Attached files
file | filename |
---|---|
EX-32.2 - SECTION 1350 CFO CERTIFICATION - VIEWCAST COM INC | c24456exv32w2.htm |
EX-31.1 - RULE 13A-14(A)/15D-14(A) PRESIDENT CERTIFICATION - VIEWCAST COM INC | c24456exv31w1.htm |
EX-32.1 - SECTION 1350 PRESIDENT CERTIFICATION - VIEWCAST COM INC | c24456exv32w1.htm |
EXCEL - IDEA: XBRL DOCUMENT - VIEWCAST COM INC | Financial_Report.xls |
EX-31.2 - RULE 13A-14(A)/15D-14(A) CFO CERTIFICATION - VIEWCAST COM INC | c24456exv31w2.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, 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
(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)
(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 issuers 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.
TABLE OF CONTENTS
1
Table of Contents
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q (Report) 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, 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.
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, | |||||||
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.
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, | |||||||||||||||
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.
4
Table of Contents
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
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.
5
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.
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, 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®) asset management
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 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 Companys audited
financial statements and notes thereto included in the Companys 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 ViewCasts results of operations or financial position.
2. Accounts Receivable
The Companys accounts receivable are primarily due from resellers and distributors of its
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.
7
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Notes to Condensed Consolidated Financial Statements Continued
Changes in the Companys 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 | |||
8
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
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 | |||||||||
9
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
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 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 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 Companys 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 | ||||
10
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
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 Companys 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.
11
Table of Contents
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, 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.
12
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
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 Companys 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 Companys 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 FASBs 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.
13
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
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, IntangiblesGoodwill 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 Companys consolidated financial statements.
14
Table of Contents
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), 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®) asset
management 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 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
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 (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. |
15
Table of Contents
| 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.
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.
16
Table of Contents
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.
17
Table of Contents
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 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, ViewCasts 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
ViewCasts results of operations or financial position.
At September 30, 2011, ViewCast had no material commitments for capital expenditures.
18
Table of Contents
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.
Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
Not required.
19
Table of Contents
ViewCast.com, Inc. and Subsidiaries
Controls and Procedures
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 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.
20
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 |
(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.
21
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) |
||||
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 |
22
Table of Contents
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. |
23