Stock Option 
Plans 

Shares available for grant at September 30, 2008 
Options granted 
Options forfeited 
Shareholder approval of 2009 Stock Incentive Plan 
Options remaining at expiration of plan 
Shares available for grant at September 30, 2009 
Options granted 
Options forfeited 
Shares available for grant at September 30, 2010 

115,332 
(188,690) 
50,533 
400,000 
(1,775) 
375,400 
(52,250) 
4,150 
327,300 

21,999 
(42,750) 
22,746 
– 
(1,995) 
– 
– 
– 
– 

40,000 
(10,000) 
–     
–   
–   
30,000 
(10,500) 
– 
19,500 

The following table summarizes information with respect to outstanding stock options.  

Years Ended September 30, 

2010 

2009 

Weighted 
Average 
Exercise 
Price 

$    16.20 
6.63 
8.22 
85.41 
10.98 

Weighted 
Average 
Exercise 
Price 

Options 

624,044 
241,440 
(19,592)   
(79,279)   
766,615 
466,434 

  $    20.50 
5.90 
5.30 
21.00 
$    16.20 

Options 

766,615
62,750
(14,198)
(50,449)
764,718
555,587

Outstanding at beginning of year 
Granted 
Exercised 
Forfeited  
Outstanding at end of year 
Exercisable at end of year  
Weighted average fair value of options granted 

during the year 

$       3.64 

$       3.40 

55 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

The options outstanding at September 30, 2010 have been segregated into four ranges for additional disclosure as 
follows:  

Options Outstanding 

Options Exercisable 

Options 
Outstanding at 
September 30, 
2010 
357,023 
259,904 
97,558 
50,233 
764,718 

Weighted 
Average 
Remaining 
Contractual 
Life 
8.0 
2.6 
6.2 
5.6 

Weighted 
Average 
Exercise 
Price 
$   6.18 
11.67 
16.22 
31.29 

Options 
Exercisable at 
September 30, 
2010 
176,609 
251,236 
78,761 
48,978 
555,584 

Weighted 
Average 
Exercise 
Price 
$    6.15 
11.70 
16.39 
31.52 

Exercise Prices 
$     4.20 to $9.90 
10.00 to 14.70 
15.50 to 19.40 
20.00 to 46.90 

As of September 30, 2010, there was $437 thousand of total unrecognized compensation cost related to non-vested 
share-based compensation, net of $103 thousand of estimated forfeitures.  The cost is expected to be recognized over 
a weighted-average life of 1.5 years.   

A summary of the status of the company’s non-vested shares as of September 30, 2010 and for the year then ended 
is presented below: 

Non-vested shares at October 1, 2009 
Granted 
Vested 
Forfeited 
Non-vested shares at September 30, 2010 

  Weighted Average 

Grant Date 
Fair Value 
$   5.15 
3.64 
5.92 
4.67 
$   4.28 

Shares 

301,015 
61,150 
(128,335) 
(24,699) 
209,131 

Stock-based  compensation  recorded  in  the  year  ended  September  30,  2010  of  $295  thousand  was  allocated  $199 
thousand to selling and marketing expenses, $21 thousand to general and administrative expenses and $75 thousand 
to  product  development  expenses.    Stock-based  compensation  recorded  in  the  year  ended  September  30,  2009  of 
$584  thousand  was  allocated  $375  thousand  to  selling  and  marketing  expenses,  $52  thousand  to  general  and 
administrative expenses and $157 thousand to product development expenses.  Cash received from option exercises 
under all stock option plans for the years ended September 30, 2010 and 2009 was $38 thousand and $105 thousand, 
respectively.    There  were  no  tax  benefits  realized  for  tax  deductions  from  option  exercises  for  the  years  ended 
September 30, 2010 and 2009. The Company currently expects to satisfy share-based awards with registered shares 
available to be issued. 

6. 

Income Taxes  

The provision for income taxes consists of the following (in thousands):  

Federal income tax 
Federal income tax refundable research credit 
Deferred income tax expense (benefit) 
Change in valuation allowance 
Provision for income taxes 

56 

Years Ended September 30, 

2010 

2009 

$           240 
(15) 
1,373 
(1,373)  
$           225 

$           142 

- 
(1,033) 
1,033 
$           142 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

The reconciliation of income tax expense (benefit) computed at the U.S. federal statutory rate to income tax expense 
(benefit) is as follows (in thousands):  

Income tax expense (benefit) at U.S. statutory rate of 34% 
Federal income tax refundable research credit 
State income tax expense (benefit) 
Permanent differences, net 
Adjustment of temporary differences to income tax returns 
Change in valuation allowance 
Income tax expense 

Years Ended September 30, 

2010 

2009 

$             35 
(15) 
5 
13 
1,560 
(1,373) 
$           225 

$     (851) 
-     
(130) 
14 
76 
1,033 
$          142 

The significant components of the deferred tax accounts recognized for financial reporting purposes are as follows 
(in thousands):  

Deferred tax assets: 
Net operating loss and other carryforwards 
Common stock warrants 
Allowance for doubtful accounts 
Other 
Total deferred tax assets 

Valuation allowance 
Goodwill amortization 
Deferred tax liability for goodwill amortization 

September 30, 

2010 

2009 

$    34,663 
398 
41 
117 
35,219 

(35,219) 
(1,490) 
$    (1,490) 

$    34,566 
1,997 
41 
74 
36,678 

(36,678) 
(1,250) 
$    (1,250) 

At September 30, 2010, the Company had net operating loss carryforwards of approximately $88 million for both 
U.S. Federal and state tax purposes.  For Federal tax purposes, the carryforwards expire in varying amounts between 
2018  and  2030.      For  State  tax  purposes,  the  carryforwards  expire  in  varying  amounts  between  2013  and  2025.  
Utilization of the Company’s net operating loss may be subject to substantial annual limitation due to the ownership 
change limitations provided by the Internal Revenue Code and similar state provisions. Such an annual limitation 
could result in the expiration of the net operating loss carryforwards before utilization.  In addition, the Company 
has  research  and  development  tax  credit  carryforwards  of  approximately  $530  thousand,  which  expire  in  varying 
amounts between 2017 and 2020.  The Company’s net deferred tax asset has been offset by a valuation allowance of 
the same amount.  The valuation allowance has been recorded due to the uncertainty of realization of the deferred 
tax asset. 

Beginning with an acquisition in fiscal year 2002, the Company has amortized Goodwill for tax purposes over a 15 
year life.  Goodwill is not amortized for book purposes.   Annual impairment tests are performed for book purposes 
and the balance of goodwill is to be written down if impairment occurs.  The impairment tests have not indicated 
any goodwill impairment.   

In accordance with accounting guidance for uncertainty in income taxes, the Company has concluded that a reserve 
for  income  tax  contingencies  is  not  necessary.    The  Company's  practice  is  to  recognize  interest  and/or  penalties 
related to income tax matters in income tax expense. The Company had no accruals for interest and penalties on the 
Company's  Consolidated  balance  sheets  at  September  30,  2010  and  2009,  and  has  not  recognized  any  interest  or 
penalties in the Consolidated statement of operations for the years ended September 30, 2010 or 2009.  

The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company's tax years are 
subject  to  examination  by  the  U.S.  and  state  tax  authorities  due  to  the  carryforward  of  unutilized  net  operating 
losses. 

57 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

7.  Savings Plan  

The  Company's  defined  contribution  401(k)  savings  plan  covers  substantially  all  employees  meeting  certain 
minimum  eligibility  requirements.  Participating  employees  can  elect  to  defer  a  portion  of  their  compensation  and 
contribute it to the plan on a pretax basis. The Company may also match certain amounts and/or provide additional 
discretionary  contributions,  as  defined.  The  Company  made  matching  contributions  of  $66  and  $307  thousand 
during  the  years  ended  September  30,  2010  and  2009,  respectively.  Effective  January  1,  2010,  the  Company 
discontinued the matching contribution for the 2010 calendar year. The Company made no additional discretionary 
contributions during 2010 and 2009.  

The  Company  also  has  an  Employee  Stock  Purchase  Plan  (Purchase  Plan)  under  which  an  aggregate  of  50,000 
common shares may be issued. All employees who have completed 90 days of employment with the company on the 
first day of each offering period are eligible to participate in the Purchase Plan. An employee who, after the grant of 
an option to purchase, would hold common stock and/or hold outstanding options to purchase stock possessing 5% 
or  more  of  the  total  combined  voting  power  or  value  of  the  company  will  not  be  eligible  to  participate.    Eligible 
employees may make contributions through payroll deductions of up to 10% of their compensation. No participant 
in the Purchase Plan is permitted to purchase common stock under the Purchase Plan if such option would permit his 
or her rights to purchase stock under the Purchase Plan to accrue at a rate that exceeds $25,000 of the fair market 
value of such shares, or that exceeds 1,000 shares, for each calendar year.  The company makes a bi-annual offering 
to eligible employees of options to purchase shares of common stock under the Purchase Plan on the first trading 
day of January and July.  Each offering period is for a period of six months from the date of the offering, and each 
eligible employee as of the date of offering is entitled to purchase shares of common stock at a purchase price equal 
to the lower of 85% of the fair market value of common stock on the first or last trading day of the offering period.  
There  were  17,053  and  27,162  shares  purchased  by  employees  during  fiscal  2010  and  2009,  respectively.    The 
Company recorded stock compensation expense of $23 and $57 thousand during fiscal 2010 and 2009, respectively. 
Cash  received  from  issuance  of  stock  under  this  plan  was  $70  and  $102  thousand  during  fiscal  2010  and  2009, 
respectively.  

8.  Related-Party Transactions 

The  Company  incurred  fees  of  $244  and  $255  thousand  during  the  years  ended  September  30,  2010  and  2009, 
respectively, to a law firm whose partner is a director and stockholder of the Company.  The Company had accrued 
liabilities  for  unbilled  services  to  the  same  law  firm  of  $54  and  $19  thousand  at  September  30,  2010  and  2009, 
respectively. 

The  Company  recorded  Mediasite  product  and  customer  support  revenue  related  to  $566  and  $600  thousand  of 
billings  during  the  years  ended  September  30,  2010  and  2009  to  Mediasite  KK,  a  Japanese  reseller  in  which  the 
Company  has  an  equity  interest.    Mediasite  KK  owed  the  Company  $63  and  $128  thousand  on  such  billings  at 
September 30, 2010 and 2009, respectively.  The Company accounts for its investment in Mediasite KK under the 
equity method.  The recorded value as of September 30, 2010 and 2009 is zero.   

During the years ended September 30, 2010 and 2009, the Company had a loan outstanding to an executive totaling 
$26 thousand.  The loan is collateralized by Company stock. 

9.  Goodwill and Other Intangible Assets  

The Company accounts for goodwill and other intangible assets in accordance with FASB ASC-350 which requires 
that  goodwill  and  intangible  assets  that  have  indefinite  useful  lives  not  be  amortized  but,  instead,  tested  at  least 
annually  for  impairment.    We  assess  the  impairment  of  goodwill  and  capitalized  software  development  costs  on  an 
annual basis or whenever events or changes in circumstances indicate that the fair value of these assets is less than the 
carrying value. 

58 

 
 
 
 
 
 
 
 
 
 
  
    
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

If we determine that the fair value of goodwill is less than its carrying value, based upon the annual test or the existence 
of impairment, we would then measure impairment based on a comparison of the implied fair value of goodwill with the 
carrying  amount  of  goodwill.  To  the  extent  the  carrying  amount  of  goodwill  is  greater  than  the  implied  fair  value  of 
goodwill, we would record an impairment charge for the difference.  

The Company performed its annual goodwill impairment test as of July 1, 2010 and tested goodwill recognized in 
connection with the acquisition of Mediasite and determined it was not impaired.  Subsequent impairment charges 
for Mediasite or other acquisitions, if any, will be reflected as an operating expense in the consolidated statement of 
operations.   

The following tables present details of the Company’s total intangible assets at September 30, 2010 and 2009: 

Life 
(years)

Gross 

  Accumulated 

Amortization at 
September 30, 
2010 

Balance at 
September 30, 
2010 

(in thousands) 

Amortizable: 
  Loan origination fees 

Non-amortizable goodwill 
Total 

  7,576 
 $      7,731 

       - 
  $          71 

3 

  $           155 
155 

  $          71   

71 

$           84 
        84 

7,576  
$      7,660 

(in thousands) 

Amortizable: 
  Loan origination fees 

Non-amortizable goodwill 

Total 

Life 
(years)

Gross 

  Accumulated 

Amortization at 
September 30, 
2009 

Balance at 
September 30, 
2009 

3 

  $           65 
65 

  $          35   

35 

  7,576 
  $     7,641 

       - 
  $          35 

$           30 
        30 

7,576  
$      7,606 

59 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

10. 

Segment Information 

The Company has determined that it operates in only one segment in accordance with FASB ASC-280-10 as it does 
not disaggregate profit and loss information on a segment basis for internal management reporting purposes to its 
chief operating decision maker. 

The Company’s long-lived assets maintained outside the United States are insignificant. 

The following summarizes revenue by geographic region (in thousands): 

United States 
Europe and Middle East 
Asia 
Other 

Total 

11.  Customer Concentration 

Years Ended September 30, 

2010 

2009 

$   16,559 
1,929 
875 
1,113 
$   20,476 

$   13,372 
3,974 
686 
   545 
$   18,577 

In the fiscal year ended September 30, 2010 and 2009, two distributors represented 54% and 39% of total revenue. 

12.  Quarterly Financial Data (unaudited)  

The following table sets forth selected quarterly financial information for the years ended September 30, 2010 and 
2009. The operating results are not necessarily indicative of results for any future period.   

(in thousands except 
per share data) 

Revenue 
Gross margin 
Gain (loss) from 
operations 

Net income (loss) 
Basic and diluted net 
income (loss) per 
share  

13.  Subsequent Events 

Quarterly Financial Data 

Q4-’10  Q3-’10 

Q2-’10 

Q1-’10 

Q4-’09  Q3-’09 

Q2-’09 

Q1-’09 

$ 5,439 
4,070 

$ 5,626 
4,183 

$ 4,909 
3,676 

$ 4,502 
3,482 

$ 4,128 
3,113 

$ 5,027 
3,932 

$ 5,413 
4,083 

$ 4,009 
3,118 

236 
126 

330 
203 

(43) 
(131) 

(250) 
(320) 

(952) 
(983) 

(151) 
(197) 

(144) 
(188) 

(1,231) 
(1,276) 

$    0.03 

$    0.06 

$  (0.04) 

$ (0.09) 

$  (0.27) 

$ (0.05) 

$  (0.05) 

$ (0.36) 

The Company evaluated subsequent events through November 22, 2010, the date of this filing, and identified no 
subsequent events that would require recognition or disclosure in the financial statements. 

60 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

ITEM 9. 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING 
AND FINANCIAL DISCLOSURE  

Not applicable.  

ITEM 9A. 

CONTROLS AND PROCEDURES 

Disclosure Controls and Procedures 

Based on evaluations as of the end of the period covered by this report, our principal executive officer and principal 
financial  officer,  with  the  participation of our  management  team,  have concluded  that  our  disclosure  controls  and 
procedures (as defined in Rules 13a-15(e), and 15d-15(e) under the Securities Exchange Act) were effective. 

Limitations on the effectiveness of Controls and Permitted Omission from Management’s Assessment 

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of 
financial  reporting  and  the  preparation  of  financial  statements  for  external  purposes  in  accordance  with  generally 
accepted  accounting  principles.    All  internal  control  systems,  no  matter  how  well  designed,  have  inherent 
limitations, including the possibility of human error and the circumvention or overriding of controls.  Accordingly, 
even  effective  internal  controls  can  only  provide  reasonable  assurance  with  respect  to  financial  statement 
preparation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls 
may  become  inadequate  because  of  changes  in  conditions,  or  that  the  degree  of  compliance  with  the  policies  or 
procedures may deteriorate. 

Management’s Report on Internal Control Over Financial Reporting 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, 
as such term is defined in Exchange Act Rules 13a-15(f). 

Under the supervision and with the participation of our management, including our principal executive officer and 
principal  financial  officer,  we  conducted  an  evaluation  of  the  effectiveness  of  our  internal  control  over  financial 
reporting  based  on  the  framework  in  Internal  Control-Integrated  Framework  issued  by  the  Committee  of 
Sponsoring Organizations of the Treadway Commission. 

Based  on  this  evaluation,  our  management  believes  that,  as  of  September  30,  2010,  our  internal  control  over 
financial reporting was effective based on those criteria.   

Changes in Internal Control Over Financial Reporting 

During  the  period  covered  by  this  report,  we  have  not  made  any  change  to  our  internal  control  over  financial 
reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial 
reporting. 

ITEM 9B. 

OTHER INFORMATION 

None. 

61 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

PART III 

ITEM 10. 

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE 

The information required by Item 10 of Form 10-K with respect to directors and executive officers is incorporated 
herein by reference to the information contained in the section entitled “Proposal One:  Election of Directors” and 
“Executive  Officers  of  Sonic”,  respectively,  in  the  Company’s  definitive  Proxy  Statement  to  be  filed  with  the 
Securities and Exchange Commission in connection with the solicitation of proxies for the Company’s 2010 Annual 
Meeting of Stockholders, which will be filed no later than January 28, 2011 (the “Proxy Statement”). 

Item  405  of  Regulation  S-K  calls  for  disclosure  of  any  known  late  filings  or  failure  by  an  insider  to  file  a  report 
required by Section 16(a) of the Securities Act.  This information is contained in the Section entitled “Section 16(a) 
Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated herein by reference. 

Item 401 of Regulation S-K calls for disclosure of whether or not the Company has a financial expert serving on the 
audit  committee  of  its  Board  of  Directors,  and  if  so  who  that  individual  is.    This  information  is  contained  in  the 
Section  entitled  “Meetings  and  Committees  of  Directors”  in  the  Proxy  Statement  and  is  incorporated  herein  by 
reference. 

Item  407  of  Regulation  S-K  calls  for  disclosure  of  whether  or  not  the  Company  has  an  audit  committee  and  a 
financial expert serving on the audit committee of the Board of Directors, and if so, who that individual is.  Item 407 
also requires disclosure regarding the Company’s nominating committee and the director nomination process.  This 
information is contained in the section entitled “Meetings and Committees of Directors” in the Proxy Statement and 
is incorporated herein by reference. 

Sonic Foundry has adopted a code of ethics that applies to all officers and employees, including Sonic Foundry’s 
principal  executive  officer,  its  principal  financial  officer, and persons  performing  similar  functions.    This  code  of 
ethics is available, without charge, to any investor who requests it.  Request should be addressed in writing to Mr. 
Kenneth A. Minor, Corporate Secretary, 222 West Washington Avenue, Madison, Wisconsin 53703. 

ITEM 11. 

EXECUTIVE COMPENSATION 

The information required by Item 11 of Form 10-K is incorporated herein by reference to the information contained 
in  the  sections  entitled  “Directors  Compensation”,  “Executive  Compensation  and  Related  Information”  and 
“Compensation Committee Interlocks and Insider Participation” in the Proxy Statement. 

ITEM 12. 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 
AND RELATED STOCKHOLDER MATTERS 

The information required by Item 12 of Form 10-K is incorporated herein by reference to the information contained 
in  the  sections  entitled  “Security  Ownership  of  Certain  Beneficial  Owners  and  Management”  in  the  Proxy 
Statement.  Information related to equity compensation plans is set forth in Item 5 herein. 

ITEM 13. 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS , AND DIRECTOR 
INDEPENDENCE 

The information required by Item 13 of Form 10-K is incorporated herein by reference to the information contained 
in the section entitled “Certain Transactions”  and “Meetings and Committees of Directors” in the Proxy Statement. 

62 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sonic Foundry, Inc. 
Annual Report on Form 10-K 
For the Year Ended September 30, 2010 

ITEM 14. 

PRINCIPAL ACCOUNTING FEES AND SERVICES 

The information required by Item 14 of Form 10-K is incorporated herein by reference to the information contained 
in  the  section  entitled  “Ratification  of  Appointment  of  Independent  Auditors  –  Fiscal  2009  and  2010  Audit  Fee 
Summary” in the Proxy Statement. 

63 

 
 
 
 
 
sonic foundryannual report 2010

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