Attached files
file | filename |
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EX-31.1 - EXHIBIT 31.1 - VIEWCAST COM INC | c08412exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - VIEWCAST COM INC | c08412exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - VIEWCAST COM INC | c08412exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - VIEWCAST COM INC | c08412exv32w2.htm |
Table of Contents
United States
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2010 |
OR |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number: 000-29020
ViewCast.com, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
75-2528700 (I.R.S. Employer Identification No.) |
|
3701 W. Plano Parkway, Suite 300, Plano, TX (Address of principal executive offices) |
75075 (Zip Code) |
(972) 488-7200
(Registrants telephone number including area code)
(Registrants telephone number including area code)
N/A
(Former name, former address and former fiscal year, if changed from last report)
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 þ No o
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 period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock as of the
latest practicable date.
As of October 31, 2010, there were 36,065,471 outstanding shares of common stock, par value $0.0001
per share.
TABLE OF CONTENTS
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24 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
1
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q under Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this Report constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include statements regarding ViewCasts expectations, beliefs,
hopes, intentions or strategies regarding the future. These statements involve known and unknown
risks, uncertainties, and other factors that may cause ViewCast or our industrys actual results,
levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, product demand and market acceptance
risks, the impact of competitive products and pricing, product development, commercialization and
technological difficulties, capacity and supply constraints or difficulties, general business and
economic conditions, the availability of sufficient working capital, the ability to service our
debt, continued losses, the ability to successfully integrate acquired operations, the effect of
our accounting policies and other risks detailed in our Annual Report on Form 10-K for the year
ended December 31, 2009, as amended by Amendment No. 1 thereto, and other filings with the
Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by terminology such as may,
will, expects, should, anticipates, believes, estimates, predicts, plans,
potential, intends or continue or the negative of such terms or other comparable terminology.
Although we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot assure you of future results, levels of activity, performance or
achievements. We are under no duty, nor do we undertake any obligation, to update any of the
forward-looking statements after the date of this report to conform such statements to actual
results.
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, | September 30, | |||||||
2009 | 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 368,151 | $ | 872,347 | ||||
Accounts receivable, less allowance for doubtful accounts of
$69,767 and $69,878 at December 31, 2009 and September 30, 2010, respectively |
1,208,929 | 2,041,233 | ||||||
Inventories, net |
2,283,348 | 2,163,203 | ||||||
Prepaid expenses |
208,804 | 239,575 | ||||||
Total current assets |
4,069,232 | 5,316,358 | ||||||
Property and equipment, net |
575,032 | 385,071 | ||||||
Goodwill |
620,002 | 620,002 | ||||||
Intangible assets, net |
1,535,135 | 1,247,365 | ||||||
Deposits |
48,433 | 32,637 | ||||||
Total assets |
$ | 6,847,834 | $ | 7,601,433 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities: |
||||||||
Line of credit |
$ | 92,321 | $ | 875,568 | ||||
Accounts payable |
730,395 | 947,714 | ||||||
Accrued expenses |
679,709 | 987,952 | ||||||
Deferred revenue |
353,458 | 425,430 | ||||||
Current maturities of long-term debt and stockholder notes payable |
157,133 | 283,689 | ||||||
Total current liabilities |
2,013,016 | 3,520,353 | ||||||
Long-term debt, less current maturities |
46,698 | 33,651 | ||||||
Stockholder notes payable, less current maturities |
5,012,827 | 4,820,026 | ||||||
Total liabilities |
7,072,541 | 8,374,030 | ||||||
Commitments and contingencies |
||||||||
Stockholders deficit: |
||||||||
Preferred stock,
$0.0001 par value, authorized 5,000,000 shares: |
||||||||
Series B convertible issued and outstanding shares 800,000 liquidation value
of $16 and $17 per share as of December 31, 2009 and September 30, 2010, respectively |
80 | 80 | ||||||
Series C convertible issued and outstanding shares 200,000 liquidation value
of $32 and $33 per share as of December 31, 2009 and September 30, 2010, respectively |
20 | 20 | ||||||
Series E convertible issued and outstanding shares 80,000 liquidation value
of $105 per share as of December 31, 2009 and September 30, 2010 |
8 | 8 | ||||||
Common stock,
$0.0001 par value, authorized 100,000,000 shares: |
||||||||
Issued shares
36,126,306 and 36,309,048 at December 31, 2009
and September 30, 2010, respectively |
3,613 | 3,630 | ||||||
Additional paid-in capital |
71,705,762 | 71,850,666 | ||||||
Accumulated deficit |
(71,922,284 | ) | (72,615,095 | ) | ||||
Treasury stock, 261,497 shares at cost |
(11,906 | ) | (11,906 | ) | ||||
Total stockholders deficit |
(224,707 | ) | (772,597 | ) | ||||
Total liabilities and stockholders deficit |
$ | 6,847,834 | $ | 7,601,433 | ||||
The accompanying notes are an integral part of these condensed consolidated statements.
3
Table of Contents
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Net sales |
$ | 2,961,865 | $ | 4,546,551 | $ | 10,460,494 | $ | 12,365,435 | ||||||||
Cost of sales |
1,031,559 | 1,813,220 | 3,852,289 | 4,793,275 | ||||||||||||
Gross profit |
1,930,306 | 2,733,331 | 6,608,205 | 7,572,160 | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling, general and administrative |
1,713,214 | 1,494,843 | 6,088,107 | 4,695,644 | ||||||||||||
Research and development |
752,374 | 997,469 | 2,339,009 | 2,830,564 | ||||||||||||
Depreciation and amortization |
207,585 | 189,902 | 569,595 | 618,601 | ||||||||||||
Total operating expenses |
2,673,173 | 2,682,214 | 8,996,711 | 8,144,809 | ||||||||||||
Operating income (loss) |
(742,867 | ) | 51,117 | (2,388,506 | ) | (572,649 | ) | |||||||||
Other income (expense): |
||||||||||||||||
Interest expense (including $43,190, $20,669, $112,986, and
$64,810 of expense to related parties, respectively) |
(44,782 | ) | (49,126 | ) | (118,669 | ) | (126,039 | ) | ||||||||
Interest income |
1,498 | 209 | 4,322 | 372 | ||||||||||||
Gain on disposal of fixed assets |
3,975 | 5,505 | 3,975 | 5,505 | ||||||||||||
Total other expense, net |
(39,309 | ) | (43,412 | ) | (110,372 | ) | (120,162 | ) | ||||||||
Provision for income taxes |
| | | | ||||||||||||
NET INCOME (LOSS) |
$ | (782,176 | ) | $ | 7,705 | $ | (2,498,878 | ) | $ | (692,811 | ) | |||||
Preferred stock dividends |
(205,000 | ) | (205,000 | ) | (615,000 | ) | (615,000 | ) | ||||||||
Net loss applicable to common stockholders |
$ | (987,176 | ) | $ | (197,295 | ) | $ | (3,113,878 | ) | $ | (1,307,811 | ) | ||||
Net loss per share |
||||||||||||||||
Basic and Diluted |
$ | (0.03 | ) | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.04 | ) | ||||
Weighted average number of common shares outstanding |
||||||||||||||||
Basic and Diluted |
35,832,230 | 36,047,551 | 34,937,662 | 36,029,193 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
4
Table of Contents
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2010
(UNAUDITED)
(UNAUDITED)
Series B | Series C | Series E | ||||||||||||||||||||||||||||||||||||||||||||||
Convertible | Convertible | Convertible | Additional | Total | ||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | Treasury | Stockholders | |||||||||||||||||||||||||||||||||||||||||
Shares | Par Value | Shares | Par Value | Shares | Par Value | Shares | Par Value | Capital | Deficit | Stock | Deficit | |||||||||||||||||||||||||||||||||||||
Balances, December 31, 2009 |
800,000 | $ | 80 | 200,000 | $ | 20 | 80,000 | $ | 8 | 36,126,306 | $ | 3,613 | $ | 71,705,762 | $ | (71,922,284 | ) | $ | (11,906 | ) | $ | (224,707 | ) | |||||||||||||||||||||||||
Stock based compensation expense |
| | | | | | | | 115,005 | | | 115,005 | ||||||||||||||||||||||||||||||||||||
Employee stock purchase plan issuance |
| | | | | | 35,683 | 3 | 4,913 | | | 4,916 | ||||||||||||||||||||||||||||||||||||
Stock issued for services |
| | | | | | 147,059 | 14 | 24,986 | | | 25,000 | ||||||||||||||||||||||||||||||||||||
Net loss |
| | | | | | | | | (692,811 | ) | | (692,811 | ) | ||||||||||||||||||||||||||||||||||
Balances, September 30, 2010 |
800,000 | $ | 80 | 200,000 | $ | 20 | 80,000 | $ | 8 | 36,309,048 | $ | 3,630 | $ | 71,850,666 | $ | (72,615,095 | ) | $ | (11,906 | ) | $ | (772,597 | ) | |||||||||||||||||||||||||
The
accompanying notes are an integral part of this condensed consolidated statement.
5
Table of Contents
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended | ||||||||
September 30, | ||||||||
2009 | 2010 | |||||||
Operating activities: |
||||||||
Net loss |
$ | (2,498,878 | ) | $ | (692,811 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating activities: |
||||||||
Bad debt expense |
43,015 | 111 | ||||||
Depreciation of property and equipment |
330,419 | 283,442 | ||||||
Amortization of intangible assets |
239,176 | 335,159 | ||||||
Stock based compensation expense |
150,087 | 115,005 | ||||||
Loss (gain) on disposition of property and equipment |
973 | (5,505 | ) | |||||
Stock issued for services |
| 25,000 | ||||||
Changes in operating assets and liabilities: (net of effect of acquisition) |
||||||||
Accounts receivable |
1,583,141 | (832,415 | ) | |||||
Inventories |
413,689 | 120,145 | ||||||
Prepaid expenses |
106,635 | (30,771 | ) | |||||
Deposits |
(259 | ) | 15,796 | |||||
Accounts payable |
(241,402 | ) | 217,319 | |||||
Accrued expenses |
(445,940 | ) | 308,243 | |||||
Deferred revenue |
311,296 | 71,972 | ||||||
Stockholder accrued interest |
(169,846 | ) | | |||||
Net cash used in operating activities |
(177,894 | ) | (69,310 | ) | ||||
Investing activities: |
||||||||
Capitalized software development and patent costs |
(397,960 | ) | (47,389 | ) | ||||
Purchase of property and equipment |
(180,384 | ) | (83,646 | ) | ||||
Cash paid for acquisition |
(1,031,422 | ) | | |||||
Proceeds from disposition of property and equipment |
| 5,895 | ||||||
Net cash used in investing activities |
(1,609,766 | ) | (125,140 | ) | ||||
Financing activities: |
||||||||
Proceeds from sale of common stock |
8,560 | 4,916 | ||||||
Proceeds from exercise of employee stock options |
2,850 | | ||||||
Net proceeds from exercise of warrants |
940,000 | | ||||||
Net proceeds from line of credit |
| 783,247 | ||||||
Repayments of long-term debt including $0 and $64,267 (unaudited)
to related party |
(24,721 | ) | (89,517 | ) | ||||
Net cash provided by financing activities |
926,689 | 698,646 | ||||||
Net increase (decrease) in cash and cash equivalents |
(860,971 | ) | 504,196 | |||||
Cash and cash equivalents, beginning of period |
1,579,683 | 368,151 | ||||||
Cash and cash equivalents, end of period |
$ | 718,712 | $ | 872,347 | ||||
Supplemental cash flow information: |
||||||||
Cash paid for interest |
$ | 288,515 | $ | 126,039 | ||||
Non-cash items: |
||||||||
Stock issued for acquisition |
$ | 400,000 | $ | | ||||
Acquisition of property and equipment under capital leases |
$ | 33,152 | $ | 10,225 |
The accompanying notes are an integral part of these condensed consolidated statements.
6
Table of Contents
ViewCast.com,
Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation and Liquidity
The accompanying consolidated interim unaudited financial statements include the accounts of
ViewCast.com, Inc. doing business as ViewCast Corporation and its wholly-owned subsidiaries,
VideoWare, Inc., Osprey Technologies, Inc., Ancept Corporation, previously known as ViewCast Online
Solutions, Inc., and ViewCast Technology Services Corporation (collectively, ViewCast or the
Company). The Company develops industry-leading hardware and software for the capture,
management, transformation and delivery of digital media over IP and mobile networks. ViewCasts
solutions simplify the complex workflows required for these tasks, allowing broadcasters,
businesses and governments to reach and expand their use and distribution of their digital media
easily and effectively. ViewCasts Niagara® streaming appliances, Osprey® video capture cards, and
ViewCast Media Platform (VMp) software suite provide the highly reliable technology required to
deliver the multi-platform experiences driving todays digital media market. ViewCast markets and
sells its products and professional services worldwide directly to end-users or through indirect
channels including original equipment manufacturers (OEMs), value-added resellers (VARs),
resellers, distributors and computer system integrators.
These consolidated interim unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the
Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included for the three and nine month
periods ended September 30, 2010. The condensed consolidated balance sheet of the Company as of
December 31, 2009 has been derived from the audited consolidated balance sheet as of that date.
The results for the three and nine month periods ended September 30, 2010 are not necessary
indicative of the results that may be expected for the full year. The unaudited financial
statements included in this filing should be read in conjunction with the Companys audited
financial statements and notes thereto included in the Companys annual report on Form 10-K as
amended by Amendment No. 1 thereto for the year ended December 31, 2009.
In March 2009, ViewCast purchased certain assets from Ancept Media Server, LLC (the Ancept
Assets) pursuant to the terms of the Asset Purchase Agreement dated March 5, 2009, as amended, by
and between ViewCast and Ancept Media Server, LLC (the Seller). ViewCasts wholly-owned
subsidiary, ViewCast Online Solutions, Inc., was renamed Ancept Corporation (Ancept) and operates
this business. The lead software product, rebranded as VMp Production, is an established digital
asset management (DAM) solution capable of supporting the needs of large enterprises, while
remaining flexible and affordable to serve the needs of small to medium businesses. Fortune 1000
companies, educators, small businesses and public sector organizations have chosen Ancept to help
meet their media production, management and distribution needs. The Company has an expanded global
business presence and offers a complete set of solutions for the transformation, management and
delivery of live and on-demand video content to broadband and mobile networks.
During the nine months of 2010, the Company incurred a net loss of $692,811 and used cash in
operations of $69,310. At September 30, 2010, the Company had working capital of $1,796,005 and
cash and cash equivalents of $872,347. The Company expects to obtain additional working capital by
increasing revenue, maintaining reduced operating expenses which were reduced during late 2009,
borrowing on its line of credit and through other initiatives that may include raising additional
capital. The Company believes that these items will provide sufficient cash to fund operations for
the next 12 months, however, the Company may require additional working capital to support
operations and the expansion of sales channels and market distribution, to develop and introduce
new products and services, to enhance existing product offerings, to address unanticipated
competitive threats or technical problems, to transition adverse economic conditions and for
potential acquisition transactions. There can be no assurance that additional financing will be
available to the Company on acceptable terms, or at all. Additional equity financing may involve
substantial dilution to our then existing stockholders. In the event the Company is unable to
raise additional capital or execute other alternatives, it may be required to sell segments of the
business, or substantially
reduce or curtail our activities. Such actions could result in charges that could be material
to ViewCasts results of operations or financial position.
7
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Notes to Condensed Consolidated Financial Statements Continued
2. Acquisition
On March 13, 2009, the Company acquired the Ancept Assets from Seller for $1,431,422. The
Company (i) paid to the Sellers lender $1,000,000 in cash, (ii) paid to the Seller $31,422 in
cash, which is the difference between $170,000 in cash less a holdback amount of $138,578 based on
the difference in accounts receivables and deferred revenue as of March 13, 2009, subject to
adjustment, if any, in the future based on actual collected accounts receivable, (iii) issued to
Seller $400,000 in Company common stock which resulted in the issuance of 1,141,314 shares based on
the weighted average closing price of the Companys common stock for the ten trading days
immediately prior to the closing of the transaction, which was $0.35 per share, and (iv) assumed
deferred revenue liabilities related to the Ancept Assets. The primary purpose of the acquisition
was to enable the Company to expand its global business presence with a complete portfolio of
solutions that encompasses live and on-demand video encoding, management and delivery.
The following table summarizes the assets acquired and liabilities assumed as of the closing
date:
Accounts receivable |
$ | 160,760 | ||
Prepaid expenses |
415 | |||
Software |
850,000 | |||
Customer related intangible assets |
60,000 | |||
Non-compete agreements |
24,000 | |||
Goodwill |
620,002 | |||
Property and equipment |
15,583 | |||
Total assets acquired |
1,730,760 | |||
Liabilities assumed |
(299,338 | ) | ||
Net assets acquired |
$ | 1,431,422 | ||
The acquisition was accounted for using the purchase method of accounting. Intangible
assets will be amortized over their estimated useful life of three to seven years. The purchase
price allocated to the intangible assets was determined by managements estimate with the
assistance of a professional valuation group. Goodwill represents the excess of purchase
consideration over the fair value of assets acquired. In the event that the Company enters into
certain key contracts with either one of two specified entities to redistribute or resell in volume
certain of Sellers products by the second anniversary of the Closing, the Company shall issue
$100,000 of additional shares of the Companys common stock to the Seller, with a value per share
based on the weighted average closing price of the Companys common stock for the ten trading days
immediately prior to finalizing such agreement. Further, Seller is eligible to receive an earn-out
amount equal to 5% of the Companys net revenue relating solely to certain business related to the
Ancept Assets that is in excess of $2,000,000 for each of the two years following the Closing. The
goodwill acquired may be amortized for federal income tax purposes.
The following unaudited pro forma summary approximates the consolidated results of operations
as if the acquisition disclosed above had occurred as of January 1, 2009, after giving effect to
certain adjustments, including allocation of specifically identifiable expenses. The pro forma
financial information does not purport to be indicative of the results of operations that would
have occurred had the transactions taken place at the beginning of the period presented or
indicative of future results of operations.
For the nine months ended | ||||
September 30, 2009 | ||||
(Unaudited) | ||||
Net sales |
$ | 10,621,121 | ||
Net loss applicable to common stockholders |
(3,121,192 | ) | ||
Basic and diluted net loss per common share
applicable to common stockholders |
$ | (0.09 | ) | |
Weighted average number of common shares outstanding
(basic and diluted) |
35,238,667 |
8
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Notes to Condensed Consolidated Financial Statements Continued
3. Accounts Receivable
The Companys accounts receivable are primarily due from resellers and distributors of our
video communications products and services. Credit is extended based on evaluation of each
customers financial condition and, generally, collateral is not required except for certain
international customers. Accounts receivable are generally due within 30 days and are stated net
of an allowance for doubtful accounts. Accounts that are outstanding longer than contractual
payment terms are considered past due. The Company records an allowance on a specific basis by
considering a number of factors, including the length of time trade accounts are past due, the
Companys previous loss history, the credit-worthiness of individual customers, economic conditions
affecting specific customer industries and economic conditions in general. The Company writes off
accounts receivable when they become uncollectible and payments subsequently received on such
receivables are credited against write-offs in the period the payment is received.
Changes in the Companys allowance for doubtful accounts for the three and nine months ended
September 30, 2009 and 2010 are as follows:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Beginning balance |
$ | 116,192 | $ | 94,440 | $ | 82,317 | $ | 69,767 | ||||||||
Bad debt expense |
9,140 | (24,562 | ) | 43,015 | 111 | |||||||||||
Ending balance |
$ | 125,332 | $ | 69,878 | $ | 125,332 | $ | 69,878 | ||||||||
4. Inventories
Inventories consist of the following:
December 31, | September 30, | |||||||
2009 | 2010 | |||||||
(Unaudited) | ||||||||
Purchased materials |
$ | 1,077,135 | $ | 1,204,626 | ||||
Finished goods |
1,330,783 | 1,159,337 | ||||||
Reserve |
(124,570 | ) | (200,760 | ) | ||||
$ | 2,283,348 | $ | 2,163,203 | |||||
5. Intangible Assets
Intangible assets consist of the following:
December 31, | September 30, | |||||||
2009 | 2010 | |||||||
(Unaudited) | ||||||||
Customer lists |
$ | 60,000 | $ | 60,000 | ||||
Non-compete agreements |
24,000 | 24,000 | ||||||
Capitalized software |
2,733,950 | 2,762,287 | ||||||
Patents |
124,665 | 143,717 | ||||||
Less accumulated amortization |
(1,407,480 | ) | (1,742,639 | ) | ||||
$ | 1,535,135 | $ | 1,247,365 | |||||
9
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Notes to Condensed Consolidated Financial Statements Continued
Future amortization expense associated with these intangible assets is as follow:
Period ended December 31, | ||||||
2010 | $ | 105,840 | ||||
2011 | 380,535 | |||||
2012 | 257,524 | |||||
2013 | 145,338 | |||||
2014 | 212,218 | |||||
Thereafter |
145,910 | |||||
$ | 1,247,365 | |||||
6. Accrued Expenses
Accrued expenses consist of the following:
December 31, | September 30, | |||||||
2009 | 2010 | |||||||
(Unaudited) | ||||||||
Accrued compensation |
$ | 123,882 | $ | 281,152 | ||||
Accrued warranty |
155,850 | 173,252 | ||||||
Accrued inventory purchases |
50,450 | 205,114 | ||||||
Customer deposits |
28,919 | 28,557 | ||||||
Deferred rent |
46,258 | 23,187 | ||||||
Accrued taxes and other |
274,350 | 276,690 | ||||||
$ | 679,709 | $ | 987,952 | |||||
7. Warranty Reserves
Reserves are provided for the estimated warranty costs when revenue is recognized. The costs
of warranty obligations are estimated based on warranty policy or applicable contractual warranty,
historical experience of known product failure rates and use of materials and service delivery
charges incurred in correcting product failures. Specific warranty accruals may be made if
unforeseen technical problems arise. If actual experience, relative to these factors,
significantly differs from these estimates, additional warranty expense may be required.
The following table below shows the changes in accrued warranty expense for the three and nine
months ended September 30, 2009 and 2010:
For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Beginning balance |
$ | 205,528 | $ | 214,123 | $ | 199,446 | $ | 155,850 | ||||||||
Charged to expense |
13,856 | 8,790 | 46,567 | 72,358 | ||||||||||||
Usage |
(10,755 | ) | (49,661 | ) | (37,384 | ) | (54,956 | ) | ||||||||
Ending balance |
$ | 208,629 | $ | 173,252 | $ | 208,629 | $ | 173,252 | ||||||||
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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Notes to Condensed Consolidated Financial Statements Continued
8. Property and Equipment
Property and equipment, at cost, consists of the following:
Estimated | ||||||||||||
Useful Life | December 31, | September 30, | ||||||||||
(Years) | 2009 | 2010 | ||||||||||
(Unaudited) | ||||||||||||
Service equipment |
3 | $ | 242,362 | $ | 242,362 | |||||||
Computer equipment |
2 to 7 | 497,139 | 554,605 | |||||||||
Software |
3 to 5 | 207,531 | 207,907 | |||||||||
Leasehold improvements |
1 to 5 | 172,697 | 172,697 | |||||||||
Office furniture and equipment |
5 to 7 | 1,284,884 | 1,317,962 | |||||||||
2,404,613 | 2,495,533 | |||||||||||
Less accumulated depreciation and
amortization |
(1,829,581 | ) | (2,110,462 | ) | ||||||||
$ | 575,032 | $ | 385,071 | |||||||||
9. Line of Credit
On June 29, 2007, the Company entered into a Purchase and Sale Agreement/Security Agreement
(the Agreement) with Amegy Bank National Association (Amegy), a national banking association.
The Agreement provides the Company with an accounts receivable loan facility to provide a source of
working capital with advances generally limited to 85% of submitted accounts receivable. Upon
collection of an account receivable, the remaining fifteen percent is rebated to the Company less
the Agreements fixed and variable discounts. The fixed discount equals 0.2% of the account
receivable for the first 15 days the account receivable is outstanding plus an additional 0.2% for
each additional 15 day period, up to 1.2% for receivables 76 to 90 days outstanding. The variable
discount is calculated for each day that the amount advanced by Amegy is outstanding until repaid
by collection of the account receivable and equals the prime rate plus 1.5% divided by 360
multiplied by the advance amount for each account receivable. The borrowing line under this
facility is $1,000,000, reviewed as growth of business dictates. To secure the amounts due under
the Agreement, the Company granted Amegy a security interest in all of its assets owned as of the
date of the Agreement or thereafter acquired. The Company had an outstanding balance of $92,321
and $875,568 as of December 31, 2009 and September 30, 2010, respectively, under this facility.
10. Long-Term Debt
Since October 1998, the Company has maintained a credit facility with an entity controlled by
one of its principal stockholders, Mr. H.T. Ardinger. On March 10, 2010, ViewCast.com, Inc.,
Osprey Technologies, Inc. and VideoWare, Inc. (jointly and severally, the Borrower) amended the
terms and conditions of the loan and security agreement with the Ardinger Family Partnership, Ltd.,
which amendment was effective as of January 31, 2010 (the Loan Agreement). Under the
amended terms, the $1,250,000 of the primary principal and $3,891,361 of the secondary principal
mature December 31, 2012, subject to certain earlier payment conditions. The interest on the
primary principal amount will accrue and be paid monthly based on an interest rate per annum of the
greater of 5.0% or the effective prime rate plus 0.75% (4.00% as of both December 31, 2009 and
September 30, 2010). Interest on the secondary principal shall accrue based on the effective
Applicable Federal Rate, as defined in the Loan Agreement (which was 2.64% and 0.46% as of December
31, 2009 and September 30, 2010, respectively). Beginning July 31, 2010, minimum monthly principal
payments of $21,422 were made in addition to the monthly interest payments. Any amounts remaining
on December 31, 2012 will become due on that date. The amended Loan Agreement is secured by all
the assets of the Borrower.
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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Notes to Condensed Consolidated Financial Statements Continued
The Companys long-term debt consists of:
December
31, 2009 |
September
30, 2010 |
|||||||
(Unaudited) | ||||||||
Primary Principal Amount |
$ | 1,250,000 | $ | 1,185,733 | ||||
Secondary Principal Amount |
3,891,361 | 3,891,361 | ||||||
Other debt |
75,297 | 60,272 | ||||||
Total long-term debt |
5,216,658 | 5,137,366 | ||||||
Less current maturities |
(157,133 | ) | (283,689 | ) | ||||
Total long-term debt less current maturities |
$ | 5,059,525 | $ | 4,853,677 | ||||
11. Warrants
On February 27, 2009, the Company entered into an amendment (the Amendment) to the warrant
to purchase common stock, dated December 11, 2006, (the Warrant), by and between the Company and
the Ardinger Family Partnership, Ltd. The general partner of the Ardinger Family Partnership, Ltd.
is H.T. Ardinger, Jr., the Companys largest stockholder. Pursuant to the Amendment, the Company
agreed to reduce the per share Warrant exercise price to the average closing price for the five
consecutive trading days ending on February 27, 2009 on the Over-The-Counter Bulletin Board in
exchange for the Ardinger Family Partnership agreeing to exercise the Warrant on or prior to March
5, 2009 with the proceeds to be used by the Company for the acquisition of Ancept Assets (see Note
2). On March 5, 2009, the Ardinger Family Partnership, Ltd. exercised the outstanding Warrant to
purchase 2,500,000 shares of the Companys unregistered common stock at the amended exercise price
of $0.376 per share and the Company received proceeds of $940,000. At September 30, 2010, the
Company had no outstanding warrants.
12. Earnings Per Share Data
Basic earnings per share (EPS) is calculated by dividing net income or loss applicable to
common stockholders by the weighted-average number of common shares outstanding during the period.
Diluted earnings per share is calculated by using the weighted-average number of common shares
outstanding during the period increased to include the number of additional shares of common stock
that would have been outstanding if the dilutive potential shares of common stock had been issued.
Dilutive potential shares of common stock include convertible preferred stock, options and warrants
which are exercisable based on the average market price during the period. The average market
price of the common stock was $0.2385 per share during the nine months ended September 30, 2010.
For periods presented, the computation of diluted loss per share excludes the portion of
convertible preferred stock, options and warrants that are anti-dilutive.
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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Notes to Condensed Consolidated Financial Statements Continued
The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Net loss applicable to common stockholders |
||||||||||||||||
- numerator for basic and diluted earnings per share |
$ | (987,176 | ) | $ | (197,295 | ) | $ | (3,113,878 | ) | $ | (1,307,811 | ) | ||||
Weighted average common shares outstanding |
||||||||||||||||
- denominator for basic and dilluted earning per share |
35,832,230 | 36,047,551 | 34,937,662 | 36,029,193 | ||||||||||||
Net loss per share: |
||||||||||||||||
Basic |
$ | (0.03 | ) | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.04 | ) | ||||
Diluted |
$ | (0.03 | ) | $ | (0.01 | ) | $ | (0.09 | ) | $ | (0.04 | ) | ||||
Anti-dilutive securities excluded from diluted earnings per share: |
||||||||||||||||
Stock options |
5,286,660 | 5,194,385 | 4,652,985 | 4,641,092 | ||||||||||||
Convertible preferred stock Series B |
2,206,896 | 2,206,896 | 2,206,896 | 2,206,896 | ||||||||||||
Convertible preferred stock Series C |
3,333,333 | 3,333,333 | 3,333,333 | 3,333,333 | ||||||||||||
Convertible preferred stock Series E |
13,333,333 | 13,333,333 | 13,333,333 | 13,333,333 |
13. Stock-Based Compensation
The Company has various stock-based employee compensation plans, which are described more
fully in Note 10 of the Notes to Consolidated Financial Statements in the Companys Annual Report
on Form 10-K for the year ended December 31, 2009, as amended by Amendment No. 1 thereto.
Stock-based compensation expense was $150,087 and $115,005 for the nine months ended September
30, 2009 and 2010, respectively. There were 1,640,000 new options granted by the Company during
the nine months ended September 30, 2010. Stock-based compensation expense is based on awards
ultimately expected to vest and has been reduced for estimated forfeitures.
The Company uses the Black-Scholes option-pricing model (Black-Scholes) as its method of
valuation of stock options granted. This fair value is amortized on a straight-line basis over the
requisite service periods of the awards, which is generally the vesting period. The fair value of
share-based payment awards on the date of grant as determined by the Black-Scholes model is
affected by our stock price as well as other assumptions. These assumptions include, but are not
limited to the expected stock price volatility over the term of the awards and the actual and
projected employee stock option exercise behaviors.
At September 30, 2010, the balance of unearned stock-based compensation to be expensed in
future periods related to unvested share-based awards, as adjusted for expected forfeitures, is
approximately $267,000. The weighted-average period over which the unearned stock-based
compensation is expected to be recognized is approximately three years.
13
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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Notes to Condensed Consolidated Financial Statements Continued
The following is a summary of stock option activity from January 1, 2010 through September 30,
2010:
Stock Options | ||||||||||||
Weighted- | ||||||||||||
Average | ||||||||||||
Number | Price Per | Exercise Price | ||||||||||
of Shares | Share | Per Share | ||||||||||
Outstanding at December 31, 2009 |
4,162,463 | $ | 0.20 - $3.52 | $ | 0.52 | |||||||
Granted |
1,640,000 | 0.17 - 0.26 | 0.18 | |||||||||
Canceled/forfeited |
(548,078 | ) | 0.17 - 3.52 | 0.71 | ||||||||
Outstanding at September 30, 2010 |
5,254,385 | $ | 0.17 - $1.81 | $ | 0.39 | |||||||
The following information applies to options outstanding at September 30, 2010:
Weighted- | ||||||||||||||||||||||||
Average | Weighted- | Weighted- | ||||||||||||||||||||||
Range of | Outstanding at | Remaining | Average | Exercisable at | Average | |||||||||||||||||||
Exercise | September 30, | Contractual | Exercise | September 30, | Exercise | |||||||||||||||||||
Prices | 2010 | Life | Price | 2010 | Price | |||||||||||||||||||
$0.01 - 1.00 |
4,757,335 | 5.1 | $ | 0.32 | 2,654,287 | $ | 0.39 | |||||||||||||||||
1.01 - 2.00 |
497,050 | 0.4 | $ | 1.12 | 497,050 | $ | 1.12 | |||||||||||||||||
5,254,385 | 4.7 | $ | 0.39 | 3,151,337 | $ | 0.51 | ||||||||||||||||||
14. Income Taxes
At December 31, 2009, the Company had federal income tax net operating loss carryforwards of
approximately $73,000,000, which carryfowards expire at various dates beginning in 2010. The
Company is subject to limitations existing under Internal Revenue Code Section 382 (Change of
Control) relating to the availability of the operating loss carryforward. The Company recognized
no federal income tax benefit in the nine months of 2010 as it has recorded a valuation allowance
to reduce all deferred tax assets to zero.
15. Related Party Transactions
As discussed in Note 10, the Company has an outstanding note payable to its largest
stockholder, Mr. H.T. Ardinger. In addition, the source of a significant portion of the cash paid
to Seller for the purchase of the Ancept Assets (more fully described in Note 2) was obtained by
the Company pursuant to the Warrant exercise on March 5, 2009 by H.T. Ardinger and the Ardinger
Family Partnership, Ltd. for the purchase of 2,500,000 shares of the Companys unregistered common
stock at an amended exercise price of $0.376 per share, pursuant to which the Company received
proceeds of $940,000.
16. Preferred Stock Dividend
There were no preferred stock dividends declared or paid during the nine months ended
September 30, 2010 and 2009. The Series B and Series C preferred stock issues carry cumulative
dividends of 8% and 9% per year, respectively, and are generally payable semi-annually in arrears
in cash or in ViewCast common stock, at ViewCasts option. Accumulated dividends at September 30,
2010 on preferred shares are: Series B-$5,626,667 and Series C-$1,602,500. The Series E preferred
stock has no dividend feature.
14
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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operations
Managements Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our consolidated financial
statements and related notes thereto included elsewhere in this Report. The following discussion
may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual
results could differ materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to these differences include, but are not limited to, those
discussed above under Special Note Regarding Forward-Looking Statements.
Overview
ViewCast.com, Inc., doing business as ViewCast Corporation (ViewCast or the Company),
develops industry-leading hardware and software for the capture, management, transformation and
delivery of digital media over IP and mobile networks. ViewCasts solutions simplify the complex
workflows required for these tasks, allowing broadcasters, businesses, and governments to reach and
expand their use and distribution of their digital media easily and effectively. ViewCasts
Niagara® streaming appliances, Osprey® video capture cards, and ViewCast Media Platform (VMp)
software suite provide the highly reliable technology required to deliver the multi-platform
experiences driving todays digital media market. ViewCast markets and sells its products and
professional services worldwide directly to end-users or through indirect channels including
original equipment manufacturers (OEMs), value-added resellers (VARs), resellers, distributors
and computer system integrators. ViewCast is focused on growth by leveraging the digital
media market expansion and our product solutions to capitalize on sales opportunities. We believe
that emphasis on revenue and market share growth will enable us to realize long-term profitability
and stockholder value.
On March 13, 2009, ViewCast completed the purchase of certain assets (the Ancept Assets)
from Ancept Media Server, LLC (the Seller) related to the development and licensing of software
products that provide the management of the life cycle phases of digital media pursuant to the
terms of the Asset Purchase Agreement as amended, dated March 5, 2009, by and between ViewCast and
the Seller. ViewCasts wholly-owned subsidiary, ViewCast Online Solutions, Inc., was renamed
Ancept Corporation (Ancept) and operates this business. The lead software product, rebranded as
VMp Production and the core of VMp, has been an established digital asset management (DAM)
solution capable of supporting the needs of large enterprises, while remaining flexible and
affordable to serve the needs of small to medium businesses. Fortune 1000 companies, educators,
small businesses and public sector organizations have chosen Ancept to help meet their media
production, management and distribution needs. The combined company has an expanded global
business presence and offers a complete set of solutions for the transformation, management and
delivery of live and on-demand video content to broadband and mobile networks.
Critical Accounting Policies
Managements discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. We review the accounting policies we
use in reporting our financial results on a regular basis. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On
an on-going basis we evaluate our estimates, including those related to accounts receivable,
inventories, warranty obligations, income taxes, restructuring and contingencies and litigation.
Our estimates are based on historical experience and other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources. In
addition to the items listed above which are affected by estimates, we believe that the following
are critical accounting policies used in the preparation of our consolidated financial statements:
| Revenue Recognition We apply provisions of Securities and Exchange Commission Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements as revised
by SAB 104, Revenue
Recognition, FASB ASC 605, Revenue Recognition and FASB ASC 985, Software. Under these
guidelines, we recognize revenue on transactions where persuasive evidence of an arrangement
exists, title has transferred, product payment is not contingent upon performance of
installation or service obligations, the price is fixed or determinable and payment is
reasonably assured. We accrue warranty costs and sales allowances for promotional activities
at time of shipment based on historical experience. In addition, we defer revenue associated
with maintenance and support contracts and recognize revenue ratably over the contract term. |
15
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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
| Allowance for Doubtful Accounts We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our customers to make required payments.
If the financial condition of our customers or distribution partners were to deteriorate,
resulting in an impairment of their ability to make payments, additional allowances may be
required. |
| Excess and Obsolete Inventories We write down our inventories for estimated
obsolescence and unmarketable inventory equal to the difference between the cost of the
inventory and the estimated market value based upon assumptions about future demand and
market conditions. If actual market conditions are less than those projected by
management, additional write-downs may be required. |
| Deferred Taxes We record a valuation allowance to reduce our deferred tax assets to an
amount that we believe is more likely than not to be realized. In our opinion, realization
of our net operating loss carryforward is not reasonably assured, and a valuation allowance
has been provided against deferred tax assets in excess of deferred tax liabilities in the
accompanying consolidated financial statements. However, should we determine in the future
that realization of deferred tax assets in excess of recorded amounts is likely, an
adjustment to the deferred tax assets would increase income in the period such
determination was made. |
| Purchase Accounting, Goodwill and Intangible Assets We use the purchase method of
accounting for our business acquisitions, accordingly, the statement of operation include
the results of acquired businesses since the date of acquisition. The assets acquired and
liabilities assumed are recorded at their estimated fair value as determined by management
and supported by an independent third-party valuation. |
| Goodwill Arising from the Acquisitions of Business We record goodwill arising from the
acquisition of a business as the excess of the purchase price over the estimated fair value
of the net assets of the business acquired. In accordance with FASB ASC 350, Intangibles
Goodwill and Other, we are required to test goodwill for impairment annually or more
frequently if circumstances indicate potential impairment. Consistent with this standard,
we will review goodwill, as well as other intangible assets and long-term assets, for
impairment annually or more frequently as warranted, and if circumstances indicate that the
recorded value of any such other asset is impaired, such asset is written down to its new,
lower fair value. If any item of goodwill or such other asset is determined to be
impaired, an impairment loss would be recognized equal to the amount by which the recorded
value exceeds the estimated fair market value. |
16
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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
Results of Operations
Three and Nine Months Ended September 30, 2010 compared to
Three and Nine Months Ended September 30, 2009.
Three and Nine Months Ended September 30, 2009.
Net Sales. During the third quarter ended September 30, 2010, net sales increased $1,584,686
to $4,546,551 from $2,961,865 in the third quarter 2009, representing a 54% increase. During the
nine months ended September 30, 2010, net sales increased $1,904,941 to $12,365,435 from
$10,460,494 for the same period in 2009, representing an 18% increase. The increase during the
first nine months of 2010 was primarily due to an increase in Osprey® capture card revenue and the
addition of Ancept-related revenues of $399,973. The increase in the third quarter was primarily
due to increase in Osprey capture card revenue, ViewCast Niagara streaming / encoding system sales
and Ancept-related revenue. Osprey and Niagara combined sales increased 26% in the North America
sales region and 8% in the Pacific Rim/South America sales region, which was partially offset by a
14% decrease of sales in the Europe, Middle East and Africa (EMEA) sales region. ViewCast
expects improvement in all regions as new personnel gain traction and as new products are
introduced during the last quarter of the year.
Sequential sales began increasing in the fourth quarter of 2009 and continued through the
first three quarters of 2010, averaging 12% for these last four quarters, with sequential quarterly
sales growth of 16%, 7%, 13% and 10%, respectively.
Osprey Product Sales. During the third quarter ended September 30, 2010, Osprey sales
increased $627,230 to $2,704,832 from $2,077,602 in the third quarter 2009, representing a 30%
increase from the 2009 levels and 60% of total third quarter 2010 revenue, compared to 70% in 2009.
During the nine months ended September 30, 2010, Osprey sales increased $1,456,722 to $7,139,905
from $5,683,183 for the same period in 2009, representing a 26% increase from the 2009 levels and
58% of total revenue, compared to 54% in 2009. The increase in sales for the nine months ended
September 30, 2010 was primarily due to increases of volume sales to integrators as their business
has recovered during 2010.
ViewCast Niagara® Streaming/Encoding System Sales. During the third quarter ended September
30, 2010, combined system sales increased $822,925 to $1,355,757 from $532,832 in the third quarter
2009, representing a 154% increase from the 2009 levels and 30% of total third quarter 2010
revenue, compared to 18% in 2009. During the nine months ended September 30, 2010, combined system
sales increased $71,328 to $3,918,170 from $3,846,842 for the same period in 2009, representing a
2% increase from the 2009 levels and 32% of total revenue, compared to 37% in 2009. The increase
in sales for the nine months ended September 30, 2010 was primarily due to OEM sales levels spread
throughout the first three quarters of 2010 and expected to continue during 2010.
Software Licenses and Other Revenues. During the third quarter ended September 30, 2010,
other revenues from software licenses, support and maintenance, professional services and net
third-party product revenue increased $134,531 to $485,962 from $351,431 in the third quarter 2009,
representing a 38% increase from the 2009 levels and 11% of total third quarter 2010 revenue,
compared to 12% in 2009. During the nine months ended September 30, 2010, other revenues increased
$376,891 to $1,307,360 from $930,469 for the same period in 2009, representing a 41% increase from
the 2009 levels and 11% of total revenue, compared to 9% in 2009. This increase was primarily due
to ViewCasts Ancept business acquired in March of 2009, which provided sales increases in software
license, maintenance and support, and professional services of $133,590 and $399,973 to the three
and nine month periods ended September 2010, respectively. We anticipate that Other Revenue will
vary quarter to quarter depending on the mix of software license and professional service revenues
in addition to support and maintenance revenues that are amortized over the contract period.
Cost of Sales/Gross Profit. During the third quarter ended September 30, 2010, cost of sales
increased $781,661 to $1,813,220 from $1,031,559 in the third quarter 2009, representing a 76%
increase from the 2009 levels and 40% of total third quarter 2010 revenue, compared to 35% in 2009.
During the third quarter ended September 30, 2010, gross profit increased $803,025 to $2,733,331
from $1,930,306 in the third quarter 2009, representing a 42% increase from the 2009 levels and 60%
of total third quarter 2010 revenue, compared to 65% in 2009. During the nine months ended
September 30, 2010, cost of sales increased $940,986, to $4,793,275 from $3,852,289 in the
same period 2009, representing a 24% increase from the 2009 levels and 39% of total revenue,
compared to 37% in 2009. During the nine months ended September 30, 2010, gross profit increased
$963,955 to $7,572,160 from $6,608,205 in the same period in 2009, representing a 15% increase from
the 2009 levels and 61% of total revenue, compared to 63% in 2009. The decrease in gross profit
margin percentage was primarily due to increased volume purchases.
17
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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
We expect future margins for the software and hardware products to remain comparable to
historical margins in the 55%-65% range. Margins for the Company will be affected quarter to
quarter by promotional activities, price adjustments, cost of materials, inventory obsolescence,
the introduction of new products and the sales mix between the products, software, services and
third-party products sold in any one reporting period.
Selling, General and Administrative Expenses. During the third quarter ended September 30,
2010, selling, general and administrative expenses decreased $218,371 to $1,494,843 from $1,713,214
in the third quarter 2009, representing a 13% decrease from the 2009 levels. During the nine
months ended September 30, 2010, selling, general and administrative expenses decreased $1,392,463
to $4,695,644 from $6,088,107 in the same period 2009, representing a 23% decrease from the 2009
levels. The decrease reflects an overall decrease in finance and administration, sales, marketing,
and customer support due to reduced headcount, advertising, public relations, and related expenses.
Additionally, there were non-recurring expenses of $167,000 during the same period in 2009 related
to the acquisition of the Ancept Assets.
Research and Development Expense. During the third quarter ended September 30, 2010, research
and development expense, net of capitalized software development, increased $245,095 to $997,469
from $752,374 in the third quarter 2009, representing a 33% increase from the 2009 levels. During
the nine months ended September 30, 2010, research and development expense, net of capitalized
software development, increased $491,555 to $2,830,564 from $2,339,009 in the same period in 2009,
representing a 21% increase from the 2009 levels. Research and development expenses vary period to
period depending on the number of product introductions planned and as new product prototypes,
testing and certifications are completed.
Depreciation and Amortization Expense. During the third quarter ended September 30, 2010,
depreciation and amortization expense decreased $17,683 to $189,902 from $207,585 in the third
quarter 2009, representing a 9% decrease from the 2009 levels. During the nine months ended
September 30, 2010, depreciation and amortization expense increased $49,006 to $618,601 from
$569,595 in the same period 2009, representing a 9% increase from the 2009 levels. The increase
was primarily due to the amortization of acquired intangible assets in March 2009, capitalized
software development costs and expenditures in 2009 for IT infrastructure, test equipment and demo
gear.
Other Income (Expense). During the third quarter ended September 30, 2010, total other
expenses increased $4,103 to $43,412 from $39,309 in the third quarter 2009, representing a 10%
increase from the 2009 levels. During the nine months ended September 30, 2010, total other
expenses increased $9,790 to $120,162 from $110,372 in the same period 2009, representing a 9%
increase from the 2009 levels. Interest expense for the third quarter ended September 30, 2010
increased $4,344 to $49,126 from $44,782 in the third quarter 2009, representing a 10% increase
from the 2009 levels. Interest expense for the nine months ended September 30, 2010 increased
$7,370 to $126,039 from $118,669 in the same period 2009, representing a 6% increase from the 2009
levels. The increase in interest expense is principally due to the increase in the outstanding
balance on the Amegy Bank Credit Facility (see Note 9), partially offset by a decrease of interest
rates from our debt under the credit facility we have in place with Ardinger Family Partnership,
Ltd. (see Note 10). Interest income was nominal for the three and nine months ended September 30,
2010 and 2009 primarily due to lower interest rates and average cash balance during these periods.
Net Income / Loss. During the third quarter ended September 30, 2010, net income increased
$789,881 to net income of $7,705 from a net loss of $782,176 in the third quarter 2009. After
decreasing the net income for stated preferred dividends of $205,000, the net loss per share
applicable to the common shareholders for the third quarter of 2010 was ($0.01) per share, compared
to a net loss of ($0.03) per share, for the same period in 2009. During the nine months ended
September 30, 2010, net loss decreased $1,806,067 to a net loss of $692,811 from a net loss of
$2,498,878 in the same period 2009. After increasing the net loss for stated preferred dividends
of $615,000, the net
loss per share applicable to the common shareholders for the nine months ended September 30,
2010 was ($0.04) per share, compared to a net loss of ($0.09) per share, for the same period in
2009.
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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
Liquidity and Capital Resources
ViewCasts primary sources of funds for conducting its business activities are derived from
sales of its products and services, from its credit facilities and from the placement of its equity
securities with investors. ViewCast requires working capital primarily to increase inventories and
accounts receivable during sales growth, develop products, service debt, purchase capital assets,
fund operations and strategic acquisitions.
Net cash used by operating activities for the nine months ended September 30, 2010 was $69,310
resulting from a net loss of $692,811, offset by non-cash operating expense of $753,212 and reduced
by net cash used in operating assets and liabilities of $129,711. Cash used in operating assets
and liabilities was principally due to increased accounts receivable and prepaid expenses
supplemented by decreased deferred revenue, which was partially offset by cash provided from
increased accounts payable, accrued expenses and decreased inventory and deposits.
Cash utilized for investing activities during the nine months ended September 30, 2010 totaled
$125,140 of which $83,646 was used for property and equipment purchased and $47,389 was due to
capitalization of software development costs.
During the nine months ended September 30, 2010, ViewCasts financing activities provided cash
of $698,646 of which $783,247 was provided from an increase in the line of credit and $4,916 was
provided from the proceeds from the sale of stock under the Employee Stock Purchase Plan, partially
offset by $89,517 used for repayment of the related-party credit facility noted below and capital
leases.
Since October 1998, ViewCast has maintained a credit facility with an entity controlled by one
of its principal stockholders, Mr. H.T. Ardinger. On March 10, 2010, ViewCast.com, Inc., Osprey
Technologies, Inc. and VideoWare, Inc. (jointly and severally, the Borrower) amended the terms
and conditions of the loan and security agreement with the Ardinger Family Partnership, Ltd., which
amendment was effective as of January 31, 2010 (the Loan Agreement). Under the amended
terms, the $1,250,000 of the primary principal and $3,891,361 of the secondary principal mature
December 31, 2012, subject to certain earlier payment conditions. The interest on the primary
principal amount will accrue and be paid monthly based on an interest rate per annum of the greater
of 5.0% or the effective prime rate plus 0.75% (4.00% as of both December 31, 2009 and September
30, 2010). Interest on the secondary principal shall accrue based on the effective Applicable
Federal Rate, as defined in the Loan Agreement (which was 2.64% and 0.46% as of December 31, 2009
and September 30, 2010, respectively). Beginning July 31, 2010, minimum monthly principal payments
of $21,422 were made in addition to the monthly interest payments. Any amounts remaining on
December 31, 2012 will become due on that date. The amended Loan Agreement is secured by all the
assets of the Borrower.
In June 2007, ViewCast entered into a Purchase and Sale Agreement/Security Agreement with
Amegy Bank National Association, a national banking association. This agreement provides ViewCast
with an account up to $1,000,000 receivable loan facility to provide a source of working capital.
As of September 30, 2010, we have an outstanding balance of $875,568 under this facility.
There were no preferred stock dividends declared, accrued or paid during the nine months of
2010. The Series B and Series C preferred stock issues carry stated cumulative dividends of 8% and
9% per year, respectively, and are generally payable semi-annually in arrears in cash or in
ViewCast common stock, at ViewCasts option. Cumulative dividends in arrears on preferred shares
are: Series B-$5,626,667 and Series C-$1,602,500.
During the nine months of 2010, ViewCast incurred a net loss of $692,811 and used cash in
operations of $69,310. At September 30, 2010, ViewCast had working capital of $1,796,005 and cash
and cash equivalents of $872,347. ViewCast expects to obtain additional working capital by
increasing sales, maintaining reduced operating expenses, borrowing under its loan facilities and
through other initiatives that may include raising additional equity. Our sales volume began to
recover during the fourth quarter of 2009 and expect that trend to continue for the rest of 2010
year. We can now see evidence of increases in sales of all product lines taking hold as sequential
sales growth
has averaged 12% for the last four quarters, with sales growths of 16%, 7%, 13% and 10%,
respectively from the fourth quarter 2009 through the third quarter 2010. ViewCast utilizes
significant capital to design, develop and
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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
Managements Discussion and Analysis of Financial Condition and Results of Operations
Continued
commercialize its products and intends to fund its
operating activities and sales growth during the next twelve months by utilizing existing cash,
cash contributed from operations and its available working capital lines of credit. ViewCast
anticipates it may require additional working capital during 2010 to support the expansion of sales
channels and market distribution, to develop and introduce new products and services, to enhance
existing product offerings, to address unanticipated competitive threats or technical problems, to
transition adverse economic conditions, to service its debt and for potential acquisition
transactions.
ViewCast utilizes significant capital to design, develop and commercialize its products and
intends to fund its 2010 operating activities and sales growth by utilizing existing cash, cash
provided from operations and working capital lines of credit to the extent possible. ViewCast
believes that these items will provide sufficient cash to fund operations for the next 12 months.
However, ViewCast may require additional working capital during the next year to support operations
and the expansion of sales channels and market distribution, to develop and introduce new products
and services, to enhance existing product offerings, to address unanticipated competitive threats
or technical problems, to transition adverse economic conditions and for potential acquisition
transactions. There can be no assurance that additional financing will be available to ViewCast on
acceptable terms, or at all. Additional equity financing may involve substantial dilution to our
then existing stockholders. In the event ViewCast is unable to raise additional capital or execute
other alternatives, it may be required to sell segments of the business or substantially reduce or
curtail our activities. Such actions could result in charges that could be material to ViewCasts
results of operations or financial position.
At September 30, 2010, ViewCast had no material commitments for capital expenditures.
Off Balance Sheet Arrangements
ViewCast does not have any off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on ViewCasts financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
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Table of Contents
ViewCast.com, Inc. and Subsidiaries
Quantitative and Qualitative Disclosure About Market Risk
Quantitative and Qualitative Disclosure About Market Risk
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not required.
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ViewCast.com, Inc. and Subsidiaries
Controls and Procedures
Controls and Procedures
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the
Securities Exchange Act of 1934, as amended (the Exchange Act) are designed to provide reasonable
assurance that information required to be disclosed by us in the reports we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the Securities and Exchange Commission and that such information is
accumulated and communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding required
disclosure. As required by Rule 13a-15(b) under the Exchange Act, our management carried out an
evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures as of the end of the period for which
this Quarterly Report on Form 10-Q is filed. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as of September 30, 2010, our disclosure
controls and procedures were effective in providing such reasonable assurance.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Companys internal control over financial reporting
identified in connection with the evaluation that occurred during the Companys last fiscal quarter
that has materially affected, or that is reasonably likely to materially affect, the Companys
internal control over financial reporting.
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Table of Contents
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
(None)
Item 1A. Risk Factors
(Not Applicable)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 11, 2010, we entered into an agreement with National Securities
Corporation pursuant to which National Securities Corporation would provide
financial advisory services to us. As partial payment for such services, on March
10, 2010, we issued 147,059 shares of our common stock, valued at $25,000 as of
January 11, 2010, to National Securities Corporation and one of its principals
pursuant to the exemption from registration set forth in Section 4(2) of the
Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
(None)
Item 4. Reserved
Item 5. Other Information
(a) (None)
(b) (None)
Item 6. Exhibits
See Exhibit Index.
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ViewCast.com, Inc. | ||||
(Registrant) |
||||
BY: | ||||
Date: November 15, 2010 | /s/ David T. Stoner | |||
David T. Stoner | ||||
Chief Executive Officer Principal Executive Officer |
||||
Date: November 15, 2010 | /s/ Laurie L. Latham | |||
Laurie L. Latham | ||||
Chief Financial Officer Principal Financial and Accounting Officer |
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Table of Contents
EXHIBIT INDEX
Exhibit | ||||
Number | ||||
10.49 | Employment Agreement by and between ViewCast.com,
Inc. and Adrian Giuhat, as of September 7, 2010,
filed as Exhibit 10.49 to the Companys Current
Report on Form 8-K filed on September 9, 2010, is
incorporated herein by reference as Exhibit 10.49. |
|||
31.1 | Principal Executive Officers Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 is attached to this Form 10-Q as Exhibit 31.1. |
|||
31.2 | Principal Financial Officers Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 is attached to this Form 10-Q as Exhibit 31.2. |
|||
32.1 | Principal Executive Officers Certification
furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 is attached to this
Form 10-Q as Exhibit 32.1. |
|||
32.2 | Principal Financial Officers Certification
furnished Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 is attached to this
Form 10-Q as Exhibit 32.2. |
25