Sonic Foundry (SOFO)

Liquidity and Capital Resources

Cash used in operating activities was $1.4 million in YTD-2009 compared to YTD-2008 of $3.9 million – an improvement of $2.5 million or 64%. Cash used in 2009 was impacted by a decrease in the net loss of $4.4 million from $5.8 million to $1.4 million. Working capital changes included the negative effects of reductions in prepaid expenses and other current assets of $309 thousand and reductions in accounts payable and accrued liabilities of $507 thousand. These were offset by the positive effects of share based compensation of $368 thousand and depreciation of $327. YTD-2008 changes in working capital components and other adjustments included the positive effects of a $983 thousand decrease in accounts receivable, an increase in prepaid expenses and other current assets of $177 thousand, an increase in unearned revenue of $235 thousand, share-based compensation of $492 thousand, and depreciation of $337 thousand, and the negative effects of a decrease of $450 thousand accounts payable and accrued liabilities.

Cash used in investing activities was $178 thousand in YTD-2009 compared to a use of $110 thousand in YTD-2008 for the purchase of property and equipment.

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Cash provided by financing activities was $548 thousand in YTD-2009 compared to use of $170 thousand in YTD-2008. YTD-2009 included proceeds from the line of credit of $600 thousand and proceeds from the exercise of employee stock options and stock issuances of $85 thousand. Both years include comparable payments on note payable and capital leases.

The Company has incurred losses from operations in each of the last three fiscal years. In response to the recurring operating losses, the Company initiated cost reduction efforts in January 2008. These efforts achieved a 24% reduction in quarterly operating expenses during fiscal 2008. The Company anticipates operating expenses to remain at or near these reduced levels in fiscal 2009. The Company anticipates growth in billings in fiscal 2009 and believes its cash position is adequate to accomplish its business plan through at least the next twelve months even if billings remain unchanged. We may evaluate further operating or capital lease opportunities to finance equipment purchases in the future and may utilize the Company’s revolving line of credit to support working capital needs, if the Company deems it advisable to do so. We may also 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 April 14, 2009, the Company executed the First Amendment to the Amended and Restated Loan and Security Agreement (the “First Amendment”) with Silicon Valley Bank providing for a credit facility in the form of a $3,000,000 secured revolving line of credit and a $1,000,000 term loan. While the Company anticipates limited use of the line of credit and that it will be in compliance with all provisions of the agreement, there can be no assurance that the existing Amended Loan Agreement will remain available to the Company nor that additional financing will be available or on terms acceptable to the Company.

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. Obligations of approximately $541 thousand as of March 31, 2009, of which we expect to purchase approximately $400 thousand over the next fiscal quarter, remain. This commitment is not recorded on the Company’s Balance Sheet.

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Liquidity and Capital Resources

Cash provided by operating activities was $9 thousand in Q1-2009 compared to cash used in operating activities in Q1-2008 of $1.7 million. Cash provided in 2009 was impacted by a decrease in the net loss of $2.3 million from $3.5 million to $1.2 million and partially offset by changes in working capital. Working capital changes included the positive effects of reductions in accounts receivable of $1.3 million and the negative effects of a $304 thousand decrease in accounts payable and accrued liabilities and a $55 thousand decrease in unearned revenue. Q2-2008 had more significant changes in working capital components with a $2.7 million decrease in accounts receivable and an increase of $460 thousand in inventory and a $985 thousand decrease in accounts payable and accrued liabilities.

Cash used in investing activities was $131 thousand in Q1-2009 compared to a use of $37 thousand in Q1-2008 for the purchase of property and equipment.

Cash used in financing activities was $82 thousand in Q1-2009 compared to use of $83 thousand in Q1-2008. These amounts are comprised of cash used for payments on capital leases and note payable and are partially offset by cash received from the exercise of common stock options.

The Company has incurred losses from operations in each of the last three fiscal years. In response to the recurring operating losses, the Company initiated cost reduction efforts in January 2008. These efforts achieved a 24% reduction in quarterly operating expenses during fiscal 2008. The Company anticipates operating expenses to remain at or near these reduced levels in fiscal 2009. The Company anticipates growth in billings in fiscal 2009 and believes its cash position is adequate to accomplish its business plan through at least the next twelve months even if billings remain unchanged, and the Company has no plans to seek additional equity financing or to issue additional shares previously registered in its available shelf registration. We may evaluate further operating or capital lease opportunities to finance equipment purchases in the future and may utilize the Company’s revolving line of credit or request an increase to the term loan to support working capital needs, if the Company deems it advisable to do so.

On June 16, 2008, the Company entered into an Amended Loan and Security Agreement (the “Amended Loan Agreement”) with Silicon Valley Bank providing for a credit facility in the form of a $3,000,000 secured revolving line of credit and a $1,000,000 term loan. While the Company anticipates limited use of the line of credit and that it will be in compliance with all provisions of the agreement, there can be no assurance that the existing Loan Agreement will remain available to the Company nor that additional financing will be available or on terms acceptable to the Company.

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. Obligations of approximately $1.8 million, of which we expect to purchase approximately $700 thousand over the next fiscal quarter, remain. This commitment is not recorded on the Company’s Balance Sheet. The Company had approximately $459 thousand of purchase commitments as of December 31, 2007.

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LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations to date primarily from public and private placement offerings of equity securities and debt. On September 30, 2008, 2007 and 2006, we had cash and cash equivalents of $3.6, $8.0 and $2.8 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Resources

Cash used in operating activities was $4.2 million in YTD-2008 compared to YTD-2007 of $5.6 million – an improvement of $1.4 million or 25%. Cash used in 2008 was impacted by an increase in the net loss of $1.7 million from $4.9 million to $6.6 million and offset by changes in working capital. Working capital changes included the positive effects of an increase in deferred revenue, reductions in accounts receivable and reductions in prepaid expenses and other current assets of $461 thousand, $948 thousand and $272 thousand, respectively, and the negative effects of a $115 thousand increase in inventories. YTD-2007 had negative effects of $2.3 million and $432 thousand, respectively, due to an increase in accounts receivable and increases in prepaid expenses and other current assets.

Cash used in investing activities was $203 thousand in YTD-2008 compared to a use of $397 thousand in YTD-2007 for the purchase of property and equipment.

Cash used in financing activities was $269 thousand in YTD-2008 compared to cash provided of $11.6 million in YTD-2007. In December 2006, we received $10.4 million from the sale of common stock, net of issuance costs. There were no sales of common stock in YTD-2008. Cash used for payments on capital leases and note payable was $298 thousand in YTD-2008 compared to $63 thousand in YTD-2007.

The Company believes its cash position is adequate to accomplish its business plan through at least the next twelve months and therefore has no current plan to issue additional shares previously registered in its available shelf registration.

On May 2, 2007, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank providing for a credit facility in the form of a $3,000,000 secured revolving line of credit and a $1,000,000 term loan. The Loan Agreement was modified on December 17, 2007 and March 31, 2008 and was amended and restated on June 16, 2008. We may evaluate further operating or capital lease opportunities to finance equipment purchases in the future and may utilize the Company’s revolving line of credit to support working capital needs, if the Company deems it advisable to do so. There can be no assurance that the existing Loan Agreement will remain available to the Company nor that additional financing will be available or on terms acceptable to the Company.

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. Obligations of approximately $598 thousand, all of which we expect to purchase over the next fiscal quarter, remain. This commitment is not recorded on the Company’s Balance Sheet. The Company had approximately $815 thousand of purchase commitments as of June 30, 2007.

Liquidity and Capital Resources

Cash used in operating activities was $3.9 million in YTD-2008 compared to YTD-2007 of $4.3 million – an improvement of $318 thousand or 7%. Cash used in 2008 was impacted by an increase in the net loss of $2.5 million from $3.3 million to $5.8 million and partially offset by changes in working capital. Working capital changes included the positive effects of reductions in accounts receivable and reductions in prepaid expenses and other current assets of $983 thousand and $177 thousand, respectively, and the negative effects of a $450 thousand decrease in accounts payable and accrued liabilities. YTD-2007 had negative effects of $1.2 million and $284 thousand, respectively, due to an increase in accounts receivable and increases in prepaid expenses and other current assets.

Cash used in investing activities was $110 thousand in YTD-2008 compared to a use of $272 thousand in YTD-2007 for the purchase of property and equipment.

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Cash used in financing activities was $170 thousand in YTD-2008 compared to cash provided of $10.6 million in YTD-2007. In December 2006, we received $10.5 million from the sale of common stock, net of issuance costs. There were no sales of common stock in YTD-2008. Cash used for payments on capital leases and note payable was $199 thousand in YTD-2008 compared to $19 thousand in YTD-2007.

The Company believes its cash position is adequate to accomplish its business plan through at least the next twelve months and therefore has no current plan to issue additional shares previously registered in its available shelf registration.

On May 2, 2007, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank providing for a credit facility in the form of a $3,000,000 secured revolving line of credit and a $1,000,000 term loan. The Loan Agreement was modified on December 17, 2007 and March 31, 2008. We may evaluate further operating or capital lease opportunities to finance equipment purchases in the future and may utilize the Company’s revolving line of credit to support working capital needs, if the Company deems it advisable to do so. There can be no assurance that additional financing will be available or on terms acceptable to the Company.

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. Obligations of approximately $172 thousand, all of which we expect to purchase over the next fiscal quarter, remain. This commitment is not recorded on the Company’s Balance Sheet. The Company had approximately $654 thousand of purchase commitments as of March 31, 2007.

Liquidity and Capital Resources

Cash used in operating activities was $1.7 million in Q1-2008 compared to Q1-2007 of $1.0 million – an increase of $700 thousand or 69%. Cash used in 2008 was impacted by an increase in the net loss of $2.1 million from $1.4 million to $3.5 million and partially offset by changes in working capital. Working capital changes included the positive effects of reductions in accounts receivable and prepaid expenses and other current assets of $2.7 million and $167 thousand, respectively, and the negative effects of a $1.0 million decrease in accounts payable and accrued liabilities and a $460 thousand increase in inventory. Q1-2007 had more modest changes in working capital components with a $92 thousand decrease in inventory and a $30 thousand increase in accounts payable and accrued liabilities.

Cash used in investing activities was $37 thousand in Q1-2008 compared to a use of $163 thousand in Q1-2007 for the purchase of property and equipment.

Cash used in financing activities was $83 thousand in Q1-2008 compared to cash provided of $10.5 million in Q1-2007. In December 2006, we received $10.5 million from the sale of common stock, net of issuance costs. There were no sales of common stock in Q1-2008. Cash used for payments on capital leases and note payable was $98 thousand in Q1-2008 compared to $10 thousand in Q1-2007.

The Company believes its cash position is adequate to accomplish its business plan through at least the next twelve months and therefore has no current plan to issue additional shares previously registered in its available shelf registration.

On May 2, 2007, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank providing for a credit facility in the form of a $3,000,000 secured revolving line of credit and a $1,000,000 term loan. The Loan Agreement was modified on December 17, 2007. We may evaluate further operating or capital lease opportunities to finance equipment purchases in the future and may utilize the Company’s revolving line of credit to support working capital needs, if the Company deems it advisable to do so. There can be no assurance that additional financing will be available or on terms acceptable to the Company.

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. Obligations of approximately $459 thousand, all of which we expect to purchase over the next fiscal quarter, remain. This commitment is not recorded on the Company’s Balance Sheet. The Company had approximately $686 thousand of purchase commitments as of December 31, 2006.

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LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations to date primarily from public and private placement offerings of equity securities, debt, and from the 2003 sales of our Desktop Software and Media Services businesses. On September 30, 2007, 2006 and 2005, we had cash and cash equivalents of $8.0, $2.8 and $4.3 million, respectively.

Liquidity and Capital Resources

Cash used in operating activities was $5.62 million in YTD-2007 compared to YTD-2006 of $2.58 million –an increase of $3.04 million or 118%. Cash use in 2007 included a $2.34 million increase in accounts receivable and a $432 thousand increase in prepaid expenses associated with growing revenues and expanded marketing programs allocated to future periods. 2006 had more modest changes in working capital components with a $1.1 million increase in receivables and a $123 thousand decrease in accounts payable and accrued liabilities.

Cash used in investing activities was $397 thousand in YTD-2007 compared to a use of $531 thousand in YTD-2006. Cash used in investing activities was for the purchase of property and equipment.

Cash provided by financing activities was $11.6 million in YTD-2007 compared to cash provided of $1.2 million in YTD-2006. In December 2006, we received $10.4 million from the sale of common stock, net of issuance costs, and received $328 thousand in YTD-2007 from the exercise of options and warrants compared to the receipt of $725 thousand from the sale of common stock in November 2005 and proceeds from the exercise of options and warrants of $449 thousand.

In December 2006, we issued 3 million shares of common stock in a public offering, and received net proceeds of $10.4 million for support of continuing research and development efforts and capital expenditures, intellectual property protection, as well as other business development activities, working capital needs, and general corporate purposes. In November 2005, we issued 747 thousand shares of common stock and 149 thousand common stock purchase warrants to certain individual investors in a private placement, and received net proceeds of $725 thousand. The Company believes its cash position is adequate to accomplish its business plan through at least the next twelve months and therefore has no current plan to issue additional shares previously registered in its available shelf registration.

We expect to continue to acquire property and equipment over the next twelve months including equipment associated with our anticipated growth in the number of employees, expansion of our services offering and development of new hardware components for our Mediasite product. On May 2, 2007, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank providing for a credit facility in the form of a $3,000,000 secured revolving line of credit and a $1,000,000 term loan. We may evaluate further operating or capital lease opportunities to finance equipment purchases in the future and may utilize the Company’s recently established revolving line of credit to support working capital needs, if the Company deems it advisable to do so.

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. Obligations to purchase approximately $815 thousand over the next fiscal quarter remain. This commitment is not recorded on the Company’s Balance Sheet. There are no obligations under this commitment past September 30, 2007. The Company had approximately $1.6 million of purchase commitments as of June 30, 2006.

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The Company engaged a manufacturer to build a replacement component for its Mediasite product according to designs proprietary to the Company. The Company had a commitment of approximately $69 thousand at June 30, 2007. There was no similar commitment at June 30, 2006.

Liquidity and Capital Resources

Cash used in operating activities was $4.26 million in YTD-2007 compared to YTD-2006 of $1.95 million – an increase of $2.31 million or 118%. Cash use in 2007 included a $1.18 million increase in accounts receivable and a $493 thousand reduction in accounts payable and accrued liabilities. 2006 had more modest changes in working capital components with a $298 thousand increase in receivables and a $243 thousand decrease in accounts payable and accrued liabilities.

Cash used in investing activities was $272 thousand in YTD-2007 compared to a use of $419 thousand in YTD-2006. Cash used in investing activities was for the purchase of property and equipment.

Cash provided by financing activities was $10.6 million in YTD-2007 compared to cash provided of $828 thousand in YTD-2006. In December 2006, we received $10.4 million from the sale of common stock, net of issuance costs, and received $266 thousand in YTD-2007 from the exercise of options and warrants compared to the receipt of $725 thousand from the sale of common stock in November 2005 and proceeds from the exercise of options and warrants of $110 thousand.

In December 2006, we issued 3 million shares of common stock in a public offering, and received net proceeds of $10.4 million for support of continuing research and development efforts and capital expenditures, intellectual property protection, as well as other business development activities, working capital needs, and general corporate purposes. In November 2005, we issued 747 thousand shares of common stock and 149 thousand common stock purchase warrants to certain individual investors in a private placement, and received net proceeds of $725 thousand. The Company believes its cash position is adequate to accomplish its business plan through at least the next twelve months and therefore has no current plan to issue additional shares previously registered in its available shelf registration.

We expect to continue to acquire property and equipment over the next twelve months including equipment associated with our anticipated growth in the number of employees, expansion of our services offering and development of new hardware components for our Mediasite product. On May 2, 2007, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Silicon Valley Bank providing for a credit facility in the form of a $3,000,000 secured revolving line of credit and a $1,000,000 term loan. We may evaluate further operating or capital lease opportunities to finance equipment purchases in the future and may utilize the Company’s recently established revolving line of credit to support working capital needs, if the Company deems it advisable to do so.

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. Obligations to purchase approximately $654 thousand over the next fiscal quarter remain. This commitment is not recorded on the Company’s Balance Sheet. There are no obligations under this commitment past September 30, 2007. The Company had $311 thousand of purchase commitments as of March 31, 2006.

The Company engaged a manufacturer to build a replacement component for its Mediasite product according to designs proprietary to the Company. The Company had a commitment of approximately $70 thousand at March 31, 2006. There was no similar commitment at March 31, 2007.

Liquidity and Capital Resources

Cash used in operating activities decreased in Q1-2007. Cash used was approximately $1 million, down from Q1-2006 of $1.4 million. Q1-2007 had modest changes in working capital components while Q1-2006 included a $780 thousand reduction in accounts payable and accrued liabilities, and a partially offsetting reduction in accounts receivable of $576 thousand associated with the timing of payments and collections.

Cash used in investing activities was $163 thousand in Q1-2007 compared to a use of $164 thousand in Q1-2006 for the purchase of property and equipment.

Cash provided by financing activities was $10.5 million in Q1-2007 compared to cash provided of $722 thousand in Q1-2006. In Q1-2007, we received $10,4 million from the sale of common stock, net of issuance costs, and $86 thousand in option and warrant exercise proceeds compared to the receipt of $725 thousand from the sale of common stock in Q1-2006.

We expect to reach cash flow breakeven during fiscal 2007 and believe we can fund operations with cash on hand through that point. In December 2006, we issued 3 million shares of common stock in a public offering, and received net proceeds of $10.4 million for support of continuing research and development efforts and capital expenditures in areas including advancement of our search technology, intellectual property protection, as well as other business development activities, working capital needs, and general corporate purposes. In November 2005, we issued 747 thousand shares of common stock and 149 thousand common stock purchase warrants to certain individual investors in a private placement, and received net proceeds of $725 thousand.

We expect to continue to acquire property and equipment in fiscal 2007 including equipment associated with our anticipated growth in employees, expansion of our services offering and development of a new hardware component in our Mediasite product. We may evaluate further operating or capital lease opportunities and issuance of term notes to finance certain equipment acquisitions and may evaluate a revolving line of credit to support working capital needs.

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The Company entered into an unconditional purchase agreement during the quarter ended December 2006 for supply of Mediasite capture product. Obligations to purchase $686 thousand over the next two fiscal quarters remain. This commitment is not recorded on the Company’s Balance Sheet. Purchase commitments as of December 31, 2005 totaled $890 thousand.

The Company engaged a manufacturer to build a replacement component for its Mediasite product according to designs proprietary to the Company. The Company had a commitment of approximately $15 thousand to the manufacturer at December 31, 2006, and $147 thousand at December 31, 2005. The project is expected to be completed during this fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations to date primarily from public and private placement offerings of equity securities, debt, and from the 2003 sales of our Desktop Software and Media Services businesses. On September 30, 2006, 2005 and 2004, we had cash and cash equivalents of $2.8, $4.3 and $7.6 million, respectively.

Liquidity and Capital Resources

Cash used in operating activities was $2.58 million in YTD-2006 compared to YTD-2005 of $3.26 million – with a decrease of $674 thousand or 21%. Significant differences in YTD-2006 compared to YTD-2005 included a larger increase in net accounts receivable, offset by a larger increase in deferred revenue in YTD-2006.

Cash used in investing activities was $531 thousand in YTD-2006 compared to a use of $284 thousand in YTD-2005. Cash used in investing activities was for the purchase of property and equipment.

Cash provided by financing activities was $1.2 million in YTD-2006 compared to cash provided of $473 thousand in YTD-2005. The amount received in both years include proceeds from the exercise of common stock options and warrants as well as the receipt of $725 thousand from the sale of common stock in the current year.

We expect cash from operations exclusive of working capital changes to reach breakeven during the fiscal quarter ending September 30, 2006 and believe we can fund operations, working capital and other cash needs with cash on hand through that point. Despite our belief that we have sufficient cash to fund operations in 2006, we believed it was prudent to raise additional cash through the issuance of common stock. In November 2005, we issued 747 thousand shares of common stock and 149 thousand common stock purchase warrants to certain individual investors, and received net proceeds of $725 thousand.

We expect to continue to acquire property and equipment in fiscal 2006 and 2007 including equipment associated with our anticipated growth in employees, expansion of our services offering and development of a new hardware component in our Mediasite product. We have no plans to pursue any debt arrangements at this time but may evaluate further operating or capital lease opportunities to finance certain equipment acquisitions. In order to fund long-term cash requirements and/or pursue complimentary business strategies, we may evaluate the issuance of additional stock to investors or strategic partners.

The Company entered into an unconditional purchase agreement during the quarter ended March 2006 for supply of Mediasite capture product. Obligations to purchase $1.6 million over the next fiscal quarter remain. This commitment is not recorded on the Company’s Balance Sheet. The obligations under this commitment are expected to be completed over the next two fiscal quarters. Purchase commitments as of June 30, 2005 totaled $919 thousand.

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Liquidity and Capital Resources

Cash used in operating activities was $1.95 million in YTD-2006 compared to YTD-2005 of $2.29 million – with a decrease of $340 thousand or 15%. Significant differences in YTD-2006 compared to YTD-2005 included greater increases in deferred revenue, smaller decreases in net accounts receivable and an increase in non-cash compensation charges, partially offset by increases in inventory and prepaid expenses in YTD-2006.

Cash used in investing activities was $419 thousand in YTD-2006 compared to a use of $124 thousand in YTD-2005. Cash used in investing activities was for the purchase of property and equipment.

Cash provided by financing activities was $828 thousand in YTD-2006 compared to cash provided of $229 thousand in YTD-2005. The amount we received in the prior year relates to option and warrant exercise proceeds compared to current year which also includes the receipt of $725 thousand from the sale of common stock.

We expect to reach cash flow breakeven during fiscal 2006 and believe we can fund operations with cash on hand through that point. Despite our belief that we have sufficient cash to fund operations in 2006, we believed it was prudent to raise additional cash through the issuance of common stock. In November 2005, we issued 747 thousand shares of common stock and 149 thousand common stock purchase warrants to certain individual investors, and received net proceeds of $725 thousand.

We expect to continue to acquire property and equipment in fiscal 2006 including equipment associated with our anticipated growth in employees, expansion of our services offering and development of a new hardware component in our Mediasite product. We have no plans to pursue any debt arrangements at this time but may evaluate further operating or capital lease opportunities to finance certain equipment acquisitions. In order to fund long-term cash requirements and/or pursue complimentary business strategies, we may evaluate the issuance of additional stock to investors or strategic partners.

The Company entered into an unconditional purchase agreement during the quarter ended March 2006 for supply of Mediasite capture product. Obligations to purchase $311 thousand over the next fiscal quarter remain. This commitment is not recorded on the Company’s Balance Sheet. There are no obligations under this commitment past September 30, 2006. Purchase commitments as of March 31, 2005 totaled $1.5 million.

The Company engaged a manufacturer to build a replacement component for its Mediasite product according to designs proprietary to the Company. The Company had a commitment of approximately $70 thousand to the manufacturer at March 31, 2006 and expects the project to be completed in late fiscal 2006.

Liquidity and Capital Resources

Cash used in operating activities was consistent in Q1-2006 and Q1-2005 at $1.4 million – with a slight decrease of $22 thousand or 2%. Significant differences in Q1-2006 compared to Q1-2005 included greater increases in inventory and deferred revenue, and greater decreases in accounts payable, accrued liabilities, and accounts receivable.

Cash used in investing activities was $164 thousand in Q1-2006 compared to a use of $21 thousand in Q1-2005. Cash used in investing activities was for the purchase of property and equipment.

Cash provided by financing activities was $720 thousand in Q1-2006 compared to cash provided of $235 thousand in Q1-2005. In Q1-2005 we received $235 thousand in option and warrant exercise proceeds compared to the receipt of $725 thousand from the sale of common stock in Q1-2006.

We expect to reach cash flow breakeven during fiscal 2006 and believe we can fund operations with cash on hand through that point. Despite our belief that we have sufficient cash to fund operations in 2006, we believed it was prudent to raise additional cash through the issuance of common stock. In November 2005, we issued 747 thousand shares of common stock and 149 thousand common stock purchase warrants to certain individual investors, and received net proceeds of $725 thousand.

We expect to continue to acquire property and equipment in fiscal 2006 including equipment associated with our anticipated growth in employees, expansion of our services offering and development of a new hardware component in our Mediasite product. We have no plans to pursue any debt arrangements at this time but may evaluate further operating or capital lease opportunities to finance certain equipment acquisitions. In order to fund long-term cash requirements and/or pursue complimentary business strategies, we may evaluate the issuance of additional stock to investors or strategic partners.

The Company entered into an unconditional purchase agreement during the quarter ended December 2006 for supply of Mediasite capture product. Obligations to purchase $890 thousand over the next fiscal quarter remain. This commitment is not recorded on the Company’s Balance Sheet. There are no obligations under this commitment past September 30, 2006. Purchase commitments as of December 31, 2004 totaled $1.0 million.

The Company engaged a manufacturer to build a replacement component for its Mediasite product according to designs proprietary to the Company. The Company had a commitment of approximately $147 thousand to the manufacturer at December 31, 2005 and expects the project to be completed in late fiscal 2006.

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LIQUIDITY AND CAPITAL RESOURCES

We have funded our operations to date primarily from public and private placement offerings of equity securities, debt, and from the 2003 sales of our Desktop Software and Media Services businesses. On September 30, 2005, 2004 and 2003, we had cash and cash equivalents of $4.3, $7.6 and $12.6 million.

Liquidity and Capital Resources

Cash used in operating activities was $3.26 million for YTD-2005 compared to $4.69 million in YTD-2004. Significant YTD-2005 outflows included: 1) a $615 thousand increase in accounts receivable; and 2) a $199 thousand decrease in accounts payable and accrued liabilities: In YTD-2005 we also had a $272 thousand increase in unearned revenue related to Mediasite customer support agreements; and a decrease in inventory of $106 thousand. In YTD-2004 we had significant cash outflows from the payment of accounts payable and accrued liabilities that had accumulated prior to the sale of the Desktop Software business.

Cash used in investing activities was $284 thousand in YTD-2005 and $4.79 million in YTD-2004. The prior year included $4.55 million of outflows to purchase short-term investments that matured between September 2004 and June 2005. Investing activities for the prior year also included net proceeds from the final settlements from the sales of the Company’s Media Services and Desktop Software businesses.

Cash provided by financing activities was $473 thousand for YTD-2005 compared to $1.45 million in YTD-2004. The amount received in the current year relates to option and warrant exercise proceeds. Nearly the entire amount received in the prior year related to option and warrant exercise proceeds from employees terminated in the Desktop Software transaction.

We expect to fund the next 12 months of operations with funds on hand and have no plans to pursue any debt or lease arrangements at this time. To fund long-term cash requirements and/or pursue complementary business strategies, we may evaluate the issuance of stock to investors or strategic partners.

The Company enters into unconditional purchase commitments on a regular basis for the supply of Mediasite product. The Company has an obligation to purchase a remaining $919 thousand over the next three fiscal quarters, which is not recorded on the Company’s Balance Sheet. There were no obligations under such commitments as of June 30, 2004.

Liquidity and Capital Resources

Cash used in operating activities was $2.29 million for YTD-2005 compared to $2.95 million in YTD-2004. Significant YTD-2005 outflows included: 1) a $614 thousand increase in accounts receivable; and 2) a $221 thousand decrease in accounts payable and accrued liabilities: In YTD-2005 we also had a $150 thousand increase in unearned revenue related to Mediasite customer support agreements; and a decrease in inventory of $177 thousand. In YTD-2004 we had significant cash outflows from the payment of accounts payable and accrued liabilities that had accumulated prior to the sale of the Desktop Software business.

Cash used in investing activities was $124 thousand in YTD-2005 and $7.03 million in YTD-2004. The prior year included $7.00 million of outflows to purchase short-term investments that matured between September 2004 and March 2005. Investing activities for the prior year also included net proceeds from the final settlements from the sales of the Company’s Media Services and Desktop Software businesses.

Cash provided by financing activities was $229 thousand for YTD-2005 compared to $1.40 million in YTD-2004. The amount received in the current year relates to option and warrant exercise proceeds. Nearly the entire amount received in the prior year related to option and warrant exercise proceeds from employees terminated in the Desktop Software transaction.

We expect to fund the next 12 months of operations with funds on hand and have no plans to pursue any debt or lease arrangements at this time. In order to fund long term cash requirements and/or pursue complimentary business strategies, we are evaluating the issuance of stock to investors or strategic partners.

The Company entered into unconditional purchase commitments during the six months ended March 31, 2005 for supply of Mediasite product totaling $1.5 million. The Company has an obligation to purchase a remaining $637 thousand over the next fiscal quarter, which is not recorded on the Company’s Balance Sheet. There are no obligations under this commitment past September 30, 2005 and no purchase commitments as of March 31, 2004.

Liquidity and Capital Resources

Cash used in operating activities was $1.4 million for Q1-2005 compared to $1.8 million in Q1-2004 – a decrease of $372 thousand or 21%. The decrease in Q1-2005 outflows compared to Q1-2004 outflows related to an increase in net loss, offset primarily by reduced cash requirements in various working capital components including accounts receivable, prepaid and other assets, accounts payable, accrued liabilities and deferred rent.

Cash used in investing activities was $21 thousand in Q1-2005 compared to a use of $3.5 million in Q1-2004. The $3.5 million short-term investments in Q1-2004 were certificates of deposit maturing between June 2004 and December 2004. Investing activities for 2004 also included net proceeds from the final settlements from the sales of the Company’s Media Services and Desktop Software businesses.

Cash provided by financing activities was $235 thousand in Q1-2005 compared to cash provided of $1.3 million in Q1-2004. In Q1-2004 we received $1.3 million in option and warrant exercise proceeds compared to $235 thousand in Q1-2005. The majority of option and warrant holders who exercised in Q1-2004 were employees terminated in the Desktop Software transaction. In Q1-2004, we also received $10 thousand in proceeds from our Employee Stock Purchase Plan.

We expect to fund the next 12 months of operations with funds on hand and have no plans to pursue any debt or lease arrangements at this time. In order to fund long term cash requirements and/or pursue complimentary business strategies, we may evaluate the issuance of stock to investors or strategic partners.

The Company entered into unconditional purchase commitments during the quarter ended December 2004 for supply of Mediasite capture product totaling $1.5 million. Obligations to purchase $1.0 million over the next two fiscal quarters remain. This commitment is not recorded on the Company’s balance sheet. There are no obligations under this commitment past September 30, 2005 and no purchase commitments as of December 31, 2003.