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Table of Contents

 
 
United States
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, 2011
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   75-2528700
(State or other jurisdiction of incorporation or organization)   (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
(Registrant’s 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 þ 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   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 issuer’s classes of common stock as of the latest practicable date.
As of October 31, 2011, there were 55,699,005 outstanding shares of common stock, par value $0.0001 per share.
 
 

 

 


 

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 Rule 13a-14(a)/15d-14(a) President Certification
 Rule 13a-14(a)/15d-14(a) CFO Certification
 Section 1350 President Certification
 Section 1350 CFO Certification
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

 

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Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q (“Report”) under “Management’s 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 ViewCast’s 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 industry’s 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, 2010, 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.

 

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PART I. FINANCIAL INFORMATION
Item 1.  
Financial Statements
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
                 
    December 31,     September 30,  
    2010     2011  
            (Unaudited)  
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 1,648,476     $ 421,283  
Accounts receivable, less allowance for doubtful accounts of $76,436 and $16,059 at December 31, 2010 and September 30, 2011, respectively
    2,204,125       1,579,945  
Inventories, net
    2,215,249       2,981,627  
Prepaid expenses
    278,928       199,044  
 
           
Total current assets
    6,346,778       5,181,899  
 
               
Property and equipment, net
    331,466       324,946  
Capitalized software development costs, net
    982,503       817,000  
Goodwill
    620,002       620,002  
Intangible assets, net
    163,247       142,329  
Deposits
    32,637       90,887  
 
           
 
               
Total assets
  $ 8,476,633     $ 7,177,063  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
Current liabilities:
               
Line of credit
  $ 1,041,478     $ 685,258  
Accounts payable
    1,078,639       1,081,826  
Accrued expenses
    702,721       931,932  
Deferred revenue
    426,929       488,859  
Current maturities of long-term debt and stockholder notes payable
    284,523       260,417  
 
           
Total current liabilities
    3,534,290       3,448,292  
 
               
Long-term debt, less current maturities
    26,464       40,532  
Stockholder notes payable, less current maturities
    4,755,759       5,455,759  
 
           
 
               
Total liabilities
    8,316,513       8,944,583  
 
               
Commitments and contingencies
               
 
               
Stockholders’ equity (deficit):
               
Preferred stock, $0.0001 par value, authorized 5,000,000 shares:
Series B convertible — issued and outstanding shares - 800,000 and no shares at December 31, 2010 and September 30, 2011, respectively
    80        
Series C convertible — issued and outstanding shares - 200,000 and no shares at December 31, 2010 and September 30, 2011, respectively
    20        
Series E convertible — issued and outstanding shares - 80,000 - liquidation value of $107 per share as of December 31, 2010 and September 30, 2011
    8       8  
Common stock, $0.0001 par value, authorized 200,000,000 shares:
Issued shares - 39,277,815 and 55,960,502 at December 31, 2010 and September 30, 2011
    3,927       5,595  
Additional paid-in capital
    72,641,272       72,736,608  
Accumulated deficit
    (72,473,281 )     (74,497,825 )
Treasury stock, 261,497 shares at cost
    (11,906 )     (11,906 )
 
           
Total stockholders’ equity (deficit)
    160,120       (1,767,520 )
 
           
 
               
Total liabilities and stockholders’ equity (deficit)
  $ 8,476,633     $ 7,177,063  
 
           
The accompanying notes are an integral part of these condensed consolidated statements.

 

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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,  
    2010     2011     2010     2011  
 
                               
Net sales
  $ 4,546,551     $ 3,558,062     $ 12,365,435     $ 11,520,571  
 
                               
Cost of sales
    1,813,220       1,457,052       4,793,275       4,661,477  
 
                       
 
                               
Gross profit
    2,733,331       2,101,010       7,572,160       6,859,094  
 
                               
Operating expenses:
                               
Selling, general and administrative
    1,494,843       1,826,596       4,695,644       5,377,108  
Research and development
    997,469       964,483       2,830,564       2,891,696  
Depreciation and amortization
    189,902       164,127       618,601       509,217  
 
                       
Total operating expenses
    2,682,214       2,955,206       8,144,809       8,778,021  
 
                       
 
                               
Operating income (loss)
    51,117       (854,196 )     (572,649 )     (1,918,927 )
 
                               
Other income (expense):
                               
Interest expense (including $20,669, $33,002, $64,810, and $88,534 of expense to related parties, respectively)
    (49,126 )     (61,943 )     (126,039 )     (169,279 )
Interest income
    209       45       372       503  
Other
    5,505             5,505       2,403  
 
                       
Total other expense, net
    (43,412 )     (61,898 )     (120,162 )     (166,373 )
 
                               
Provision for income taxes
                       
 
                       
 
                               
NET INCOME (LOSS)
  $ 7,705     $ (916,094 )   $ (692,811 )   $ (2,085,300 )
 
                       
 
                               
Preferred stock dividends
    (205,000 )           (615,000 )     (282,444 )
Preferred stock redemption
                      5,586,666  
 
                       
Net income (loss) applicable to common stockholders
  $ (197,295 )   $ (916,094 )   $ (1,307,811 )   $ 3,218,922  
 
                       
 
                               
Net income (loss) per share
                               
Basic and Diluted
  $ (0.01 )   $ (0.02 )   $ (0.04 )   $ 0.07  
 
                       
Weighted average number of common shares outstanding
                               
Basic and Diluted
    36,047,551       55,699,005       36,029,193       48,120,853  
 
                       
The accompanying notes are an integral part of these condensed consolidated statements.

 

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VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
(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     Equity (Deficit)  
 
                                                                                               
Balances, December 31, 2010
    800,000     $ 80       200,000     $ 20       80,000     $ 8       39,277,815     $ 3,927     $ 72,641,272     $ (72,473,281 )   $ (11,906 )   $ 160,120  
 
                                                                                               
Stock based compensation expense
                                                    92,721                   92,721  
 
                                                                                               
Employee stock purchase plan issuance
                                        12,688       1       3,615                   3,616  
Conversion of preferred stock to common stock
    (800,000 )     (80 )     (200,000 )     (20 )                 16,666,666       1,667       (1,567 )                  
 
                                                                                               
Forfeiture of convertible preferred stock dividends — Series B
                                                          33,140             33,140  
 
                                                                                               
Forfeiture of convertible preferred stock dividends — Series C
                                                          27,616             27,616  
 
                                                                                               
Exercise of stock option
                                            3,333             567                   567  
 
                                                                                               
Net loss
                                                          (2,085,300 )           (2,085,300 )
 
                                                                       
 
                                                                                               
Balances, September 30, 2011
        $           $       80,000     $ 8       55,960,502     $ 5,595     $ 72,736,608     $ (74,497,825 )   $ (11,906 )   $ (1,767,520 )
 
                                                                       
The accompanying notes are an integral part of this condensed consolidated statement.

 

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Table of Contents

VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
                 
    For the nine months ended  
    September 30,  
    2010     2011  
Operating activities:
               
Net loss
  $ (692,811 )   $ (2,085,300 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Bad debt expense (recoveries)
    111       (60,377 )
Depreciation of property and equipment
    283,442       204,386  
Amortization of intangible assets
    335,159       304,831  
Stock based compensation expense
    115,005       92,721  
Gain on disposition of property and equipment
    (5,505 )     (2,398 )
Stock issued for services
    25,000        
Changes in operating assets and liabilities:
               
Accounts receivable
    (832,415 )     684,557  
Inventories
    120,145       (766,378 )
Prepaid expenses
    (30,771 )     79,884  
Deposits
    15,796       (58,250 )
Accounts payable
    217,319       3,187  
Accrued expenses
    308,243       289,967  
Deferred revenue
    71,972       61,930  
 
           
Net cash used in operating activities
    (69,310 )     (1,251,240 )
 
           
 
               
Investing activities:
               
Capitalized software development and patent costs
    (47,389 )     (118,410 )
Purchase of property and equipment
    (83,646 )     (138,145 )
Proceeds from disposition of property and equipment
    5,895       2,398  
 
           
Net cash used in investing activities
    (125,140 )     (254,157 )
 
           
 
               
Financing activities:
               
Net proceeds from stockholder line of credit
          700,000  
Proceeds from sale of common stock
    4,916       3,616  
Proceeds from exercise of employee stock options
          567  
Net proceeds (repayments) from line of credit
    783,247       (356,220 )
Repayments of long-term debt, including $42,845 for the nine months ended September 30, 2011 to related party
    (89,517 )     (69,759 )
 
           
Net cash provided by financing activities
    698,646       278,204  
 
           
 
               
Net increase (decrease) in cash and cash equivalents
    504,196       (1,227,193 )
 
               
Cash and cash equivalents, beginning of period
    368,151       1,648,476  
 
           
 
               
Cash and cash equivalents, end of period
  $ 872,347     $ 421,283  
 
           
 
               
Supplemental cash flow information:
               
Cash paid for interest
  $ 126,039     $ 107,336  
The accompanying notes are an integral part of these condensed consolidated statements.

 

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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, 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. ViewCast’s 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. ViewCast’s Niagara® streaming appliances, Osprey® video capture cards, and ViewCast Media Platform (VMp®) asset management software suite provide the highly reliable technology required to deliver the multi-platform experiences driving today’s 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 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, 2011. The condensed consolidated balance sheet of the Company as of December 31, 2010 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, 2011 are not necessarily 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 Company’s audited financial statements and notes thereto included in the Company’s annual report on Form 10-K as amended by Amendment No. 1 thereto and for the year ended December 31, 2010.
During the first nine months of 2011, the Company incurred a net loss of $2,085,300 and used cash in operations of $1,251,240. At September 30, 2011, the Company had working capital of $1,733,607 and cash and cash equivalents of $421,283. The Company expects to obtain additional working capital by increasing revenue, maintaining reduced operating expenses, 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 during 2011 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 its 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 its activities. Such actions could result in charges that could be material to ViewCast’s results of operations or financial position.
2. Accounts Receivable
The Company’s accounts receivable are primarily due from resellers and distributors of its video communications products and services. Credit is extended based on evaluation of each customer’s 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 Company’s 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.

 

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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
Changes in the Company’s allowance for doubtful accounts for the three and nine months ended September 30, 2010 and 2011 are as follows:
                                 
    For the three months ended     For the nine months ended  
    September 30,     September 30,  
    2010     2011     2010     2011  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Beginning balance
  $ 94,440     $ 15,238     $ 69,767     $ 76,436  
Bad debt expense (recoveries)
    (24,562 )     821       111       (60,377 )
 
                       
Ending balance
  $ 69,878     $ 16,059     $ 69,878     $ 16,059  
 
                       
3. Inventories
Inventories consisted of the following:
                 
    December 31,     September 30,  
    2010     2011  
            (Unaudited)  
Purchased materials
  $ 1,073,360     $ 1,555,991  
Finished goods
    1,433,645       1,724,310  
Reserve
    (291,756 )     (298,674 )
 
           
 
  $ 2,215,249     $ 2,981,627  
 
           
4. Intangible Assets
Intangible assets consisted of the following:
                                 
    December 31, 2010     September 30, 2011 (Unaudited)  
    Gross carrying     Accumulated     Gross carrying     Accumulated  
    amount     amortization     amount     amortization  
 
                               
Customer lists
  $ 60,000     $ 21,581     $ 60,000     $ 30,581  
Non-compete agreements
    24,000       14,387       24,000       20,387  
Patents
    145,200       29,985       145,703       36,406  
 
                       
 
                               
 
  $ 229,200     $ 65,953     $ 229,703     $ 87,374  
 
                       
Future amortization expense associated with these intangible assets is as follow:
         
Three months ending December 31, 2011
  $ 7,143  
Year ending December 31, 2012
    22,184  
Year ending December 31, 2013
    20,571  
Year ending December 31, 2014
    10,990  
Year ending December 31, 2015
    8,571  
Thereafter
    72,870  
 
     
 
  $ 142,329  
 
     

 

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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
5. Accrued Expenses
Accrued expenses consisted of the following:
                 
    December 31,     September 30,  
    2010     2011  
            (Unaudited)  
Accrued compensation
  $ 207,189     $ 417,689  
Accrued warranty
    155,918       172,768  
Accrued inventory purchases
    75,983       38,004  
Customer deposits
    57,164       42,627  
Deferred rent
    15,386       31,461  
Accrued taxes and other
    191,081       229,383  
 
           
 
  $ 702,721     $ 931,932  
 
           
6. 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, 2010 and 2011:
                                 
    For the three months ended     For the nine months ended  
    September 30,     September 30,  
    2010     2011     2010     2011  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Beginning balance
  $ 214,123     $ 172,583     $ 155,850     $ 155,918  
Additions
    8,790       62,241       72,358       196,354  
Usage
    (49,661 )     (62,056 )     (54,956 )     (179,504 )
 
                       
Ending balance
  $ 173,252     $ 172,768     $ 173,252     $ 172,768  
 
                       
7. Property and Equipment
Property and equipment, at cost, consisted of the following:
                         
    Estimated              
    Useful Life     December 31,     September 30,  
    (Years)     2010     2011  
                    (Unaudited)  
Service equipment
    3     $ 242,362     $  
Computer equipment
    2 to 7       579,059       612,264  
Software
    3 to 5       207,908       116,848  
Leasehold improvements
    1 to 5       174,429       174,429  
Office furniture and equipment
    5 to 7       1,319,238       1,413,669  
 
                   
 
            2,522,996       2,317,210  
Less accumulated depreciation and amortization
            (2,191,530 )     (1,992,264 )
 
                   
 
          $ 331,466     $ 324,946  
 
                   

 

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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
8. 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 Agreement’s 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 currently 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 $1,041,478 and $685,258 outstanding as of December 31, 2010 and September 30, 2011, respectively, under this facility. There is no expiration date to the Agreement.
9. Long-Term Debt
Since October 1998, the Company has maintained a credit facility with the Ardinger Partnership (as defined in Note 13) an entity controlled by one of its principal stockholders, H.T. Ardinger, Jr. (“Ardinger”) Most recently, 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 Partnership effective March 31, 2011. Under the amended terms minimum monthly principal payments of $21,422 will begin December 31, 2011 and any amount outstanding of the primary principal and the secondary principal mature December 31, 2014, 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 which is the greater of 5.0% or the effective prime rate plus 0.75% (effective rate of 5.0% as of December 31, 2010 and September 30, 2011). Interest on the secondary principal shall accrue and be paid monthly based on the effective Applicable Federal Rate, as defined in the agreement, (0.32% and 1.63% as of December 31, 2010 and September 30, 2011, respectively). The amended note agreement is secured by all the assets of the Borrower. In the event of default, the Ardinger Partnership may exercise one or more of the following rights and remedies (i) the entire unpaid balance of principal of the note, together with all accrued but unpaid interest thereon, and all other indebtedness owing to the Ardinger Partnership or by the Company shall, at the option of the Ardinger Partnership become immediately due and payable (ii) the Ardinger Partnership may, at its option, cease further advances.
The Company’s long-term debt consisted of:
                 
    December 31, 2010     September 30, 2011  
            (Unaudited)  
Outstanding Primary Principal Amount
  $ 1,121,466     $ 1,078,621  
Outstanding Secondary Principal Amount
    3,891,361       4,591,361  
Other debt
    53,919       86,726  
 
           
Total long-term debt
    5,066,746       5,756,708  
Less current maturities
    (284,523 )     (260,417 )
 
           
Total long-term debt less current maturities
  $ 4,782,223     $ 5,496,291  
 
           

 

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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
10. 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. The potential dilution for options and warranty is based on the average market price during the period. The average market price of the common stock was $0.2979 during the nine months ended September 30, 2011. For periods presented, the computation of diluted loss per share excludes the portion of convertible preferred stock, options and warrants that are anti-dilutive.
On May 4, 2011, the Series B Convertible Preferred Stock and Series C Convertible Preferred Stock were converted and the Series E Convertible Redeemable Preferred Stock was restructured under a Preferred Stock Exchange Agreement more fully described in Note 13.
The following table sets forth the computation of basic and diluted earnings per share:
                                 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2010     2011     2010     2011  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Net income (loss) applicable to common stockholders — numerator for basic and diluted earnings per share
  $ (197,295 )   $ (916,094 )   $ (1,307,811 )   $ 3,218,922  
 
                       
 
                               
Weighted — average common shares and dilutive potential common shares outstanding — denominator for diluted earnings per share
    36,047,551       55,699,005       36,029,193       48,120,853  
 
                       
 
                               
Net income (loss) per share:
                               
Basic and Diluted
  $ (0.01 )   $ (0.02 )   $ (0.04 )   $ 0.07  
 
                       
 
                               
Anti-dilutive securities excluded from diluted earnings per share:
                               
Stock options
    5,194,385       6,161,460       4,641,092       5,327,273  
Convertible preferred stock — Series B
    2,206,896             2,206,896        
Convertible preferred stock — Series C
    3,333,333             3,333,333        
Convertible preferred stock — Series E
    13,333,333       16,000,000       13,333,333       14,666,667  
11. 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as amended by Amendment No. 1 thereto.
Stock-based compensation expense was $115,005 and $92,721 for the nine months ended September 30, 2010 and September 30, 2011, respectively. There were 2,220,000 new options granted by the Company during the nine months ended September 30, 2011. 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, 2011, 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 $471,000. The weighted-average grant date fair value for options granted during the nine months ended September 30, 2011 was $0.34 per share. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately two years.

 

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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
The following is a summary of stock option activity from January 1, 2011 through September 30, 2011:
                         
    Stock Options  
                    Weighted-  
                    Average  
    Number     Price Per     Exercise Price  
    of Shares     Share     Per Share  
Outstanding at December 31, 2010
    4,787,085     $0.17 – $1.09     $ 0.41  
 
                       
Granted
    2,220,000     0.29 – 0.36       0.34  
Exercised
    (3,333 )   0.17       0.17  
Canceled/forfeited
    (875,417 )   0.17 – 1.09       0.76  
 
                     
Outstanding at September 30, 2011
    6,128,335     $0.17 – $0.71     $ 0.34  
 
                     
The following information applies to options outstanding at September 30, 2011:
                                         
            Weighted-                      
            Average     Weighted-             Weighted-  
Range of   Outstanding at     Remaining     Average     Exercisable at     Average  
Exercise   September 30,     Contractual     Exercise     September 30,     Exercise  
Prices   2011     Life     Price     2011     Price  
$0.01 – 1.00
    6,128,335       5.7     $ 0.34       3,172,990     $ 0.36  
12. Income Taxes
At December 31, 2010, the Company had federal income tax net operating loss carryforwards of approximately $73,000,000, which carryfowards expire at various dates beginning in 2011. 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 first nine months of 2011 as it has recorded a valuation allowance to reduce all deferred tax assets to zero.
13. Preferred Stock
On May 4, 2011, the Company entered into a Preferred Stock Exchange Agreement (the “Exchange Agreement”) with Ardinger, Ardinger Partnership (the “Ardinger Partnership”), Adkins Family Partnership, Ltd. and RDB Limited, p/k/a Baker Family Partnership, Ltd. to convert the outstanding shares of its Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and Series C Convertible Preferred Stock (the “Series C Preferred Stock”) and to restructure Series E Convertible Redeemable Preferred Stock (the “Series E Preferred Stock), and collectively with the Series B Preferred Stock and Series C Preferred Stock, (the “Preferred Stock”). The Exchange Agreement and all related changes to the Preferred Stock (collectively the “preferred stock redemption”) have been accounted for as an extinguishment of Preferred Stock.
As of December 31, 2010 and May 4, 2011, 800,000 shares of Series B Preferred Stock were outstanding at a stated value of $10 per share. Ardinger, a principal stockholder of the Company, held 400,000 shares of Series B Preferred Stock, with the remainder held by other stockholders. The Series B Preferred Stock was convertible into common stock of the Company at a fixed price of $3.625 per share, subject to certain requirements, which was modified under the Exchange Agreement to $0.60 per share of underlying Common Stock and was converted on May 4, 2011 into a total of 13,333,333 shares of Common Stock.
As of December 31, 2010 and May 4, 2011, 200,000 shares of Series C Preferred Stock were outstanding at a stated value of $10 per share held by Ardinger. The Series C Preferred Stock was convertible into common stock of the Company at a fixed price of $0.60 per share, subject to certain requirements, which remained the conversion price under the Exchange Agreement and was converted on May 4, 2011 into a total of 3,333,333 shares of Common Stock.

 

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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
Holders of Series B Preferred Stock and Series C Preferred Stock had no voting rights except on amendments to the Company’s Certificate of Incorporation to change the authorized shares, or par value, or to alter or change the powers or preferences of their respective preferred stock issues. The Series B Preferred Stock and Series C Preferred Stock carried cumulative dividends of 8% and 9% per year, respectively, and were generally payable semi-annually in arrears in cash or common stock of the Company, at the Company’s option. On May 4, 2011, under the Exchange Agreement, when the Series B Preferred Stock and Series C Preferred Stock were converted into Common Stock, any and all dividends, owed or owing on the Preferred Stock, were cancelled.
In December 2006, the Company retired certain debt from the Ardinger Partnership in exchange for certain Company securities, including 80,000 shares of Series E Preferred Stock with each share having a stated value of $100 with voting rights on an “as converted’ basis with the common stock and accrues no dividends. The liquidation preference on the Series E Preferred Stock is the $100 per share stated value multiplied by 107% if the liquidation event occurs after December 11, 2010.
Under the Exchange Agreement, until May 4, 2012 (the “Temporary Conversion Period”), each outstanding share of Series E Preferred Stock shall be convertible, at the option of the holder of such Series E Preferred Stock, into shares of Common Stock at a temporary conversion price of $0.50 per share of underlying Common Stock (the “Temporary Conversion Price”). If at any time during the Temporary Conversion Period, the Company completes, in one transaction or a series of related transactions, the placement(s) of Common Stock for total aggregate net proceeds of at least $7,000,000 (a “Securities Placement”), each outstanding share of Series E Preferred Stock shall automatically convert into the corresponding number of shares of Common Stock at the Temporary Conversion Price. During the Temporary Conversion Period, if any shares of Series E Preferred Stock are converted, all other outstanding shares of Series E Preferred Stock shall also automatically convert at the Temporary Conversion Price. Upon a conversion of the shares of Series E Preferred Stock during the Temporary Conversion Period, either voluntarily or as a result of a Securities Placement, the Company shall issue 16,000,000 shares of Common Stock in exchange for the 80,000 outstanding shares of Series E Preferred Stock.
The Company accounted for the changes made to its Preferred Stock in connection with the exchange agreement as an extinguishment in accordance with FASB’s Codification at ASC 260-10-S99-2. Therefore, in calculating the net income (loss) applicable to common shareholders, the Company has recognized an imputed amount for the extinguishment which represents the carrying amount of securities and other consideration issuable pursuant to the original terms in excess of the fair value of all securities and other consideration transferred in the transaction.
                         
    Carrying amount of     Fair value as of     Change of value as  
Preferred stock redemption   Preferred Stock     May 4, 2011     of May 4, 2011  
Series B — Preferred Stock
    8,000,000       5,066,667       2,933,333  
 
                       
Series C — Preferred Stock
    2,000,000       1,266,667       733,333  
 
                       
Series E — Preferred Stock
    8,000,000       6,080,000       1,920,000  
 
                 
Preferred stock redemption
    18,000,000       12,413,334       5,586,666  
 
                 
The Preferred Stock extinguishment value results in an adjustment to the net loss, which is a reconciling adjustment in calculating the net income (loss) applicable to common shareholders.

 

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ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued
14. Fair Value of Financial Instruments
The Company believes that the carrying amount of its financial instruments, which include cash equivalents, accounts receivable, accounts payable, short-term debt and accrued expenses, approximate fair value due to the short-term maturities of these instruments. The Company also has long-term debt with its primary shareholder.
15. Related Party Transactions
As discussed in Note 9, the Company has an outstanding note payable to the Ardinger Partnership an entity controlled by its largest stockholder, Ardinger.
As discussed in Note 13, Ardinger and the Ardinger Partnership was a party to the Preferred Stock Exchange Agreement.
16. Recent Accounting Pronouncement
In September of 2011, the FASB issued ASU 2011-08, Intangibles—Goodwill and Other. ASU 2011-08 modifies the goodwill impairment test by allowing for an assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, based on this assessment, the entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity may bypass performing the two-step goodwill impairment test. However, if the entity concludes otherwise, it is required to perform Step 1 of the two-step goodwill impairment test. ASU 2011-08 will be effective for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 is not expected to have a material effect on the Company’s consolidated financial statements.

 

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Item 2.  
Management’s 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”), develops industry-leading hardware and software for the capture, management, transformation and delivery of digital media over IP and mobile networks. ViewCast’s 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. ViewCast’s Niagara® streaming appliances, Osprey® video capture cards, and ViewCast Media Platform (VMp®) asset management software suite provide the highly reliable technology required to deliver the multi-platform experiences driving today’s 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 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.
Critical Accounting Policies
Management’s 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 (“GAAP”). 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.
   
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.

 

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Goodwill Arising from the Acquisitions of Business — 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.
Results of Operations
Three and Nine Months Ended September 30, 2011 compared to
Three and Nine Months Ended September 30, 2010.
Net Sales. During the third quarter ended September 30, 2011, net sales decreased $988,489 to $3,558,062 from $4,546,551 in the third quarter 2010, representing a 22% decrease. During the nine months ended September 30, 2011, net sales decreased $844,864 to $11,520,571 from $12,365,435 for the same period in 2010, representing a 7% decrease. The overall sales decrease during the first nine months of 2011 was primarily due to decreases in Osprey and Niagara product sales in the North America and EMEA regions and decreased sales in other revenue, which were partially offset by increased Osprey and Niagara product sales within the PacRim and Latin America regions. ViewCast expects improvement in all regions as new personnel gain traction and as new products are introduced.
Osprey Product Sales. During the third quarter ended September 30, 2011, Osprey sales decreased $599,579 to $2,105,253 from $2,704,832 in the third quarter 2010, representing a 22% decrease from the 2010 levels and 59% of total third quarter 2011 revenue, compared to 60% in 2010. During the nine months ended September 30, 2011, Osprey sales decreased $366,522 to $6,773,383 from $7,139,905 for the same period in 2010, representing a 5% decrease from the 2010 levels and 59% of total revenue, compared to 58% in 2010. The decrease in sales for the nine months ended September 30, 2011 was primarily due to decreases of volume sales to integrators, particularly in the third quarter.
ViewCast Niagara® Streaming/Encoding System Sales. During the third quarter ended September 30, 2011, combined system sales decreased $254,653 to $1,101,104 from $1,355,757 in the third quarter 2010, representing a 19% decrease from the 2010 levels and 31% of total third quarter 2011 revenue, compared to 30% in 2010. During the nine months ended September 30, 2011, combined system sales decreased $149,694 to $3,768,476 from $3,918,170 for the same period in 2010, representing a 4% decrease from the 2010 levels and 33% of total revenue, compared to 32% in 2010. The decrease in sales for the nine months ended September 30, 2011 was primarily due to lower shipments to a large OEM customer during the period which was substantially offset by increases in sales to other customers for the nine months ended September 30, 2011 with all regions contributing to this increase. We are expecting sales improvement through the remainder of 2011 and into next year.
Software Licenses and Other Revenues. During the third quarter ended September 30, 2011, other revenues from software licenses, support and maintenance, professional services and net third-party product revenue decreased $134,257 to $351,705 from $485,962 in the third quarter 2010, representing a 28% decrease from the 2010 levels and 10% of total third quarter 2011 revenue, compared to 11% in 2010. During the nine months ended September 30, 2011, other revenues decreased $328,648 to $978,712 from $1,307,360 for the same period in 2010, representing a 25% decrease from the 2010 levels and 8% of total revenue, compared to 11% in 2010. This decrease was primarily due to decreased revenue from the software products and services. 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.

 

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Cost of Sales/Gross Profit. During the third quarter ended September 30, 2011, cost of sales decreased $356,168 to $1,457,052 from $1,813,220 in the third quarter 2010, representing a 20% decrease from the 2010 levels and 41% of total third quarter 2011 revenue, compared to 40% in 2010. During the third quarter ended September 30, 2011, gross profit decreased $632,321 to $2,101,010 from $2,733,331 in the third quarter 2010, representing a 23% decrease from the 2010 levels and 59% of total third quarter 2011 revenue, compared to 60% in 2010. During the nine months ended September 30, 2011, cost of sales decreased $131,798 to $4,661,477 from $4,793,275 in the same period 2010, representing a 3% decrease from the 2010 levels and 40% of total revenue, compared to 39% in 2010. During the nine months ended September 30, 2011, gross profit decreased $713,066 to $6,859,094 from $7,572,160 in the same period in 2010, representing a 9% decrease from the 2010 levels and 60% of total revenue, compared to 61% in 2010. The gross profit margin decrease was primarily due to a slight shift in sales mix to lower margin products from higher margin products.
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, 2011, selling, general and administrative expenses increased $331,753 to $1,826,596 from $1,494,843 in the third quarter 2010, representing a 22% increase from the 2010 levels. During the nine months ended September 30, 2011, selling, general and administrative expenses increased $681,464 to $5,377,108 from $4,695,644 in the same period 2010, representing a 15% increase from the 2010 levels. The increase is primarily due to an increase in sales headcount and travel expenses to more thoroughly penetrate our global markets and accrued severance to senior management.
Research and Development Expense. During the third quarter ended September 30, 2011, research and development expense, net of capitalized software development, decreased $32,986 to $964,483 from $997,469 in the third quarter 2010, representing a 3% decrease from the 2010 levels. During the nine months ended September 30, 2011, research and development expense, net of capitalized software development, increased $61,132 to $2,891,696 from $2,830,564 in the same period in 2010, representing a 2% increase from the 2010 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, 2011, depreciation and amortization expense decreased $25,775 to $164,127 from $189,902 in the third quarter 2010, representing a 14% decrease from the 2010 levels. During the nine months ended September 30, 2011, depreciation and amortization expense decreased $109,384 to $509,217 from $618,601 in the same period 2010, representing an 18% decrease from the 2010 levels.
Other Income (Expense). During the third quarter ended September 30, 2011, total other expenses increased $18,486 to $61,898 from $43,412 in the third quarter 2010, representing a 43% increase from the 2010 levels. During the nine months ended September 30, 2011, total other expenses increased $46,211 to $166,373 from $120,162 in the same period 2010, representing a 38% increase from the 2010 levels. Interest expense for the third quarter ended September 30, 2011 increased $12,817 to $61,943 from $49,126 in the third quarter 2010, representing a 26% increase from the 2010 levels. Interest expense for the nine months ended September 30, 2011 increased $43,240 to $169,279 from $126,039 in the same period 2010, representing a 34% increase from the 2010 levels. The increase in interest expense is principally due to the increase in the average outstanding balance on the Amegy Bank Credit Facility (see Note 8) and the debt under the credit facility we have in place with Ardinger Partnership (see Note 9). Interest income was nominal for the three and nine months ended September 30, 2011 and 2010 primarily due to lower interest rates and average cash balance during these periods.
Net Income / Loss. During the third quarter ended September 30, 2011, net income decreased $923,799 to a net loss of $916,094 from net income of $7,705 in the third quarter 2010. The net loss per share applicable to the common shareholders for the third quarter of 2011 was ($0.02) per share. For the same period 2010, after decreasing the net income for stated preferred dividends of $205,000, the net loss per share applicable to the common shareholders was ($0.01) per share. During the nine months ended September 30, 2011, after increasing the net loss for stated preferred dividends of $282,444 and decreasing the net loss for preferred stock redemption of $5,586,666 (see Note 13), the net income per share applicable to the common shareholders for the nine months ended 2011 was $0.07 per share. For the same period 2010, after increasing the net loss for stated preferred dividends of $615,000, the net loss per share applicable to the common shareholders was ($0.04) per share.

 

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Liquidity and Capital Resources
ViewCast’s 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 in operating activities for the nine months ended September 30, 2011 was $1,251,240 resulting from a net loss of $2,085,300, plus non-cash operating expenses of $539,163 and cash provided from changes in operating assets and liabilities of $294,897. Cash provided from changes in operating assets and liabilities was primarily due to decreased accounts receivable and pre-paid expenses and increased accrued expenses and deferred revenue, which was partially offset by cash used primarily for increased inventories.
Cash used in investing activities during the nine months ended September 30, 2011 totaled $254,157, consisting of $138,145 of property and equipment purchased and $118,410 of software development costs capitalized, partially offset by $2,398 of proceeds provided from the disposition of property and equipment.
During the nine months ended September 30, 2011, ViewCast’s financing activities provided cash of $278,204, of which $700,000 was provided from borrowings under the stockholder credit facility (see Note 9), supplemented by $3,616 and $567 cash provided from proceeds from the sale of stock and the exercise of employees stock options, respectively. These were partially offset by $356,220 and $69,759 of cash used for net repayments of the line of credit and long-term debt, respectively.
Since October 1998, ViewCast has maintained a credit facility with the Ardinger Partnership an entity controlled by one of its principal stockholders, Ardinger. (See Note 9)
In September 2007, ViewCast entered into a Purchase and Sale Agreement/Security Agreement with Amegy Bank National Association, a national banking association. The borrowing line under this facility currently is $1,000,000, reviewed as growth of business dictates. As of September 30, 2011, ViewCast had an outstanding balance of $685,258 under this facility.
There were no preferred stock dividends declared or paid during the first nine months of 2011. On May 4, 2011, under an Exchange Agreement, the Series B Preferred Stock and Series C Preferred Stock were converted into Common Stock and any and all dividends, owed or owing on the Preferred Stock, were cancelled (see Note 13).
During the first nine months of 2011, ViewCast incurred a net loss of $2,085,300 and used cash in operations of $1,251,240. At September 30, 2011, ViewCast had working capital of $1,733,607 and cash and cash equivalents of $421,283. ViewCast expects to obtain additional working capital by increasing sales, reducing operating expenses, borrowing under its loan facilities and through other initiatives that may include raising additional equity. ViewCast utilizes significant capital to design, develop and commercialize its products and intends to fund its 2011 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 anticipates it 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 its 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 its activities. Such actions could result in charges or losses that could be material to ViewCast’s results of operations or financial position.
At September 30, 2011, ViewCast had no material commitments for capital expenditures.

 

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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 ViewCast’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3.  
Quantitative and Qualitative Disclosure About Market Risk
Not required.

 

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ViewCast.com, Inc. and Subsidiaries
Controls and Procedures
Item 4.  
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 President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2010. Based upon that evaluation, our President and Chief Financial Officer concluded that, as of September 30, 2011, 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 Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the Company’s last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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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
(None)
Item 3.  
Defaults Upon Senior Securities
(None)
Item 4.  
(Removed and Reserved)
Item 5.  
Other Information
(a) (None)
(b) (None)
Item 6.  
Exhibits
See Exhibit Index.

 

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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)
 
 
Date: November 14, 2011  BY:   /s/ John C. Hammock    
      John C. Hammock   
      President and Chief Operating Officer
Principal Executive Officer 
 
     
Date: November 14, 2011      /s/ Laurie L. Latham    
      Laurie L. Latham   
      Chief Financial Officer
Principal Financial and Accounting Officer 
 

 

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EXHIBIT INDEX
         
Exhibit    
Number    
       
 
  31.1    
Rule 13a-14(a)/15d-14(a) President Certification
       
 
  31.2    
Rule 13a-14(a)/15d-14(a) CFO Certification
       
 
  32.1    
Section 1350 President Certification
       
 
  32.2    
Section 1350 CFO Certification
       
 
  101    
Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets at December 31, 2010 and September 30, 2011 (Unaudited), (ii) Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2010 and 2011 (Unaudited), (iii) Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2011 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2011 (Unaudited) and (v) Notes to the Condensed Consolidated Financial Statements. (1)
 
     
(1)  
In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as set forth by specific reference in such filings.

 

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