United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended: March 31, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission file number: 000-29020
ViewCast.com, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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75-2528700
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(
State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3701 W. Plano Parkway, Suite 300, Plano, TX
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75075
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(Address of principal executive offices)
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(Zip Code)
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(972) 488-7200
(Registrants telephone number including area code)
N/A
(Former name, former address and former fiscal year, if changed from last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (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
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
þ
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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 April 30, 2010, there were 36,047,551 outstanding shares of common stock, par value $0.0001
per share.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Quarterly Report on Form 10-Q under Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this Report constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements include statements regarding ViewCasts expectations, beliefs,
hopes, intentions or strategies regarding the future. These statements involve known and unknown
risks, uncertainties, and other factors that may cause ViewCast or our industrys actual results,
levels of activity, performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to, product demand and market acceptance
risks, the impact of competitive products and pricing, product development, commercialization and
technological difficulties, capacity and supply constraints or difficulties, general business and
economic conditions, the availability of sufficient working capital, the ability to service our
debt, continued losses, the ability to successfully integrate acquired operations, the effect of
our accounting policies and other risks detailed in our Annual Report on Form 10-K for the year
ended December 31, 2009, as amended by Amendment No. 1 thereto, and other filings with the
Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by terminology such as may,
will, expects, should, anticipates, believes, estimates, predicts, plans,
potential, intends or continue or the negative of such terms or other comparable terminology.
Although we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot assure you of future results, levels of activity, performance, or
achievements. We are under no duty, nor do we undertake any obligation, to update any of the
forward-looking statements after the date of this report to conform such statements to actual
results.
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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December 31,
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March 31,
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2009
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2010
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(Unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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368,151
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$
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522,275
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Accounts receivable, less allowance for doubtful accounts of
$69,767 and $81,417 at December 31, 2009 and March 31, 2010, respectively
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1,208,929
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1,852,870
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Inventories, net
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2,283,348
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2,128,611
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Prepaid expenses
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208,804
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385,868
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Total current assets
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4,069,232
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4,889,624
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Property and equipment, net
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575,032
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493,985
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Goodwill
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620,002
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620,002
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Intangible assets, net
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1,535,135
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1,442,127
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Deposits
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48,433
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32,637
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Total assets
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$
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6,847,834
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$
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7,478,375
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LIABILITIES AND STOCKHOLDERS DEFICIT
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Current liabilities:
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Accounts payable
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$
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730,395
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$
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849,227
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Accrued expenses
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1,033,167
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1,180,684
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Line of credit
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92,321
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711,983
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Current maturities of long-term debt and stockholder notes payable
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157,133
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222,841
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Total current liabilities
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2,013,016
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2,964,735
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Long-term debt, less current maturities
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46,698
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37,636
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Stockholder notes payable, less current maturities
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5,012,827
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4,948,560
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Total liabilities
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7,072,541
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7,950,931
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Commitments and contingencies
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Stockholders deficit:
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Preferred stock, $0.0001 par value, authorized 5,000,000 shares:
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Series B convertible issued and outstanding shares 800,000
liquidation value
of $16 and $17 per share as of December 31, 2009 and March 31, 2010,
respectively
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80
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80
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Series C convertible issued and outstanding shares 200,000
liquidation value
of $32 and $33 per share as of December 31, 2009 and March 31, 2010,
respectively
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20
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20
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Series E convertible issued and outstanding shares 80,000
liquidation value
of $105 per share as of December 31, 2009 and March 31, 2010
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8
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8
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Common stock, $.0001 par value, authorized 100,000,000 shares:
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Issued shares 36,126,306 and 36,273,365 at December 31, 2009
and March 31, 2010, respectively
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3,613
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3,627
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Additional paid-in capital
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71,705,762
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71,768,532
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Accumulated deficit
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(71,922,284
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)
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(72,232,917
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)
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Treasury stock, 261,497 shares at cost
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(11,906
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)
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(11,906
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)
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Total stockholders deficit
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(224,707
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)
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(472,556
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Total liabilities and stockholders deficit
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$
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6,847,834
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$
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7,478,375
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The accompanying notes are an integral part of these condensed consolidated statements.
3
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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For the three months ended
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March 31,
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2009
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2010
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Net sales
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$
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4,217,035
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$
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3,678,343
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Cost of sales
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1,578,037
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1,309,705
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Gross profit
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2,638,998
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2,368,638
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Operating expenses:
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Selling, general and administrative
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2,246,115
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1,444,778
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Research and development
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736,043
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977,584
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Depreciation and amortization
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157,668
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229,634
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Total operating expenses
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3,139,826
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2,651,996
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Operating loss
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(500,828
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)
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(283,358
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)
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Other income (expense):
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Interest expense (including $33,465 and $
21,501
of expense to related parties)
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(35,643
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)
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(27,371
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)
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Interest income
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1,134
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96
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Total other expense, net
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(34,509
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)
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(27,275
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)
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Income tax expense
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NET LOSS
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$
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(535,337
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)
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$
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(310,633
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)
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Net loss applicable to common stockholders
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Preferred stock dividends
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(205,000
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)
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(205,000
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)
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$
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(740,337
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)
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$
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(515,633
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)
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Net loss per share
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Basic and Diluted
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$
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(0.02
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)
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$
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(0.01
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)
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Weighted average number of common shares
outstanding
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Basic and Diluted
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33,136,652
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35,992,260
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The accompanying notes are an integral part of these condensed consolidated statements.
4
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2010
(UNAUDITED)
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Series B
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Series C
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Series E
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Convertible
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Convertible
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Convertible
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Additional
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Total
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Preferred Stock
|
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Preferred Stock
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Preferred Stock
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Common Stock
|
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Paid-in
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Accumulated
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Treasury
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Stockholders
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Shares
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Par Value
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Shares
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Par Value
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Shares
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Par Value
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Shares
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Par Value
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Capital
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Deficit
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Stock
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Deficit
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Balances, December 31, 2009
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800,000
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$
|
80
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200,000
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$
|
20
|
|
|
|
80,000
|
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|
$
|
8
|
|
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|
36,126,306
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|
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$
|
3,613
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|
$
|
71,705,762
|
|
|
$
|
(71,922,284
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)
|
|
$
|
(11,906
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)
|
|
$
|
(224,707
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)
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
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|
|
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|
|
|
|
|
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Stock based compensation expense
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|
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|
|
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|
|
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|
37,784
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|
|
|
|
|
|
|
|
|
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|
37,784
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|
|
|
|
|
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|
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|
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|
|
|
|
|
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|
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|
|
|
|
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|
|
|
|
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Stock issuance for services
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147,059
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|
|
|
14
|
|
|
|
24,986
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|
|
|
|
|
|
|
|
|
|
|
25,000
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(310,633
|
)
|
|
|
|
|
|
|
(310,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balances, March 31, 2010
|
|
|
800,000
|
|
|
$
|
80
|
|
|
|
200,000
|
|
|
$
|
20
|
|
|
|
80,000
|
|
|
$
|
8
|
|
|
|
36,273,365
|
|
|
$
|
3,627
|
|
|
$
|
71,768,532
|
|
|
$
|
(72,232,917
|
)
|
|
$
|
(11,906
|
)
|
|
$
|
(472,556
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of this condensed consolidated statement.
5
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(535,337
|
)
|
|
$
|
(310,633
|
)
|
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
21,644
|
|
|
|
11,650
|
|
Depreciation of property and equipment
|
|
|
104,851
|
|
|
|
115,981
|
|
Amortization of intangible assets
|
|
|
52,817
|
|
|
|
113,653
|
|
Stock based compensation expense
|
|
|
36,452
|
|
|
|
37,784
|
|
Stock issued for services
|
|
|
|
|
|
|
25,000
|
|
Changes in operating assets and liabilities: (net of
effect of acquisition)
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,221,120
|
|
|
|
(655,591
|
)
|
Inventories
|
|
|
(97,809
|
)
|
|
|
154,737
|
|
Prepaid expenses
|
|
|
(114,666
|
)
|
|
|
(177,064
|
)
|
Deposits
|
|
|
48
|
|
|
|
15,796
|
|
Accounts payable
|
|
|
(318,433
|
)
|
|
|
118,832
|
|
Accrued expenses
|
|
|
18,028
|
|
|
|
147,517
|
|
Stockholder accrued interest
|
|
|
(84,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
303,792
|
|
|
|
(402,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capitalized software development and patent costs
|
|
|
(115,569
|
)
|
|
|
(20,645
|
)
|
Purchase of property and equipment
|
|
|
(134,468
|
)
|
|
|
(29,983
|
)
|
Cash paid for acquisition
|
|
|
(1,031,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,281,459
|
)
|
|
|
(50,628
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Net proceeds from exercise of warrants
|
|
|
940,000
|
|
|
|
|
|
Net proceeds from line of credit
|
|
|
|
|
|
|
619,662
|
|
Repayments of long-term debt
|
|
|
(8,336
|
)
|
|
|
(12,572
|
)
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
931,664
|
|
|
|
607,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(46,003
|
)
|
|
|
154,124
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
1,579,683
|
|
|
|
368,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,533,680
|
|
|
$
|
522,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
120,566
|
|
|
$
|
23,972
|
|
|
|
|
|
|
|
|
|
|
Non-cash items:
|
|
|
|
|
|
|
|
|
Stock issued for acquisition
|
|
$
|
400,000
|
|
|
$
|
|
|
Stock issued for services
|
|
$
|
|
|
|
$
|
25,000
|
|
Acquisition of property and equipment under capital leases
|
|
$
|
|
|
|
$
|
4,951
|
|
The accompanying notes are an integral part of these condensed consolidated statements.
6
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The accompanying consolidated interim unaudited financial statements include the accounts of
ViewCast.com, Inc. doing business as ViewCast Corporation and its wholly-owned subsidiaries,
VideoWare, Inc., Osprey Technologies, Inc., Ancept Corporation, previously known as ViewCast Online
Solutions, Inc., and ViewCast Technology Services Corporation (collectively, ViewCast or the
Company). The Company develops industry-leading hardware and software for the capture, management,
transformation and delivery of digital media over IP and mobile networks. ViewCasts solutions
simplify the complex workflows required for these tasks, allowing broadcasters, businesses, and
governments to reach and expand their use and distribution of their digital media easily and
effectively. ViewCasts Niagara
®
streaming appliances, Osprey
®
video capture cards, and ViewCast
Media Platform (VMp) software suite provide the highly reliable technology required to deliver the
multi-platform experiences driving todays digital media market. ViewCast markets and sells its
products and professional services worldwide directly to end-users or through indirect channels
including original equipment manufacturers (OEMs), value-added resellers (VARs), resellers,
distributors and computer system integrators.
These consolidated interim unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the
Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included for the three month period ended
March 31, 2010. The results for the three month period ended March 31, 2010 are not necessary
indicative of the results that may be expected for the full year. The unaudited financial
statements included in this filing should be read in conjunction with the Companys audited
financial statements and notes thereto included in the Companys annual report on Form 10-K for the
year ended December 31, 2009.
In March 2009, ViewCast purchased certain assets from Ancept Media Server, LLC (the Ancept
Assets) pursuant to the terms of the Asset Purchase Agreement dated March 5, 2009, as amended, by
and between ViewCast and Ancept Media Server, LLC (Seller). ViewCasts wholly-owned subsidiary,
ViewCast Online Solutions, Inc., was renamed Ancept Corporation (Ancept) and operates this
business. The lead software product, rebranded as VMp Production, has been an established digital
asset management (DAM) solution capable of supporting the needs of large enterprises, while
remaining flexible and affordable to serve the needs of small to medium businesses. Fortune 1000
companies, educators, small businesses and public sector organizations have chosen Ancept to help
meet their media production, management and distribution needs. The Company has an expanded global
business presence and offers a complete set of solutions for the transformation, management and
delivery of live and on-demand video content to broadband and mobile networks.
During the first quarter of 2010, the Company incurred a net loss of $310,633 and used cash in
operations of $402,338. At March 31, 2010, the Company had working capital of $1,924,889 and cash
and cash equivalents of $522,275. The Company expects to obtain additional working capital by
increasing revenue, maintaining reduced operating expenses which were reduced during late 2009,
borrowing on its line of credit and through other initiatives that may include raising additional
capital. The Company believes that these items will provide sufficient cash to fund operations for
the next 12 months, however, the Company may require additional working capital during 2010 to
support operations and the expansion of sales channels and market distribution, to develop and
introduce new products and services, to enhance existing product offerings, to address
unanticipated competitive threats or technical problems, to transition adverse economic conditions
and for potential acquisition transactions. There can be no assurance that additional financing
will be available to the Company on acceptable terms, or at all. Additional equity financing may
involve substantial dilution to our then existing stockholders. In the event the Company is unable
to raise additional capital or execute other alternatives, it may be required to sell segments of
the business, or substantially reduce or curtail our activities. Such actions could result in
charges that could be material to ViewCasts results of operations or financial position.
7
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
2. Acquisition
On March 13, 2009, the Company acquired certain assets (the Ancept Assets) of Ancept Media
Server, LLC (Seller) for $1,431,422. The Company (i) paid to the Sellers lender $1,000,000 in
cash, (ii) paid to the Seller $31,422 in cash, which is the difference between $170,000 in cash
less a holdback amount of $138,578 based on the difference in accounts receivables and deferred
revenue as of March 13, 2009, subject to adjustment, if any, in the future based on actual
collected accounts receivable, (iii) issued to Seller $400,000 in Company common stock which
resulted in the issuance of 1,141,314 shares based on the weighted average closing price of the
Companys common stock for the ten trading days immediately prior to the closing of the
transaction, which was $0.35, and (iv) assumed deferred revenue liabilities related to the Ancept
Assets. The primary purpose of the acquisition was to enable the Company to expand its global
business presence with a complete portfolio of solutions that encompasses live and on-demand video
encoding, management and delivery.
The following table summarizes the assets acquired and liabilities assumed as of the closing
date:
|
|
|
|
|
Accounts receivable
|
|
$
|
160,760
|
|
Prepaid expenses
|
|
|
415
|
|
Software
|
|
|
850,000
|
|
Customer related intangible assets
|
|
|
60,000
|
|
Non-compete agreements
|
|
|
24,000
|
|
Goodwill
|
|
|
620,002
|
|
Fixed assets
|
|
|
15,583
|
|
|
|
|
|
Total assets acquired
|
|
|
1,730,760
|
|
Liabilities assumed
|
|
|
(299,338
|
)
|
|
|
|
|
Net assets acquired
|
|
$
|
1,431,422
|
|
|
|
|
|
The acquisition was accounted for using the purchase method of accounting. Intangible assets
will be amortized over their estimated useful life of three to seven years. The purchase price
allocated to the intangible assets was determined by managements estimate with the assistance of a
professional valuation group. Goodwill represents the excess of purchase consideration over the
fair value of assets acquired. In the event that the Company enters into certain key contracts
with either one of two specified entities to redistribute or resell in volume certain Ancept
products by the second anniversary of the closing of the acquisition of the Seller (the Closing),
the Company shall issue $100,000 of additional shares of the Companys common stock to the Seller,
with a value per share based on the weighted average closing price of the Companys common stock
for the ten trading days immediately prior to finalizing such agreement. Further, Seller is
eligible to receive an earn-out amount equal to 5% of the Companys net revenue relating solely to
certain business related to the Ancept Assets that is in excess of $2,000,000 for each of the two
years following the Closing. The goodwill acquired may be amortized for federal income tax
purposes.
8
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
The following unaudited pro forma summary approximates the consolidated results of operations
as if the acquisition disclosed above had occurred as of January 1, 2009, after giving effect to
certain adjustments, including allocation of specifically identifiable expenses. The pro forma
financial information does not purport to be indicative of the results of operations that would
have occurred had the transactions taken place at the beginning of the period presented or of
future results of operations.
|
|
|
|
|
|
|
For the three months
|
|
|
|
ended March 31,
|
|
|
|
2009
|
|
|
|
|
|
|
Net sales
|
|
|
4,377,662
|
|
|
|
|
|
|
Net loss applicable to common stockholders
|
|
$
|
(787,965
|
)
|
|
|
|
|
|
Basic and diluted net loss per common share
applicable to common stockholders
|
|
$
|
(0.02
|
)
|
Weighted average number of common shares outstanding
(basic and diluted)
|
|
|
34,049,703
|
|
3. Accounts Receivable
The Companys accounts receivable are primarily due from resellers and distributors of our
video communications products and services. Credit is extended based on evaluation of each
customers financial condition and, generally, collateral is not required except for certain
international customers. Accounts receivable are generally due within 30 days and are stated net
of an allowance for doubtful accounts. Accounts that are outstanding longer than contractual
payment terms are considered past due. The Company records an allowance on a specific basis by
considering a number of factors, including the length of time trade accounts are past due, the
Companys previous loss history, the credit-worthiness of individual customers, economic conditions
affecting specific customer industries and economic conditions in general. The Company writes off
accounts receivable when they become uncollectible and payments subsequently received on such
receivables are credited against write-offs in the period the payment is received.
Changes in the Companys allowance for doubtful accounts for the three months ended March 31,
2009 and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Beginning balance
|
|
$
|
82,317
|
|
|
$
|
69,767
|
|
Bad debt expense
|
|
|
21,644
|
|
|
|
11,650
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
103,961
|
|
|
$
|
81,417
|
|
|
|
|
|
|
|
|
9
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
4. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Purchased materials
|
|
$
|
1,077,135
|
|
|
$
|
964,855
|
|
Finished goods
|
|
|
1,330,783
|
|
|
|
1,288,326
|
|
Reserve
|
|
|
(124,570
|
)
|
|
|
(124,570
|
)
|
|
|
|
|
|
|
|
|
|
$
|
2,283,348
|
|
|
$
|
2,128,611
|
|
|
|
|
|
|
|
|
5. Intangible Assets
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Customer lists
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Non-compete agreements
|
|
|
24,000
|
|
|
|
24,000
|
|
Capitalized software
|
|
|
2,733,950
|
|
|
|
2,749,157
|
|
Patents
|
|
|
124,665
|
|
|
|
130,103
|
|
Less accumulated amortization
|
|
|
(1,407,480
|
)
|
|
|
(1,521,133
|
)
|
|
|
|
|
|
|
|
|
|
$
|
1,535,135
|
|
|
$
|
1,442,127
|
|
|
|
|
|
|
|
|
Future amortization expense associated with these intangible assets is as follow:
|
|
|
|
|
2010
|
|
$
|
324,752
|
|
2011
|
|
|
375,357
|
|
2012
|
|
|
252,346
|
|
2013
|
|
|
142,350
|
|
2014
|
|
|
131,500
|
|
Thereafter
|
|
|
215,822
|
|
|
|
|
|
|
|
$
|
1,442,127
|
|
|
|
|
|
10
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
6. Accrued Expenses
Accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Accrued compensation
|
|
$
|
123,882
|
|
|
$
|
242,452
|
|
Accrued warranty
|
|
|
155,850
|
|
|
|
180,592
|
|
Accrued inventory purchases
|
|
|
50,450
|
|
|
|
57,922
|
|
Customer deposits
|
|
|
28,919
|
|
|
|
39,878
|
|
Deferred rent
|
|
|
46,258
|
|
|
|
39,452
|
|
Deferred revenue
|
|
|
353,458
|
|
|
|
385,920
|
|
Accrued taxes and other
|
|
|
274,350
|
|
|
|
234,468
|
|
|
|
|
|
|
|
|
|
|
$
|
1,033,167
|
|
|
$
|
1,180,684
|
|
|
|
|
|
|
|
|
7. Warranty Reserves
Reserves are provided for the estimated warranty costs when revenue is recognized. The costs
of warranty obligations are estimated based on warranty policy or applicable contractual warranty,
historical experience of known product failure rates and use of materials and service delivery
charges incurred in correcting product failures. Specific warranty accruals may be made if
unforeseen technical problems arise. If actual experience, relative to these factors,
significantly differs from these estimates, additional warranty expense may be required.
The following table below shows the changes in accrued warranty expense for the three months
ended March 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Beginning balance
|
|
$
|
199,446
|
|
|
$
|
155,850
|
|
Charged to expense
|
|
|
9,395
|
|
|
|
25,542
|
|
Usage
|
|
|
(7,640
|
)
|
|
|
(800
|
)
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
201,201
|
|
|
$
|
180,592
|
|
|
|
|
|
|
|
|
11
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)
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
Service equipment
|
|
3
|
|
$
|
242,362
|
|
|
$
|
242,362
|
|
Computer equipment
|
|
2 to 7
|
|
|
497,139
|
|
|
$
|
514,268
|
|
Software
|
|
3 to 5
|
|
|
207,531
|
|
|
$
|
210,235
|
|
Leasehold improvements
|
|
1 to 5
|
|
|
172,697
|
|
|
$
|
172,697
|
|
Office furniture and equipment
|
|
5 to 7
|
|
|
1,284,884
|
|
|
$
|
1,299,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,404,613
|
|
|
|
2,439,547
|
|
Less accumulated depreciation and
amortization
|
|
|
|
|
(1,829,581
|
)
|
|
|
(1,945,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
575,032
|
|
|
$
|
493,985
|
|
|
|
|
|
|
|
|
|
|
9. Line of Credit
On June 29, 2007, the Company entered into a Purchase and Sale Agreement/Security Agreement
(the Agreement) with Amegy Bank National Association (Amegy), a national banking association.
The Agreement provides the Company with an accounts receivable loan facility to provide a source of
working capital with advances generally limited to 85% of submitted accounts receivable. Upon
collection of an account receivable, the remaining fifteen percent is rebated to the Company less
the Agreements fixed and variable discounts. The fixed discount equals 0.2% of the account
receivable for the first 15 days the account receivable is outstanding plus an additional 0.2% for
each additional 15 day period, up to 1.2% for receivables 76 to 90 days outstanding. The variable
discount is calculated for each day that the amount advanced by Amegy is outstanding until repaid
by collection of the account receivable and equals the prime rate plus 1.5% divided by 360
multiplied by the advance amount for each account receivable. The borrowing line under this
facility is $1,000,000, reviewed as growth of business dictates. To secure the amounts due under
the agreement, the Company granted Amegy a security interest in all of its assets owned as of the
date of the agreement or thereafter acquired. The Company had $92,321 and $711,983 outstanding as
of December 31, 2009 and March 31, 2010, respectively, under this facility.
10. Long-Term Debt
Since October 1998, the Company has maintained a credit facility with an entity controlled by
one of its principal stockholders, Mr. H.T. Ardinger. 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.
effective January 31, 2010. Under the amended terms the $1,250,000 of the primary principal and
$3,891,361 of the secondary principal mature December 31, 2012, subject to certain earlier payment
conditions. The interest on the primary principal amount will accrue and be paid monthly based on
an interest rate per annum which is the greater of 5.0% or the effective prime rate plus 0.75%
(4.00% as of December 31, 2009 and March 31, 2010). Interest on the secondary principal shall
accrue based on the effective Applicable Federal Rate, as defined in the agreement, (2.64% and
0.64% as of December 31, 2009 and March 31, 2010, respectively). Beginning of July 31, 2010,
minimum monthly principal payments of $21,422 will be made in additional to the monthly interest
payments. Any amounts remaining on December 31, 2012 will become due on that date. The amended
note agreement is secured by all the assets of the Borrower.
12
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
The Companys long-term debt consisted of:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
March 31, 2010
|
|
Aggregate of the Outstanding Principal (Primary Principal Amount)
|
|
$
|
1,250,000
|
|
|
$
|
1,250,000
|
|
Accrued and Outstanding Interest (Secondary Principal Amount)
|
|
|
3,891,361
|
|
|
|
3,891,361
|
|
Other debt
|
|
|
75,297
|
|
|
|
67,676
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
5,216,658
|
|
|
|
5,209,037
|
|
Less current maturities
|
|
|
(157,133
|
)
|
|
|
(222,841
|
)
|
|
|
|
|
|
|
|
Total long-term debt less current maturities
|
|
$
|
5,059,525
|
|
|
$
|
4,986,196
|
|
|
|
|
|
|
|
|
11. Warrants
On February 27, 2009, the Company entered into an amendment to the warrant to purchase common
stock, dated December 11, 2006, (the Amendment) by and between the Company and the Ardinger
Family Partnership, Ltd. The general partner of the Ardinger Family Partnership, Ltd is H.T.
Ardinger, Jr., the Companys largest stockholder. Pursuant to the Amendment, the Company agreed to
reduce the per share warrant exercise price to the average closing price for the five consecutive
trading days ending on February 27, 2009 on the Over-The-Counter Bulletin Board in exchange for the
Ardinger Family Partnership agreeing to exercise the Warrant on or prior to March 5, 2009 with the
proceeds to be used by the Company for the Ancept asset acquisition (see Note 2). On March 5,
2009, the Ardinger Family Partnership, Ltd exercised the outstanding warrant to purchase 2,500,000
shares of the Companys unregistered common stock at the amended exercise price of $0.376 per share
and the Company received proceeds of $940,000. At March 31, 2010, the Company had no outstanding
warrants.
12. Earnings Per Share Data
Basic earnings per share (EPS) is calculated by dividing net income or loss applicable to
common stockholders by the weighted-average number of common shares outstanding during the period.
Diluted earnings per share is calculated by using the weighted-average number of common shares
outstanding during the period increased to include the number of additional shares of common stock
that would have been outstanding if the dilutive potential shares of common stock had been issued.
Dilutive potential shares of common stock include convertible preferred stock, options and
warrants. 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 $0.1618 during the three
months ended March 31, 2010. For periods presented, the computation of diluted loss per share
excludes the portion of convertible preferred stock, options and warrants that are anti-dilutive.
13
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
The following table sets forth the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Net loss applicable to common stockholders
numerator for basic and diluted earnings per share
|
|
$
|
(740,337
|
)
|
|
$
|
(515,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares and dilutive potential common
shares outstanding denominator for diluted earning per share
|
|
|
33,136,652
|
|
|
|
35,992,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities excluded from diluted earnings per share:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
4,019,310
|
|
|
|
4,087,799
|
|
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
|
|
|
|
13,333,333
|
|
13. Stock-Based Compensation
The Company has various stock-based employee compensation plans, which are described more
fully in Note 10 of the Notes to Consolidated Financial Statements in the Companys Annual Report
on Form 10-K for the year ended December 31, 2009, as amended by Amendment No. 1 thereto.
Stock-based compensation expense was $36,452 and $37,784 for the three months ended March 31,
2009 and March 31, 2010, respectively. There were no new options granted by the Company during the
three months ended March 31, 2010. Stock-based compensation expense is based on awards ultimately
expected to vest and has been reduced for estimated forfeitures.
The Company uses the Black-Scholes option-pricing model (Black-Scholes) as its method of
valuation of stock options granted. This fair value is amortized on a straight-line basis over the
requisite service periods of the awards, which is generally the vesting period. The fair value of
share-based payment awards on the date of grant as determined by the Black-Scholes model is
affected by our stock price as well as other assumptions. These assumptions include, but are not
limited to the expected stock price volatility over the term of the awards and the actual and
projected employee stock option exercise behaviors.
At March 31, 2010, the balance of unearned stock-based compensation to be expensed in future
periods related to unvested share-based awards, as adjusted for expected forfeitures, is
approximately $202,000. The weighted-average period over which the unearned stock-based
compensation is expected to be recognized is approximately three years.
14
ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements Continued
Following is a summary of stock option activity from January 1, 2010 through March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Price Per
|
|
|
Exercise Price
|
|
|
|
of Shares
|
|
|
Share
|
|
|
Per Share
|
|
Outstanding at December 31, 2009
|
|
|
4,162,463
|
|
|
$
|
0.20 $3.52
|
|
|
$
|
0.52
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled/forfeited
|
|
|
(149,328
|
)
|
|
|
0.29 0.46
|
|
|
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
4,013,135
|
|
|
$
|
0.20 $3.52
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following information applies to options outstanding at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
Range of
|
|
Outstanding at
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable at
|
|
|
Average
|
|
Exercise
|
|
March 31,
|
|
|
Contractual
|
|
|
Exercise
|
|
|
March 31,
|
|
|
Exercise
|
|
Prices
|
|
2010
|
|
|
Life
|
|
|
Price
|
|
|
2010
|
|
|
Price
|
|
$0.01 1.00
|
|
|
3,398,585
|
|
|
|
4.9
|
|
|
$
|
0.38
|
|
|
|
2,102,274
|
|
|
$
|
0.40
|
|
1.01 2.00
|
|
|
532,050
|
|
|
|
0.9
|
|
|
|
1.12
|
|
|
|
532,050
|
|
|
|
1.12
|
|
2.01 3.00
|
|
|
80,000
|
|
|
|
0.3
|
|
|
|
2.50
|
|
|
|
80,000
|
|
|
|
2.50
|
|
3.01 4.00
|
|
|
2,500
|
|
|
|
0.2
|
|
|
|
3.52
|
|
|
|
2,500
|
|
|
|
3.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,013,135
|
|
|
|
4.2
|
|
|
$
|
0.52
|
|
|
|
2,716,824
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Income Taxes
At December 31, 2009 the Company has federal income tax net operating loss carryforwards of
approximately $73,000,000, which expire at various dates beginning in 2010. The Company is subject
to limitations existing under Internal Revenue Code Section 382 (Change of Control) relating to the
availability of the operating loss carryforward. The Company recognized no federal income tax
benefit in the first quarter of 2010 as it has recorded a valuation allowance to reduce all
deferred tax assets to zero.
15. Related Party Transactions
As discussed in Note 10, the Company has an outstanding note payable to its largest
stockholder, Mr. H.T. Ardinger. In addition, the source of a significant portion of the cash paid
to Seller for the purchase of the Ancept Assets (more fully described in Note 2) was obtained by
the Company pursuant to the warrant exercise on March 5, 2009 by H.T. Ardinger and the Ardinger
Family Partnership, Ltd for the purchase 2,500,000 shares of the Companys unregistered common
stock at an amended exercise price of $0.376 per share, pursuant to which the Company received
proceeds of $940,000.
16. Preferred Stock Dividend
There were no preferred stock dividends declared or paid during the three months ended March
31, 2010. The Series B and Series C preferred stock issues carry cumulative dividends of 8% and 9%
per year, respectively, and are generally payable semi-annually in arrears in cash or in ViewCast
common stock, at ViewCasts option. Accrued dividends on preferred shares are: Series
B-$5,306,667, Series C-$1,512,500. Holders of Series B and Series C preferred stock have no voting
rights except as required by law. The Series E preferred stock has no dividend feature.
15
ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operation
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation
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) software
suite provide the highly reliable technology required to deliver the multi-platform experiences
driving todays digital media market. ViewCast markets and sells its products and professional
services worldwide directly to end-users or through indirect channels including original equipment
manufacturers (OEMs), value-added resellers (VARs), resellers, distributors and computer system
integrators. ViewCast is focused on growth by leveraging the digital media market expansion and
our product solutions to capitalize on sales opportunities. We believe that emphasis on revenue
and market share growth will enable us to realize long-term profitability and stockholder value.
On March 13, 2009, ViewCast completed the purchase of the Ancept Assets from Ancept Media
Server, LLC (the Seller) related to the development and licensing of software products that
provide the management of the life cycle phases of digital media pursuant to the terms of the Asset
Purchase Agreement dated March 5, 2009, as amended, by and between ViewCast and the Seller.
ViewCasts wholly-owned subsidiary, ViewCast Online Solutions, Inc., was renamed Ancept Corporation
and operates this business. The lead software product, rebranded as VMp Production and the core
of VMp, has been an established digital asset management (DAM) solution capable of supporting the
needs of large enterprises, while remaining flexible and affordable to serve the needs of small to
medium businesses. Fortune 1000 companies, educators, small businesses and public sector
organizations have chosen Ancept to help meet their media production, management and distribution
needs. The combined company has an expanded global business presence and offers a complete set of
solutions for the transformation, management and delivery of live and on-demand video content to
broadband and mobile networks.
ViewCast utilizes significant capital to design, develop and commercialize its products and
intends to fund its 2010 operating activities and sales growth by utilizing existing cash, cash
provided from operations and working capital lines of credit to the extent possible. ViewCast
believes that these items will provide sufficient cash to fund operations for the next 12 months,
however, ViewCast may require additional working capital during the next year to support operations
and the expansion of sales channels and market distribution, to develop and introduce new products
and services, to enhance existing product offerings, to address unanticipated competitive threats
or technical problems, to transition adverse economic conditions and for potential acquisition
transactions. There can be no assurance that additional financing will be available to ViewCast on
acceptable terms, or at all. Additional equity financing may involve substantial dilution to our
then existing stockholders. In the event ViewCast is unable to raise additional capital or execute
other alternatives, it may be required to sell segments of the business, or substantially reduce or
curtail our activities. Such actions could result in charges that could be material to ViewCasts
results of operations or financial position.
16
ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and
Results of Operation
Continued
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.
|
|
|
|
Deferred Taxes
We record a valuation allowance to reduce our deferred tax assets to
an amount that we believe is more likely than not to be realized. In our opinion,
realization of our net operating loss carryforward is not reasonably assured, and a
valuation allowance has been provided against deferred tax assets in excess of deferred tax
liabilities in the accompanying consolidated financial statements. However, should we
determine in the future that realization of deferred tax assets in excess of recorded
amounts is likely, an adjustment to the deferred tax assets would increase income in the
period such determination was made.
|
|
|
|
Purchase Accounting, Goodwill and Intangible Assets
We use the purchase method of
accounting for our business acquisitions, accordingly, the statement of operation include
the results of acquired businesses since the date of acquisition. The assets acquired and
liabilities assumed are recorded at their estimated fair value as determined by management
and supported by an independent third-party valuation.
|
|
|
|
Goodwill Arising from the Acquisitions of Business
We record goodwill arising from
the acquisition of a business as the excess of the purchase price over the estimated fair
value of the net assets of the business acquired. In accordance with FASB ASC 350,
Intangibles Goodwill and Other, we are required to test goodwill for impairment
annually or more frequently if circumstances indicate potential impairment. Consistent
with this standard, we will review goodwill, as well as other intangible assets and
long-term assets, for impairment annually or more frequently as warranted, and if
circumstances indicate that the recorded value of any such other asset is impaired, such
asset is written down to its new, lower fair value. If any item of goodwill or such other
asset is determined to be impaired, an impairment loss would be recognized equal to the
amount by which the recorded value exceeds the estimated fair market value.
|
17
ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operation
Continued
Results of Operation
Three Months Ended March 31, 2010 compared to
Three Months Ended March 31, 2009.
Net Sales
.
During the first quarter ended March 31, 2010, net sales decreased $538,692 to
$3,678,343 from $4,217,035 in the first quarter 2009, representing a 13% decrease. The overall
decrease was due to a decrease in Niagara
®
system revenue which was somewhat offset by an increase
in Osprey
®
capture card revenue. Excluding Ancept, net sales decreased during the first quarter
ended March 31, 2010 compared to the same period in 2009 by 33% in the North America sales region,
which was partially offset by increases of 4% in the Europe, Middle East and Africa (EMEA) and
35% in the Pacific Rim/South America sales regions.
Sequential sales began increasing in the fourth quarter of 2009 and continued through the
first quarter of 2010 in contrast to the seasonal decline normally experienced during the first
quarter of the year. Additionally, we have seen a greater than 35% increase in booked orders
received in the first quarter of 2010 compared to the fourth quarter of 2009.
Osprey Product Sales
.
During the three months ended March 31, 2010, Osprey sales increased
$473,623 to $2,283,884 from $1,810,261 in the first quarter 2009, representing a 26% increase from
the 2009 levels and 62.1% of total first quarter 2010 revenues, compared to 42.9% in 2009. The
increase in 2010 first quarter sales was primarily due to increases of 40% in the North America
sales region and 47% in the Pacific Rim/South America sales regions, partially offset by a decrease
of 18% in the EMEA sales region.
ViewCast Niagara
®
Streaming/Encoding System Sales.
During the three months ended March 31,
2010, combined system sales decreased $1,243,750 to $1,044,631 from $2,288,381 in the first quarter
2009, representing a 54% decrease from the 2009 levels and 28.4% of total first quarter 2010
revenue, compared to 54.3% in 2009. The decrease in 2010 first quarter sales was primarily due to
a large volume of OEM sales during the prior year period compared to a more normal level of OEM
sales during the 2010 first quarter which contributed to the 63% decline in the North America sales
region. This decline was partially offset by an increase of 103% in the EMEA sales region.
Other Revenues
.
During the three months ended March 31, 2010, other revenues consisting of
software maintenance, training, engineering consulting fees and professional services increased
$231,435 to $349,828 from $118,393 in the first quarter 2009, representing a 195% increase from the
2009 levels and 9.5% of total first quarter 2010 revenue, compared to 2.8% in 2009. This increase
was primarily due to a $235,030 increase in Ancept related revenue, offset somewhat by a decrease
in non Ancept related other revenue. ViewCast acquired Ancept on March 13, 2009 which contributed
$52,947 in sales between March 13, 2009 and March 31, 2009, compared to revenue for full three
months during the quarter ended March 31, 2010 of $287,977, representing a 444% increase.
Cost of Sales/Gross Profit
.
During the three months ended March 31, 2010, cost of sales
decreased $268,332 to $1,309,705 from $1,578,037 in the first quarter 2009, representing a 17%
decrease from the 2009 levels and 35.6% of total first quarter 2010 revenue, compared to 37.4% in
2009. Gross profit decreased $270,360 to $2,368,638 from $2,638,998 in the first quarter 2009,
representing a 10% decrease from the 2009 levels and 64.4% of total first quarter 2010 revenue,
compared to 62.6% in 2009. The increase in gross profit margin was primarily due to a higher
percentage of sales derived from the higher margin Osprey products versus the lower margin OEM
system products.
We expect future margins for the video products to remain comparable to historical margins in
the 55%-65% range. Margins 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 and third party products sold in any one reporting period.
18
ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operation
Continued
Selling, General and Administrative Expenses
.
During the three months ended March 31, 2010,
selling, general and administrative expenses decreased $801,337 to $1,444,778 from $2,246,115 in
the first quarter 2009, representing a 36% decrease from the 2009 levels and 39.3% of total first
quarter 2010 revenue, compared to 53.3% in 2009. The decrease reflects an overall decrease in
finance and administration, sales, marketing, and customer support due to decreased headcount,
advertising, public relations, and related expenses. Additionally, there were non-recurring
expenses of $127,000 during the same period 2009 related to the acquisition of the Ancept Assets.
Research and Development Expense.
During the three months ended March 31, 2010, research and
development expense, net of capitalized software development, increased $241,541 to $977,584 from
$736,043 in the first quarter 2009, representing a 33% increase from the 2009 levels and 26.6% of
total first quarter 2010 revenue, compared to 17.5% in 2009. 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, 2010,
depreciation and amortization expense increased $71,966 to $229,634 from $157,668 in the first
quarter 2009, representing a 46% increase from the 2009 levels. The increase was primarily due to
the amortization of acquired intangible assets and capitalized software development costs.
Other Income (Expense)
. During the three months ended March 31, 2010, total other expenses
decreased $7,234 to $27,275 from $34,509 in the first quarter 2009, representing a 21% decrease
from the 2009 levels. Interest expense for the three months ended March 31, 2010 decreased $8,272
to $27,371 from $35,643 in the first quarter 2009, representing a 23% decrease from the 2009
levels. The decrease in interest expense is principally due to the decrease of interest rates from
our debt under the credit facility we have in place with Ardinger Family Partnership, Ltd. (See
Note 10). Interest income for the three months ended March 31, 2010 decreased $1,038 to $96 from
$1,134 in the first quarter 2009, representing a 92% decrease from the 2009 levels. The decrease
in interest income is primarily due to lower interest rates and average cash balance during the
period.
Net Income (Loss)
. During the three months ended March 31, 2010, net loss decreased $224,704
to a net loss of $310,633 from a net loss of $535,337 in the first quarter 2009. After reducing
net loss for accrued preferred dividends of $205,000, the net loss per share applicable to the
common shareholders for the first quarter of 2010 was ($0.01) per share, compared to a net loss of
($0.02) per share, for the same period in 2009.
Liquidity and Capital Resources
ViewCasts primary sources of funds for conducting its business activities are derived from
sales of its products and services, from its credit facilities and from the placement of its equity
securities with investors. ViewCast requires working capital primarily to increase inventories and
accounts receivable during sales growth, develop products, service debt, purchase capital assets,
fund operations and strategic acquisitions.
Net cash used by operating activities for the three months ended March 31, 2010 was $402,338
resulting from a net loss of $310,633, plus non-cash operating expense of $304,068 and net cash
used by changes in operating assets and liabilities of $395,773. Cash used by changes in operating
assets and liabilities was principally due to increased accounts receivable, supplemented by an
increase in prepaid expenses, which was partially offset by cash provided from decreased inventory
and deposits, and increased accounts payable and accrued expenses.
Cash utilized for investing activities during the three months ended March 31, 2010 totaled
$50,628 of which $29,983 of property and equipment purchased and $20,645 of software development
costs capitalized.
During the three months ended March 31, 2010, ViewCasts financing activities provided cash of
$607,090 of which $619,662 provided from an increase in line of credit, offset by $12,572 used for
repayment of long-term debt.
19
ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operation
Continued
On March 13, 2009, ViewCast acquired the Ancept Assets for $1,431,422. ViewCast (i) paid to
the Sellers lender $1,000,000 in cash, (ii) paid to the Seller $31,422 in cash which is the
difference between $170,000 in cash less a holdback amount of $138,578 based on the difference in
accounts receivables and deferred revenue as of March 13, 2009, which may be adjusted in the future
based on actual collected accounts receivable, (iii) issued to the Seller Company common stock of
$400,000 which resulted in the issuance of 1,141,314 shares based on the weighted average closing
price of our common stock for the ten trading days immediately prior to the closing of the
transaction, which was $0.35047, and (iv) assumed deferred revenue liabilities related to the
Ancept Assets. The primary purpose of the acquisition was to enable ViewCast to expand its global
business presence with a complete portfolio of solutions that encompasses live and on-demand video
encoding, management and delivery.
Since October 1998, ViewCast has maintained a credit facility with an entity controlled by its
largest stockholder, 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 March 10, 2010,
effective January 31, 2010. Under the amended terms, the $1,250,000 of the primary principal
amount and $3,891,361 of the secondary principal amount mature December 31, 2012, 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 5.00% or the effective prime rate plus 0.75%
(4.00% as of December 31, 2009 and March 31, 2010). Interest on the secondary principal shall
accrue based on an interest rate per annum which is the lesser of 9.50% or the effective Applicable
Federal Rate, as defined in the agreement (2.64% and 0.64% as of December 31, 2009 and March 31,
2010, respectively). The amended terms call for interest to be paid monthly and previously accrued
interest ($169,846 at December 31, 2008) to be paid in approximately equal monthly payments from
October 31, 2008 through June 30, 2009. Beginning July 31, 2010, minimum monthly principal
payments of $21,422 will be made in addition to the monthly interest payments. Any amounts
remaining outstanding on December 31, 2012, will become due on that date. 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. This agreement provides ViewCast
with an account up to $1,000,000 receivable loan facility to provide a source of working capital.
As of March 31, 2010, we have an outstanding balance of $711,983 under this facility.
There were no preferred stock dividends declared or paid during the first three months of
2010. The Series B and Series C preferred stock issues carry cumulative dividends of 8% and 9% per
year, respectively, and are generally payable semi-annually in arrears in cash or in ViewCast
common stock, at ViewCasts option. Cumulative dividends in arrears on preferred shares are
approximately: Series B-$5,307,000, Series C-$1,512,500. Holders of Series B and Series C
preferred stock have no voting rights except as required by law.
During the first quarter of 2010, ViewCast incurred a net loss of $310,633 and used cash in
operations of $402,338. At March 31, 2010, ViewCast had working capital of $1,924,889 and cash and
cash equivalents of $522,275. 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. We believe that our sales volume
began to recover during the fourth quarter of 2009 and expect that trend to continue for the rest
of 2010 year. We can now see evidence of increases in sales of all product lines taking hold where
we have seen a greater than 35% increase in booked orders received in the first quarter of 2010
versus the fourth quarter of 2009. ViewCast utilizes significant capital to design, develop and
commercialize its products and intends to fund its operating activities and sales growth during the
next twelve months by utilizing existing cash, cash contributed from operations and its available
working capital lines of credit. ViewCast anticipates it may require additional working capital
during 2010 to support the expansion of sales channels and market distribution, to develop and
introduce new products and services, to enhance existing product offerings, to address
unanticipated competitive threats or technical problems, to transition adverse economic conditions,
to service its debt and for potential acquisition transactions.
20
ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis of Financial Condition and Results of Operation
Continued
Although ViewCast has no firm arrangements with respect to additional capital financing, on an
ongoing basis, it considers proposals received from potential investors relating to the issuance of
equity securities in exchange for a cash investment in ViewCast. There can be no assurance that
additional financing will be available to ViewCast on acceptable terms, or at all. Additional
equity financing may involve substantial dilution to our then existing stockholders. ViewCast
intends to actively pursue other strategic merger and acquisition opportunities to the extent
possible. In the event we are unable to raise additional capital or execute other alternatives, we
may be required to sell segments of the business, or substantially reduce or curtail our
activities. Such actions could result in charges that could be material to ViewCasts results of
operations or financial position.
At March 31, 2010, ViewCast had no material commitments for capital expenditures.
Off Balance Sheet Arrangements
ViewCast does not have any off-balance sheet arrangements that have or are reasonably likely
to have a current or future effect on ViewCasts financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Not required.
21
ViewCast.com, Inc. and Subsidiaries
Controls and Procedures
Item 4T. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities
Exchange Act of 1934, as amended (the Exchange Act), are designed to provide reasonable assurance
that information required to be disclosed by us in the reports we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the rules
and forms of the Securities and Exchange Commission and that such information is accumulated and
communicated to our management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required disclosure. As required by
Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, with the
participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
our disclosure controls and procedures as of December 31, 2009. Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2010, our
disclosure controls and procedures were effective in providing such reasonable assurance.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Companys internal control over financial reporting
identified in connection with the evaluation that occurred during the Companys last fiscal quarter
that has materially affected, or that is reasonably likely to materially affect, the Companys
internal control over financial reporting.
22
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
(None)
Item 1A. Risk Factors
(Not Applicable)
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 11, 2010, we entered into an agreement with National Securities
Corporation pursuant to which National Securities Corporation would provide
financial advisory services to us. As partial payment for such services, we issued
147,059 shares of our common stock ($25,000) to National Securities Corporation and
one of its principals pursuant to the exemption from registration set forth in
Section 4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
(None)
Item 4.
Item 5. Other Information
(a) (None)
(b) (None)
Item 6. Exhibits
See Exhibit Index.
23
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.
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ViewCast.com, Inc.
(Registrant)
BY:
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Date: May 17, 2010
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/s/ David T. Stoner
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David T. Stoner
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Chief Executive Officer
Principal Executive Officer
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Date: May 17, 2010
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/s/ Laurie L. Latham
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Laurie L. Latham
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Chief Financial Officer
Principal Financial and Accounting Officer
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EXHIBIT INDEX
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Exhibit
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Number
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10.1
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Third Amendment to Amended and Restated Security Agreement by and among Ardinger Family
Partnership, Ltd., ViewCast.com, Inc., Osprey Technologies, Inc. and Videoware, Inc.(1)
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31.1
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Rule 13a-14(a)/15d-14(a) CEO Certification
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31.2
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Rule 13a-14(a)/15d-14(a) CFO Certification
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32.1
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Section 1350 CEO Certification
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32.2
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Section 1350 CFO Certification
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(1)
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Incorporated by reference to Form 8-K filed March 15, 2010.
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