<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                                FORM 10-KSB/A-1

(Mark One)
   [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

       For the Fiscal period ended September 30, 1998

                                       OR

   [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
        Commission File Number       1-14007

                              SONIC FOUNDRY, INC.
       (Exact name of small business issuer as specified in its charter)

                  MARYLAND                               39-1783372
        (State or other jurisdiction of               (I.R.S. Employer
        incorporation or organization)               Identification No.)

    754 Williamson Street, Madison, WI 53703           (608)256-3133
    (Address of principal executive offices)     (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

Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 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  X       No
                       -----        -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB.

                    Yes  X       No
                       -----        -----

     Revenues for fiscal year ended September 30, 1998 $7,469,658

The aggregate market value of the voting stock held by non-affiliates of the
Issuer's was approximately $24 million based on the last sale price on November
17, 1998.

The number of shares outstanding of the issuer's common equity was 2,665,935 as
of November 17, 1998.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the 1998 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 not later than January 29,
1999.

Transitional Small Business Disclosure Format (check one)   Yes       No  X
                                                               -----    -----
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                              Sonic Foundry, Inc.
                         Annual Report on Form 10-KSB
                     For the Year Ended September 30, 1998


                               TABLE OF CONTENTS

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                                                                        PAGE NO.
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                         PART III
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Item 13.     Exhibits and Reports on Form 8-K...........................   3

             Signatures.................................................   5
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ITEM 13(a)  EXHIBIT LIST
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NUMBER     DESCRIPTION
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3.1        Amended and Restated Articles of Incorporation of the Registrant,
           filed as Exhibit No. 3.1 to the Registration Statement, and hereby
           incorporated by reference.

3.2        Amended and Restated By-Laws of the Registrant, filed as Exhibit No.
           3.2 to the Registration Statement, and hereby incorporated by
           reference.

4.1        Specimen Common Stock Certificate, filed as Exhibit No. 4.1 to the
           Registration Statement, and hereby incorporated by reference.

4.2        Form of Warrant Agreement, including Warrant Certificate, filed as
           Exhibit No. 4.2 to the Registration Statement, and hereby
           incorporated by reference.

4.3        Form of Representatives' Warrant Agreement, including Specimen
           Representatives' Warrant Certificate, filed as Exhibit No. 4.3 to the
           Registration Statement, and hereby incorporated by reference.

10.1       Registrant's 1995 Stock Option Plan, filed as Exhibit No. 10.1 to the
           Registration Statement, and hereby incorporated by reference.

10.2       Registrant's Non-Employee Directors' Stock Option Plan, filed as
           Exhibit No. 10.2 to the Registration Statement, and hereby
           incorporated by reference.

10.3       Commercial Lease between Registrant and The Williamson Center, LLC
           regarding 740 and 744 Williamson Street, Madison, Wisconsin dated
           January 20, 1998, filed as Exhibit No. 10.3 to the Registration
           Statement, and hereby incorporated by reference.

10.4       Employment Agreement between Registrant and Rimas Buinevicius dated
           as of November 30, 1997 and effective as of January 1, 1997, filed as
           Exhibit No. 10.4 to the Registration Statement, and hereby
           incorporated by reference.

10.5       Employment Agreement between Registrant and Monty R. Schmidt dated as
           of November 30, 1997 and effective as of January 1, 1997, filed as
           Exhibit No. 10.5 to the Registration Statement, and hereby
           incorporated by reference.

10.6       Employment Agreement between Registrant and Curtis J. Palmer dated as
           of November 30, 1997 and effective as of January 1, 1997, filed as
           Exhibit No. 10.6 to the Registration Statement, and hereby
           incorporated by reference.

10.7       Digital Audio System License Agreement between Registrant and Dolby
           Laboratories Licensing Corporation dated July 28, 1997, filed as
           Exhibit No. 10.7 to the Registration Statement, and hereby
           incorporated by reference.
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10.8       Digital Audio System License Agreement between Registrant and Dolby
           Laboratories Licensing Corporation dated July 28, 1997, filed as
           Exhibit No. 10.8 to the Registration Statement, and hereby
           incorporated by reference.

10.9       Start-up Agreement between Registrant and Ingram Micro Inc. dated
           October 16, 1997, filed as Exhibit No. 10.9 to the Registration
           Statement, and hereby incorporated by reference.

10.10      Form of Lock-up Agreement between Registrant and all directors,
           officers, and non-selling stockholders, filed as Exhibit No. 10.10 to
           the Registration Statement, and hereby incorporated by reference.

10.11      Form of Lock-up Agreement between Registrant and all selling
           stockholders, filed as Exhibit No. 10.11 to the Registration
           Statement, and hereby incorporated by reference.

10.12      Software License Agreement, effective as of September 29, 1998,
           between Registrant and Hewlett-Packard Company

27.1       Financial Data Schedule filed as Exhibit No 27.1 to the Annual Report
           on Form 10-KSB, and hereby incorported by reference.
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ITEM 13(b)    REPORTS ON FORM 8-K

      None


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