Sonic Foundry Inc. Annual Report 2014

FY2014 Annual Report · Sonic Foundry Inc.

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Dear Fellow Shareholders:

When Mediasite arrived in classrooms, training rooms and boardrooms more
than a decade ago, it changed the business of education and communica-
tion. It did so by not only putting knowledge within reach of anyone with an
internet connection, but also transformed it into searchable, indexed and
secure living libraries. We predicted there would be a growing need to capture
and manage vast amounts of rich video and make it easily discoverable in a
time when very few people were using digital video.

I was excited when I took the helm to lead the team developing the next generation of Mediasite, our
market-leading, award-winning video capture and management solution. The team has exceeded
the company’s development objectives, and has succeeded in producing the best solution in the
world for video capture and management.

If our history in this market has taught us anything, it is that our greatest strength is the ability to
scale our technology to meet the customers’ needs. We also learned that implementation of large
and complex solutions happens on the customers’ schedules – not ours. This requires us to think
and plan in terms of not only quarters, but also years.

The proliferation of digital video we predicted 10 years ago is now here. Deployments are larger,
more complex and more strategic than ever, and as a result our customers are looking for us to lend
our expertise even more to their video initiatives. We continue to lead the charge as the market-lead-
ing solution, dominating in lecture capture and in the other applications we serve.

Several key milestones in 2014 shore up that claim:

• The world watched as Mediasite went live in 250 classrooms at University of Leeds in the United
Kingdom, making it the largest fully-automated lecture capture deployment in the world today.
Over the course of just the first four months, the university recorded more than 16,400 lectures
with Mediasite that were viewed, in aggregate, more than 250,000 times. In preparation for their
final exams, students were consuming video content in Mediasite at a rate of 35,000 views per
week. As a result of their vast early success, University of Leeds has now paved the way for other
prestigious institutions to invest in Mediasite.

• New York University, seeking consistency and reliability across their professional schools, invested
in Mediasite Cloud for their U.S. campus, and standardized on Mediasite as their global video

capture and management solution for their U.S. and Abu Dhabi campuses.

• Mediasite Events grew 28% year-over-year. Our turnkey capture and streaming services were
selected for more than 700 events in 2014, showing a trend of increasing scale and complexity.
One example is Dreamforce, the Salesforce.com global user conference in San Francisco, where
our team captured 1,451 sessions from 72 rooms across 6 different properties in just four days.

• We laid the groundwork for one of the largest deployments in the Middle East, the benefits of
which we expect to come to fruition in the second quarter of fiscal 2015.

• Our acquisitions of MediaMission B.V. in the Netherlands and Mediasite K.K. in Japan gave us a
foothold to leverage global growth trends in enterprise video, expand our key markets, and work
toward entering new geographies such as China, India and Latin America.

• Sonic Foundry continues to receive analyst accolades. The company was named the Global
Lecture Capture Leader by Frost & Sullivan for the seventh straight year; a leader in the Aragon
Research Globe for Video Content Management; a leader in Forrester’s Enterprise Video Platform
and Webcasting Waves; and a challenger in Gartner’s Magic Quadrant for Enterprise Video
Content Management.

These accomplishments were achieved in spite of the realities that we, and our customers, face: a
shortage of construction labor delaying expected projects in Japan, significant fluctuations in cur-
rency conversion rates, and the uncertainty of timing surrounding large global deals tied directly to
massive infrastructure projects. We can confidently say that we continue to operate from a balanced
position of customer loyalty and strength of product offerings.

Our customers continue to reinvest in our vision, and therefore in our products. We continue to
expand the capabilities of our award-winning Mediasite Enterprise Video Platform with the most
control and flexibility to capture, create, upload, edit and publish rich video from any environment or
device… to any environment or device.

In the year ahead our innovations and new initiatives will accelerate long-term revenue growth by:

• Seizing opportunities to introduce new capture and collaboration tools that meet the needs of an

increasingly connected world.

• Continuing to pave the way for the most expansive, streamlined and flexible deployment options
with enhanced cloud offerings and advanced integration services.

• Boldly expanding into new markets by leveraging our new partnerships and comprehensive product
offerings.

As we look to the remainder of this year, I’m confident we’re taking the right steps to meet our guid-
ance for 2015 – billings of $45 million, adjusted EBITDA of between $4.5 and $5.5 million, and net
income of between $1 million and $2 million – and position the company for improved operational,
sales and financial performance over time. It’s a pleasure leading this organization and I believe we’re
on a sure path to improving shareholder value in 2015 and beyond.

Sincerely,

Gary Weis
Chief Executive Officer

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

PROXY STATEMENT

January 27, 2015

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 Mark D. Burish for a term expiring in 2020;

FOR the ratification of the appointment of Baker Tilly Virchow Krause LLP as independent auditors of Sonic
for the fiscal year ending September 30, 2015.

In the event that the nominee for director becomes unavailable to serve, which management does not expect, the
persons named in the proxy reserve full discretion to vote for any other persons 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 it at any time prior to the voting of such proxy. This Proxy Statement and
the accompanying proxy are being mailed on or about February 2, 2015.

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 9, 2015 (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 4,347,303 shares of Common Stock, held by approximately 4,800 stockholders, of which
approximately 200 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, but will not be treated as present and entitled to vote for any other purpose. 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 highest vote total will be elected. Neither an abstention nor a withheld vote will affect the outcome of
the election. The ratification of the appointment of Baker Tilly Virchow Krause LLP requires the affirmative vote
of the holders of a majority of the votes cast at the Annual Meeting. If you abstain or withhold your vote 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
1

"broker non-vote". Under current NYSE interpretations, the proposal to ratify the appointment of Baker Tilly
Virchow Krause, LLP as our independent auditor is considered a discretionary matter.

DATE, TIME AND PLACE OF ANNUAL MEETING

The Annual Meeting will be held on March 5, 2015 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 DIRECTOR

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 be less than three or more than twelve. Following the death of Michael
Janowiak in August 2014, we reduced the currently authorized number of directors from seven to six, and we re-
designated the director classification of Brian T. Wiegand from a Class V Director, whose term would have expired in
2018, to a Class IV Director, whose term expires in 2017. The seat on the Board of Directors currently held by Mark D.
Burish is designated as a Class II Board seat, with term expiring as of the Annual Meeting. The Board of Directors has
nominated Mark D. Burish as Class II Director for election at the Annual Meeting.

If elected at the Annual Meeting, Mr. Burish would serve until the 2020 Annual Meeting and until his successor is
elected and qualified or until his earlier death, resignation or removal.

Nominee for Director for a Five-Year term expiring on the 2020 Annual Meeting

Mark D. Burish

Mr. Burish, age 61, has been a director since March 2010 and has served as Non-Executive Chair since April 2011.
Mr. Burish is a 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.

The members of the Board of Directors unanimously recommend a vote FOR the election of Mr. Burish as Class
II Director.

DIRECTORS CONTINUING IN OFFICE

Frederick H. Kopko, Jr.

Term Expires in 2016
(Class III Director)

Frederick H. Kopko, age 59, served as Sonic Foundry’s 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. Mr. Kopko practices in the area of corporate law. He is the
Managing Director, Neltjeberg Bay Enterprises LLC, a merchant banking and business consulting firm and 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.

Brian T. Wiegand

Term Expires in 2017
(Class IV Director)

Mr. Wiegand, age, 46, has been a director of the Company since July 2012, and is a serial entrepreneur who
successfully founded and sold several internet-based companies. He is currently the founder and CEO of Hopster, a
company that links digital marketing efforts with real-world shopping behavior by rewarding consumer purchase
loyalty, engagement and advocacy. Hopster announced in October 2014 that it was acquired by Inmar,
Incorporated. Mr. Wiegand co-founded and served as executive chair of the board of Alice.com, an online retail
platform that connects manufacturers and consumers in the consumer packaged goods market. Alice.com filed for
receivership in August 2013. Mr. Wiegand also co-founded Jellyfish.com, a shopping search engine, in June of
2006. He served as CEO until October 2007 when the company was sold to Microsoft. Mr. Wiegand continued with
Microsoft as the General Manager of Social Commerce until May 2008. He also co-founded NameProtect, a
trademark research and digital brand protection services company in August 1997 which was sold to Corporation
Services Company in March 2007. In addition, Mr. Wiegand founded BizFilings in 1996, the Internet’s leading
incorporation Services Company. He served as the president and CEO until 2002 when the company was acquired
by Wolters Kluwer. Mr. Wiegand attended the University of Wisconsin – Madison.

Gary R. Weis

Term Expires in 2018
(Class V Director)

Mr. Weis, age 67, has been Chief Executive Officer since March 2011, Chief Technology Officer since September
2011 and a Director of Sonic since February 2004. Prior to joining Sonic, he served as 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 2019
(Class I Director)

Mr. Kleinman, age 79, 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 has been Adjunct Professor of Strategic 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 and past chair, a member and past chair 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 from 1984 to 2014 and Chair Emeritus
since 2014 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. Mr. Kleinman received a BS degree in Mathematical Statistics and a PHD in Business from the
University of Chicago.

Paul S. Peercy

Term Expires in 2019
(Class I Director)

Mr. Peercy, age 74, has been a Director of Sonic since February 2004. Mr. Peercy served as dean of the University
of Wisconsin-Madison College of Engineering from September 1999 until April 2013. 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.

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 above. Each of the Company's directors
possess high ethical standards, act with integrity and exercise 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 serving as
a director of Mercury Air Group, Inc. and fills a valuable need with experience in securities and other business law.
Mr. Weis 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 and IBM, including Senior Vice President of Global Services.
While at AT&T, Mr. Weis also was CEO of Concert, a joint venture between AT&T and British Telecom. Mr.
Weis has served as CEO of the Company since March 2011. Mr. Kleinman has significant experience serving on
boards of directors of various companies and 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 through his service at 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. Mr. Wiegand has significant experience in founding and operating
technology companies and building brand awareness with both businesses and consumers.

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 Brian T. Wiegand 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 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, 2014 (“Fiscal 2014”).

Board Leadership Structure and Role in Risk Oversight

In fiscal 2011 the Company separated the positions of Chairman of the Board and Chief Executive Officer. Mark D.
Burish serves as Non-Executive Chairman of the Board and Gary R. Weis serves as our Chief Executive Officer and
Chief Technical Officer. The Company believes that having separate positions provides an appropriate leadership
structure.

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
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 board of directors 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 compensation 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 seven times during Fiscal 2014. 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 2014. Also, disinterested members of the Board of Directors met
three times in Fiscal 2014 to discuss and approve an investment in equity securities of the Company by the
Chairman of the Board of Directors of the Company and by a 5% shareholder of the Company. The transaction
closed in December 2014. See “Certain Transactions”.

The Board of Directors has five standing committees, the Audit Committee, the Executive Compensation Committee,
the New Markets Committee, the Governance Committee and the Nominations 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”). Members of the Audit Committee are Messrs. Kleinman (chair),
Burish and until his death in August 2014, Janowiak. Upon the death of Mr. Janowiak, Mr. Peercy was appointed to
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
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 six times in Fiscal 2014. 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 and until his death in August 2014,
Janowiak. Upon the death of Mr. Janowiak, Mr. Peercy was appointed to the Compensation Committee. 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 twice in Fiscal 2014. A copy of
the charter of the Compensation Committee is available on Sonic’s website.

The New Markets Committee consists of Messrs. Peercy (chair) and Kleinman. The New Markets Committee was
established on January 24, 2013 to assist management in developing new market entry plans, providing access to
contacts that may facilitate entry, assessing risk and monitoring outcomes.

The Governance Committee consists of Messrs. Burish (chair), Kopko and Peercy. The Governance Committee was
established on January 24, 2013 to consider board terms and other governance issues related to enhancing shareholder
value.

The Nominations Committee consists of Messrs. Peercy (chair), Wiegand and Kleinman. 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 Nominations 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.

In particular, for a stockholder to nominate a candidate for election at the 2016 Annual Meeting of Stockholders, the
nomination must be delivered or mailed to and received by Sonic's Secretary between November 5, 2015 and
December 5, 2015 (or, if the 2016 annual meeting is advanced by more than 30 days or delayed by more than 60 days
from March 5, 2016, 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
7

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.

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. In
addition, Mr. Kleinman receives an Audit Committee annual retainer of $8,000 and a Compensation Committee annual
retainer of $3,000 for his services as chairman of each committee and Mr. Burish receives an annual retainer of $35,000
as compensation for his services as Chairman of the Board of Directors. In March 2013 Mr. Peercy received an annual
retainer of $10,000 for his services as chairman of the New Markets Committee and Mr. Kleinman received an annual
retainer of $3,000 for his services as a member of the New Markets Committee. The Board of Directors discontinued
the retainer for directors serving on the New Markets Committee in fiscal 2014. The cash compensation paid to the six
non- employee directors combined in Fiscal 2014 was $249,500. 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 Amended 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 pursuant to
Sonic’s Non-Employee Amended Directors Stock Option Plan.

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 100,000 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, 2014 (including Michael Janowiak, who died in August 2014).

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
Michael H. Janowiak
David C. Kleinman
Frederick H. Kopko
Paul S. Peercy
Brian T. Wiegand

73,500
35,000
49,500
30,500
30,500
30,500

—
—
—
—
—
—

4,780
4,780
5,975
4,780
4,780
4,780

—
—
—
—
—
—

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

—
—
—
—
—
—

All Other
Compensation
($)
(g)

—
—
—
—
—
—

Total
($)
(h)

78,280
39,780
55,475
35,280
35,280
35,280

(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, 2014 in accordance with FASB ASC Topic 718. Each director, received an option
award of 2,000 shares on March 6, 2014 at an exercise price of $10.07 with a grant date fair value of $4,780.
In addition, Mr. Kleinman received a grant of 500 shares on March 6, 2014 at an exercise price of $10.07 with
a grant date fair value of $1,195 in connection with his position as chair of the Audit Committee.

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.

Gary R. Weis serves as both our Chief Executive and Chief Technology Officer. (See " Directors Continuing in Office
".)

Kenneth A. Minor, age 52, 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 43, 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 9, 2015, 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 9, 2015, 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.

Name of Beneficial Owner(1)

Common Stock

Wealth Trust Axiom LLC (3)
4 Radnor Corp Center, suite 520
Radnor PA 19087

Number of Shares of
Class
Beneficially Owned

Percent
of Class(2)

440,408

10.1%

Andrew D. Burish(4)
8020 Excelsior Drive
Madison, WI, 53717

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

Gary R. Weis(6)

Kenneth A. Minor(7)

Robert M. Lipps(8)

Frederick H. Kopko, Jr.(9)
29 South LaSalle Street
Chicago, IL 60603

David C. Kleinman(10)
1101 East 58th Street
Chicago, IL 60637

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

Brian T. Wiegand (12)
8215 Greenway Blvd., Suite 340
Middleton, WI 53562

All current Executive Officers and Directors as a Group (8

persons)(13)

397,794

357,836

200,040

124,710

110,866

46,627

38,374

22,414

20,374

921,261

9.1

8.1

4.5

2.8

2.5

1.1

19.2%

less than 1%

*
(1) Sonic believes that the persons named in the table above, based upon information furnished by such persons,
except as set forth in notes (3) and (4) where such information is based on a Schedule 13G, have, except as set
forth in note (3), sole voting and dispositive power with respect to the number of shares indicated as beneficially
owned by them.

(2) Applicable percentages are based on 4,347,308 shares outstanding, adjusted as required by rules promulgated by

(3)

(4)

the Securities and Exchange Commission.
Information is based on Schedule 13G filed on February 10, 2014 by Albert C. Matt, President of Wealth Trust
Axiom LLC. Based on such information, Wealth Trust Axiom LLC has sole dispositive power but not sole voting
power with respect to such shares.
Includes 38,897 shares and 38,897 shares subject to Presently Exercisable Common Stock Warrants purchased
directly from the Company on December 22, 2014. Information is based on Schedule 13G filed on February 7,

(5)

2014. Also includes 38,897 shares and warrants to purchase an additional 38,897 shares purchased directly from
the Company on December 22, 2014.
Includes 35,905 shares and 35,908 shares subject to presently Exercisable Common Stock Warrants purchased
directly from the Company on December 22, 2014. Also includes 10,000 shares subject to Presently Exercisable
Common Stock Options.
(6)
Includes 138,166 shares subject to Presently Exercisable Options.
(7)
Includes 97,561 shares subject to Presently Exercisable Options.
(8)
Includes 108,811 shares subject to Presently Exercisable Options.
(9)
Includes 18,000 shares subject to Presently Exercisable Options.
(10) Includes 25,500 shares subject to Presently Exercisable Options.
(11) Includes 20,000 shares subject to Presently Exercisable Options.
(12) Includes 6,000 shares subject to Presently Exercisable Options.
(13) Includes an aggregate of 459,943 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 and Executive Vice President
of Sales as the “executive officers.”

The Executive 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 established performance metrics for each of its Named Executive Officers in fiscal 2014 designed to
match Company performance to the amount of incentive compensation paid to such officers following completion of
the fiscal year.

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
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 14 publicly-traded
technology companies with annual revenues ranging from approximately $25 million to just under $100 million;
market capitalization of $25 million to approximately $100 million and approximately 300 employees or less. The
following companies comprised the peer group for the study: ARI Network Services Inc., Asure Software Inc.,
Autobytel Inc., Bsquare Corporation, Envivio Inc., FalconStor Software Inc., GlobalSCAPE Inc., Glowpoint Inc.,
GSE Systems Inc., Inuvo Inc., MAM Software Group, Inc., Smith Micro Software Inc., TheStreet Inc. and
ChyronHego Corporation. 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 Towers Watson Data Services dated April 1, 2010 in various size and
industry stratifications similar to that of Sonic.

The second source of compensation data came from a peer group of fourteen 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 are described above.

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. Weis, Minor and Lipps at a meeting of the Committee
held on November 5, 2014. Accordingly, base compensation for Mr. Weis was increased from $457,320 to
$475,615, base pay for Mr. Minor was increased from $281,910 to $293,190 and base compensation for Mr. Lipps

was increased from $226,669 to $235,739. After its review of all sources of market data as described above, the
Committee believes that the base salaries and the bonuses described are within its targeted range for total cash
compensation.

Annual Performance-Based Variable Compensation

The performance-based variable compensation reported for each executive officer represents compensation that was
earned based on fiscal 2014 performance. The following describes the methodologies used by the Compensation
Committee to determine the final annual performance-based variable compensation earned by each executive
officer:

Selection of Performance Metrics. For fiscal 2014, the Compensation Committee designed a short-term incentive
program (“STIP”) driven by four performance measures that it determined were appropriate to drive desired
business behavior for the Company and would correlate positively with total shareholder return. These measures
were the Company’s results with respect to (1) customer billings, (2) net income, (3) customer satisfaction, and (4)
the officer’s achievement of certain individual goals. Messrs. Weis, Minor, Lipps and two Non-Executive officers
were included in the plan. Mr. Lipps’ short term incentive plan included a separate component based solely on the
level of customer billings achieved.

Establishment of Incentive Goals and Payout Approach. The Compensation Committee designed the relationship
between pay and performance to ensure that desired performance would be rewarded with material payouts.
Similarly, performance that did not meet the goals would reduce the performance-based variable compensation
payout to as low as zero. In setting the performance levels, the Compensation Committee strived to establish
challenging but achievable goals. The factors considered by the Compensation Committee in assessing the challenge
inherent in the goals included:

Management’s internal operating plan; and

Customer satisfaction.

Payout Based on Performance Against Goals. For fiscal 2014 the Company’s performance, as evaluated by the
Compensation Committee, lead to the determination that 55% of the STIP performance metrics were achieved and
therefore 55% of the target bonus payouts were made under the STIP compensation plan. The STIP earned by
Messrs. Weis, Minor and Lipps were $125,763, $54,268 and $37,400, respectively. Total billings – based incentives
paid to Mr. Lipps during fiscal 2014 was $75,855. Additionally the Compensation Committee approved incentive
awards for each of the Named Executives to negotiate and execute a definitive stock purchase agreement with
Mediasite KK in fiscal 2013. Upon execution of the Stock Purchase Agreement with Mediasite KK in December
2013, the Named Executives earned the award which was paid in January 2014. The award earned by Messrs. Weis,
Minor and Lipps were $150,000, $75,000 and $40,000, respectively.

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 our 1995 Stock Option Plan,
the 1999 Non-Qualified Plan or the 2009 Stock Incentive Plan (“Employee Plans”). All but the 2009 Stock
Incentive Plan are now terminated.

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 5, 2014 the Committee awarded Messrs. Weis, Minor and Lipps option grants to purchase 62,264,
34,245 and 34,245 shares of common stock, respectively, effective November 10, 2014 with the strike price equal to
the closing price of Sonic’s stock on that date, which was $9.36. Each grant will vest one third each on the first,
second and third anniversaries 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 Kenneth A. Minor in October 2007 and Robert M. Lipps in August
2008. Effective March 21, 2014 the Company entered into Amended and Restated Employment Agreements with
Messrs. Minor and Lipps.

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 provides that a cash severance payment be made upon termination, other than for cause,
or upon death or disability. In each case, such cash severance is equal to the highest cash compensation paid in any of
the last three fiscal years immediately prior to termination. In addition, Messrs. 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; 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, within two years and ninety days of any such event, Messrs. Minor or Lipps, as the case may be, is demoted
without cause or his title, authority, status or responsibilities are substantially altered, their salary is reduced or the
principal office is more than 50 miles outside the Madison metropolitan area. 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.

Effective September 30, 2011, the Company entered into an amended and restated employment agreement with Mr.
Weis. Pursuant to the terms of the amended and restated employment agreement, Mr. Weis will receive an annual
base salary subject to increase at the discretion of the Board. Mr. Weis may also receive a performance bonus at the
discretion of the Board. Mr. Weis in addition will assume duties as are customarily performed by a Chief
Technology Officer.

The amended and restated employment agreement will continue in effect until terminated as set forth therein. In the
event Mr. Weis’s employment is terminated without cause, as defined in the amended and restated employment
agreement, or in the event his employment is constructively terminated, Mr. Weis shall be entitled to receive, in
equal bi-weekly installments over a one-year period, compensation equal to one and five hundredths
(1.05) multiplied by the highest cash compensation paid to Mr. Weis in any of the last three years immediately prior
to his termination. In the event of a Change of Control, as defined in the amended and restated employment

agreement, Mr. Weis is entitled to terminate the agreement within one year following such Change of Control, in
which event he shall be entitled to receive, in a lump sum payable within thirty days of such termination,
compensation equal to two and one-tenth (2.1) multiplied by the highest cash compensation paid to Mr. Weis in any
of the last three fiscal years immediately prior to his termination. In any of the above events, (i) all of Mr. Weis’s
unvested stock options and stock grants shall vest immediately upon termination, and (ii) Mr. Weis shall receive
health insurance continuation as required by COBRA, salary accrued to the date of termination, and any accrued
vacation pay. Mr. Weis has further agreed not to disclose the Company’s proprietary information, and, until one year
following the termination of his employment agreement, not to compete with the Company or solicit the Company’s
employees. Such non-compete clause may not be enforceable, or may be only partially enforceable, in state courts
of relevant jurisdiction.

For illustrative purposes, if Sonic terminated the employment of Mr. Weis (not for cause) on September 30,
2014, Sonic would be obligated to pay $764,891, representing 1.05 times the cash compensation paid Mr. Weis during
fiscal 2014 and $1,529,783 if Mr. Weis elected to terminate his employment on September 30, 2014, following a
change of control as defined in the employment agreement. If Sonic terminated Messrs. Minor and Lipps on
September 30, 2014, (not for cause), or if Messrs. Minor and Lipps elected to terminate their employment following a
demotion or alteration of duties on September 30, 2014, and a change of control as defined in the employment
agreements had occurred, Sonic would be obligated to pay $410,145 and $378,339, respectively. In addition, any non-
vested rights of Messrs. Weis, Minor and Lipps under the Employee Plans, would vest as of the date of employment
termination. The value of accelerated vesting of the options under these circumstances would be $155,000 for Mr. Weis
and $96,000 for both Messrs. Minor and 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 2014.

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
Paul S. Peercy

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, 2014.

Summary Compensation

Salary
($)
(c)

Bonus
($)
(d)

Stock
Awards
($)
(e)

Option
Awards
($)(1)
(f)

Non-Equity
Incentive Plan
Compensation
($)(2)
(g)

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

Name and Principal
Position
(a)

Gary R. Weis
Chief Executive and
Chief Technology
Officer

Year
(b)

2014
2013
2012

452,705
395,865
378,400

Kenneth A. Minor
Chief Financial Officer
and Secretary

2014
2013
2012

280,877
267,502
255,123

Robert M. Lipps
Executive Vice
President - Sales

2014
2013
2012

225,084
205,308
195,811

—
—
—

202,358
198,560
—

275,763
79,461
75,680

—
—
—

111,296
108,800
103,400

129,268
37,588
50,784

111,296
108,800
103,400

153,255
102,501
109,911

—
—
—

—
—

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

Total
($)
(j)

10,400
13,214
6,986

941,226
687,100
461,066

17,774
16,718
16,809

539,215
430,608
426,116

10,988
9,900
8,787

500,623
426,509
417,909

(1) 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,
“Accounting for 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.

(2) The amounts in column (g) represent cash bonuses which were awarded for performance during the prior fiscal

year based on a pre-established formula.

(3) The amount shown under column (i) for the fiscal year 2014 includes Sonic’s matching contribution under our
401(k) plan of $10,400, $10,624 and $10,988 for Messrs Weis, Minor and Lipps. Mr. Minor receives $650 per
month as a car allowance of which the taxable personal portions were $7,150. Mr. Lipps receives a car allowance
of $700 per month of which there was no taxable personal portion. Mr. Weis received car and housing allowances
totaling $2,500 per month, of which there was no taxable personal portion.

The following table shows the plan-based awards granted to the Named Executive Officers during fiscal 2014.

Grants of Plan-Based Awards

Name
(a)

Grant
Date
(b)

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

Maximum
($)
(e)

Threshold
($)
(c)

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)

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

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

Gary R. Weis
Kenneth A. Minor
Robert M. Lipps

10/28/13 —
10/28/13 —
10/28/13 —

—
—
—

61,500
33,825
33,825

9.45
9.45
9.45

198,560
108,800
108,800

(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 FASB
ASC Topic 718 compensation methodology. Grant date fair value is calculated using the Lattice method. See
Note 1, “Accounting for Stock Based Compensation” in the Notes to the Consolidated Financial Statements in
Sonic’s Form 10-K for the fiscal year ended September 30, 2014 for an explanation of the methodology and
assumptions used in FASB ASC Topic 718 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 FASB ASC Topic 718 value.

Sonic grants options to its executive officers under our employee stock option plans. As of September 30, 2014, options
to purchase a total of 1,240,941 shares were outstanding under the plans, and options to purchase 873,266 shares
remained available for grant thereunder.

Outstanding Equity Awards at Fiscal Year-End

The following table shows information concerning outstanding equity awards as of September 30, 2014 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)

Name
(a)

Gary R. Weis

Kenneth A. Minor

Robert M. Lipps

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

None

Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
(b)
2,000
2,000
2,000
2,000
5,000
2,000
2,000
2,000
33,333
24,334
0

5,000
12,000
6,000
14,120
18,333
13,333
0

2,500
750
1,500
2,500
10,000
6,000
6,000
14,120
18,333
13,333
0

Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(1)
(c)

0
0
0
0
0
0
0
0
16,667
48,666
61,500

0
0
0
0
9,167
26,667
33,825

0
0
0
0
0
0
0
0
9,167
26,667
33,825

Option
Exercise
Price
($)
(1)
(e)
12.30
17.40
37.60
8.00
5.00
5.50
6.90
14.83
8.68
7.80
9.45

Option
Expiration Date
(1)
(f)
5/15/2015
3/15/2016
3/15/2017
3/6/2018
11/3/2018
3/5/2019
3/4/2020
3/3/2021
9/30/2021
10/17/2022
10/28/2023

14.50
15.50
5.26
15.21
9.46
7.80
9.45

22.60
37.10
15.50
7.50
7.80
5.30
5.26
15.21
9.46
7.80
9.45

11/26/2014
12/04/2017
12/2/2019
11/24/2020
10/24/2021
10/17/2022
10/28/2023

04/10/2016
12/07/2016
12/04/2017
03/10/2018
04/16/2018
11/10/2018
12/2/2019
11/24/2020
10/24/2021
10/17/2022
10/28/2023

(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.

The following table shows information concerning option exercises in fiscal 2014 by the Named Executive Officers.

Option Exercises and Stock Vested

Option Awards

Stock Awards

Number of Shares
Acquired on
Exercise
(#)

Value Realized
on Exercise
($)

Number of
Shares Acquired
on Vesting
(#)

Value Realized
on Vesting
($)

None

Equity Compensation Plan Information

Plan category

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)

(b)

(c)

Equity compensation plans approved
by security holders (1)

Equity compensation plans not
approved by security holders (2)

1,169,883

$ 10.10

873,266

71,058

12.65

—

Total

1,240,941

$ 10.24

873,266

(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.

Compensation Committee Interlocks and Insider Participation

The members of the Executive Compensation Committee of Sonic's Board of Directors for fiscal 2014 were those named
in the Executive Compensation Committee Report. No member of the Committee was at any time during fiscal 2014 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.

PROPOSAL TWO: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The Board of Directors, upon the recommendation of the Audit Committee, has appointed the firm of Baker Tilly
Virchow Krause LLP (“BT”) as independent auditors to audit our financial statements for the year ending September
30, 2015, and has further directed that management submit the selection of independent public accountants for
ratification by the stockholders at the annual meeting. Representatives of BT 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 BT as our independent auditors is not required by our Bylaws or otherwise.
However, the Board is submitting the selection of BT 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 BT as independent public accountants requires the approval of a majority of the
votes cast at the Annual Meeting.

Recommendation of Board of Directors

The Board of Directors unanimously recommends a vote FOR proposal 2 ratifying the appointment of BT as
independent auditors for Sonic Foundry.

Relations with Independent Auditors

On June 11, 2014, the Company, upon the recommendation of its audit committee, dismissed Grant Thornton LLP
(“GT”) and appointed Baker Tilly Virchow Krause, LLP (“BT”) as its independent auditor for the fiscal year that
commenced October 1, 2013.

During the years ended September 30, 2012 and 2013 and through June 11, 2014, neither the Company nor its audit
committee consulted BT with respect to the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on our financial statements, as defined in
Item 304(a)(2)(i) of Regulation S-K, for which was concluded an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting issue. Likewise, neither the Company nor
the audit committee consulted BT regarding any matter that was the subject of a disagreement or a reportable event,
as defined in Item 304(a)(2)(ii) of Regulation S-K.

As stated in Proposal 2, the Board has selected BT to serve as our independent auditors for the fiscal year ending
September 30, 2015.

Audit services performed by BT and GT for Fiscal 2014 and 2013 consisted of the examination of our financial
statements, review of fiscal quarter results, and 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. All fees paid
to BT and 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 2014 and 2013 Audit Firm Fee Summary

During fiscal years 2014 and 2013, we retained BT and GT to provide services in the following categories and
amounts:

Grant Thornton LLP
Audit Fees
Audit Related
Tax Fees

Baker Tilly Virchow Krause LLP
Audit Fees
Tax Fees

Years Ended September 30,
2013
2014

$140,346
12,328
33,500

$172,925
3,500

$177,780
11,950
26,940

—
9,262

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 six
meetings during fiscal 2014.

Messrs. Kleinman, Burish and Peercy 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. 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, BT, matters required to be discussed pursuant to
Auditing Standard No. 16 (Communications with Audit Committees) as promulgated by the Public Company
Accounting Oversight Board. 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 BT 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.

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.

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”.

We have reviewed and discussed with management and BT the audited financial statements. We discussed with BT the
overall scope and plans of their audit. We met with BT, 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
2014, 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, 2014, for filing with the SEC.
Respectfully submitted,

AUDIT COMMITTEE
David C. Kleinman, Chair
Mark D. Burish
Paul S. Peercy

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 14,000 shares of
Common Stock at exercise prices ranging from $5.50 to $14.83 pursuant to the 2008 Non-Employee Directors Plan.
During fiscal 2014, we paid the Chicago law firm of McBreen & Kopko certain compensation for legal services
rendered subject to standard billing rates. On December 22, 2014, Sonic Foundry, Inc. issued 35,905 and 38,897
shares of common stock to Mark D. Burish and Andrew D. Burish, respectively. The shares were issued at a price of
approximately $8.36 per share, representing the twenty-day average closing price on the period ending
December 18, 2014. On December 22, 2014, the closing price of the Company’s common stock was $7.68 per share.
The shares are restricted from any sale, distribution or pledge of any kind for a two year period ending
December 22, 2016. Messrs. Mark and Andrew Burish also received warrants to purchase 35,905 and 38,897 shares
of common stock at an exercise price of $14.00 per share, respectively, which expire on December 22, 2019. This
transaction was approved by a committee of disinterested directors of the Company.

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, with the exception of Mr. Mark Burish, who inadvertently filed a Form 4 on February 24,
2014 which was due February 21, 2014.

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 who 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.

STOCKHOLDER PROPOSALS FOR 2016 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 2016 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 29, 2015). 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 2016 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 5, 2015 and December 5, 2015. However, in the event that the annual meeting is advanced by more than
30 days or delayed by more than 60 days from March 5, 2016, 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 2016 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 13, 2015) and (ii) any other proposal, if the 2016 proxy statement briefly describes the matter and how

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By O

Order of the Boa

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Kenn

neth A. Minor,

Secretary

January 27

, 2015

(This page intentionally left blank)

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, 2014

(cid:134)

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

Commission File Number

000-30407

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

(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

(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)

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

(cid:57)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit and post such files).

Yes

(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

(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 $40,992,000.

The number of shares outstanding of the registrant's common equity was 4,263,754 as of December 5, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 2014 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, 2015.

TABLE OF CONTENTS

PAGE NO.

PART I

Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.

Business .................................................................................................................................
Risk Factors ...........................................................................................................................
Unresolved Staff Comments ..................................................................................................
Properties ...............................................................................................................................
Legal Proceedings ..................................................................................................................
Mine Safety Disclosures ........................................................................................................

4
14
29
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 Baker Tilly Virchow Krause, LLP, Independent Registered Public Accounting
Firm ........................................................................................................................................
Report of Grant Thornton, LLP, Independent Registered Public Accounting Firm ..............
Consolidated Balance Sheets .................................................................................................
Consolidated Statements of Operations .................................................................................
Consolidated Statements of Comprehensive Loss .................................................................
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
45

46
47
48
50
51
52
53
54

76
76
77

78
79

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Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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

PART I

Who We Are
Sonic Foundry (NASDAQ: SOFO) is the trusted market leader for video capture, management and webcasting
solutions in education, business and government. The patented Mediasite Enterprise Video Platform transforms
communications, training, education and events. The company empowers organizations to reach everyone through
the power of video to accelerate knowledge-sharing, preserve valuable content, build stronger teams and get results.

Today, over 3,000 customers in over 60 countries use Mediasite to capture, stream and manage a vast number of
video hours with millions of viewers around the world. According to usage statistics among our education
customers, a student starts watching Mediasite every second, adding up to over 30 million views annually.

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.,
Madison, Wisconsin 53703 and our
is
www.sonicfoundry.com. In the “Investors” 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

Challenges We Address
Every organization faces a fundamental need to share information and communicate efficiently. Universities and
colleges connect instructors with students to educate and prepare the next generation. 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:

(cid:129) Ensuring learners’ academic and professional success
(cid:129) Connecting with a geographically-dispersed audience
(cid:129)
(cid:129) Reducing logistical and financial impacts
(cid:129) Avoiding cumbersome and restrictive technologies

Improving productivity and overall organizational knowledge

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Sonic Foundry Solutions
Sonic Foundry is changing the way organizations share and use information with these solutions:

Mediasite Enterprise Video Platform
Mediasite Enterprise Video Platform is the trusted cornerstone to enterprise and campus video content management
strategies. It’s a powerful and flexible system to deliver rich interactive video – live and on-demand – to any user on
any screen. Video content can be created anywhere – training rooms, classrooms, videoconferences, desktops and
mobile devices, studios and live events. Regardless of the source, Mediasite Enterprise Video Platform ensures all
content has a secure, central home. We understand the incredible value and power of quickly publishing, easily
retrieving and ultimately measuring the impact of video content.
(cid:129) Publish: Distribute and archive content where and when users most need it
(cid:129) Organize: Archive and index content in video portals or channels so busy learners can quickly find what they

need

(cid:129) Search: Pinpoint important information in just seconds with advanced indexing and automated metadata

creation

(cid:129) Analyze: Monitor who is watching what and when in order to measure learning outcomes or program

effectiveness

(cid:129) Edit: Put the finishing touches on recorded content and easily repurpose video
(cid:129) Secure: Guarantee only authorized users access content with role-based directory integration

Mediasite Cloud
Mediasite Cloud provides a reliable, worry-free option for video streaming and content management projects of any
size. Customers conveniently host and manage all of their content with our SaaS-based Mediasite Cloud or use as
needed for important and large events to divert heavy viewing traffic from their on-premises Mediasite Platform.
Our co-located and high availability Mediasite Cloud data center and experienced team are in place to successfully
manage our customer’s video streaming needs. Clients increasingly trust Mediasite Cloud and Sonic Foundry to
provide a secure, fault-tolerant environment for their valuable content.

Mediasite Capture Solutions
Valuable knowledge and expertise is shared every minute, but what’s the best way to capture that knowledge before
it evaporates into thin air? Mediasite provides flexible options to record and upload any content from anywhere.
(cid:129) My Mediasite: My Mediasite empowers faculty, trainers, staff and students to create and share video, training
modules, lectures or assignments wherever they are. It’s a friendly launch pad for users to record, upload,
manage and publish their own video content from their laptop, computer, or mobile device.

(cid:129) Mediasite RL Recorders: In lecture halls, training rooms, board rooms and auditoriums, Mediasite RL
Recorder’s automated and schedule-driven content capture speeds user adoption, cuts publishing delays and
minimizes support requirements for high volume live and on-demand streaming.

(cid:129) Mediasite MultiView Recorders: For sophisticated training scenarios, simulations or complex procedures,
Mediasite MultiView Recorders uniquely capture and simul-stream multi-video content from up to four content
sources.

(cid:129) Mediasite ML Recorders: Designed for on-the-go webcasting, hybrid events, guest speakers and conferences,
Mediasite ML’s lightweight, portable design moves easily from location to location and can be set up and ready
to record in only a few minutes.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Mediasite Events
Mediasite Events is a leading global provider of live and on-demand webcasting for hybrid events and high-profile
meetings, supplying turnkey streaming solutions for close to 700 events each year. The group works with Fortune
500 corporations, universities, associations, sporting events and charitable organizations to produce successful, high-
quality online experiences that score rave reviews and achieve event goals. With Mediasite Events, customers:
(cid:129) Expand their audience by reaching those that cannot attend in person
(cid:129) Generate additional revenue streams to maximize event ROI
(cid:129) Engage remote audiences and differentiate themselves from competing events
(cid:129) Bolster training and communication effectiveness with interactive video
(cid:129) Build stronger teams and deepen morale
(cid:129) Save travel time and money
(cid:129)

Improve retention and learning outcomes

Mediasite Services
Organizations maximize their return on video with these additional Mediasite Services:
(cid:129) Advanced Integration Services: The value of Mediasite Enterprise Video Platform is further enhanced when
customers’ video assets and streaming workflows seamlessly integrate with the systems that drive their online
learning, training or communication strategies. Mediasite Advanced Integration Services provides the resources
and expertise to incorporate Mediasite video creation, management and delivery processes into existing or
planned application platforms, infrastructures and workflows. Leveraging Mediasite’s open architecture and
application programming interfaces (APIs), Sonic Foundry developers collaborate with customers to scope,
design and implement a Mediasite solution tailored to their unique requirements.
Installation Services: Sonic Foundry provides on-site consulting and installation services to help customers
optimize deployments and efficiently integrate Mediasite within existing AV and IT infrastructures, processes
and workflows.

(cid:129)

(cid:129) Training Services: Expert Sonic Foundry 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.

Mediasite Customer Assurance
Sonic Foundry’s annually renewable maintenance and support plans provide customers access to technical expertise
and Mediasite software updates. With a Mediasite Customer Assurance contract, customers are entitled to:
(cid:129) Software upgrades and updates for Mediasite Enterprise Video Platform and Mediasite Capture Solutions
(cid:129) Unlimited technical support assistance
(cid:129) Mediasite Recorder hardware warranty extension
(cid:129) Advanced Mediasite Recorder replacement
(cid:129) Authorized access to the Mediasite Customer Assurance Portal where they can access software downloads,

documentation, the Mediasite Knowledge Base, video tutorials and technical resources at any time.

Nearly all of our customers purchase a Customer Assurance plan when they purchase Mediasite Enterprise Video
Platform or Mediasite Capture Solutions.

What Sets Mediasite Apart?
For enterprises to maximize their return on video, it takes more than capturing, storing and streaming content. The
true impact and power of video is realized when content is transformed into highly interactive learning experiences
rich with searchable metadata and detailed viewing statistics. The Mediasite advantage comes from:

(cid:129)

Interactive, consistent playback experiences across devices – By engaging the viewer’s auditory, visual and
kinesthetic senses, Mediasite increases content comprehension and retention. Unconstrained by viewing device
or traditional webcast layouts, Mediasite involves the viewer in their online video experience with polls,
bookmarks, sharing, ask-a-question, resource links and more. Plus, Mediasite’s consistent playback experience
across all devices significantly reduces learning curves and accelerates adoption and content mastery.

(cid:129) Auto-indexing and powerful video search – We understand the need to bring order to growing video libraries
so content can be found, used and re-purposed. Mediasite’s unique auto-scan and index capabilities for slides,

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

tags and audio transcripts, make all video discoverable – saving users immeasurable time with Mediasite’s
TotalSearch engine.

(cid:129) Analytics – Measuring the impact and value of video initiatives is critical to their ongoing success. With
Mediasite, powerful analytics tools show exactly who is watching what content when and provide the deep
insight needed to:

(cid:129) Analyze patterns in viewing frequency and behavior
(cid:129) Correlate these trends to learning outcomes, individual performance and overall program effectiveness
(cid:129) Measure return on investment
(cid:129) Make informed decisions about e-learning programs
(cid:129) Plan effectively for future needs and system expansion

Mediasite uniquely sets itself apart as a complete platform that addresses all phases of the video lifecycle – from
content creation to delivery to retention and management. Unlike many competing platforms that focus only on a
subset of capabilities to support that lifecycle, customers can leverage Mediasite as a total solution for all enterprise
video needs. Plus, Mediasite’s comprehensive portfolio of video creation solutions and deployment options
provides customers the flexibility and scalability they need to develop a comprehensive enterprise video strategy.

Sonic Foundry and the growing Mediasite Community provide a reliable, collaborative support network for all
Mediasite customers. Our worldwide network of field-based system engineers and responsive customer care ensure
that customers have readily available resources committed to their success. Plus, with over 1,800 active customer
members, the Mediasite Community is one of the most vibrant and growing user communities for video, webcasting,
lecture capture and e-learning. Members share ideas and get feedback year-round from community experts through a
private online portal, live quarterly webcasts and unrivaled networking and learning opportunities at Unleash, the
annual Mediasite User Conference, and other regional customer events.

Sonic Foundry Solutions in Higher Education:
Among post-secondary institutions, Mediasite is used for all academic and campus environments, including:
(cid:129) Lecture capture
(cid:129) Flipped classroom instruction: students view lectures from home and use classroom time for discussion
(cid:129) Distance learning
(cid:129) Continuing education
(cid:129) Campus YouTube
(cid:129) Special events: commencement, guest speakers, sporting events, etc.
(cid:129) Faculty training and development
(cid:129) Student video
(cid:129) Recruitment and admissions
(cid:129) University business: leadership meetings, alumni relations, outreach

Improves student learning outcomes

Through interviews, many higher education institutions report that Mediasite:
(cid:129)
(cid:129) Keeps their institution competitive by supporting higher enrollment and/or tuition without new classrooms
(cid:129) Empowers faculty with technology supporting new teaching pedagogies both in the classroom and online
(cid:129) Boosts campus outreach, recruitment efforts and awareness of campus events
(cid:129) Helps campuses manage, secure and search all campus video

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Recent trends in video drive more departments to adopt online education. Some examples include blended or hybrid
courses, fully online distance learning programs, dual enrollment programs and flipped classrooms. 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 our academic customer base. We are now
experiencing heightened market demand for academic video within undergraduate and community college programs
as well.

According to the Center for Digital Education report, The Upside of Upside Down: Faculty Perspectives on the
Flipped Classroom, 2013, there’s growing faculty and student demand for this technology-driven pedagogy relying
on video. In fact, more than two-thirds of faculty – 70 percent – are already using or are planning to employ the
model by the end of 2014. The top factors driving U.S. colleges to embrace flipped classrooms include: the ability to
provide a better learning experience for students, greater availability of technologies that support the model, and
positive results from initial trials. As the first comprehensive national faculty survey on this technology-driven
approach, the study also reveals that among those employing it already, 57 percent of faculty agree that their flipped
classroom is “extremely successful” or “successful”, citing key student benefits of “improved mastery of
information” and “improved retention of information”, at 81 percent and 80 percent of responses respectively.

According to the Babson Survey Research Group and Sloan Consortium report, Grade Change: Tracking Online
Education in the United States over 7.1 million students were taking at least one online course during the fall 2012
term, an increase of 411,000 students over the previous year. That number represents 33% of all higher education
students. The proportion of chief academic leaders that say online learning is critical to their long-term strategy is
now at 66%. Community colleges, specifically, have significantly increased their number of blended or hybrid and
web-enhanced courses. The Instructional Technology Council’s “2013 Distance Education Survey Results: Trends
in eLearning: Tracking the Impact of eLearning at Community Colleges (April 2014)” reports that “a robust, steady
increase in the popularity for online learning continues.” The report states that students have “voted with their feet,
by enrolling in distance education courses when they are available.” From fall 2012 to fall 2013, ITC’s survey
participants reported 5.2 percent growth in student enrollment in their online programs.

Analysts predict the lecture capture market will more than triple over the next six years. Frost & Sullivan analysts
estimate lecture capture revenues will reach over $175.8 million by 2016, exhibiting a nearly 20.7 percent
compound annual growth rate (CAGR) for the six-year period (Global Enterprise Video Webcasting and Lecture
Capture Solutions Markets report, 2013).

All of these findings point to growth of academic video on college and university campuses. A recent whitepaper by
University Business, Academic Video at a Tipping Point: Preparing Your Campus for the Future, spells out how
advances in technology, the rise of course capture platforms and expectations among faculty and students, have all
pushed
at
academic video
www.sonicfoundry.com/UBwhitepaper.

tipping point. The whitepaper

can be downloaded

reach

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 restructuring and increasing investments
around online learning.

The visible integration of video-based learning content into core university applications like learning management
systems (LMSes) and the success of bundled online learning technology solutions are two healthy indicators for the
widespread adoption of campus video. LMSes like Canvas by Instructure, Brightspace™/Desire2Learn®,
Blackboard®, Moodle and Sakai are ubiquitous in the education enterprise. As the foundation for e-learning, these
systems are rapidly evolving to be students’ single-source portal for all course-related materials including recorded
lecture and assignment videos. Mediasite’s packaged LMS integrations and support for the Learning Tools
Interoperability (LTI) standard, address the need to make learning content accessible to students when and where
they need it. Similarly, video content management platforms are emerging as repositories for campus’ media-centric
content. These platforms provide additional opportunities through which to make Mediasite content accessible to
faculty, staff and students.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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:
(cid:129) Executive communications: state of the enterprise speeches, town hall meetings
(cid:129) Workforce development: training, HR briefings, policy documentation, secure corporate YouTube
(cid:129) Sales, marketing and customer support
(cid:129)
(cid:129) Conferences and events: user group, sales and annual meetings

Investor relations: earnings calls, analyst briefings, annual reports

In health-related enterprises it is used for:
(cid:129) Education and conferences: continuing medical education, grand rounds, seminars
(cid:129) On-demand medical information
(cid:129) Caregiver training
(cid:129) Emergency response coordination and public health announcements
(cid:129) Research and collaboration

In government agencies it is used for:
(cid:129) Program management: relief work, military coordination, emergency preparedness
(cid:129) Community outreach: committee meetings, public safety announcements
(cid:129) Training, workshops and events
(cid:129) Executive and legislative communications: constituent relations, public speeches, debates

Through interviews across these verticals, enterprise customers report that Mediasite:
(cid:129) Expands training and communications opportunities
(cid:129) Cuts travel and meeting expenses
(cid:129) Boosts efficiency by allowing participants to watch when it’s convenient to avoid interruptions and increase

retention

(cid:129) Helps build stronger teams through direct management/employee communications

Executives, event planners and line of business managers for human resources/talent development, sales, marketing,
and customer service are pushing for more video in their organizations to improve communication, collaboration
and results.

In its 2013 report, Global Enterprise Video Webcasting and Lecture Capture Solutions Markets, industry analyst
Frost & Sullivan cites rapid growth of the worldwide enterprise video webcasting market, anticipating the market to
grow at a compound annual growth rate of 27.2 percent from 2011-2016.

Aragon Research reports that rich media assets that are produced in marketing webinars, webcasts, training, sales
communications and other interactions are growing at explosive rates. In its March 2014 research note, Manage
Interactive Content with Video Content Management, the firm predicts that “by 2016, interactive presentations and
video documents will be accepted formats for basic knowledge transfer,” and “by year-end 2018, video documents
will replace text documents as the leading form of digital content.”

Future Direction
Video management, webcasting and lecture capture are becoming an everyday part of the way people work and
learn. We strive to shorten the time it takes to not only capture and distribute information but to also transform video
into more interactive, discoverable content with rich management, search and analytics capabilities. As a company,
we are helping create and manage the video libraries of tomorrow. Our ongoing innovations center on supporting
this vision by:
(cid:129) Advancing enterprise video content management to accommodate organizations’ existing digital video assets,
content generated from third-party video sources and the corresponding metadata associated with those video
assets.
Introducing new applications to easily publish, search and retrieve videos from a video library as well as
expanding and automating Mediasite’s powerful multi-modal search capabilities.

(cid:129)

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

(cid:129) Offering the industry’s widest variety of content capture solutions capable of scaling economically across entire

organizations and allowing anyone, on any device, to capture and share their knowledge or expertise.

(cid:129) Delivering content capture solutions that test the limits of recording, synchronizing and playing back multiple

high definition video sources.

(cid:129) Supporting consistent, interactive content playback experiences across all viewing devices.
(cid:129) Deepening integration with core enterprise platforms including learning and course management systems
(LMS/CMS), content management systems, enterprise collaboration platforms and student information systems
(SIS).
Introducing market-driven innovations to our Mediasite Cloud offering.

(cid:129)

Segment Information

We have determined that in accordance with the Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 280-10, Segment Reporting, we operate in three operating segments, however these
segments meet the criteria for aggregation for reporting purposes as one reporting segment as of September 30,
2014. Prior to the acquisitions in the year ended September 30, 2014, we reported in one operating segment.
Therefore, such information is not presented.

Our services are typically billed and collected in advance of providing the service which requires minimal cost to
perform in the future. Billings, which are a non-GAAP measure, 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 37 percent and 29 percent in fiscal 2014 and 2013,
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 2014 and 2013 one master distributor, Synnex Corporation (“Synnex”), contributed 15 percent and 20 percent,
respectively, of total world-wide billings. A second master distributor, Starin Marketing, Inc. (“Starin”), contributed
15 percent and 22 percent of total world-wide billings in fiscal 2014 and 2013, respectively. As master distributors,
Synnex and Starin fulfill transactions to VARs, end users and other distributors. No other customer represented over
10 percent of billings in 2014 or 2013.

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 2014, we utilized two master distributors in the U.S. and
approximately 200 resellers, and sold our products to over 1,300 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
historical attention on the United States market, reseller, customer interest and sales outside the United States has
grown and accordingly, we made two international acquisitions in fiscal 2014 in the Netherlands and Japan,
significantly increasing our international headcount in sales, operations, technical and administrative positions to 55.
To date, we have sold our products to customers in over 60 countries outside the United States. Total non-GAAP
billings for Mediasite product and support outside the United States totaled 37 percent and 29 percent in fiscal 2014
and 2013, respectively.

Market expansion: Over half our revenue is realized from the education market. Recent trends including the
economic recovery 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
demonstrating growth. This development represents an emerging trend beyond the traditional academic customer
base for the company, which has primarily consisted of post-graduate, distance learning and technical degree
programs.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

For our higher education as well as corporate, government and association clients, we anticipate 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, a comprehensive cloud-based Software as a Service (SaaS) datacenter, and e-commerce
capabilities that position us well to deliver more diversified business services.

With Mediasite Events, we continue to see growing demand for conference webcasting and hybrid events
(conferences which combine both face-to-face meeting and viewing over the web). 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 2014, 77 percent of billings were to preexisting customers compared to 81 percent of
billings in fiscal 2013.

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 thought leadership and best practices webinars, tradeshows, product
demonstrations, websites, public relations, social media, direct mail, e-mail campaigns, newsletters, print and online
advertising, sponsorships, Mediasite Community-building, annual user conference, brochures, white papers and
analyst relations. We often publish 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 Mediasite Events. We have a large, growing database of potential customers in the education,
corporate and government marketplaces and regularly execute demand generation activities to target specific
verticals that have a direct and demonstrated need for our offerings.

Operations

We contract with a third party to build the hardware for 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 provider and shipped directly to the end customer or reseller. The hardware manufacturer provides
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 believe there are alternative sources of manufacturing for
our recorders 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 continue to maintain excess 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

Various vendors provide lecture capture, enterprise webcasting or video content management capabilities, but few offer
an end-to-end solution that addresses all phases of the video content lifecycle (capture, delivery, transformation and
management) in a single platform like Mediasite.

Lecture capture solutions designed specifically for higher education differ in their technology approach.

(cid:129) Appliance- or room-based lecture capture provides a fully integrated system with complete recording
automation for live or on-demand content. The automated, pre-scheduled workflow results in the greatest
faculty and staff adoption and largest volumes of recorded content in the shortest amount of time.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

(cid:129) Software-based lecture capture that resides on a podium or computer in the classroom also captures and

publishes rich media content, but relies on campus- or user-supplied hardware.

(cid:129) Desktop capture tools reside on individual users’ laptops or computers allowing them to record user-generated

content.

Few lecture capture vendors, offer a mix of all lecture capture approaches to best suit customers’ needs. Most vendors,
including Crestron, Panopto and Tegrity, support only one approach to lecture capture. Likewise, a very small number of
vendors provide an integrated platform like Mediasite to archive and manage video and rich media recorded with their
solution. Most rely on a third-party platform, typically the institution’s learning or course management system, to
publish, search and secure content.

Enterprise video management solutions (e.g. Kaltura, Qumu) serve as centralized media repositories that facilitate the
delivery, publishing and management of on-demand video. Unlike Mediasite, most platforms do not include a video
capture, webcasting or live streaming component, but instead ingest or import video-based content captured by other
third-party devices or solutions. Also, most other platforms focus on ingesting video-only content rather than rich video
which combines multiple synchronous video and/or slide streams into an interactive media experience.

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

Solutions that are designed primarily to address other online communication needs sometimes compete with Mediasite.
Typically, these solutions are complementary to and integrated with the Mediasite solution:

(cid:129) Web and video conferencing (e.g. Adobe, Cisco TANDBERG, Cisco WebEx, Citrix, and Polycom). These
solutions are designed primarily
for synchronous, collaborative communication versus one-to-many
communications like Mediasite. Many organizations acknowledge that they need both conferencing and webcasting
technologies to appropriately address their different communication requirements. Since most conferencing
platforms lack sophisticated content management capabilities, customers use Mediasite Enterprise Video
Management Platform to ingest conference content for centralized management and the added benefits of interactive
playback, searchability, analytics and security.

(cid:129) Authoring tools (e.g. TechSmith). Unlike webcasting, web conferencing or video conferencing, which capture and
stream content as it occurs in real-time, these tools are used to produce and edit on-demand video or screencast
content. The authoring process can require a significant amount of production and user expertise. Mediasite ingests
content produced by popular authoring tools like TechSmith’s Camtasia– allowing the content to be delivered,
managed and secured.

(cid:129) Virtual event platforms (e.g. INXPO, ON24). These companies offer cloud-based virtual meeting environments
for online conferences, tradeshows and meetings. The platforms often include the ability to embed or link to
streaming video or webcasts within the interactive environment. In some instances, Mediasite content is integrated
into these virtual meeting environments and streamed live or on-demand.

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 four U.S. patents have been issued to us and we
may seek additional patents in the future. We do not know if 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 our
patents which have been issued 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. Any future, patent applications may not result in the issuance of valid patents.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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 four
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.

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
or may be required to defend against alleged infringement claims filed against our customers due to indemnification
agreements. 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, 2014 and 2013, we spent $5.6 million
and $4.3 million, respectively, on internal research and development activities in our business. These amounts
represent 16% and 15%, respectively, of total revenue in each of those years. The increase reflects our decision to
accelerate development on identified new products as well as enhancements to existing products.

Global Expansion

We completed the acquisitions of MediaMission in the Netherlands and Mediasite KK in Japan in fiscal 2014. With
these acquisitions, we expect to significantly expand our global market reach in the Asia-Pacific Region and Europe,
and accelerate our commitment to enterprise video communication world-wide.

Employees

At September 30, 2014 and 2013, we had 183 and 116 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.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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.

With the continued global economic pressure experienced in fiscal 2014, there is a continuing risk of further
weakening in conditions, particularly with those customers that rely on local, state or Federal government funding.
Japan experienced a decline in its gross domestic growth rate in fiscal 2014 as well as delays in certain government
programs, both of which had a negative impact on our recently acquired operation in Japan. Any continuing
unfavorable economic conditions 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 products supplied by our competitors 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.

We may need to raise additional capital.

At September 30, 2014 we had cash of $4.3 million and availability under our line of credit facility with Silicon Valley
Bank of $3.0 million. At September 30, 2014, of the $4.3 million aggregate cash and cash equivalents held by the
Company, the amount of cash and cash equivalents held by our foreign subsidiaries was $2.9 million. The Company has
historically financed its operations primarily through cash from sales of equity securities, and to a limited extent, cash
from operations and through bank credit facilities. The Company has a history of operating losses and used cash in
operations in certain periods, including in fiscal 2014. While the Company expects to increase revenue in fiscal 2015
and manage expense growth to a level less than anticipated growth in revenues, we cannot ensure that revenue will grow
as anticipated and, if revenue is determined to be growing at a rate less than anticipated, it may be too late to reduce
expenses for fiscal 2015. The Company’s recent international acquisitions included notes payable to the sellers as a
component of consideration. Those notes require payments in fiscal 2015 of approximately $2.1 million and the
operations could require additional capital resources to fund operations or equipment purchases. If the funds held by our
foreign subsidiaries are needed for our operations in the United States, the repatriation of some of these funds to the
United States could require payment of additional U.S. taxes.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

We may evaluate further operating or capital lease opportunities or incur additional term debt to finance equipment
purchases or other uses of cash in the future and will 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 our debt
facilities, there can be no assurance that the existing debt facilities will be available or that additional financing will
be available or on terms acceptable to the Company.

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. The Company believes its cash position and available credit is
adequate to accomplish its business plan through at least the next twelve months.

We have a history of losses.

Our investments in growing revenues have generated losses in most years. Despite our plans to grow revenue to a
greater extent than expenses in fiscal 2015 and beyond, we may not realize sufficient revenues to reach or sustain
profitability on a quarterly or annual basis. For the year ended September 30, 2014, we had a gross margin of $25.6
million on revenue of $35.8 million with which to cover selling, marketing, product development and general and
administrative costs. Our selling, marketing, product development and general and administrative 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. Operating costs in fiscal 2014 also included significant costs of closing two acquisitions and defending and
settling a patent infringement lawsuit. Fluctuations in profitability or failure to maintain profitability have and will likely
impact the price of our stock in the future.

Multiple unit deals are 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 2014 and fiscal 2013, 77% and 81% of revenue was generated by sales to existing customers,
respectively. 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. Although we believe
there are multiple sources of supply from other contract manufacturers as well as multiple suppliers of component
parts required by our contract manufacturer, a disruption of supply of component parts or completed products, even
if short term, would have a material negative impact on our revenues. Many component parts currently have long
delivery lead times or cease production of certain components with limited notice in which to evaluate or obtain
alternate supply, requiring conservative estimation of production requirements. Lengthening lead times, product
design changes and other third party manufacturing disruptions have caused delays in delivery. In order to
compensate for supply delays, we have sourced components from off-shore sources, used cross component parts,
paid significantly higher prices or extra fees to expedite delivery for short supply components, and currently hold
substantially larger quantities of inventory than in the past. Many of these strategies have increased our costs or
require substantial resources to maintain and may not be sufficient to ensure against a product shortage. We depend
on our subcontract manufacturer to produce our products efficiently while maintaining high levels of quality. Any
manufacturing or component 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

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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 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 or delay 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 such as ours would also cause us to lose revenues. 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 development of 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 cycles are 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, high dollar transactions or competitive bids.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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. In addition, educational institutions that started with small pilots
are committing to more complex installations. Further, our educational market is expanding to include undergraduate
classrooms, which, due to the increased size of these types of transactions, typically require a longer sales cycle. Also,
our enterprise accounts are less motivated by seasonal sales and promotions, and therefore are frequently difficult to
finalize. As a result of these factors, our sales and deployment cycles are unpredictable. Our sales and deployment
cycles are 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.

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 and test scores, 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 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 and inventory levels are based largely on these estimates. In addition, our event business is particularly
unpredictable and subject to variation due to the short time-frame between when we learn of an opportunity and
when the event occurs. Further, the majority of our product 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 or services 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
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 more recurring revenue. We
subcontract for some services required by our events customers, such as onsite management labor and closed
captioning. We typically charge for such services at a lower margin than other services. The percentage of billings
represented by services, provided either directly or indirectly, is also likely to fluctuate from quarter to quarter due
to seasonality of event services and other factors. Since content hosting and support 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.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

The market price of our common stock may be subject to volatility
The trading prices of the securities of technology companies have been highly volatile. Factors affecting the market
price of our common stock include:

• Variations in our operating results, earnings per share, cash flows from operating activities, deferred

revenue and other financial metrics and non-financial metrics, and how those results compare to analyst
expectations;

• Our announcement of actual results for a fiscal period that are higher or lower than expected results or our
announcement of revenue or earnings guidance that is higher or lower than expected, including as a result
of difficulty forecasting seasonal variations in our financial condition and operating results;

• Changes in the estimates of our operating results or changes in recommendations by securities analysts that

elect to follow our common stock;

• Announcements of technological innovations, new services or service enhancements, strategic alliances or

significant agreements by us or by our competitors;

• Announcements by us or by our competitors of mergers or other strategic acquisitions, or rumors of such

transactions involving us or our competitors;

• Announcements of customer additions and customer cancellations or delays in customer purchases;
• Recruitment or departure of key personnel;
• Disruptions in our service due to computer hardware, software, network or data center problems;
• The economy as a whole, market conditions in our industry and the industries of our customers;
• The issuance of shares of common stock by us, whether in connection with an acquisition or a capital

raising transaction;

• Issuance of debt or other convertible securities; and
• Any other factors discussed herein.

In addition, if the market for technology stocks or the stock market in general experiences uneven investor
confidence, the market price of our common stock could decline for reasons unrelated to our business, operating
results or financial condition. The market price of our common stock might also decline in reaction to events that
affect other companies within, or outside, our industry even if these events do not directly affect us.

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 strategic audio video (A/V) 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.

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

We provide two 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 these two distributors. Price protection rights require that we grant retroactive price adjustments for

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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, we would not be able to recognize revenue until these two distributors sell the inventory to the final end
user which would have a material adverse effect on revenues in the period covered by that change.

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 in our non-higher education business, with
certain international geographies and our 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,
30% of our billings in 2014 were to Synnex Corporation and Starin Marketing Inc., two master distributors who
fulfill demand from other distributors, VARs or end-users. While our VARs typically maintain payment terms
consistent with other end-users, our master distributors have longer payment terms and 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 offer credit terms to some of our international customers; however, payments tend to go beyond terms in certain
countries and advances allowable on accounts receivable from international customers under our revolving line of
credit are calculated using a lower advance rate than domestic receivables and are limited to $500 thousand.
Therefore, as Europe, Asia and other international regions grow, accounts receivable balances will likely increase as
compared to previous years and our ability to finance the increase will be limited.

Supporting our existing and growing customer base and implementing large customer deployments could strain
our personnel resources and infrastructure, and if we are unable to scale our operations and increase
productivity, customer satisfaction and our business will be harmed.

Frequent enhancements to our software puts pressure on our customers to install, maintain and train their personnel
on its use. Further, frequent releases of the software can lead to less product stability. As a result, our customer care
and engineering resources have come under, and are expected in the future to come under significant pressure in
providing the high-quality of technical support our customers expect during periods of high demand. We may be
unable to respond quickly enough to accommodate short-term increases in customer demand for support services.
Increased customer demand for these services, without corresponding revenues, could increase costs and adversely
affect our operating results. In addition, our sales process is highly dependent on our applications and business
reputation and on positive recommendations from our existing customers. Any failure to maintain high-quality
technical support, or a market perception that we do not maintain high-quality support, could adversely affect our
reputation, our ability to sell our products and services to existing and prospective customers, and our business,
operating results and financial position.

As we target more of our sales efforts at larger initial transactions, we face increasingly complex deployments
requiring substantial technical and management resources, including in some cases significant product customization
and integration with other applications or hardware. Customers making large expenditures for our products and
services typically have higher expectations of product and service operability and response time if issues arise. Some

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

of these customers have asked us to host their content and have significant amounts of legacy content to transfer to
our datacenter. Such increased activity and storage demand on our data centers put additional strain on our personnel
and hosting infrastructure. High demand on technical and management resources to manage large transactions
distract personnel from existing customers, development of new products and other important activities which could
lead to potential customer dissatisfaction, product development delays or other issues associated with the distraction.

If a customer is not satisfied with the quality of work performed by us or a third party or with the type of services or
solutions delivered, then we could incur additional costs to address the situation, the profitability of that work might
be impaired, and the customer’s dissatisfaction with our services could damage our ability to obtain additional work
from that customer. In addition, negative publicity related to our customer relationships, regardless of its accuracy,
may further damage our business by affecting our ability to compete for new business with current and prospective
customers.

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), best estimate of
selling price and the inclusion of other services and contingencies to payment terms. We expect that we will
continue to defer portions of our product or service billings because of these factors, and to the extent that
management’s judgment is incorrect it could result in an 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, combination of products and services sold together or contractual terms.

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 slow
response to customer technical inquiries, 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
and have a negative impact on our operations.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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, greater name recognition, more employees and greater financial, technical,
marketing, public relations and distribution resources than we have. In addition, new competitors with greater financial
resources may arise through partnerships, distribution agreements, mergers, acquisitions or other types of transactions at
any time. In particular, large companies have begun to make investments in and/or partner with smaller companies to
enter the lecture capture and video management markets.

Lecture capture solutions designed specifically for higher education differ in their technology approach.

(cid:129) Software-based lecture capture that resides on a podium or computer in the classroom also captures and

publishes rich media content, but relies on campus- or user-supplied hardware.

(cid:129) Desktop capture tools reside on individual users’ laptops or computers allowing them to record user-generated

content.

Enterprise video management solutions (e.g. Kaltura, Qumu) serve as centralized media repositories that facilitate the
delivery, publishing and management of on-demand video. Unlike Mediasite, most platforms do not include a highly
automated video capture solution, webcasting or live streaming component, but instead ingest or import video-based
content captured by other third-party devices or solutions. Also, most other platforms focus on ingesting video-only
content rather than rich video which combines multiple synchronous video and/or slide streams into an interactive media
experience.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

ingests content produced by popular authoring tools like TechSmith’s Camtasia– allowing the content to be
delivered, managed and secured.

The competitive environment may require us to make changes in our products, pricing, licensing, services, or marketing
to maintain and extend our current technology. Price concessions or the emergence of other pricing, licensing, and
distribution strategies or technology solutions of competitors may reduce our revenue, margins or market share. Other
changes we have to make in response to competition could cause us to expend significant financial and other resources,
disrupt our operations, strain relationships with partners, release products and enhancements before they are thoroughly
tested or result in customer dissatisfaction, any of which could harm our operating results and stock price.

Our business is susceptible to risks associated with international operations.

International product and service billings ranged from 27% to 37% of our total billings in each of the past two years
and are expected to continue to account for a significant portion of our business in the future, particularly as a result
of acquisitions made in fiscal 2014 in the Netherlands and Japan. International sales are subject to a variety of risks,
including:

(cid:131) Difficulties in establishing and managing international subsidiaries, distribution channels and operations;
(cid:131) Difficulties in selling, servicing and supporting overseas products, translating products into foreign

languages and compliance with local hardware requirements;

(cid:131) Challenges related to language or cultural differences
(cid:131) 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) Currency and exchange rate fluctuations;
(cid:131) Difficulties in collecting accounts receivable in foreign countries, including complexities in documenting

letters of credit; and

(cid:131) Economic or political changes in international markets.
(cid:131) Difficulty in complying with international employment related requirements

We may need to make acquisitions or form strategic alliances or partnerships in order to remain competitive in our
market, and recent acquisitions, strategic alliances or partnerships, including the acquisition of Mediasite KK and
MediaMission, could be difficult to integrate, disrupt our business and dilute stockholder value.

We completed the acquisitions of Mediasite KK in Japan and MediaMission in the Netherlands in fiscal 2014. As a
result of these acquisitions, we are integrating products, services, dispersed operations, management systems and very
different cultures. In the future, we may acquire or form strategic alliances or partnerships with other businesses in
order to remain competitive or to acquire new technologies. Acquisitions and investments involve numerous risks,
including:

• The potential failure to achieve the expected benefits of the combination or acquisition;
• Difficulties in and the cost of integrating operations, technologies, services and personnel;
• Diversion of financial and managerial resources from existing operations;
• Risk of entering new markets in which we have little or no experience or where competitors may have

stronger market positions;

• Potential write-offs of acquired assets or investments, and potential financial and credit risks associated

with acquired customers;

• Potential loss of key employees;
• Inability to generate sufficient revenue to offset acquisition or investment costs;

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

• The inability to maintain relationships with customers and partners of the acquired business;
• The difficulty of transitioning the acquired technology onto our existing platforms and maintaining the

security standards consistent with our other services for such technology;

• Potential unknown liabilities associated with the acquired businesses;
• Unanticipated expenses related to acquired technology and its integration into existing technology;
• Negative impact to our results of operations because of the depreciation and amortization of amounts
related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired
deferred revenue and unbilled deferred revenue;

• Delays in customer purchases due to uncertainty related to any acquisition;
• The need to implement controls, procedures and policies at the acquired company;
• Challenges caused by distance, language and cultural differences;
• In the case of foreign acquisitions, the challenges associated with integrating operations across different
cultures and languages and currency, technological, employee and other regulatory risks and uncertainties
in the economic, social and political conditions associated with specific countries; and

• The tax effects of any such acquisitions.

Our failure to successfully manage the acquisitions of Mediasite KK and MediaMission, or other future acquisitions,
strategic alliances or partnerships could seriously harm our operating results. In addition, our stockholders would be
diluted if we finance the future acquisitions, strategic alliances or partnerships by incurring convertible debt or issuing
equity securities.

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. If our use
of open-source is challenged and construes unfavorably, our operating results could be adversely impacted.

We use open source software in our application suite. Although we monitor our use of open source software closely,
the terms of many open source licenses have not been interpreted by United States courts, and there is risk that such
licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to
commercialize our products. In such event, we could be required to re-engineer our technology or to discontinue
offering all or a portion of our products in the event re-engineering cannot be accomplished on a timely basis, any of
which could adversely affect our business, operating results and financial condition.

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. Malicious third-parties may also conduct attacks designed to temporarily deny
customers access to our services. Customers may take inadequate security precautions with their sensitive
information and may inadvertently make that information public. We may be liable to our customers or subject to

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

fines for a 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.

Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer restrictions and
other domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our
business.

Regulation related to the provision of services on the Internet is increasing, as federal, state and foreign governments
continue to adopt new laws and regulations addressing data privacy and the collection, processing, storage and use
of personal information, including health data. In some cases foreign data privacy laws and regulations, such as the
European Union’s Data Protection Directive, and the country-specific regulations that implement that directive, also
govern the processing of personal information. Further, laws are increasingly aimed at the use of personal
information for marketing purposes, such as the European Union’s e-Privacy Directive, and the country-specific
regulations that implement that directive. Such laws and regulations are subject to differing interpretations and may
be inconsistent among jurisdictions. These and other requirements could reduce demand for our solutions or restrict
our ability to store and process data or, in some cases, impact our ability to offer our services and solutions in certain
locations.

In addition to government activity, privacy advocacy and other industry groups have established or may establish
new self-regulatory standards that may place additional burdens on us. Our customers expect us to meet voluntary
certification or other standards established by third parties, such as the U.S.-EU Safe Harbor Framework. If we are
unable to maintain these certifications or meet these standards, it could adversely affect our ability to provide our
solutions to certain customers and could harm our business.

Our customers and potential customers do business in a variety of industries, including financial services, the public
sector, healthcare and telecommunications. Regulators in certain industries have adopted and may in the future adopt
regulations or interpretive positions regarding the use of cloud computing and other outsourced services. The costs
of compliance with, and other burdens imposed by, industry-specific laws, regulations and interpretive positions
may limit customers’ use and adoption of our services and reduce overall demand for our services.

The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and
adoption of our service and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any
noncompliance.

Furthermore, concerns regarding data privacy may cause our customers’ customers to resist providing the data
necessary to allow our customers to use our service effectively. Even the perception that the privacy of personal
information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our
products or services, and could limit adoption of our cloud-based solutions.

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. We have recently acquired additional hardware and systems, expect to make more
significant investments in hardware (primarily for storage) and outsourced most aspects of our network
infrastructure to two providers. As a result, we are reliant on third parties for network availability so outages may be
outside our control and we may need to acquire additional hardware in order to provide an appropriate level of
redundancy required by our customers.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

We license technology from third parties. If we are unable to maintain these licenses, our operations and
financial condition may be negatively impacted.

We license technology from third parties. The loss of, our inability to maintain, or changes in material terms of these
licenses could result in increased cost or delayed sales of our software and services, or may cause us to remove
features from our products or services. We anticipate that we will continue to license technology from third parties
in the future. This technology may not continue to be available on commercially reasonable terms, if at all. Although
we do not believe that we are substantially dependent on any individual licensed technology, some of the component
technologies that we license from third parties could be difficult for us to replace. The impairment of these third-
party relationships, especially if this impairment were to occur in unison, could result in delays in the delivery of our
software and services until equivalent technology, if available, is identified, licensed and integrated. This delay
could adversely affect our operating results and financial condition.

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 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, ask for partial refunds or potential customers to purchase competitive

Increase our product development resources

products or services

(cid:131) Delay release or market acceptance of our products, or otherwise adversely impact our relationships with

our customers

(cid:131) Cause us to allocate valuable engineering resources to fix our existing products, which may cause us to
allocate fewer resources toward developing new products, or toward adding features to our existing
products

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.

We have developed lower cost hardware and desktop software products to better address that market segment. Both
products have more limited features compared to our existing products. While we believe we can preserve the market
for our full-featured products, release of lower cost products could reduce demand for products sold at higher prices.

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 four U.S. patents that have been issued to us. We may seek additional patents in the future.
However, it is possible that:

(cid:131) Any patents acquired by or issued to us may not be broad enough to protect us

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

(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

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 four 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 have incurred substantial costs to defend against
such claims in the past and could incur legal costs in the future, 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, particularly our Chief Executive Officer. Most of 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

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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 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.

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 stricter 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, 2014, we had no outstanding warrants and 1.2 million of outstanding stock options granted under
our stock option plans, 700 thousand of which are immediately exercisable.

To the extent that these stock options 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 even the potential of their exercise may have an
adverse effect on the trading price of our common stock. The holders of our options 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 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 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.

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, time limitations or other factors under the Internal Revenue Code and other taxing authorities.

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

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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, 2014 and we were therefore
not required to have an auditor attestation on our internal controls over financial reporting for fiscal 2014, SEC rules
may in the future require us to have such an attestation if our non-affiliate market capitalization exceeds a certain
threshold. We have found a material weakness in our internal control over financial reporting in the past and cannot
assure that in the future our management or our auditors, will not find additional material weaknesses 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 all such weaknesses to allow our management to attest that we have maintained
effective internal controls 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,
the disclosure of any material weakness in our internal control over financial reporting could have a negative impact
on our stock price.

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
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 26,000 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 December 31, 2018.

Our operations in Japan are managed in Tokyo Japan in a leased facility of approximately 7,705 square feet with a
term expiring on August 31, 2015. The facility includes sales, technical and administrative functions. The rent for
the remainder of the lease period is approximately $38 thousand per month.

Our European operations are managed in Utrecht Netherlands in a leased facility of approximately 3,886 square feet
with a term expiring on January 31, 2019. The facility includes sales, technical and administrative functions. The
rent for the remained of the lease period is approximately $5 thousand per month.

ITEM 3.

LEGAL PROCEEDINGS

On October 26, 2012, a complaint was filed by Astute Technology, LLC (“Astute”) against one of our customers in
the United States District Court for the Eastern District of Texas (Case No. 2:012-cv-689). The complaint alleged
patent infringement. Because we agreed to indemnify our customers from costs and damages in connection with
infringement, we defended the complaint.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

On February 5, 2013, we filed a complaint against Astute in the Western District of Wisconsin (Case No. 13-cv-87).
The complaint was for declaratory judgment of non-infringement and invalidity of three Unites States patents held
by Astute.

In June 2014, the Company entered into an agreement with Astute which resolved the matters referenced above. The
key terms of the agreement were: 1) grant non-revocable license of Astute patents to the Company; 2) grant a fully
paid, non-refundable license of certain Sonic Foundry patents to Astute; 3) Both Astute and our customer agree to
identify three meetings they currently capture that the other party will not seek or respond to any request for
proposal; and 4) payment of $1.35 million to Astute. The payment will be made in three equal amounts with the
first paid in June 2014, the second paid in October 2014 and the final payment due March 2015. The Company is
contributing $1.1 million toward the amount payable to Astute. $428 thousand has been determined to relate to
prior use and was recorded as a charge to income and the remaining $672 thousand was recorded as a product right
asset, which is being amortized, straight line, over the remaining life of the patents, through 2020. Future amounts
due to Astute were accrued for as of the time of settlement.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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.

Year Ended September 30, 2015:

First Quarter (through December 5, 2014)

Year Ended September 30, 2014:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year Ended September 30, 2013:

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

High

Low

$ 9.98

$ 8.04

11.00

10.99

12.70

11.60

8.18

7.02

11.43

10.80

8.50

9.25

10.00

9.14

5.67

5.80

6.24

8.05

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 December 5, 2014 there were 269 common stockholders of record and approximately 4,800 total shareholders.
Many shares are held by brokers and other institutions on behalf of shareholders.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Equity Compensation Plan Information

Plan category

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)

(b)

(c)

Equity compensation plans approved
by security holders (1)

Equity compensation plans not
approved by security holders (2)

1,169,883

$ 10.10

873,266

71,058

12.65

Total

1,240,941

$ 10.24

873,266

(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, 2009
through and including September 30, 2014 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, 2009 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.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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

$250

$200

$150

$100

$50

9/09

9/10

9/11

9/12

9/13

9/14

Sonic Foundry, Inc.

NASDAQ Composite

RDG Technology Composite

*$100 invested on 9/30/09 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

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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).

Years Ended September 30,

2014

2013

2012

2011

2010

$ 35,830
10,275
25,555
28,637
(3,082)
1,390

$ 27,756
7,696
20,060
20,698
(638)
-

$ 26,090
7,246
18,844
18,735
109
-

$ 25,222
7,311
17,911
17,633
278
-

$ 20,476
5,065
15,411
15,138
273
-

209

420

173
(231)
(1,104)
$ (2,816)

(123)
-
(240)
$ (792)

(132)
-
(240)
$ 157

(310)
-
(211)
$ (243)

(170)
-
(225)
$ (122)

$ (0.67)

$ (0.20)

$ 0.04

$ (0.06)

$ (0.03)

Statement of Operations Data:
Revenue
Cost of revenue
Gross margin
Operating expenses
Income (loss) from operations
Gain on investment in

Mediasite KK

Equity in earnings from

investment in Mediasite KK

Other income (expense), net
Interest expense, net
Provision for income taxes
Net income (loss)

Basic net income (loss) per

common share

Diluted net income (loss) per

common share

$ (0.67)

$ (0.20)

$ 0.04

$ (0.06)

$ (0.03)

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

4,174,191
4,174,191

3,932,692
3,932,692

3,857,161
3,907,888

3,748,840
3,748,840

3,617,423
3,617,423

2014

2013

2012

2011

2010

$ 4,344
18
34,623
7,268
11,315

$ 3,482
2,575
24,333
3,585
10,704

$ 4,478
3,332
22,821
3,748
10,539

$ 5,515
3,083
21,840
3,072
9,261

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

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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 video
content management and distribution for education, business and government. Using the Mediasite webcasting
platform and webcast services of the Company’s events team, the Company empowers our customers to advance
how they share knowledge online, using video webcasts to bridge time and distance, enhance learning outcomes and
improve performance.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The guidance
substantially converges final standards on revenue recognition between the FASB and the International Accounting
Standards Board providing a framework on addressing revenue recognition issues and, upon its effective date, replaces
almost all exiting revenue recognition guidance, including industry-specific guidance, in current U.S. generally accepted
accounting principles. The guidance is effective for annual reporting periods beginning after December 15, 2016. We are
currently evaluating the impact of adopting ASU 2014-09 to determine the impact, if any, it may have on our financial
statements.

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, "Compensation - Stock Compensation"
("ASU 2014-12"). ASU 2014-12 is intended to resolve diverse accounting treatment for share based awards in which the
terms of the award provide that a performance target that affects vesting could be achieved after the requisite service
period. The standard is effective for annual periods and interim periods within those annual periods beginning after
December 15, 2015 and may be applied prospectively or retrospectively. We are currently evaluating the impact of
adopting ASU 2014-12 to determine the impact, if any, it may have on our financial statements.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

substantial doubt about an entity's ability to continue as a going concern as well as required disclosures. ASU 2014-15
indicates that, when preparing financial statements for interim and annual financial statements, management should
evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a
going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation
should include consideration of conditions and events that are either known or are reasonably knowable at the date the
financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to
address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the
substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and
annual periods thereafter. Early application is permitted. We are currently evaluating the impact of adopting ASU 2014-
15 to determine the impact, if any, it may have on our financial statements.

Accounting standards that have been issued but are not yet effective by the FASB or other standards-setting bodies
that do not require adoption until a future date, which are not discussed above, are not expected to have a material
impact on the Company's financial statements upon adoption.

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:129) Revenue recognition, allowance for doubtful accounts and reserves;
(cid:129)
(cid:129) Valuation allowance for net deferred tax assets;
(cid:129) Accounting for stock-based compensation;
(cid:129) Capitalized software development costs; and
(cid:129) Valuation of assets and liabilities in business combinations

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. Typically, 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 or upon customer acceptance if non-delivered products or services are essential to the functionality of
delivered products. 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 our
server software and other software licenses. If a license is time-based, the revenue is recognized over the term of the
license agreement.

Services

The Company sells support and content hosting contracts to its customers, typically one year in length, and records
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

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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.
Occasionally, the Company will sell customization services to enhance the server software. Revenue from those
services is recognized when performed, if perfunctory, or under contract accounting. 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

Sales of software, with or without installation, training, and post customer support fall within the scope of the
software revenue recognition rules. Under the software revenue recognition rules, the fee from a multiple-
deliverable arrangement is allocated to each of the undelivered elements based upon vendor-specific objective
evidence (VSOE), which is limited to the price charged when the same deliverable is sold separately, with the
residual value from the arrangement allocated to the delivered element. The portion of the fee that is allocated to
each deliverable is then recognized as revenue when the criteria for revenue recognition are met with respect to that
deliverable. If VSOE does not exist for all of the undelivered elements, then all revenue from the arrangement is
typically deferred until all elements have been delivered to the customer.

In the case of the Company’s hardware products with embedded software, the Company has determined that the
hardware and software components function together to deliver the product’s essential functionality, and therefore,
the revenue from the sale of these products is accounted for under the revenue recognition rules for tangible
products whereby the fee from a multiple-deliverable arrangement is allocated to each of the deliverables based
upon their relative selling prices as determined by a selling-price hierarchy. A deliverable in an arrangement
qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis. A
delivered item that does not qualify as a separate unit of accounting is combined with the other undelivered items in
the arrangement and revenue is recognized for those combined deliverables as a single unit of accounting. The
selling price used for each deliverable is based upon VSOE if available, third-party evidence (TPE) if VSOE is not
available, and best estimate of selling price (ESP) if neither VSOE nor TPE are available. TPE is the price of the
Company’s or any competitor’s largely interchangeable products or services in stand-alone sales to similarly
situated customers. ESP is the price at which the Company would sell the deliverable if it were sold regularly on a
stand-alone basis, considering market conditions and entity-specific factors. All revenue arrangements negotiated
after September 30, 2010, excluding the sale of all software-only products and associated services, have been
accounted for under this guidance.

The selling prices used in the relative selling price allocation method are as follows: (1) the Company’s products and
services are based upon VSOE and (2) hardware products with embedded software, for which VSOE does not exist,
are based upon ESP. The Company does not believe TPE exists for any of these products and services because they
are differentiated from competing products and services in terms of functionality and performance and there are no
competing products or services that are largely interchangeable. Management establishes ESP for hardware products
with embedded software using a cost plus margin approach with consideration for market conditions, such as the
impact of competition and geographic considerations, and entity-specific factors, such as the cost of the product and
the Company’s profit objectives. Management believes that ESP is reflective of reasonable pricing of that
deliverable as if priced on a stand-alone basis. When a sales transaction includes deliverables that are divided
between ASC Topic 605 and ASC Subtopic 985-605, the Company allocates the selling price using the relative
selling price method whereas value is allocated using an ESP for software developed using a percent of list price
approach. The other deliverables are valued using ESP or VSOE as previously discussed.

While the pricing model, currently in use, captures all critical variables, unforeseen changes due to external market
forces may result in a revision of the inputs. These modifications may result in the consideration allocation differing
from the one presently in use. Absent a significant change in the pricing inputs or the way in which the industry
structures its deals, future changes in the pricing model are not expected to materially affect our allocation of
arrangement consideration.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

in conjunction with product, the product revenue is recognized immediately while the remaining hosting revenue is
spread ratably over the term of the hosting agreement. The selling price is allocated between these elements using
the relative selling price method. The Company uses ESP for development of the selling price for hardware products
with embedded software.

The Company also offers hosting services bundled with events services. The Company uses VSOE to establish
relative selling prices for its events services. The Company recognizes events revenue when the event takes place
and recognizes the hosting revenue over the term of the hosting agreement. The total amount of the arrangement is
allocated to each element based on the relative selling price method.

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 resellers sell the inventory to the final end user.

Credit Evaluation and Allowance for Doubtful Accounts

We assess the realization of our receivables by performing ongoing credit evaluations of our customers’ financial
condition. Through these evaluations, we may become aware of a situation where a customer may not be able to
meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. Our reserve
requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is
received. Our reserves are also based on amounts determined by using percentages applied to certain aged
receivable categories. These percentages are determined by a variety of factors including, but not limited to, current
economic trends, historical payment and bad debt write-off experience. Allowance for doubtful accounts for
accounts receivable was $150,000 at September 30, 2014 and $90,000 at September 30, 2013.

Impairment of long-lived assets

Goodwill that have indefinite useful lives are recorded at cost and are not amortized but, instead, tested at least
annually for impairment. 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 a qualitative assessment is used
and the Company determines that the fair value of goodwill is more likely than not (i.e., a likelihood of more than 50%)
less than its carrying amount, a quantitative impairment test will be performed. If goodwill is quantitatively assessed for
impairment, a two-step approach is applied. First, the Company compares the estimated fair value of the goodwill to its
carrying value. The second step, if necessary, measures the amount of impairment, if any, by comparing the implied fair
value of goodwill to its carrying value.

In fiscal 2014 and 2013, we performed the two-step goodwill test and determined that the fair value of goodwill is more
than the carrying value. For purposes of the fiscal 2014 test, goodwill balances are evaluated within three separate
reporting units. For purposes of the fiscal 2013 test, goodwill was considered to be in one reporting unit. The
Company has recognized no impairment charges as of September 30, 2014 and September 30, 2013.

If we had determined 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.

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. For the years ended September 30, 2014 and 2013, no events or changes in circumstances
occurred that required this analysis.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Valuation allowance for net deferred tax assets

Deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
We do not provide for U.S. income taxes on the undistributed earnings of our foreign subsidiaries, which we
consider to be permanently invested outside of the U.S.

We make judgments regarding the realizability of our deferred tax assets. The balance sheet carrying value of our
net deferred tax assets is based on whether we believe that it is more likely than not that we will generate sufficient
future taxable income to realize these deferred tax assets after consideration of all available evidence. We regularly
review our deferred tax assets for recoverability considering historical profitability, projected future taxable income,
the expected timing of the reversals of existing temporary differences and tax planning strategies. In assessing the
need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of
realization of the deferred tax assets. The weight given to the positive and negative evidence is commensurate with
the extent to which the evidence may be objectively verified. As such, it is generally difficult for positive evidence
regarding projected future taxable income exclusive of reversing taxable temporary differences to outweigh
objective negative evidence of recent financial reporting losses. Generally, cumulative loss in recent years is a
significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not
needed.

As of September 30, 2014 and 2013, valuation allowances have been established for all U.S. and for certain foreign
deferred tax assets which we believe do not meet the “more likely than not” criteria for recognition. If we are
subsequently able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been
established, then we may be required to recognize these deferred tax assets through the reduction of the valuation
allowance which could result in a material benefit to our results of operations in the period in which the benefit is
determined.

Accounting for stock-based compensation

The Company uses a lattice valuation model to account for all stock options granted. The lattice valuation model
provides a 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 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. Forfeitures are based on actual behavior patterns.

Capitalized Software Development Costs

Software development costs incurred in conjunction with product development are charged to research and
development expense until technological feasibility is established. Thereafter, until the product is released for sale,
software development costs are capitalized and reported at the net realizable value of the related product. Typically
the period between achieving technological feasibility of the Company’s products and the general availability of the
products has been short. Consequently, software development costs qualifying for capitalization are typically
immaterial and are generally expensed to research and development costs. During 2013, the Company’s My
Mediasite product release required software capitalization since there was a longer period between technological
feasibility and the general availability of the product. Upon product release, the amortization of software
development costs is determined annually as the greater of the amount computed using the ratio of current gross
revenues for the products to their total of current and anticipated future gross revenues or the straight-line method
over the estimated economic life of the products, expected to be three years. Amortization expense of software
development costs of $252 thousand and $75 thousand is included in Cost of Revenue – Product for the years ending
September 30, 2014 and 2013, respectively. The amount of capitalized external and internal development costs was

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

$533 thousand for the year ended September 30, 2013.. There were no software development efforts that qualified
for capitalization for the year ended September 30, 2014.

Valuation of Assets and Liabilities in Business Combinations

The assets acquired and the liabilities assumed in a business combination are measured at fair value. Fair value is
based on the definition in ASC 820-10-20 as the price that would be received from the sale of an asset or paid to
transfer a liability in an orderly transaction between market participants. Variations of the cost, market and income
approaches are used to measure the fair value of components of working capital (e.g. accounts receivable, inventory
and accounts payable) and tangible assets, such as property plant and equipment. When measuring the fair value of
acquired intangible assets, the income, market and cost approaches are generally considered. Financial assets and
liabilities are valued based on a quoted price in an active market. In the absence of a quoted market price a valuation
technique is used to determine fair value, such as a market approach or an income approach. Non-financial liabilities
may be valued based on a transfer approach. These measures require significant judgment including estimates of
expected cash flow, or discount rates among others.

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.

The acquisition of MediaMission Holding B.V. was completed on December 16, 2013. The acquisition of Mediasite
KK was completed on January 14, 2014. The results of these subsidiaries from the dates of acquisition through
September 30, 2014 are included in the discussion below.

Revenue

Revenue from our business includes the sale of Mediasite recorders and server software products and related
services contracts, such as customer support, installation, customization services, training, content hosting and event
services. 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 2014 totaled $35.8 million, compared to $27.8 million in fiscal 2013, an increase of 29%.
Revenue consisted of the following:

(cid:129) Product revenue from the sale of Mediasite recorder units and server software increased from $13.6 million
in fiscal 2013 to $16.8 million in fiscal 2014. The average sales price per unit was impacted by an increase
in the rack to mobile ratio for recorders and a large discounted deal to one international customer during the
year. This was partially offset by recorders sold by Mediasite KK and MediaMission which maintain a
higher average selling price. The product revenue growth is primarily related to an increase in the number
of units sold, including over 240 units to one large international customer.

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

2014
1,812
3.5 to 1
$8.9
453

2013
1,458
2.0 to 1
$9.2
573

(cid:131) Services revenue represents the portion of fees charged for Mediasite customer support 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 $13.9 million in fiscal 2013 to $18.6 million in fiscal
2014 due primarily to an increase in hosting and support contracts on Mediasite recorder units. At
September 30, 2014 $10.0 million of revenue was deferred, of which we expect to recognize $9.1 million in
the next twelve months, including approximately $3.8 million in the quarter ending December 31, 2014. At
September 30, 2013, $7.1 million of revenue was deferred.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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

Gross Margin

Total gross margin in fiscal 2014 was $25.6 million or 71% compared to $20.1 million or 72% in fiscal 2013. Gross
margin percentage remained approximately the same compared to prior year and the dollar increase is due to a
higher volume of products and services sold. The significant components of cost of revenue include:

(cid:131) Material and freight costs for the Mediasite recorders. Costs for fiscal 2014 Mediasite recorder hardware
and other costs totaled $5.4 million compared to $5.0 million in fiscal 2013. Freight costs were $286
thousand and labor and allocated costs were $1.2 million in fiscal 2014 compared to $336 thousand and
$939 thousand, respectively, in fiscal 2013. The remaining $468 thousand in fiscal 2014 relate to material
and freight costs for MediaMission and MSKK.

(cid:131) Services costs. Staff wages and other costs allocated to cost of service revenues were $1.7 million in fiscal
2014 compared to $1.5 million fiscal 2013, resulting in gross margin on services of 84% in fiscal 2014 and
89% in fiscal 2013. The remaining $1.2 million in fiscal 2014 relate to costs of providing content hosting,
events and technical support services at MediaMission and MSKK.

The Company expects the gross margin percentage to remain consistent or slightly increase in fiscal 2015 as total
revenue increases.

Operating Expenses

Selling and Marketing Expenses

Selling and marketing expenses include wages and commissions for sales, marketing and business development
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 or entrance into new markets, or participation in
major tradeshows.

Selling and marketing expense increased $3.5 million, or 27%, from $13.1 million in fiscal 2013 to $16.6 million in
fiscal 2014. Increases in the major categories include:

(cid:131) Salaries, incentive compensation, and benefits increased $475 thousand over the prior year due to higher

staff levels in fiscal 2014 compared to fiscal 2013.

(cid:131) Costs allocated from General and Administrative increased by $662 thousand as a result of higher stock

compensation, bonus and depreciation expense.

(cid:131) Selling and marketing expenses for MediaMission and MSKK accounted for $290 thousand and $2.1

million, respectively in fiscal 2014.

At September 30, 2014 we had 127 employees in Selling and Marketing, an increase from 75 employees at
September 30, 2013. Of the 127 employees in Selling and Marketing at September 30, 2014, 43 are employed by
our newly acquired foreign subsidiaries. We anticipate minimal growth in Selling and Marketing headcount in fiscal
2015.

General and Administrative Expenses

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

G&A expenses increased $2.3 million or 68% from $3.3 million in fiscal 2013 to $5.6 million in fiscal 2014.

(cid:131)

Increase in compensation and benefits of $178 thousand due to a higher staff levels in fiscal 2014 compared
to fiscal 2013.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

(cid:131) Professional services increase of $955 thousand, primarily due to legal costs associated with litigation with

Astute Technology that was settled in June 2014.

(cid:131) G&A expenses for MediaMission and MSKK accounted for $246 thousand and $785 thousand,

respectively.

At September 30, 2014 we had 17 full-time employees in G&A, an increase from 7 full-time employees at
September 30, 2013. Of the 17 employees in G&A at September 30, 2014, 8 are employed by our newly acquired
foreign subsidiaries. We do not anticipate growth in G&A headcount in fiscal 2015.

Product Development Expenses

Product development expenses include salaries and wages of the software research and development staff and an
allocation of benefits, facility and administrative expenses.

R&D expenses increased $1.3 million, or 30%, from $4.3 million in fiscal 2013 to $5.5 million in fiscal 2014. Some
significant differences include:

(cid:131)

Increase in compensation and benefits of $616 thousand. A slightly higher headcount and typical annual
base wage increases accounts for $347 thousand of this increase and the remaining $269 thousand relates to
the capitalization of software development internal labor in YTD-2013.

(cid:131) Professional services increase of $168 thousand, mainly due to the use of outsourced development.
(cid:131) Costs allocated from General and Administrative increased by $149 thousand as a result of higher stock

compensation, bonus and depreciation expense.

(cid:131) Product development expenses for MediaMission and MSKK accounted for $262 thousand and $75

thousand, respectively.

At September 30, 2014 we had 39 full-time employees in Product Development compared to 36 employees at
September 30, 2013. Of the 39 employees in Product Development at September 30, 2014, 4 are employed by our
newly acquired foreign subsidiaries. There were no software development efforts in fiscal 2014 that qualified for
capitalization. Fiscal 2013 software development efforts of $533 thousand qualified for capitalization.

Acquisition Costs

During fiscal 2014, the Company incurred acquisition costs related to acquiring MediaMission B.V. in the
Netherlands and Mediasite KK in Japan. These costs consisted of professional services incurred and incentive
compensation earned totaling $490 thousand. There were no additional acquisition costs in the remainder of fiscal
2014. We do not anticipate incurring additional costs related to the acquisition of these two companies.

Patent Settlement

During the third quarter of fiscal 2014, the Company completed a patent settlement agreement related to a dispute
with Astute Technology in which the Company agreed to pay $1.1 million over a ten month period ending March
2015 for a license to use certain patents. The Company determined that $428 thousand of the license relates to prior
use and accordingly was recorded as a charge to income. The remaining $672 thousand was recorded as an asset,
which is being amortized over the remaining life of the patents, through 2020. Future amounts due to Astute were
accrued for as of the time of settlement.

Other Income and Expense, Net

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Other expense primarily consists of interest costs related to outstanding debt. Interest expense of $231 thousand was
recognized in fiscal 2014 compared to $92 thousand in fiscal 2013. The increase is primarily due to additional
borrowings with Silicon Valley Bank and the addition of the subordinated note payables related to the acquisitions.
Other income is primarily interest income from overnight investment vehicles. In fiscal 2014, a foreign currency
gain of $163 thousand was also realized related to re-measurement of the subordinated notes payable related to the
Company’s foreign subsidiaries.

Provisions Related to Income Taxes

The Company incurred an $901 thousand tax expense related to the “step-up” in the value of its previously recorded
interest in MSKK. This amount consisted of $542 thousand directly attributed to the “step-up” gain and $359
thousand related to a change in the valuation allowance for the pre-acquisition investment in MSKK.

The Company records a non-cash deferred tax liability related to goodwill acquired in 2001. The related income tax
benefit was $240 thousand for both fiscal 2014 and fiscal 2013.

LIQUIDITY AND CAPITAL RESOURCES

On September 30, 2014 and 2013, we had cash and cash equivalents of $4.3 million and $3.5 million, respectively.
Of the $4.3 million aggregate cash and cash equivalents held by the Company, the amount of cash and cash
equivalents held by our foreign subsidiaries was $2.9 million. Presently, it is our intention not to repatriate cash in
foreign jurisdictions, as these funds will be used to support ongoing foreign operations and debt service payments
resulting from our recent foreign business acquisitions.

Cash used in operating activities totaled $87 thousand in fiscal 2014 and cash provided by operating activities
totaled $1.0 million in fiscal 2013, a decrease of $1.1 million. Cash used in operating activities increased partly due
to negative impacts of working capital and other changes including a net loss of $2.8 million, $1.4 million of gain or
equity in earnings from investment in Mediasite KK, a $587 thousand increase in accounts receivable, a $547
thousand increase in prepaid expenses and other assets and a $809 thousand decrease in accounts payable and
accrued liabilities. Cash used in fiscal 2014 was partially offset by the positive effects of a $2.3 million increase in
unearned revenue, $919 thousand of stock based compensation, $1.3 million of depreciation expense, $1.1 million
of deferred taxes, and a $259 thousand decrease in inventory. Cash provided in fiscal 2013 was impacted by
working capital and other changes including the positive effects of a $1.5 million increase in unearned revenue,
$656 thousand of stock based compensation, $1.1 million of depreciation expense, $240 thousand of deferred taxes,
and a $176 thousand increase in accounts payable, accrued liabilities and other long-term liabilities. These were
partially offset by the negative effects of $394 thousand increase in inventory, a $1.3 million increase in accounts
receivable, $209 thousand of equity in earnings from investment in Mediasite KK and a $792 thousand net loss.

Cash provided by investing activities totaled $300 thousand in fiscal 2014 compared to cash used in investing
activities of $1.7 million in fiscal 2013. In fiscal year 2014, $1.3 million was provided by the acquisition of MSKK
which was partially offset by cash used for the acquisition of MediaMission of $119 thousand. The remainder was
due to purchases of property and equipment. In fiscal year 2013, $533 thousand was used in capitalization of
software development costs. The remainder was due to purchases of property and equipment.

Cash provided by financing activities in fiscal 2014 totaled $861 thousand compared to $314 thousand used in fiscal
2013. Cash provided in fiscal 2014 was due primarily to $2.0 million of cash provided by proceeds from notes
payable and $286 thousand in proceeds from exercise of stock options. This was partially offset by $1.4 million of
cash used for payments of notes payable and capital leases. Cash used in fiscal 2013 was due primarily to $839
thousand of cash used for payments on notes payable and capital leases. This was partially offset by $523 thousand
of proceeds from exercise of common stock options and issuance of common stock.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

The Company believes its cash position is adequate to accomplish its business plan through at least the next twelve
months. We will likely evaluate operating or capital lease opportunities to finance equipment purchases in the future
and anticipate utilizing the Company’s revolving line of credit to support working capital needs. In November 2014
we entered into subscription agreements with two existing shareholders totaling $500 thousand for shares of
common stock at an average market price determined at close. We may 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 June 27, 2011, the Company and its wholly owned subsidiary, Sonic Foundry Media Systems, Inc. (the
“Companies”) entered into the Second Amended and Restated Loan and Security Agreement with Silicon Valley
Bank (the “Second Amended Agreement”). Under the Second Amended Agreement, the revolving line of credit has
a maximum principal amount of $3,000,000. Interest accrues on the revolving line of credit at the per annum rate of
one percent (1.0%) above the Prime Rate (as defined), provided that Sonic Foundry maintains an Adjusted Quick
Ratio (as defined) of greater than 2.0 to 1.0, or one-and-one half percent (1.5%) above the Prime Rate, if Sonic
Foundry does not maintain an Adjusted Quick Ratio of greater than 2.0 to 1.0. The Second Amended Agreement
does not provide for a minimum interest rate on the revolving loan. The Second Amended Agreement also provides
for an increase in the advance rate on domestic receivables from 75% to 80%, and extends the facility maturity date
to October 1, 2013. Under the Second Amended Agreement, the existing 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 Bank’s prime rate; or
(ii) eight and three quarters percent (8.75%). In addition, a new term loan can be issued in multiple draws provided
that the total term loan from Silicon Valley Bank shall not exceed $2,000,000 and provided further that total term
debt shall not exceed $2,400,000. Under the Second Amended Agreement, any new draws on the term loan will
accrue interest at a per annum rate equal to the Prime Rate plus three and three quarters percent (3.75%), or three-
and-one quarter percent (3.25%) above the Prime Rate if Sonic Foundry maintains an Adjusted Quick Ratio of
greater than 2.0 to 1.0. The Second Amended Agreement does not provide for a minimum interest rate on the new
term loan. Each draw on the new term loan will be amortized over a 36-month period. The Second Amended
Agreement also requires Sonic Foundry to continue to comply with certain financial covenants, including covenants
to maintain an Adjusted Quick Ratio (as defined) of at least 1.75 to 1.00 and Debt Service Coverage Ratio of at least
1.25 to 1.00, the latter of which will be waived if certain funds are reserved against the availability under the
revolving line of credit.

On May 31, 2013, the Company entered into a First Amendment to the Second Amended and Restated Loan and
Security Agreement (the “First Amendment”) with Silicon Valley Bank. Under the First Amendment: (i) the
Revolving Loan Maturity Date (as defined) was extended from October 1, 2013 to October 1, 2015, (ii) the interest
rate on the revolving line of credit was decreased so that interest will accrue at the per annum rate of three quarters
of one percent (0.75 %) above the Prime Rate (as defined), provided that Sonic Foundry maintains an Adjusted
Quick Ratio (as defined) of greater than 2.0 to 1.0, or one-and-one quarter percent (1.25%) above the Prime Rate, if
Sonic Foundry does not maintain an Adjusted Quick Ratio of greater than 2.0 to 1.0, (iii) the interest rate on the
Unused Revolving Loan Facility Fee (as defined) was decreased to seventeen and one-half hundredths of one
percent (0.175%).

On January 10, 2014, the Company entered into a Second Amendment to Second Amended and Restated Loan and
Security Agreement (the “Second Amendment”) with Silicon Valley Bank. Under the Second Amendment upon
funding: (i) the balance of the term loan payable to Silicon Valley Bank of approximately $544,000 was repaid and
replaced by a new term loan of $2,500,000 to be repaid in 36 equal monthly principal payments, (ii) the interest rate
was decreased so that interest accrues at the Prime Rate (as defined) plus two and one quarter percent (which
equated to an interest rate of 5.5%) from the Prime Rate plus three and one quarter percent (which equated to an
interest rate of 6.5%) payable on the previous loan from Silicon Valley Bank, (iii) the covenant that requires the
Minimum Adjusted Quick ratio be at or greater than 1.75:1.0 was reduced to 1.5:1.0, (iv) the Debt Service Coverage
ratio was changed to a quarterly test rather than monthly, (v) the approval to repurchase up to $1,000,000 of
outstanding shares of common stock was eliminated, (vi) the purchase of all the outstanding stock in MediaMission
Holding B.V., the owner of 100% of the stock of MediaMission B.V. and the purchase of all outstanding stock in
Mediasite KK was approved, and (vii) a maximum limit of bank indebtedness of Mediasite KK of $500,000 was
provided for. The funding occurred contemporaneously with the closing of the Company’s purchase of the
outstanding common stock of Mediasite KK on January 17, 2014 which was effective January 14, 2014.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

On March 24, 2014 the Companies entered into a Third Amendment to the Second Amended Agreement (“Third
Amendment”) which 1) reduced the minimum required Adjusted Quick Ratio for each of the months ended
February 28, 2014, April 30, 2014, May 31, 2014, July 31, 2014, August 31, 2014, October 31, 2014 and
November 30, 2014 from 1.50:1.00 to 1.25:1.00; and 2) waived compliance with the maximum subsidiary
indebtedness requirement for the period up to the date preceding the Third Amendment, as amended.

At September 30, 2014, a balance of $1.9 million was outstanding on the term loans with Silicon Valley Bank, with
an effective interest rate of six-and-one half percent (6.5%), and no balance was outstanding on the revolving line of
credit. At September 30, 2013, a balance of $767 thousand was outstanding on the term loans with Silicon Valley
Bank and no balance was outstanding on the revolving line of credit. At September 30, 2014, there was $3.0 million
available under this credit facility for advances. At September 30, 2014 the Company was in compliance with all
covenants in the Second Amended Agreement, as amended.

At September 30, 2014, a balance of $170 thousand was outstanding on the notes payable with Mitsui Sumitomo
Bank, with an annual interest rate of approximately one-and-one half percent (1.575%) related to Mediasite K.K.

At September 30, 2014, a balance of $628 thousand was outstanding on the subordinated note payable related to the
acquisition of MediaMission, with an annual interest rate of six-and-one half percent (6.5%).

At September 30, 2014, a balance of $1.8 million was outstanding on the subordinated payable related to the
acquisition of Mediasite KK with an annual interest rate of five percent (5%).

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite
product. At September 30, 2014, the Company has an obligation to purchase $1.8 million of Mediasite product,
which is not recorded on the Company's Consolidated Balance Sheet.

Contractual Obligations

The following summarizes our contractual obligations at September 30, 2014 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
Capital lease obligations (a)
Notes payable (a)
Subordinated notes payable (a)

$ 1,808

3,466
398
2,259
2,578

1 Year
$ 1,808
1,104
221
1,074
2,234

$ ─
1,432
173
1,185
344

$ ─
930
4
─
─

Over 5
years
$ ─
─
─
─
─

(a) Includes fixed and determinable interest payments

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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, which consist of overnight money market funds, are subject to interest rate fluctuations,
however, we believe this risk is minimal due to the short-term nature of these investments.

At September 30, 2014, $1.9 million of the Company’s $4.5 million in outstanding debt is variable 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

The functional currency of our foreign subsidiaries in the Netherlands is the Euro and in Japan is the Japanese Yen.
They are subject to foreign currency exchange rate risk. Any increase or decrease in the exchange rate of the U.S.
Dollar compared to the Euro or Japanese Yen will impact our future operating results and financial position.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

To the Shareholders, Audit Committee and Board of Directors
Sonic Foundry, Inc. and Subsidiaries
Madison, WI

We have audited the accompanying consolidated balance sheet of Sonic Foundry, Inc. and Subsidiaries (the
"Company") as of September 30, 2014, and the related consolidated statements of operations comprehensive loss,
stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit 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 consolidated 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 audit included
consideration of its 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 includes
examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management as
well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides
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. and Subsidiaries as of September 30, 2014 and the results of their
operations and cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Baker Tilly Virchow Krause, LLP

Madison, Wisconsin
December 17, 2014

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Sonic Foundry, Inc.

We have audited the accompanying consolidated balance sheet of Sonic Foundry, Inc. and subsidiary (a Maryland
corporation) (the “Company”) as of September 30, 2013, and the related consolidated statement of operations,
comprehensive loss, stockholders’ equity, and cash flows for the year ended September 30, 2013. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit 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. We were not engaged to perform an audit of the
Company’s internal control over financial reporting. Our audit 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 audit provides 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. and subsidiary as of September 30, 2013, and the results of their operations
and their cash flows for the year ended September 30, 2013 in conformity with accounting principles generally
accepted in the United States of America.

/s/ GRANT THORNTON LLP

Milwaukee, Wisconsin
December 26, 2013

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

September 30,

2014

2013

Assets
Current assets:

Cash and cash equivalents

Accounts receivable, net of allowances of $150 and $90

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
Investment in Mediasite KK
Customer relationships, net of amortization of $191 and $0
Software development costs, net of amortization of $252 and $75
Product rights, net of amortization of $41 and $0
Other intangibles, net of amortization of $162 and $135
Other long-term assets

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
Current portion of subordinated notes payable
Total current liabilities

Long-term portion of unearned revenue
Long-term portion of capital lease obligations
Long-term portion of notes payable
Long-term portion of subordinated 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; 4,276,470 and
3,999,634 shares issued and 4,263,754 and 3,986,918 shares outstanding

Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Receivable for common stock issued

$ 4,344
8,449
1,721
1,544
16,058

911
5,440
720
7,071
3,675
3,396

11,185
-
2,471
281
631
37
564
$ 34,623

$ -
1,183
2,512
9,079
196
974
2,096
16,040

929
173
1,139
314
401
4,312
23,308

─

43
194,260
(182,372)
(421)
(26)

$ 3,482
6,885
1,447
805
12,619

852
5,296
581
6,729
3,449
3,280

7,576
385
-
458
-
15
-
$ 24,333

$ -
1,513
1,204
6,470
223
634
-
10,044

648
149
133
-
445
2,210
13,629

─

40
190,653
(179,556)
(238)
(26)

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

Treasury stock, at cost, 12,716 shares

Total stockholders' equity

Total liabilities and stockholders' equity
See accompanying notes

(169)
11,315
$ 34,623

(169)
10,704
$ 24,333

Years Ended September 30,

2014

2013

$ 16,773
18,649
408
35,830

7,350
2,925
10,275
25,555

16,551
5,623
5,545
428
490
28,637
(3,082)

1,390
38
(231)
173
1,370
(1,712)
(1,104)

$ 13,588
13,933
235
27,756

6,215
1,481
7,696
20,060

13,079
3,343
4,276

─
─

20,698
(638)

─

209
(92)
(31)
86
(552)
(240)

$ (2,816)

$ (792)

$ (0.67)
$ (0.67)

$ (0.20)
$ (0.20)

4,174,191
4,174,191

3,932,692
3,932,692

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
Patent settlement
Acquisition costs
Total operating expenses
Loss from operations

Non-operating income (expenses):
Gain on investment in Mediasite KK
Equity in earnings from investment in Mediasite KK
Interest expense, net
Other income (expense), net
Total non-operating income (expenses)
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

Sonic Foundry, Inc.
Consolidated Statements of Comprehensive Loss
For the Year Ended September 30, 2014 and 2013
(in thousands)

Net loss

Other comprehensive loss, net of taxes:
Foreign currency translation adjustment
Total other comprehensive loss

Comprehensive loss

See accompanying notes

Years Ended September 30,

2014

2013

$ (2,816)

$ (792)

(183)
(183)

(238)
(238)

$ (2,999)

$ (1,030)

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

Common
stock

Additional
paid-in
capital

Accumulated
deficit

Accumulated
other
comprehensive
loss

Receivable
for
common
stock
issued

Treasury
stock

Total

$ 39

$189,459

$ (178,764)

$ ─

$ (26)

$ (169)

$ 10,539

─

656

447

─

(792)

─

(238)

─

656

448

(238)

(792)

$ 40

$190,653

$ (179,556)

$ (238)

$ (26)

$ (169)

$ 10,704

─

─
─

921

2,403

283

─
─

─

─
(2,816)

(183)
─

─

─
─

─

─
─

921

2,403

286

(183)
(2,816)

$ 43

$194,260

$ (182,372)

$ (421)

$ (26)

$ (169)

$ 11,315

Balance,
September 30, 2012

Stock compensation
Issuance of common

stock

Exercise of common

stock options
Foreign currency

translation adjustment

Equity method

investment ownership
changes

Net loss
Balance,
September 30, 2013

Stock compensation
Issuance of common

stock

Exercise of common

stock options
Foreign currency

translation adjustment

Net loss
Balance,
September 30, 2014

See accompanying notes

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

Operating activities

Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:

$ (2,816)

$ (792)

Years Ended September 30,

2014

2013

Gain or equity in earnings from investment in Mediasite KK
Amortization of other intangibles
Amortization of software development costs
Amortization of product rights
Depreciation and amortization of property and equipment
Provision for doubtful accounts
Deferred taxes
Stock-based compensation expense related to stock options
Remeasurement gain on subordinated debt
Changes in operating assets and liabilities:

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

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

Investing activities

Capitalization of software development costs
Purchases of property and equipment
Cash received in Mediasite KK acquisition, net of cash paid
Cash paid for MediaMission acquisition, net of cash acquired
Net cash provided by (used in) investing activities

Financing activities

(1,429)
244
177
41
1,268
60
1,064
921
(157)

(597)
259
(547)
(810)
(94)
2,329
(87)

-
(862)
1,281
(119)
300

(209)
20
75

1,111
5
240
656
-

(1,312)
(394)
(48)
263
(87)
1,485
1,013

(533)
(1,162)
-
-
(1,695)

Proceeds from notes payable
Payments on notes payable
Payment of debt issuance costs
Payments of loan fees
Proceeds from issuance of common stock
Proceeds from exercise of common options
Dividends from investment in Mediasite KK
Payments on capital lease obligations
Net cash provided by (used in) provided by financing activities
Changes in cash and cash equivalents due to changes in foreign currency exchange rates
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
Taxes paid

Non-cash transactions:

1,954
(1,199)
(49)
-
98
286
-
(229)
861
(212)
862
3,482
$ 4,344

-
(666)
-
(20)
75
448
22
(173)
(314)
-
(996)
4,478
$ 3,482

$ 128
171

$ 92
-

Property and equipment financed by accounts payable, accrued liabilities or capital lease
Acquired product rights
Subordinated notes payable issuance for purchase of MediaMission and MSKK
Common stock issued for purchase of MediaMission and MSKK
Comprehensive loss attributable to equity method investment in MSKK

207
672
2,567
2,305
-

345
-
-
-
238

See accompanying notes

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries, Sonic Foundry Media Systems, Inc., MediaMission B.V. (formerly Media Mission Holding B.V.) and
Mediasite KK. All significant intercompany transactions and balances have been eliminated.

Prior to January 2014, the Company owned approximately 26% of Mediasite KK and accounted for its investment
under the equity method of accounting. On January 14, 2014, the Company purchased the remaining 74% of
Mediasite KK.

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

Products

Products are considered delivered, and revenue is recognized, when title and risk of loss have been transferred to the
customer or upon customer acceptance if non-delivered products or services are essential to the functionality of
delivered products. 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 our
server software and other software licenses. If a license is time-based, the revenue is recognized over the term of the
license agreement.

Services

The Company sells support and content hosting contracts to our customers, typically one year in length, and records
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

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

one year. The manufacturers the Company contracts with to build the units provide a limited one-year warranty on
the hardware. The Company also sells 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. Occasionally, the Company will sell customization services to enhance the server software.
Revenue from those services is recognized when performed, if perfunctory, or under contract accounting. 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

In the case of the Company’s hardware products with embedded software, the Company has determined that the
hardware and software components function together to deliver the product’s essential functionality, and therefore,
the revenue from the sale of these products is accounted for under the revenue recognition rules for tangible
products whereby the fee from a multiple-deliverable arrangement is allocated to each of the deliverables based
upon their relative selling prices as determined by a selling-price hierarchy. A deliverable in an arrangement
qualifies as a separate unit of accounting if the delivered item has value to the customer on a stand-alone basis. A
delivered item that does not qualify as a separate unit of accounting is combined with the other undelivered items in
the arrangement and revenue is recognized for those combined deliverables as a single unit of accounting. The
selling price used for each deliverable is based upon VSOE if available, from third-party evidence (TPE) if VSOE is
not available, and best estimate of selling price (ESP) if neither VSOE nor TPE are available. TPE is the price of the
Company’s or any competitor’s largely interchangeable products or services in stand-alone sales to similarly
situated customers. ESP is the price at which the Company would sell the deliverable if it were sold regularly on a
stand-alone basis, considering market conditions and entity-specific factors. All revenue arrangements negotiated
after September 30, 2010, excluding the sale of all software-only products and associated services, have been
accounted for under this guidance.

The selling prices used in the relative selling price allocation method are as follows: (1) the Company’s products and
services are based upon VSOE and (2) hardware products with embedded software, for which VSOE does not exist,
are based upon ESP. The Company does not believe TPE exists for any of these products and services because they
are differentiated from competing products and services in terms of functionality and performance and there are no
competing products or services that are largely interchangeable. Management establishes ESP for hardware products
with embedded software using a cost plus margin approach with consideration for market conditions, such as the
impact of competition and geographic considerations, and entity-specific factors, such as the cost of the product and
the Company’s profit objectives. Management believes that ESP is reflective of reasonable pricing of that
deliverable as if priced on a stand-alone basis. When a sales transaction includes deliverables that are divided
between Accounting Standards Codification (ASC) Topic 605 and ASC Subtopic 985-605, the Company allocates
the selling price using the relative selling price method whereas value is allocated using an ESP for software
developed using a percent of list price approach. The other deliverables are valued using ESP or VSOE as
previously discussed.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

structures its transactions, future changes in the pricing model are not expected to materially affect our allocation of
arrangement consideration.

Management has established VSOE for hosting services. Billings for hosting are spread ratably over the term of the
hosting agreement, with the typical hosting agreement having a term of 12 months, with renewal on an annual basis.
The Company sells most hosting contracts without the inclusion of products. When the hosting arrangement is sold
in conjunction with product, the product revenue is recognized immediately while the remaining hosting revenue is
spread ratably over the term of the hosting agreement. The selling price is allocated between these elements using
the relative selling price method. The Company uses ESP for development of the selling price for hardware products
with embedded software.

Reserves

The Company reserves for stock rotations, price adjustments, rebates, and sales incentives to reduce revenue and
accounts receivable for these and other credits granted 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 the Company determines that it
can no longer accurately estimate amounts for stock rotations and sales incentives, the Company 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

As of September 30, 2014, of the $4.3 million in cash and cash equivalents, $1.4 million is deposited with two major
U.S. 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. The remaining $2.9 million of cash and cash equivalents is held by our
foreign subsidiaries in financial institutions in Japan and the Netherlands and held in their local currency. The cash
held in foreign financial institutions is not guaranteed.

We had billings for Mediasite product and support services as a percentage of total billings to one distributor of
approximately 15% in 2014 and 20% in 2013 and to a second distributor of approximately 15% in 2014 and 22% in
2013. At September 30, 2014 and 2013, these two distributors represented 47% and 56% of total accounts
receivable, respectively.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Currently all of our product inventory purchases are from one 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 material negative impact on our revenues. At September 30, 2014 and
2013, this supplier represented 27% and 34%, respectively, of total accounts payable. We also license technology
from third parties that is embedded in our software. We believe there are alternative sources of similar licensed
technology from other third parties that we could also embed in our software, although it could create potential
programming related issues that might require engineering resources.

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. As of September 30, 2014, of the $4.3 million aggregate cash and cash equivalents held by the
Company, the amount of cash and cash equivalents held by our foreign subsidiaries was $2.9 million. If the funds
held by our foreign subsidiaries were needed for our operations in the United States, the repatriation of some of
these funds to the United States could require payment of additional U.S. taxes.

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
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

Capitalized Software Development Costs

September 30,
2014

2013

$ 549
1,172
$ 1,721

$ 516
931
$ 1,447

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Mediasite product release required software capitalization since there was a longer period between technological
feasibility and the general availability of the product. Upon product release, the amortization of software
development costs is determined annually as the greater of the amount computed using the ratio of current gross
revenues for the products to their total of current and anticipated future gross revenues or the straight-line method
over the estimated economic life of the products, expected to be three years. Total amortization expense of software
development costs of $252 thousand and $75 thousand is included in Cost of Revenue – Product for the twelve
months ending September 30, 2014 and 2013, respectively. The amount of capitalized external and internal
development costs was $533 thousand for the year ended September 30, 2013.. There were no software development
efforts that qualified for capitalization for the year ended September 30, 2014.

Accounting for Stock-based Compensation

Valuation of Assets and Liabilities in Business Combinations

The assets acquired and the liabilities assumed in a business combination shall be measured at fair value. Fair value
is based on the definition in ASC 820-10-20 as the price that would be received from the sale of an asset or paid to
transfer a liability in an orderly transaction between market participants. Variations of the cost, market and income
approaches are used to measure the fair value of components of working capital (e.g. accounts receivable, inventory
and accounts payable) and tangible assets, such as property plant and equipment. When measuring the fair value of
acquired intangible assets, the income, market and cost approaches are generally considered. Financial assets and
liabilities are valued based on a quoted price in an active market. In the absence of a quoted market price a valuation
technique is used to determine fair value, such as a market approach or an income approach. Non-financial liabilities
may be valued based on a transfer approach. These measures require significant judgment including estimates of
expected cash flow, or discount rates among others.

Gain from investment in Mediasite KK

The Company’s investment in Mediasite KK was accounted for under the equity method of accounting using a one
quarter timing lag through December 31, 2013. On January 14, 2014, the Company’s ownership percentage
increased from approximately 26% of their common stock to 100%. In connection with the acquisition, the one
quarter lag in reporting their results was eliminated. The Company upon obtaining control of Mediasite KK recorded
a “step-up” in the value of its previously owned interest in Mediasite KK to fair value. The gain amounted to
approximately $1.4 million and was partially offset by $901 thousand of tax expense related to such investment. The
Company recorded equity in earnings of $38 thousand and $209 thousand for the years ended September 30, 2014
and September 30, 2013, respectively. The recorded value of this investment is zero at September 30, 2014, due to
elimination in the consolidated financial statements, and $385 thousand at September 30, 2013. The Company also
received $22 thousand in dividends from Mediasite KK during the year ended September 30, 2013.

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:

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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

Leasehold improvements
Computer equipment
Furniture and fixtures

Impairment of Long-Lived Assets

Comprehensive Loss

Comprehensive loss includes disclosure of financial information that historically has not been recognized in the
calculation of net income. Our comprehensive loss encompasses net loss and foreign currency translation
adjustments. Assets and liabilities of international operations that have a functional currency that is not in U.S.
dollars are translated into U.S. dollars at year-end exchange rates, and revenue and expense items are translated
using weighted average exchange rates. Any adjustments arising on translation are included in shareholders’ equity
as an element of accumulated other comprehensive loss.

Advertising Expense

Advertising costs included in selling and marketing, are expensed when the advertising first takes place.
Advertising expense was $240 and $238 thousand for years ended September 30, 2014 and 2013, respectively.

Research and Development Costs

Research and development costs are expensed in the period incurred, unless they meet the criteria for
capitalized software development costs.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Income Taxes

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 and disclosure related to the uncertainty in income tax positions.

Fair Value of Financial Instruments

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

The Company’s goodwill, intangible assets and other long-lived assets are nonfinancial assets that were acquired
either as part of a business combination, individually or with a group of other assets. These nonfinancial assets were
initially, and are currently, measured and recognized at amounts equal to the fair value determined as of the date of
acquisition. Fair value measurements of reporting units are estimated using an income approach involving
discounted or undiscounted cash flow models that contain certain Level 3 inputs requiring management judgment,
including projections of economic conditions and customer demand, revenue and margins, changes in competition,
operating costs, working capital requirements, and new product introductions. Fair value measurements of the
reporting units associated with the Company’s goodwill balances are estimated at least annually at the beginning of
the fourth quarter of each fiscal year for purposes of impairment testing. Fair value measurements associated with
the Company’s intangible assets and other long-lived assets are estimated when events or changes in circumstances
such as market value, asset utilization, physical change, legal factors, or other matters indicate that the carrying
value may not be recoverable.

In determining the fair value of financial assets and liabilities, the Company currently utilizes market data or other
assumptions that it believes market participants would use in pricing the asset or liability in the principal or most
advantageous market, and adjusts for non-performance and/or other risk associated with the Company as well as
counterparties, as appropriate. When considering market participant assumptions in fair value measurements, the
following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in
one of the following levels:

Level 1 Inputs: Unadjusted quoted prices which are available in active markets for identical assets or
liabilities accessible to the Company at the measurement date.

Level 2 Inputs: Inputs other than quoted prices included in Level 1 inputs that are observable for the asset
or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that
observable inputs are not available, thereby allowing for situations in which there is little, if any, market
activity for the asset or liability at measurement date.

The hierarchy gives the highest priority to Level 1, as this level provides the most reliable measure of fair value,
while giving the lowest priority to Level 3.

Financial Instruments Not Measured at Fair Value

The Company's other 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.

Legal Contingencies

In June 2014 the Company entered into a settlement agreement with Astute Technology, LLC (“Astute”). The key
terms of the agreement were: 1) grant non-revocable license of Astute patents to the Company; 2) grant a fully paid,
non-refundable license of certain Sonic Foundry patents to Astute; 3) Both Astute and our customer agreed to
identify three meetings they currently capture that the other party will not seek or respond to any request for
proposal; and 4) payment of $1.35 million to Astute. The payment will be made in three equal amounts with the
first paid in June 2014, the second paid in October 2014 and the final payment due March 2015. The Company is
contributing $1.1 million toward the amount payable to Astute, with $428 thousand relating to prior use and
recorded as a charge to income. The remaining $672 thousand was recorded as a product right asset, which is being
amortized, straight line, over the remaining life of the patents, through 2020. Future amounts due to Astute were
accrued for as of the time of settlement.

No legal contingencies were recorded for the year ended September 30, 2013. Except as reported above, no legal
contingencies were recorded for the year ended September 30, 2014.

Stock-Based Compensation

The Company uses a lattice valuation model to account for all employee stock options granted. 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 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. Forfeitures are based on actual behavior patterns.

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

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

Years Ending September 30,
2013
2014

4.8 – 5.1 years
0.60%-0.89%
46.3%-47.2%
10.5 %-12.2%
1.39-1.45
0%

4.7 – 4.8 years
0.35%-0.61%
46.8%-49.3%
11.8%-13.0%
1.36-1.37
0%

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Per Share Computation

Basic earnings (loss) 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. In periods where the Company reports net income, diluted net income per share is 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

Effect of dilutive options (treasury method)

Denominator for diluted earnings per share

- adjusted weighted average common shares

Years Ending September 30,

2014

2013

4,174,191

3,932,692

─

4,174,191

3,932,692

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

1,240,941

997,045

Recent Accounting Pronouncements

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements -
Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern
(ASU 2014-15). The guidance in ASU 2014-15 sets forth management's responsibility to evaluate whether there is
substantial doubt about an entity's ability to continue as a going concern as well as required disclosures. ASU 2014-15
indicates that, when preparing financial statements for interim and annual financial statements, management should
evaluate whether conditions or events, in the aggregate, raise substantial doubt about the entity's ability to continue as a
going concern for one year from the date the financial statements are issued or are available to be issued. This evaluation
should include consideration of conditions and events that are either known or are reasonably knowable at the date the
financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to
address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the
substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods and

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

annual periods thereafter. Early application is permitted. We are currently evaluating the impact of adopting ASU 2014-
15 to determine the impact, if any, it may have on our financial statements.

Commitments

2.
The Company leases certain equipment under capital lease agreements expiring through January 2018. Such leases
are included in fixed assets with a cost of $893 thousand and accumulated depreciation of $348 thousand at
September 30, 2014. Minimum lease payments, including principal and interest, are summarized in the table below.

Fiscal Year (in thousands)

2015
2016
2017
2018
Total payments
Less interest
Total

Capital

$ 221
120
53
4
398
(29)
$ 369

The Company leases certain facilities and equipment under operating lease agreements expiring at various times
through January 31, 2019. Total rent expense on all operating leases was approximately $1 million and $581
thousand for the years ended September 30, 2014 and 2013, respectively.

In November 2011, the Company occupied office space related to a lease agreement entered into on June 28, 2011.
The lease term is from November 2011 through December 2018. The lease includes a tenant improvement
allowance of $613 thousand that was recorded as a leasehold improvement liability and is being amortized as a
credit to rent expense on a straight-line basis over the lease term. At September 30, 2014, the unamortized balance
was $357 thousand.

The following is a schedule by year of future minimum lease payments under operating leases:

Fiscal Year (in thousands)

2015
2016
2017
2018
2019
Thereafter
Total

Operating

$ 1,104
707
725
742
188
-
$ 3,466

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, except as noted above related to Astute, and has not accrued any liabilities related to such
obligations in the consolidated financial statements, except as noted above related to Astute.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Credit Arrangements

On June 27, 2011, the Company and its wholly owned subsidiary, Sonic Foundry Media Systems, Inc. (the
“Companies”) entered into the Second Amended and Restated Loan and Security Agreement with Silicon Valley
Bank (the “Second Amended Agreement”). Under the Second Amended Agreement, the revolving line of credit has
a maximum principal amount of $3,000,000. Interest accrues on the revolving line of credit at the per annum rate of
one percent (1.0%) above the Prime Rate (as defined), provided that Sonic Foundry maintains an Adjusted Quick
Ratio (as defined) of greater than 2.0 to 1.0, or one-and-one half percent (1.5%) above the Prime Rate, if Sonic
Foundry does not maintain an Adjusted Quick Ratio of greater than 2.0 to 1.0. The Second Amended Agreement
does not provide for a minimum interest rate on the revolving loan. The Second Amended Agreement also provides
for an increase in the advance rate on domestic receivables from 75% to 80%, and extends the facility maturity date
to October 1, 2013. Under the Second Amended Agreement, the existing 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 Bank’s prime rate; or
(ii) eight and three quarters percent (8.75%). In addition, a new term loan can be issued in multiple draws provided
that the total term loan from Silicon Valley Bank shall not exceed $2,000,000 and provided further that total term
debt shall not exceed $2,400,000. Under the Second Amended Agreement, any new draws on the term loan will
accrue interest at a per annum rate equal to the Prime Rate plus three-and-three quarters percent (3.75%), or three-
and-one quarter percent (3.25%.) above the Prime rate if Sonic Foundry maintains an Adjusted Quick Ratio of
greater than 2.0 to 1.0. The Second Amended Agreement does not provide for a minimum interest rate on the new
term loan. Each draw on the new term loan will be amortized over a 36-month period. The Second Amended
Agreement also requires Sonic Foundry to continue to comply with certain financial covenants, including covenants
to maintain an Adjusted Quick Ratio (as defined) of at least 1.75 to 1.00 and Debt Service Coverage Ratio of at least
1.25 to 1.00, the latter of which will be waived if certain funds are reserved against the availability under the
revolving line of credit.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

On March 24, 2014 the Companies entered into a Third Amendment to the Second Amended Agreement which 1)
reduced the minimum required Adjusted Quick Ratio for each of the months ended February 28, 2014, April 30,
2014, May 31, 2014, July 31, 2014, August 31, 2014, October 31, 2014 and November 30, 2014 from 1.50:1.00 to
1.25:1.00; and 2) waived compliance with the maximum subsidiary indebtedness requirement for the period up to
the date preceding the Third Amendment.

The Second Amended Agreement, as amended, 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
Second Amended Agreement, as amended.

Pursuant to the Second Amended Agreement, as amended, the Companies pledged as collateral to Silicon Valley
Bank substantially all non-intellectual property business assets. The Companies also entered into an Intellectual
Property Security Agreement with respect to intellectual property assets.

The annual principal payments on the notes payable are as follows:

Fiscal Year (in thousands)

2015
2016
2017
Total

$ 974
861
278
$ 2,113

At September 30, 2014, a balance of $1.8 million was outstanding on the subordinated payable related to the
acquisition of Mediasite KK with an annual interest rate of five percent (5%).

The annual principal payments on the subordinated notes are as follows:

Fiscal Year (in thousands)

2015
2016
Total

$ 2,096
314
$ 2,410

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Accrued Liabilities

Accrued liabilities consists of the following (in thousands):

Accrued compensation
Accrued expenses
Accrued interest & taxes
Other accrued liabilities
Total

September 30,

2014

$ 1,173
903
288
148
$ 2,512

2013
$ 882
286
36
-
$ 1,204

The Company accrues expenses as they are incurred. Accrued compensation includes wages, vacation, commissions
and bonuses. Accrued expenses is mainly related to stock compensation, professional fees and amounts owed to
suppliers. Other accrued liabilities is made up of employee-related expenses, including $98 thousand in dividends
payable to the sellers and current employees of its wholly owned subsidiary, MediaMission B.V. These amounts
were accrued prior to the Company’s acquisition.

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. On March 7, 2012, Stockholders approved an amendment to increase the number
of shares of common stock subject to this plan by 600,000 and to increase the number of shares for the directors’
stock option plan by 50,000 shares. On March 6, 2014, Stockholders approved an amendment to increase the
number of shares of common stock subject to the 2009 Plan by 800,000 to an aggregated total of 1,800,000 shares of
common stock. The Company maintains a directors' stock option plan under which options may be issued to
purchase up to an aggregate of 100,000 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.

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.

The Company has applied a graded (tranche-by-tranche) attribution method and expenses share-based compensation
on an accelerated basis over the vesting period of the share award, net of estimated forfeitures.

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

Qualified
Employee
Stock Option
Plans

Director
Stock Option
Plans

Shares available for grant at September 30, 2012
Options granted
Options forfeited
Shares available for grant at September 30, 2013
Stockholder approval to increase shares
Options granted
Options forfeited
Shares available for grant at September 30, 2014

601,926
(297,600)
53,279
357,605
800,000
(328,760)
24,921
853,766

44,500
(12,500)
-
32,000
-
(12,500)
-
19,500

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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

Years Ended September 30,

2014

2013

Weighted
Average
Exercise
Price

$ 10.54
10.11
7.43
14.90
$ 10.31

Weighted
Average
Exercise
Price

$ 11.28
7.60
5.93
11.22
$ 10.54

Options

846,280
310,100
(75,532)
(83,803)
997,045
566,440

$ 2.57

Options

997,045
341,260
(38,143)
(59,221)
1,240,941
700,922

$ 3.41

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

The options outstanding at September 30, 2014 have been segregated into four ranges for additional disclosure as
follows:

Options Outstanding

Options Exercisable

Options
Outstanding at
September 30,
2014
767,015
343,303
95,865
34,758
1,240,941

Weighted
Average
Remaining
Contractual
Life
7.3
7.1
4.0
2.0

Weighted
Average
Exercise
Price
$ 8.04
11.65
15.78
30.47

Options
Exercisable at
September 30,
2014
411,548
158,751
95,865
34,758
700,922

Weighted
Average
Exercise
Price
$ 7.64
12.93
15.78
30.47

Exercise Prices
$ 4.50 to $9.90
10.00 to 14.83
15.00 to 19.00
21.40 to 46.90

At September 30, 2014, there was $664 thousand of total unrecognized compensation cost related to non-vested
stock-based compensation, including $98 thousand of estimated forfeitures. The cost is expected to be recognized
over a weighted-average life of 1.8 years.

A summary of the status of the Company’s non-vested shares at September 30, 2014 and for the year then ended is
presented below:

Non-vested shares at October 1, 2013
Granted
Vested
Forfeited
Non-vested shares at September 30, 2014

Weighted Average

Grant Date
Fair Value
$ 3.28
3.41
3.47
3.52
$ 3.29

430,605
341,260
(217,703)
(14,643)
539,519

Stock-based compensation recorded in the year ended September 30, 2014 of $921 thousand was allocated $617
thousand to selling and marketing expenses, $54 thousand to general and administrative expenses and $250
thousand to product development expenses. Stock-based compensation recorded in the year ended September 30,
2013 of $656 thousand was allocated $429 thousand to selling and marketing expenses, $40 thousand to general and

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

administrative expenses and $187 thousand to product development expenses. Cash received from exercises under
all stock option plans and warrants for the years ended September 30, 2014 and 2013 was $286 thousand and $448
thousand, respectively. There were no tax benefits realized for tax deductions from option exercises for the years
ended September 30, 2014 and 2013. The Company currently expects to satisfy stock-based awards with registered
shares available to be issued.

The Company also has an Employee Stock Purchase Plan (Purchase Plan) under which an aggregate of 150,000
common shares may be issued. The Shareholders approved an amendment to increase the number of shares of
common stock subject to the plan from 100,000 to 150,000 at the Company’s annual meeting in March 2014. All
employees who have completed 90 days of employment with the Company on the first day of each offering period
and customarily work twenty hours per week or more 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. A total of 14,346 shares are available to be issued under the plan. There
were 11,863 and 15,062 shares purchased by employees during fiscal 2014 and 2013, respectively. The Company
recorded stock compensation expense under this plan of $21 and $19 thousand during fiscal 2014 and 2013,
respectively. Cash received from issuance of stock under this plan was $98 and $75 thousand during fiscal 2014 and
2013, respectively.

Income Taxes

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

Current tax expense
Deferred income tax expense
Provision for income taxes

Years Ended September 30,

2014

2013

$ 40
1,064
$ 1,104

$ -
240
$ 240

The reconciliation of income tax expense (benefit) computed at the appropriate country specific rate to income tax
expense (benefit) is as follows (in thousands):

Income tax expense (benefit) at statutory rate
State income tax expense (benefit)
Foreign tax activity
R&D tax credit expiration
Permanent differences, net
Adjustment of temporary differences to income tax returns
Change in valuation allowance
Income tax expense

Years Ended September 30,

2014

2013

$ (582)
(53)
40
82
212
121
1,284
$ 1,104

$ (188)
(11)
-
-
111
(110)
438
$ 240

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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
Unearned revenue
Other
Total deferred tax assets

Deferred tax liabilities:
Fixed assets
Other
Total deferred tax liabilities

Net deferred tax asset

Valuation allowance
Equity gains on investment in Mediasite KK
Customer relationships
Goodwill amortization
Deferred tax liability for goodwill and intangible assets amortization

September 30,

2014

2013

$ 35,556
811
59
319
1
36,746

$ 35,001
636
35
-
47
35,719

(129)
(64)
(193)

(129)
(321)
(450)

36,553

35,269

(36,553)
(916)
(946)
(2,450)
$ (4,312)

(35,269)
-
-
(2,210)
$ (2,210)

At September 30, 2014, the Company had net operating loss carryforwards of approximately $91 million for U.S.
Federal and $52 million for state tax purposes. For Federal tax purposes, the carryforwards expire in varying
amounts between 2019 and 2034. For state tax purposes, the carryforwards expire in varying amounts between
2014 and 2033. 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 $418 thousand, which expire
in varying amounts between 2019 and 2020.

Earnings of the Company’s foreign subsidiaries are generally subject to U.S. taxation upon repatriation to the U.S.
and the Company’s tax provision reflects the related incremental U.S. tax except for certain foreign subsidiaries
whose unremitted earnings are considered to be indefinitely reinvested. At September 30, 2014, unremitted earnings
of foreign subsidiaries were deemed to be indefinitely reinvested. No deferred tax liability has been recognized with
regard to the remittance of such earnings after MSKK and MediaMission BV acquisitions were completed during
the year. Because of the availability of U.S. foreign tax credits, it is likely no U.S. tax would be due if such earnings
were repatriated.

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. Tax amortization is not applicable to the goodwill from the
foreign acquisitions that took place during fiscal 2014 since the foreign goodwill is non-deductible for US federal
tax purposes.

The difference between the book and tax balance of certain of the company’s goodwill creates a deferred tax
liability and an annual tax expense. Because of the long term nature of the goodwill timing difference, tax planning
strategies cannot be utilized with respect to the deferred tax liability. The Company’s tax rate differs from the
expected tax rate each reporting period as a result of the aforementioned items. The balance of the Deferred Tax
Liability at September 30, 2014 was $4.3 million and $2.2 million at September 30, 2013. The Company recorded a

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

deferred tax liability related to the Customer Relationship intangibles value acquired as part of the purchase of
MediaMission BV and Mediasite KK. The Company also recorded tax expense related to the “step-up” gain on its
original equity investment in Mediasite KK. The Company has some other temporary differences related to its
Mediasite KK subsidiary.

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 Condensed Consolidated Balance Sheets at September 30, 2014 or September 30, 2013, and has not
recognized any interest or penalties in the Condensed Consolidated Statements of Operations for either of the twelve
month periods ended September 30, 2014 or 2013.

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

Acquisition of MediaMission Holding B.V.

On December 16, 2013, Sonic Foundry completed its acquisition of all of the outstanding stock of MediaMission
Holding B.V., the owner of 100% of the outstanding stock in MediaMission B.V., (“MediaMission”) and
MediaMission Hosting B.V. Sonic Foundry paid $1.493 million for all the outstanding stock in MediaMission
Holding B.V., comprised of $458,000 cash, $687,000 subordinated note payable over three years (interest rate of
6.5%) and $348,000 in shares of Sonic Foundry stock. The stock portion of the purchase price consisted of 37,608
shares of Sonic Foundry common stock. In connection with the acquisition of MediaMission Holding B.V., the
Company entered into employment agreements with the two managing principals of MediaMission. As a result of
the acquisition, the Company is expected to further increase its presence in the European market. The goodwill of
$932 thousand arising from the acquisition consists largely of the synergies expected from combining the operations
of the Company and MediaMission. None of the goodwill recognized is deductible for income tax purposes.

The Company recorded the acquired tangible and intangible assets and liabilities assumed based on their estimated
fair values. The fair value of the customer relationships was estimated by applying the income approach. That
measure is based on significant inputs that are not observable in the market, and therefore represents Level 3 inputs.
Key assumptions include a discount rate of 28 percent, estimated effective tax rate of 20 percent, and estimated
customer attrition rate of 15 percent. The Company believes that the information provides a reasonable basis for
estimating the fair values of assets acquired and liabilities assumed. The customer relationship intangible is
amortized on a straight line basis over ten year years and amortization is categorized as a selling and marketing
expense.

The following table summarizes the fair values of the assets acquired and liabilities assumed on the date of the
acquisition (in thousands):

Assets acquired:
Cash
Other current assets
Property and equipment
Customer relationships
Goodwill
Total assets acquired
Liabilities assumed:
Current liabilities
Deferred tax liability
Total liabilities assumed
Total purchase price

Fair Value

339
923
49
591
932
2,834

(1,111)
(230)
(1,341)
1,493

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

MediaMission contributed revenue of $1.0 million and a net loss of $147 thousand for the period from the date of
acquisition to September 30, 2014.

Acquisition of MSKK

On January 14, 2014, Sonic Foundry paid approximately $5.7 million for the remaining stock in Mediasite KK,
comprised of equal components of approximately $1.9 million cash, subordinated note payable in one year (interest
rate of 5%) and value in shares of Sonic Foundry. The stock portion of the purchase price consisted of 189,222
shares of Sonic Foundry common stock. Assets acquired include cash, accounts receivable, inventory, fixed assets
and customer relationship and other intangibles and liabilities assumed include accounts payable, debt, taxes payable
and unearned revenues. Prior to completion of this acquisition, the Company owned a minority interest of
approximately 26% of Mediasite KK. In connection with the acquisition, the one quarter lag in reporting their results
was eliminated. The Company determined that the acquisition was deemed to be a material business combination.
During the second fiscal quarter of 2014, this initial investment was valued at the same amount as the value when
control was achieved which resulted in a non-cash gain of approximately $1.4 million. This amount was partially
offset by a $901 thousand tax expense associated with the gain. As a result of the acquisition, the Company is
expected to further increase its presence in the Japanese and Asian market. The goodwill of $2.9 million arising
from the acquisition consists largely of the synergies expected from combining the operations of the Company and
Mediasite KK. None of the goodwill recognized is deductible for income tax purposes.

The Company recorded the acquired tangible and intangible assets and liabilities assumed based on their estimated
fair values. The fair value of the customer relationships was estimated by applying the income approach. That
measure is based on significant inputs that are not observable in the market, and therefore represents Level 3 inputs.
Key assumptions include a discount rate of 30 percent, estimated effective tax rate of 35.5 percent, and estimated
customer attrition rate of 15 percent. The Company believes that the information provides a reasonable basis for
estimating the fair values of assets acquired and liabilities assumed. The customer relationship intangible is
amortized on a straight line basis over ten year years and amortization is categorized as a selling and marketing
expense.

The following table summarizes the fair values of the assets acquired and liabilities assumed on the date of the
acquisition (in thousands):

investment

Total purchase price for 74% remaining stock

Fair Value

3,163
1,792
240
2,071
2,906
10,172

(1,590)
(808)
(2,398)

(2,053)
5,721

Mediasite KK contributed revenue of $4.3 million and net income of $48 thousand for the period from the date of
acquisition to September 30, 2014.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

Pro Forma Financial Information (Unaudited)

The following table represents the net loss (in thousands) for the Company on a pro forma basis, assuming the
acquisitions of MediaMission and Mediasite KK had each occurred as of October 1, 2012. The table sets forth
unaudited pro forma results for the twelve months ended September 30, 2013 and 2014, respectively and has been
compiled from historical financial statements and other information, but is not necessarily indicative of the results
that actually would have been achieved had the transaction occurred on the dates indicated or that may be achieved
in the future.

Twelve Months Ended Sept 30,

2014

2013

Revenue
Net income/(loss)
Basic income/(loss) per share

$37,575
(2,694)
$ (0.61)

$35,369
(750)
$ (0.18)

10.

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 $375 and $275 thousand
during the years ended September 30, 2014 and 2013, respectively. The Company made no additional discretionary
contributions during 2014 and 2013.

11.

Related-Party Transactions

The Company incurred fees of $236 and $171 thousand during the years ended September 30, 2014 and 2013,
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 $15 and $14 thousand at September 30, 2014 and 2013,
respectively.

The Company recorded Mediasite product and customer support revenue of $1.3 million during the year ended
September 30, 2013, to Mediasite KK and Mediasite KK owed the Company $280 thousand at September 30, 2013,
respectively. Mediasite KK became a wholly owned subsidiary during fiscal 2014.

As of September 30, 2014 and 2013, the Company had a loan outstanding to an executive totaling $26 thousand.
The loan is collateralized by Company stock.

As of September 30, 2014, the Company had outstanding amounts due for management fees and dividends payable
to the sellers of and current employees of its wholly-owned subsidiary, MediaMission B.V. totaling $370 thousand.

12.

Goodwill and Other Intangible Assets

Goodwill and intangible assets that have indefinite useful lives are recorded at cost and are not amortized but,
instead, tested at least annually for impairment. The Company assesses 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.

The Company performs annual goodwill impairment test as of July 1, and tested goodwill recognized in connection
with the acquisitions of Mediasite, MediaMission and Mediasite KK and determined it was not impaired. For
purposes of the test, goodwill on the Company’s books is evaluated within three separate reporting units.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

The changes in the carrying amount of goodwill for the year ended September 30, 2014 are as follows:

Balance as of September 30, 2013
Goodwill acquired during year:
Mediasite KK
MediaMission
Foreign currency translation adjustment
Balance as of September 30, 2014

$ 7,576

2,906
933
(230)
$ 11,185

The following tables present details of the Company’s total intangible assets at September 30, 2014 and 2013:

$ 37
2,471
281
631
3,420

11,185
$ 14,605

$ 15
15

7,576
$ 7,591

Life
(years)

Gross

Accumulated

Amortization at
September 30,
2014

Balance at
September 30,
2014

(in thousands)

Amortizable:
Loan origination fees
Customer relationships
Software development costs
Product rights

3
10
3
6

$ 199
2,662
533
672
4,066

$ 162

191
252
41
646

Non-amortizable goodwill
Total

11,185
$ 15,251

-
$ 646

(in thousands)

Amortizable:
Loan origination fees

Life
(years)

Gross

Accumulated

Amortization at
September 30,
2013

Balance at
September 30,
2013

$ 150
150

$ 135

135

Non-amortizable goodwill
Total

7,576
$ 7,726

-
$ 135

Estimated amortization expense for each of the five subsequent fiscal years is expected to be (in thousands):

Fiscal Year (in thousands)

2015
2016
2017
2018
2019
Total

$ 597
501
390
362
302
$ 2,152

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

13.

Segment Information

The Company has determined that it operates in three operating segments, however these segments meet the criteria
for aggregation for reporting purposes as one operating segment as of September 30, 2014. Prior to the acquisitions
in the year ended September 30, 2014, we reported in one operating segment..

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

United States
Europe and Middle East
Asia
Other

Total

14.

Customer Concentration

Years Ended September 30,

2014

2013

$ 22,175
6,446
5,813
1,396
$ 35,830

$ 20,610
3,621
1,772
1,753
$ 27,756

In the fiscal year ended September 30, 2014 and 2013, two distributors represented 30% and 42% of total revenue.
At September 30, 2014 and 2013, these two distributors represented 47% and 56% of total accounts receivable,
respectively.

15.

Legal Proceedings

From time to time, the Company is subject to legal proceedings or claims arising from its normal course of
operations. The Company accrues for costs related to loss contingencies when such costs are probable and
reasonably estimable. As of September 30, 2014, the Company is not aware of any material pending legal
proceedings or threatened litigation that would have a material adverse effect on the Company's financial condition
or results of operations, although no assurance can be given with respect to the ultimate outcome of pending actions.

On October 26, 2012, a complaint was filed by Astute Technology, LLC (“Astute”) against one of our customers in
the United States District Court for the Eastern District of Texas (Case No. 2:012-cv-689). The complaint alleges
patent infringement. Because we agreed to indemnify our customers from costs and damages in connection with
infringement we defended the complaint.

On February 5, 2013, we filed a complaint against Astute in the Western District of Wisconsin (Case No. 13-cv-87).
The complaint is for declaratory judgment of non-infringement and invalidity of three Unites States patents held by
Astute.

In June, 2014 the Company entered into an agreement with Astute which resolved the matters referenced above. The
key terms of the agreement are: 1) grant non-revocable license of Astute patents to the Company; 2) grant a fully
paid, non-refundable license of certain Sonic patents to Astute; 3) Both Astute and our customer agree to identify
three meetings they currently capture that the other party will not seek or respond to any request for proposal; and 4)
payment of $1.35 million to Astute. The payment will be made in three equal amounts with the first paid in June
2014, the second paid in October 2014 and the final payment due March 2015. The Company is contributing $1.1
million toward the amount payable to Astute, with $428 thousand relating to prior use and recorded as a charge to
income. The remaining $672 thousand was recorded as a product right asset, which is being amortized, straight line,
over the remaining life of the patents, through 2020. Future amounts due to Astute were accrued for as of the time of
settlement.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

16.

Quarterly Financial Data (unaudited)

The following table sets forth selected quarterly financial information for the years ended September 30, 2014 and
2013. The operating results are not necessarily indicative of results for any future period.

(in thousands except per share
data)

Revenue
Gross margin
Income (loss) from operations
Equity in earnings from

investment in Mediasite KK

Net income (loss)
Basic and diluted net income

Quarterly Financial Data

Q4-’14 Q3-’14

Q2-’14

Q1-’14

Q4-’13 Q3-’13

Q2-’13

Q1-’13

$ 8,479 $ 11,267 $ 8,878
6,499
7,789
(1,022)
(77)
15
-

5,871
(1,357)
-

$ 7,206
5,396
(626)
23

$ 6,761 $ 8,013 $ 6,430 $ 6,552
4,867
(131)
78

4,690
(34)
90

5,611
109
11

4,892
(582)
30

(1,288)

(871)

(690)

(666)

(27)

(139)

(loss) per share

$(0.30)

$ 0.01

$(0.21)

$(0.17)

$ 0.01

$(0.01)

$(0.04)

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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 evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e), and 15d-15(e) under the Securities Exchange Act).
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the SEC, and that material information relating to the Company is
accumulated and communicated to management, including our principal executive officer and our principal financial
officer, as appropriate to allow timely decisions regarding required disclosures. Based on this evaluation, our
principal executive officer and principal financial officer concluded that our disclosure controls and procedures were
not effective as of September 30, 2014 solely as a result of three material weaknesses. These related weaknesses are
discussed further in Management’s Report on Internal Control over Financial Reporting below.

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 the 1992 Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our principal executive officer and principal financial officer concluded that our internal
controls over financial reporting were not effective as of September 30, 2014 due to three identified material
weaknesses in internal control. The first material weakness is in internal control over the financial reporting and
monitoring of Mediasite KK (“MSKK”) which was identified in fiscal 2013 and continues to exist. Our internal
controls related to the capture of MSKK’s historical information, the accounting for our investment in MSKK based
on that information and the review of such accounting did not operate effectively and were not sufficient to ensure
that our accounting was in accordance with U.S. generally accepted accounting principles. The second material
weakness relates to controls over the research and analysis of accounting for non-standard contract provisions. The
company did not adequately assess some unique contract implications of one large contract with a customer during
the second quarter of fiscal 2014. The third material weakness relates to controls over the preparation of
consolidated financial information.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

In light of the material weakness described above, additional procedures were performed by our management to
ensure that the condensed consolidated financial statements included in this report were prepared in accordance with
U.S. generally accepted accounting principles.

Changes in Internal Control Over Financial Reporting

The Company is in the process of making changes to its internal control over financial reporting (as referred to in
Paragraph 4(b) of the Certifications of the Company’s principal executive officer and principal financial officer
included as exhibits to this report) as it relates to the acquisitions that have materially affected, or are reasonably
likely to affect the Company’s internal control over financial reporting.

In the third and fourth quarters of fiscal 2014, we instituted certain controls and procedures to obtain the necessary
information to properly consolidate the foreign operations and added additional resources to address any non-
standard contract provisions. The controls and procedures allow the Company to obtain accurate financial
information in a timely fashion which is in accordance with US generally accepted accounting principles. The third
quarter of fiscal 2014 also represents the first full quarter of operations of the foreign subsidiaries as part of
consolidated operations. Over time, we have continued to gain an understanding of the laws and customs which we
were previously unfamiliar with, overcome certain challenges with language barriers and time zone differences, and
implement controls surrounding the consolidation of these foreign operations with our domestic operations.

Remediation

The aforementioned internal controls over financial reporting of our foreign operations have provided a framework
to remediate the material weakness surrounding our consolidation process. We are currently reviewing our processes
and controls and deploying our additional accounting resources to design and implement effective controls over our
consolidation process. Finally, we have utilized our additional resources to appropriately address any non-standard
contract provisions during the quarter. There can be no assurances that we have fully remediated the weaknesses in
the controls over the foreign operations. However, we feel that our remediation efforts to establish processes and
controls as well as adding additional resources to our accounting team made significant improvements to our
processes and controls in an effort to address each of the aforementioned material weaknesses.

ITEM 9B. OTHER INFORMATION

None.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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 2013 Annual
Meeting of Stockholders, which will be filed no later than January 28, 2015 (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. Requests should be addressed in writing to Mr.
Kenneth A. Minor, Corporate Secretary, 222 West Washington Avenue, Madison, Wisconsin 53703.

Sonic Foundry, Inc.
Annual Report on Form 10-K
For the Year Ended September 30, 2014

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.

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 2013 and 2014 Audit Fee
Summary” in the Proxy Statement.

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