Table of Contents

 

 

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2012

OR

 

¨	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		75075
(Address of principal executive offices)		(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  x    No  ¨

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 (S232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit and post such files).    Yes  ¨    No   ¨

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		¨		Accelerated filer		¨
Non-accelerated filer		¨		Smaller reporting company		x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of May 9, 2012, there were 62,350,009 outstanding shares of common stock, par value $0.0001 per share.

 

 

 

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TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 2011 and March 31, 2012 (Unaudited)			3
Condensed Consolidated Statements of Operations for the Three Months ended March  31, 2011 and 2012 (Unaudited)			4
Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months ended March  31, 2012 (Unaudited)			5
Condensed Consolidated Statements of Cash Flows for the Three Months ended March  31, 2011 and 2012 (Unaudited)			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosure About Market Risk			21
Item 4. Controls and Procedures			22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			23
Item 1A. Risk Factors			23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 3. Defaults Upon Senior Securities			23
Item 4. Mine Safety Disclosures			23
Item 5. Other Information			23
Item 6. Exhibits			23
SIGNATURES			24
Rule 13a-14(a)/15d-14(a) CEO Certification
Rule 13a-14(a)/15d-14(a) CFO Certification
Section 1350 CEO Certification
Section 1350 CFO Certification

 

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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, 2011, 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,				March 31,
		2011				2012
						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	319,908			$	476,790
Accounts receivable, less allowance for doubtful accounts of $22,292 and $28,135 at December 31, 2011 and March 31, 2012, respectively			1,632,239				1,918,227
Inventories, net			2,708,081				2,539,178
Prepaid expenses			134,799				245,568
Assets held for sale			534,907				—
Total current assets			5,329,934				5,179,763
Property and equipment, net			251,848				249,911
Capitalized software development costs, net			266,713				212,641
Receivable from sale of assets			—				227,531
Intangible assets, net			108,962				106,480
Deposits			84,770				29,906
Total assets		$	6,042,227			$	6,006,232
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Line of credit		$	335,641			$	838,861
Accounts payable			834,185				685,194
Accrued expenses and other current liabilities			1,110,938				1,040,926
Current maturities of long-term debt and stockholder notes payable			171,525				234,641
Liabilities related to assets held for sale			250,837				—
Total current liabilities			2,703,126				2,799,622
Long-term debt, less current maturities			32,152				21,686
Stockholder notes payable, less current maturities			5,541,448				5,477,181
Total liabilities			8,276,726				8,298,489
Stockholders’ deficit:
Preferred stock, $0.0001 par value, authorized 5,000,000 shares:
Series E convertible—issued and outstanding shares—80,000—liquidation value of $107 per share as of December 31, 2011 and March 31, 2012 respectively			8				8
Common stock, $.0001 par value, authorized 200,000,000 shares; issued shares—59,768,846 and 62,611,506 at December 31, 2011 and March 31, 2012, respectively			5,977				6,261
Additional paid-in capital			73,205,369				73,552,433
Accumulated deficit			(75,433,947	)			(75,839,053	)
Treasury stock, 261,497 shares at cost			(11,906	)			(11,906	)
Total stockholders’ deficit			(2,234,499	)			(2,292,257	)
Total liabilities and stockholders’ deficit		$	6,042,227			$	6,006,232

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
		March 31,
		2011				2012
Net revenue		$	3,478,681			$	3,388,809
Cost of revenue			1,318,201				1,305,873
Gross profit			2,160,480				2,082,936
Operating expenses:
Selling, general and administrative			1,628,657				1,383,739
Research and development			815,957				857,846
Depreciation and amortization			132,695				115,992
Total operating expenses			2,577,309				2,357,577
Operating loss			(416,829	)			(274,641	)
Other income (expense):
Interest expense (including $18,241 and $27,907 to related parties)			(43,963	)			(48,895	)
Interest income			417				24
Other			2,403				—
Total other expense, net			(41,143	)			(48,871	)
Loss from continuing operations			(457,972	)			(323,512	)
Net loss from discontinued operations			(332,813	)			(81,594	)
NET LOSS		$	(790,785	)		$	(405,106	)
Preferred stock dividends			(205,000	)			—
Net loss applicable to common stockholders		$	(995,785	)		$	(405,106	)
Net loss per common share (basic and diluted):
Continuing operations		$	(0.02	)		$	(0.01	)
Discontinued operations		$	(0.01	)		$	(0.00	)
Net loss		$	(0.03	)		$	(0.01	)
Weighted average number of common shares outstanding
Basic and Diluted			39,016,318				61,407,011

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’ DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(UNAUDITED)

 

		Series E
		Convertible																Additional												Total
		Preferred Stock								Common Stock								Paid-in				Accumulated				Treasury				Stockholders’
		Shares				Par Value				Shares				Par Value				Capital				Deficit				Stock				Equity (Deficit)
Balances, December 31, 2011			80,000			$	8				59,768,846			$	5,977			$	73,205,369			$	(75,433,947	)		$	(11,906	)		$	(2,234,499	)
Stock based compensation expense			—				—				—				—				27,348				—				—				27,348
Stock and warrants issued in private placement			—				—				2,842,660				284				319,716				—				—				320,000
Net loss			—				—				—				—				—				(405,106	)			—				(405,106	)
Balances, March 31, 2012			80,000			$	8				62,611,506			$	6,261			$	73,552,433			$	(75,839,053	)		$	(11,906	)		$	(2,292,257	)

The accompanying notes are an integral part of this condensed consolidated statement.

 

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VIEWCAST.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		For the three months ended
		March 31,
		2011				2012
Operating activities:
Net loss		$	(790,785	)		$	(405,106	)
Net loss from discontinued operations			(332,813	)			(81,594	)
Net loss from continuing operations			(457,972	)			(323,512	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense			(55,218	)			11,751
Depreciation of property and equipment			71,876				55,359
Amortization of software and intangible assets			100,124				60,633
Stock based compensation expense			38,733				27,348
(Gain) loss on sale of assets			(2,398	)			2,047
Changes in operating assets and liabilities:
Accounts receivable			407,967				(297,738	)
Inventories			(496,571	)			168,903
Prepaid expenses			(44,869	)			(110,769	)
Deposits			(55,101	)			54,864
Assets and liabilities held for sale, net			—				7,466
Accounts payable			252,372				(148,991	)
Accrued expenses and other current liabilities			292,785				(70,012	)
Net cash used in operating activities			(281,085	)			(644,245	)
Investing activities:
Capitalized software development costs and patents			(71,609	)			(4,080	)
Purchase of property and equipment			(65,814	)			(53,422	)
Proceeds from sale of assets			2,398				47,026
Net cash used in investing activities			(135,025	)			(10,476	)
Financing activities:
Proceeds from sale of common stock and warrants			—				320,000
Net proceeds (payment) from (to) line of credit			(616,702	)			503,220
Repayments of long-term debt including $42,845 to related party in 2011			(49,413	)			(11,617	)
Net cash provided by (used in) financing activities			(666,115	)			811,603
Net increase (decrease) in cash and cash equivalents			(1,082,225	)			156,882
Cash and cash equivalents, beginning of period			1,648,476				319,908
Cash and cash equivalents, end of period		$	566,251			$	476,790

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., ViewCast Solutions, Inc. p/k/a 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 and Osprey^® video capture cards 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 computer system integrators.

These consolidated interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included for the three month period ended March 31, 2012. The condensed consolidated balance sheet of the Company as of December 31, 2011 has been derived from the audited consolidated balance sheet as of that date. The results for the three month period ended March 31, 2012 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 there to, for the year ended December 31, 2011.

During the first quarter of 2012, ViewCast incurred a net loss of $405,106 and additional net cash used in operations of $239,139. At March 31, 2012, the Company had working capital of $2,380,141 and cash and cash equivalents of $476,790. 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 2012 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 months ended March 31, 2011 and 2012 are as follows:

 

		For the three months ended
		March 31,
		2011				2012
		(Unaudited)				(Unaudited)
Beginning balance		$	67,436			$	22,292
Bad debt expense (recoveries)			(46,218	)			11,751
Uncollectible accounts written off			—				(5,908	)
Ending balance		$	21,218			$	28,135

3. Inventories

Inventories consisted of the following:

 

		December 31,				March 31,
		2011				2012
						(Unaudited)
Purchased materials		$	1,369,041			$	1,756,405
Finished goods			1,596,877				1,040,610
Reserve			(257,837	)			(257,837	)
		$	2,708,081			$	2,539,178

4. Sale of Ancept Assets and Contingent Consideration

On January 15, 2012, ViewCast completed the sale of certain assets from Ancept Corporation (the “Ancept Assets”) related to the development and licensing of the VMp software products that provide the management of the life cycle phases of digital media pursuant to the terms of the Asset Purchase Agreement dated January 13, 2012, by and between ViewCast, Ancept Corporation, Genus Technologies LLC and its subsidiary. ViewCast’s wholly-owned subsidiary, Ancept Corporation, was renamed ViewCast Solutions, Inc. (“VSI”) and no longer operates this business. The Ancept Assets are classified as held for sale at December 31, 2011, and the assets and liabilities are included in the respective current assets and liabilities sections of the Consolidated Balance Sheet.

Upon the terms and subject to the conditions of the Purchase Agreement, the buyer has agreed to pay an earn-out payment as follows: until the earlier of paying VSI $650,000 or January 15, 2017 (the “Earn-Out Period”), the buyer shall pay VSI on a quarterly basis a percentage of the net license fees, subscription fees and similar revenues paid or payable to the buyer or otherwise earned by buyer with respect to the software sold from Ancept to the buyer (“Net Software License Revenue”). The buyer agreed to pay VSI (i) 20% of the Software License Revenue from sales opportunities in the pipeline on January 15, 2012 and from post-closing referrals from ViewCast plus (ii) 10% of Net Software License Revenue, up to a maximum of $400,000, generated from buyer’s customers not derived from ViewCast. Prior to January 15, 2014, the buyer may terminate the earn-out payment obligations by paying VSI $400,000 which amount shall not be reduced by any prior earn-out payments. On or after January 15, 2014 until the end of the Earn-Out Period, Buyer may terminate the earn-out payment obligations by paying Ancept $650,000 less any prior earn-out payments. The buyer also assumed specified liabilities related to the Ancept Assets and paid 47,026 in cash to VSI.

Proceeds from the sale totaled $592,976 comprised of the following: cash of $47,026, receivable for future earn out consideration of $227,531, and liabilities assumed by the buyer of $318,419. The carrying value of the reporting unit approximated the proceeds received on the date of the transaction; as a result, a loss of $2,047 was recorded on the sale. Management recorded the contingent earn out consideration at estimated fair value determined using discounted estimated future cash flows. Subsequent to the sale, proceeds received under the arrangement will be applied to the carrying value of the asset.

 

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ViewCast.com, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — Continued

 

The following table provides a detail of the net assets held for sale as of December 31, 2011:

 

		December 31,
		2011
Assets:
Accounts receivable		$	67,086
Prepaid expenses			4,381
Property and equipment, net			17,415
Deposit			3,250
Capitalized software development cost, net			442,775
Total assets			534,907
Liabilities related to assets held for sale			250,837
Net assets held for sale		$	284,070

The net loss from discontinued operations related to the Ancept for the three months ended March 31, 2011 and 2012 are as follows:

 

		For the Three Months ended March 31,
		2011				2012
		(Unaudited)				(Unaudited)
Net revenue		$	230,638			$	22,255
Cost of revenue			230,670				39,057
Gross profit			(32	)			(16,802	)
Operating expenses			332,781				62,745
Loss on sale of assets			—				2,047
Net loss from discontinued opertaions		$	(332,813	)		$	(81,594	)

5. Intangible Assets

Intangible assets consisted of the following:

 

				December 31, 2011								March 31, 2012
												(Unaudited)
		Average life		Gross carrying				Accumulated				Gross carrying				Accumulated
		(years)		amount				amortization				amount				amortization
Non-compete agreements		3		$	24,000			$	22,387			$	24,000			$	22,721
Patents		3 - 7			145,897				38,548				145,898				40,697
				$	193,897			$	83,322			$	169,898			$	63,418

 

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ViewCast.com, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — Continued

 

Future amortization expense associated with these intangible assets is as follow:

 

Nine months ending December 31, 2012		$	7,716
Year ending December 31, 2013			8,583
Year ending December 31, 2014			8,583
Year ending December 31, 2015			8,583
Year ending December 31, 2016			8,583
Thereafter			64,432
		$	106,480

6. Accrued Expenses

Accrued expenses consisted of the following:

 

		December 31,				March 31,
		2011				2012
						(Unaudited)
Accrued stockholder interest		$	27,906			$	55,813
Accrued compensation			310,500				324,118
Accrued warranty			135,708				142,396
Accrued inventory purchases			59,577				44,936
Customer deposits			135,597				126,994
Deferred rent			25,341				33,152
Deferred revenue			260,638				224,458
Accrued taxes and other			155,671				89,059
		$	1,110,938			$	1,040,926

7. Warranty Reserves

Reserves are provided for the estimated warranty costs when revenue is recognized. The costs of warranty obligations are estimated based on warranty policy or applicable contractual warranty, historical experience of known product failure rates and use of materials and service delivery charges incurred in correcting product failures. Specific warranty accruals may be made if unforeseen technical problems arise. If actual experience, relative to these factors, significantly differs from these estimates, additional warranty expense may be required.

The following table shows the changes in accrued warranty expense for the three months ended March 31, 2011 and 2012:

 

		For the three months ended
		March 31,
		2011				2012
		(Unaudited)				(Unaudited)
Beginning balance		$	155,918			$	135,708
Additions			87,085				27,763
Usage			(13,370	)			(21,075	)
Ending balance		$	229,633			$	142,396

 

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ViewCast.com, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements — Continued

 

8. Property and Equipment

Property and equipment, at cost, consisted of the following:

 

		Estimated
		Useful Life		December 31,				March 31,
		(Years)		2011				2012
								(Unaudited)
Computer equipment		2 to 7		$	568,898			$	568,898
Software		3 to 5			104,500				104,500
Leasehold improvements		1 to 5			174,429				174,429
Office furniture and equipment		5 to 7			1,405,560				1,458,982
					2,253,387				2,306,809
Less accumulated depreciation and amortization					(2,001,539	)			(2,056,898	)
				$	251,848			$	249,911

9. Line of Credit

On June 29, 2007, the Company entered into a Purchase and Sale Agreement/Security Agreement (the “Agreement”) with Amegy Bank National Association (“Amegy”), a national banking association. The Agreement provides the Company with an accounts receivable loan facility to provide a source of working capital with advances generally limited to 85% of submitted accounts receivable. Upon collection of an account receivable, the remaining fifteen percent is rebated to the Company less the 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 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 $335,641 and $838,861 outstanding as of December 31, 2011 and March 31, 2012, respectively, under this facility. There is no expiration date to the agreement.

10. Long-Term Debt

Since October 1998, the Company has maintained a credit facility with an entity controlled by one of its principal stockholders, Mr. H.T. Ardinger. 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 Family Partnership, Ltd. on December 30, 2011, to be effective as of October 1, 2011. Under the amended terms any amounts outstanding of the primary principal amount and secondary principal amount mature December 31, 2014, subject to certain earlier payment conditions. The interest on the primary principal amount will accrue based on an interest rate per annum which is the greater of 5.0% or the effective prime rate plus 0.75% (5.00% as of December 31, 2011 and March 31, 2012, respectively). Interest on the secondary principal shall accrue based on the effective Applicable Federal Rate, as defined in the agreement, (1.27% and 0.19%) as of December 31, 2011 and March 31, 2012, respectively). The amendment defers the payment of the accrued interest on the unpaid primary and secondary principal amounts from October 1, 2011 through March 31, 2012. Beginning April 30, 2012, payment of such accrued interest will be paid in three approximately equal monthly payments. The amended terms call for interest accruing after March 31, 2012 to be paid monthly; and beginning July 31, 2012, minimum monthly principal payments of $21,422, in addition to the monthly interest payments. Accrued interest was $27,906 and $55,813 at December 31, 2011 and March 31, 2012, respectively. The amended note agreement is secured by all the assets of the Borrower.

 

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Notes to Condensed Consolidated Financial Statements — Continued

 

The Company’s long-term debt consisted of:

 

		December 31, 2011				March 31, 2012
						(Unaudited)
Outstanding Primary Principal Amount		$	1,078,621			$	1,078,621
Outstanding Secondary Principal Amount			4,591,361				4,591,361
Other debt			75,143				63,526
Total long-term debt			5,745,125				5,733,508
Less current maturities			(171,525	)			(234,641	)
Total long-term debt less current maturities		$	5,573,600			$	5,498,867

Other debt consists of capital leases for equipment.

11. Earnings Per Share Data

Basic earnings per share 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 warrants is based on the average market price during the period. The average market price of the common stock was $0.1847 during the three months ended March 31, 2012. For periods presented, the computation of diluted loss per share excludes the portion of convertible preferred stock, options and warrants that are anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share:

 

		Three Months Ended March 31,
		2011				2012
		(Unaudited)				(Unaudited)
Loss from continuing operations		$	(457,972	)		$	(323,512	)
Preferred stock dividends			(205,000	)			—
Net loss from continuing operations applicable to common stockholders		$	(662,972	)		$	(323,512	)
Net loss from discontinued operations			(332,813	)			(81,594	)
Net loss applicable to common stockholders—numerator for basic and diluted loss per share		$	(995,785	)		$	(405,106	)
Weighted—average common shares and dilutive potential common shares outstanding—denominator for dilluted earning per share			39,016,318				61,407,011
Net loss per common share (basic and diluted):
Continuing operations		$	(0.02	)		$	(0.01	)
Discontinued operations		$	(0.01	)		$	(0.00	)
Net loss		$	(0.03	)		$	(0.01	)

 

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Notes to Condensed Consolidated Financial Statements — Continued

 

Anti-dilutive securities excluded from diluted earnings per share:
Stock options			4,493,085				4,443,335
Private warrants			—				5,196,738
Convertible preferred stock—Series B			2,206,896				—
Convertible preferred stock—Series C			3,333,333				—
Convertible preferred stock—Series E			13,333,333				16,000,000

12. 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, 2011, as amended by Amendment No. 1 thereto.

Stock-based compensation expense was $38,733 and $27,348 for the three months ended March 31, 2011 and March 31, 2012, respectively. There were 100,000 new options granted by the Company during the three months ended March 31, 2012. 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 March 31, 2012, the balance of unearned stock-based compensation to be expensed in future periods related to unvested share-based awards, as adjusted for expected forfeitures, was approximately $233,000. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately two years.

The following table is a summary of stock option activity from January 1, 2012 through March 31, 2012:

 

		Stock Options
										Weighted-
										Average
		Number				Exercise Price				Exercise Price
		of Shares				Per Share				Per Share
Outstanding at December 31, 2011			4,423,335			$	0.13 - $0.62			$	0.31
Granted			100,000				0.21				0.21
Canceled/forfeited			(60,000	)			0.29 - 0.33				0.29
Outstanding at March 31, 2012			4,463,335			$	0.13 - $0.62			$	0.31

The following information applies to options outstanding at March 31, 2012:

 

						Weighted-
						Average				Weighted-								Weighted-
Range of		Outstanding at				Remaining				Average				Exercisable at				Average
Exercise		March 31,				Contractual				Exercise				March 31,				Exercise
Prices		2012				Life				Price				2012				Price
$0.01 - 0.19			820,000				5.6			$	0.16				462,917			$	0.16
0.20 - 0.29			1,286,835				4.8			$	0.26				789,335			$	0.26
0.30 - 0.39			1,452,500				5.1			$	0.35				912,986			$	0.34
0.40-0.49			894,000				2.2			$	0.47				894,000			$	0.47
0.60-0.69			10,000				1.5			$	0.62				10,000			$	0.62
			4,463,335				4.6			$	0.31				3,069,238			$	0.33

 

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Notes to Condensed Consolidated Financial Statements — Continued

 

13. Income Taxes

At December 31, 2011 the Company has federal income tax net operating loss carryforwards of approximately $64,000,000, which expire at various dates beginning in 2017. 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 quarter of 2012 as it has recorded a valuation allowance to reduce all deferred tax assets to zero.

14. Stockholders’ Equity

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 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 (“Common Stock”) 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 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 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.

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, 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.

 

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Notes to Condensed Consolidated Financial Statements — Continued

 

Common Stock

In January 2012, the Company received net proceeds of $320,000 from private placement units subscribed for on December 27, 2011 of 2,842,660 shares of Common Stock and warrants to purchase 2,842,660 shares of Common Stock. The purchase price per share of a private placement unit was $0.1125707, which was the weighted average closing price for the five trading days immediately prior to December 27, 2011. The warrants have an exercise price of $0.1238278 per share of Common Stock with an expiration date of December 31, 2014.

Warrants

At December 31, 2011 and March 31, 2012, the Company had outstanding warrants to purchase 3,775,408 and 6,618,068 shares of Common Stock, respectively, with an exercise price of $0.1238278 per share of Common Stock and expiration date of December 31, 2014.

15. 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.

16. Related Party Transactions

As discussed in Note 10, the Company has an outstanding note payable to the Ardinger Family Partnership, Ltd., an entity controlled by its largest stockholder, Mr. H.T. Ardinger, Jr.

On December 27, 2011, ViewCast entered into the Subscription Agreements with the Investors for the purchase of private placement units consisting of an aggregate 6,618,068 shares of Common Stock and Warrants to purchase 6,618,068 shares of Common Stock for an aggregate purchase price of $745,000, of which $425,000 was received in December 2011 and the remaining $320,000 was received in January 2012. The purchase price per private placement unit was $0.1125707, which was the weighted average closing price for the five trading days immediately prior to December 27, 2011. Pursuant to the Subscription Agreements, the Warrants are exercisable into shares of Common Stock at an exercise price of $0.1238 per share of Common Stock which was 110% of the weighted average closing price for the five trading days immediately prior to December 27, 2011. The Warrants will expire on December 31, 2014.

The following Investors have a relationship to the Company and subscribed for the following number of shares of Common Stock and Warrants exercisable into the same number of shares of Common Stock:

David W. Brandenburg RIRA – 888,331 shares

Diana L. Brandenburg RIRA – 888,331 shares

John C. Hammock – 888,331 shares

Laurie L. Latham – 888,331 shares

Lance E. Ouellette – 888,331 shares

Christina K. Hanger – 222,083 shares

George C. Platt – 177,667 shares

Messrs. Brandenburg, Hammock, Ouellette and Platt and Ms. Hanger are directors of the Company, Mr. Hammock is the President and Chief Executive Officer of the Company and Ms. Latham is the Chief Financial Officer and Senior Vice President of Finance and Administration of the Company. They acquired the shares of Common Stock on the same terms as the other five Investors. Mr. Ouellette is the stepson of H.T. Ardinger, Jr., a principal stockholder of the Company. There are no additional material relationships between the Company and the Investors aside from entering into the Subscription Agreements. Each of the Investors was an “accredited investor” at the time of their investment as defined under Rule 501 promulgated pursuant to the Securities Act of 1933, as amended (the “Securities Act”), and the shares of Common Stock and the Warrants were issued pursuant to Rule 506 promulgated pursuant to the Securities Act.

 

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Notes to Condensed Consolidated Financial Statements — Continued

 

17. Current Economic Conditions

The current protracted economic decline continues to present companies with difficult circumstances and challenges, which in some cases have resulted in large and unanticipated declines in the fair value of certain assets, declines in the volume of business, constraints on liquidity and difficulty obtaining financing. The financial statements have been prepared using values and information currently available to the Company.

Current economic and financial market conditions could adversely affect the Company’s results of operations in future periods. The current instability in the financial markets may make it difficult for certain of the Company’s customers to obtain financing, which may significantly impact the volume of future sales which could have an adverse impact on the Company’s future operating results.

In addition, given the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in allowances for accounts receivable, inventory and valuation of intangibles.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 and Osprey^® video capture cards 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 computer system integrators. ViewCast is focused on growth by leveraging digital media market expansion and our product solutions to capitalize on sales opportunities. We believe that emphasis on revenue and market share growth will enable us to realize long-term profitability and stockholder value.

On January 15, 2012, ViewCast completed the sale of the Ancept Assets related to the development and licensing of VMp software products that provide management of the life cycle phases of digital media pursuant to the terms of the Asset Purchase Agreement dated January 13, 2012, by and between ViewCast, Ancept Corporation and Genus Technologies LLC and its subsidiary. ViewCast’s wholly-owned subsidiary, Ancept Corporation, was renamed ViewCast Solutions, Inc. and no longer operates this business.

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. We evaluate our estimates on an on-going basis, 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.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

 

•

Excess and Obsolete Inventories—We record allowance 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.

 

•

Reporting for Discontinued Operations / Assets Held for Sale—In accordance with FASB ASC 205-20, “Presentation of Financial Statements—Discontinued Operations”, assets held for sale are reported separately on the Balance Sheet by class of asset and/or liability, not as a single net amount, and these new line items are reclassified on the face financial statements (Balance Sheet) for the prior year(s). The net income or loss from the operations of the assets held for sale are reported separately on the Income Statement, located below Income from Continuing Operations and above any Extraordinary Items; and similar to the Balance Sheet presentation, the prior year(s) are also reclassified. Additionally, where any of these items affect the Statement of Cash Flow and/or Shareholders’ Equity, those items will be a new line item on the face of those financial statements and they will also be reclassified for prior year(s).

Results of Operations

Three Months Ended March 31, 2012 compared to

Three Months Ended March 31, 2011.

Net Sales. During the three months ended March 31, 2012, net sales decreased $89,872 to $3,388,809 from $3,478,681 in the first quarter 2011, representing a 3% decrease. The decrease was principally due to lower Niagara^® system revenue compared to the prior period in the Europe, Middle East and Africa (“EMEA”) region. For the 2012 year, we expect annual sales growth over 2011 subject to the volatile economic conditions, especially in the EMEA region.

Osprey Product Sales. During the three months ended March 31, 2012, Osprey sales decreased $5,017 to $2,006,416 from $2,011,433 in the first quarter 2011, representing a less than 1% decrease from the 2011 levels and 59.2% of total first quarter 2012 revenues, compared to 57.8% in 2011. Osprey sales were lower principally from a decrease in the EMEA region, and were partially offset by improvements in the North American and Latin American regions.

ViewCast Niagara^® Streaming/Encoding System Sales. During the three months ended March 31, 2012, combined system sales decreased $101,520 to $1,318,964 from $1,420,484 in the first quarter 2011, representing a 7% decrease from the 2011 levels and 38.9% of total first quarter 2012 revenue, compared to 40.8% in 2011. This decrease in sales was primarily due to a decline in the EMEA sales region.

Other Revenues. During the three months ended March 31, 2012, other revenues increased $16,665 to $63,429 from $46,764 in the first quarter 2011, representing a 36% increase from the 2011 levels and 1.9% of total first quarter 2012 revenue, compared to 1.3% in 2011. This increase was primarily due to a $20,249 increase in revenues from product maintenance and support revenue.

Cost of Sales/Gross Profit. During the three months ended March 31, 2012, cost of sales decreased $12,328 to $1,305,873 from $1,318,201 in the first quarter 2011, representing an 1% decrease from the 2011 levels and 38.5% of total first quarter 2012 revenue, compared to 37.9% in 2011. Gross profit decreased $77,544 to $2,082,936 from $2,160,480 in the first quarter 2011, representing a 4% decrease from the 2011 levels and 61.5% of total first quarter 2012 revenue, compared to 62.1% in 2011. The decrease in gross profit margin was primarily due to a higher percentage of sales derived from the lower margin OEM system products versus the higher margin Osprey products.

We expect 2012 gross profit margins to remain comparable to historical margins in the 55%-68% range. Margins will be affected quarter to quarter by promotional activities, price adjustments, cost of materials, inventory obsolescence, new products, and the sales mix between capture cards, systems and services in any one reporting period.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

 

Selling, General and Administrative Expenses. During the three months ended March 31, 2012, selling, general and administrative expenses decreased $244,918 to $1,383,739 from $1,628,657 in the first quarter 2011, representing a 15% decrease from the 2011 levels and 40.8% of total first quarter 2012 revenue, compared to 46.8% in 2011. The decrease is primarily due to lower sales and marketing expenses partially offset by increased legal expenses related to the sale of the Ancept assets.

Research and Development Expense. During the three months ended March 31, 2012, research and development expense, net of capitalized software development, increased $41,889 to $857,846 from $815,957 in the first quarter 2011, representing a 5% increase from the 2011 levels and 25.3% of total first quarter 2012 revenue, compared to 23.5% in 2011. 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 three months ended March 31, 2012, depreciation and amortization expense decreased $16,703 to $115,992 from $132,695 in the first quarter 2011, representing a 13% decrease from the 2011 levels. The decrease was primarily due to lower capital expenditures in recent prior periods.

Other Income (Expense). During the three months ended March 31, 2012, total other expenses increased $7,728 to $48,871 from $41,143 in the first quarter 2011, representing a 19% increase from the 2011 levels. Interest expense for the three months ended March 31, 2012 increased $4,932 to $48,895 from $43,963 in the first quarter 2011, representing an 11% increase from the 2011 levels. The increase in interest expense is principally due to the increase in the average balance of our debt under the line of credit facility with Amegy Bank and under the stockholder notes payable. Interest income for the three months ended March 31, 2012 was nominal.

Net Income (Loss) from Continuing Operations. During the three months ended March 31, 2012, the net loss from continuing operations decreased $134,460 to a net loss of $323,512 from a net loss of $457,972 in the first quarter 2011. The decrease in net loss was mainly due to decreased operating expenses.

Net Loss from Discontinued Operations. During the partial three months ended March 31, 2012, the net loss from discontinued operations decreased $251,219 to a net loss of $81,594 from a net loss of $323,813 in the first quarter 2011 (see Note 3 to the Financial Statements). The Ancept Assets were sold effective January 15, 2012.

Net Loss. During the three months ended March 31, 2012, net loss decreased $358,679 to a net loss of $405,106 compared to a net loss of $790,785 in the first quarter 2011. The net loss per share applicable to the common shareholders for the first quarter of 2012 was ($0.01) per share. For the same period 2011, after increasing net loss for stated preferred dividends of $205,000, the net loss per share applicable to common shareholders was ($0.03) per share. The decrease Net Loss is primarily due to lower operating expenses from ongoing operations and the sale of discontinued operations and its related net losses.

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 three months ended March 31, 2012 was $644,245 resulting from a net loss from continuing operations of $323,512, plus the net loss from the discontinued operations of $81,594, and net cash used by changes in operating assets and liabilities of $396,277, which was partially offset by non-cash operating expense of $157,138. Cash used from changes in operating assets and liabilities was due to increased accounts receivable and prepaid expenses, and decreased account payable and accrued expenses and other current liabilities, which was partially offset by cash provided from decreased inventory, deposits, and net assets held for sale.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

 

Cash used in investing activities during the three months ended March 31, 2012 totaled $10,476, consisting of cash from $47,026 of proceeds from the sale of assets, offset by cash used for $53,422 of property and equipment purchased and $4,080 of capitalized software development costs.

During the three months ended March 31, 2012, ViewCast’s financing activities provided cash of $811,603, of which $503,220 was from net proceeds from line of credit and $320,000 was from proceeds from the sale of common stock and warrants, which was partially offset by $11,617 cash used for repayment of long-term debt.

Since October 1998, the Company has maintained a credit facility with an entity controlled by one of its principal stockholders, Mr. H.T. Ardinger. 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 Family Partnership, Ltd. on December 30, 2011, to be effective as of October 1, 2011. Under the amended terms any amounts outstanding of the primary principal amount and secondary principal amount mature December 31, 2014, subject to certain earlier payment conditions. The interest on the primary principal amount will accrue based on an interest rate per annum which is the greater of 5.0% or the effective prime rate plus 0.75% (5.00% as of December 31, 2011 and March 31, 2012, respectively). Interest on the secondary principal shall accrue based on the effective Applicable Federal Rate, as defined in the agreement, (1.27% and 0.19%) as of December 31, 2011 and March 31, 2012, respectively). The amendment defers the payment of the accrued interest on the unpaid primary and secondary principal amounts from October 1, 2011 through March 31, 2012. Beginning April 30, 2012, payment of such accrued interest will be paid in three approximately equal monthly payments. The amended terms call for interest accruing after March 31, 2012 to be paid monthly; and beginning July 31, 2012, minimum monthly principal payments of $21,422, in addition to the monthly interest payments. The amended note agreement is secured by all the assets of the Borrower.

In June 2007, ViewCast entered into a Purchase and Sale Agreement/Security Agreement with Amegy Bank National Association, a national banking association. The borrowing line under this facility is $1,000,000, reviewed as growth of business dictates. As of March 31, 2012, we have an outstanding balance of $838,861 under this facility.

There were no preferred stock dividends declared or paid during the first three months of 2012. 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 and 15 to the financial statements.

During the first quarter of 2012, ViewCast incurred a net loss of $405,106 and additional net cash used in operations of $239,139. At March 31, 2012, ViewCast had working capital of $2,380,141 and cash and cash equivalents of $476,790. ViewCast expects to obtain additional working capital by increasing sales, maintaining reduced operating expenses, borrowing under its loan facilities and through other initiatives that may include raising additional equity. ViewCast utilizes significant capital to design, develop and commercialize its products and intends to fund its 2012 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 that could be material to ViewCast’s results of operations or financial position.

At March 31, 2012, ViewCast had no material commitments for capital expenditures.

 

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ViewCast.com, Inc. and Subsidiaries

Management’s Discussion and Analysis of Financial Condition and Results of Operations — Continued

 

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 Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2011. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2012, 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. Mine Safety Disclosures

(Not Applicable)

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)
		BY:
Date: May 15, 2012		/s/    John C. Hammock
		John C. Hammock
		Chief Executive Officer
		Principal Executive Officer
Date: May 15, 2012		/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) CEO Certification
31.2		Rule 13a-14(a)/15d-14(a) CFO Certification
32.1		Section 1350 CEO 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, 2011 and March 31, 2012 (Unaudited), (ii) Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2012 (Unaudited), (iii) Condensed Consolidated Statement of Stockholders’ Deficit for the Three Months Ended March 31, 2012 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2012 (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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