10-Q 1 vcst-10q_20130630.htm FORM 10-Q

      

      

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: June 30, 2013

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  x    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 July 31, 2013, there were 62,386,490 outstanding shares of common stock, par value $0.0001 per share.

      

      

   

   

   


TABLE OF CONTENTS

   

 

PART I. FINANCIAL INFORMATION

   

   

   

Item 1. Financial Statements

   

   

   

Condensed Consolidated Balance Sheets at December 31, 2012 and June 30, 2013 (Unaudited)  

 

 3

   

   

Condensed Consolidated Statements of Operations for the Three  and Six Months ended June 30, 2012 and 2013 (Unaudited)  

 

 4

   

   

Condensed Consolidated Statement of Stockholders’ Deficit for the Six Months ended June 30, 2013 (Unaudited)  

 

 5

   

   

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2012 and 2013 (Unaudited)  

 

 6

   

   

Notes to Condensed Consolidated Financial Statements  

 

 7

   

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  

 

 16

   

   

Item 3. Quantitative and Qualitative Disclosure About Market Risk  

 

 20

   

   

Item 4. Controls and Procedures  

 

 20

   

   

PART II. OTHER INFORMATION

   

   

   

Item 1. Legal Proceedings  

 

 21

   

   

Item 1A. Risk Factors  

 

 21

   

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  

 

 21

   

   

Item 3. Defaults Upon Senior Securities  

 

 21

   

   

Item 4. Mine Safety Disclosures  

 

 21

   

   

Item 5. Other Information  

 

 21

   

   

Item 6. Exhibits  

 

 21

   

   

SIGNATURES  

 

 22

   

   

Rule 13a-14(a)/15d-14(a) Certification

   

   

   

Rule 13a-14(a)/15d-14(a) Certification

   

   

   

Section 1350 Certification

   

   

   

Section 1350 Certification

   

   

   

   

   

 

 1 


   

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, 2012, 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

   

 

   

December 31,
2012

   

   

June 30,
2013

   

   

   

   

   

(Unaudited)

   

ASSETS

   

   

   

   

   

   

   

Current assets:

   

   

   

   

   

   

   

Cash and cash equivalents

$

258,259

      

   

$

434,706

      

Accounts receivable, less allowance for doubtful accounts of $39,018 and $59,049 at December 31, 2012 and June 30, 2013, respectively

   

2,314,624

      

   

   

1,392,476

      

Inventories, net

   

2,123,379

      

   

   

2,144,770

      

Prepaid expenses

   

123,858

      

   

   

46,181

      

Total current assets

   

4,820,120

      

   

   

4,018,133

      

   

   

   

   

   

   

   

   

Property and equipment, net

   

135,212

      

   

   

76,894

      

Capitalized software development costs, net

   

329,532

      

   

   

324,124

      

Earn-out receivable

   

127,062

      

   

   

99,740

      

Intangible assets, net

   

84,693

      

   

   

73,316

      

Deposits

   

30,044

      

   

   

30,165

      

Total assets

$

5,526,663

      

   

$

4,622,372

      

LIABILITIES AND STOCKHOLDERS’ DEFICIT

   

   

   

   

   

   

   

Current liabilities:

   

   

   

   

   

   

   

Line of credit

$

1,143,920

      

   

$

573,542

      

Accounts payable

   

1,004,326

      

   

   

1,500,642

      

Accrued expenses and other current liabilities

   

723,071

      

   

   

859,230

      

Deferred revenue

   

305,027

      

   

   

352,622

      

Current maturities of long-term debt and stockholder notes payable

   

150,870

      

   

   

275,056

      

Total current liabilities

   

3,327,214

      

   

   

3,561,092

      

   

   

   

   

   

   

   

   

Long-term debt, less current maturities

   

9,820

      

   

   

2,205

      

Stockholder notes payable, less current maturities

   

5,541,448

      

   

   

5,962,914

      

Total liabilities

   

8,878,482

      

   

   

9,526,211

      

   

   

   

   

   

   

   

   

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, 2012 and June 30, 2013, respectively

   

8

      

   

   

8

      

Common stock, $.0001 par value, authorized 200,000,000 shares; issued shares—62,647,987 at December 31, 2012 and June 30, 2013, respectively

   

6,265

      

   

   

6,265

      

Additional paid-in capital

   

73,609,283

      

   

   

73,660,690

      

Accumulated deficit

   

(76,955,469

   

   

(78,558,896

Treasury stock, 261,497 shares at cost

   

(11,906

   

   

(11,906

Total stockholders’ deficit

   

(3,351,819

   

   

(4,903,839

Total liabilities and stockholders’ deficit

$

5,526,663

      

   

$

4,622,372

      

   

   

   

The accompanying notes are an integral part of these condensed consolidated statements.

   

   

   

 

 3 


VIEWCAST.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

   

 

   

For the three months ended

June 30,

   

      

For the six months ended

June 30,

   

   

2012

   

   

2013

   

      

2012

   

   

2013

   

Net revenue

$

2,891,455

      

   

$

1,603,627

      

      

$

6,280,264

      

   

$

3,981,250

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Cost of revenue

   

1,032,217

      

   

   

891,669

      

      

   

2,338,090

      

   

   

1,758,484

      

Gross profit

   

1,859,238

      

   

   

711,958

      

      

   

3,942,174

      

   

   

2,222,766

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Operating expenses:

   

   

   

   

   

   

   

      

   

   

   

   

   

   

   

Selling, general and administrative

   

1,361,433

      

   

   

1,251,034

      

      

   

2,745,172

      

   

   

2,607,145

      

Research and development

   

953,296

      

   

   

450,840

      

      

   

1,811,142

      

   

   

925,296

      

Depreciation and amortization

   

94,950

      

   

   

67,937

      

      

   

210,942

      

   

   

145,105

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Total operating expenses

   

2,409,679

      

   

   

1,769,811

   

      

   

4,767,256

      

   

   

3,677,546

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Operating loss

   

(550,441

   

   

(1,057,853

      

   

(825,082

   

   

(1,454,780

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Other income (expense):

   

   

   

   

   

   

   

      

   

   

   

   

   

   

   

Interest expense (including $3,708, $22,681, $31,615 and $38,314 to related parties)

   

(31,423

   

   

(87,779

      

   

(80,318

   

   

(148,649

Interest income

   

20

      

   

   

2

      

      

   

44

      

   

   

2

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Total other expense, net

   

(31,403

   

   

(87,777

      

   

(80,274

   

   

(148,647

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Loss from continuing operations

   

(581,844

   

   

(1,145,630

      

   

(905,356

   

   

(1,603,427

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net loss from discontinued operations

   

—  

      

   

   

—  

      

      

   

(81,594

   

   

—  

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

NET LOSS

$

(581,844

   

$

(1,145,630

      

(986,950

   

$

(1,603,427

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net loss per common share (basic and diluted):

   

   

   

   

   

   

   

      

   

   

   

   

   

   

   

Continuing operations

$

(0.01

   

$

(0.02

      

$

(0.01

   

$

(0.03

Discontinued operations

$

—  

      

   

$

—  

      

      

$

(0.00

   

$

—  

      

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net loss

$

(0.01

   

$

(0.02

      

$

(0.02

   

$

(0.03

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Weighted average number of common shares outstanding

   

   

   

   

   

   

   

      

   

   

   

   

   

   

   

Basic and Diluted

   

62,355,462

      

   

   

62,386,490

      

      

   

61,881,237

      

   

   

62,386,490

      

   

   

   

   

   

   

   

   

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 SIX MONTHS ENDED JUNE 30, 2013

(UNAUDITED)

   

 

   

Series E
Convertible
Preferred Stock

   

      

Common Stock

   

      

Additional
Paid-in

   

      

Accumulated

   

   

Treasury

   

   

Total
Stockholders’

   

   

Shares

   

      

Par Value

   

      

Shares

   

      

Par Value

   

      

Capital

   

      

Deficit

   

   

Stock

   

   

Equity (Deficit)

   

Balances, December 31, 2012

   

80,000

      

      

$

8

      

      

   

62,647,987

      

      

$

6,265

      

      

$

73,609,283

      

      

$

(76,955,469

)

   

$

(11,906

)

   

$

(3,351,819

)

Stock based compensation expense

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

51,407

      

      

   

—  

   

   

   

—  

   

   

   

51,407

   

Net loss

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

—  

      

      

   

(1,603,427

)

   

   

—  

   

   

   

(1,603,427

)

Balances, June 30, 2013

   

80,000

      

      

$

8

      

      

   

62,647,987

      

      

$

6,265

      

      

$

73,660,690

      

      

$

(78,558,896

)

   

$

(11,906

)

   

$

(4,903,839

)

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

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 six months ended
June 30,

   

   

2012

   

   

2013

   

Operating activities:

   

   

   

   

   

   

   

Net loss

$

(986,950

   

$

(1,603,427

Net loss from discontinued operations

   

(81,594

   

   

—  

      

Net loss from continuing operations

   

(905,356

   

   

(1,603,427

Adjustments to reconcile net loss to net cash used in operating activities:

   

   

   

   

   

   

   

Bad debt expense

   

5,968

      

   

   

20,031

      

Depreciation of property and equipment

   

97,662

      

   

   

58,318

      

Amortization of software and intangible assets

   

113,280

      

   

   

86,786

      

Stock based compensation expense

   

56,544

      

   

   

51,407

      

Loss on sale of assets

   

2,047

      

   

   

—  

      

Changes in operating assets and liabilities:

   

   

   

   

   

   

   

Accounts receivable

   

184,881

      

   

   

902,117

      

Inventories

   

143,717

      

   

   

(21,391

Prepaid expenses

   

(32,002

   

   

77,677

      

Deposits

   

54,731

      

   

   

(121

Assets and liabilities held for sale, net

   

9,283

      

   

   

27,322

      

Accounts payable

   

(94,350

   

   

496,316

      

Accrued expenses and other current liabilities

   

16,572

   

   

   

136,159

      

Deferred revenue

   

(155,894

   

   

47,595

      

Net cash provided by (used in) operating activities

   

(584,511

   

   

278,789

      

Investing activities:

   

   

   

   

   

   

   

Capitalized software development costs and patents

   

(10,538

   

   

(70,001

Purchase of property and equipment

   

(64,787

   

   

—  

      

Proceeds from sale of assets

   

47,026

      

   

   

—  

      

Net cash used in investing activities

   

(28,299

   

   

(70,001

Financing activities:

   

   

   

   

   

   

   

Proceeds from sale of common stock and warrants

   

321,245

      

   

   

—  

      

Net proceeds (payment) from (to) line of credit

   

175,137

      

   

   

(570,378

Net proceeds (payment) from (to) long-term debt

   

(22,957

   

   

538,037

      

Net cash provided by (used in) financing activities

   

473,425

      

   

   

(32,341

Net increase (decrease) in cash and cash equivalents

   

(139,385

   

   

176,447

      

Cash and cash equivalents, beginning of period

   

319,908

      

   

   

258,259

      

Cash and cash equivalents, end of period

$

180,523

      

   

$

434,706

      

   

   

   

   

   

The accompanying notes are an integral part of these condensed consolidated statements.

   

   

   

 

 6 


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 and six months period ended June 30, 2013. The condensed consolidated balance sheet of the Company as of December 31, 2012 has been derived from the audited consolidated balance sheet as of that date. The results for the three and six months period ended June 30, 2013 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, 2012.

During the six months ended June 30, 2013, net cash provided from operating activities was $278,789 resulting from a net loss of $1,603,427, plus non-cash operating expense of $216,542 and net cash provided from changes in operating assets and liabilities of $1,665,674. At June 30, 2013, the Company had working capital of $457,041 and cash and cash equivalents of $434,706. The Company expects to obtain additional working capital by increasing revenue, reducing operating expenses, borrowing on its line of credit and through other initiatives that may include raising additional capital through issuing debt and/or equity securities. There can be no assurance that additional capital will be available to the Company on acceptable terms, or at all. Additional equity financing may involve substantial dilution to its then existing stockholders. 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 2013 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. In the event the Company is unable to raise additional debt and/or equity capital or execute other alternatives, it may be required to sell segments of the business, or substantially reduce or curtail its activities. However, no assurance can be given that we will be able to sell any segments of the business on terms that are acceptable to us. Such actions could result in charges that could be material to ViewCast’s results of operations or financial position.

On August 14, 2013, the Company entered into a Factoring Agreement (the “Factoring Agreement”) with Variosystems, Inc. whereby Variosystems agreed to advance $200,000 to the Company on or before August 15, 2013, and an additional amount of up to $150,000 on or before December 31, 2013 at the request of the Company, but with the final authority and approval to pay at the final, irrevocable option of Variosystems.    

In consideration for agreeing to advance such funds to the Company, Variosystems will have the right to factor certain of the Company’s invoices at a rate of 15% of the gross amount due to Variosystems.  In addition, Variosystems will have a joint and equal security interest with Ardinger on all of the Company’s assets.

The term of the Factoring Agreement is open, and may be terminated by Variosystems at its sole discretion upon written notice to the Company.

   

   

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

 

 7 


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.

Changes in the Company’s allowance for doubtful accounts for the three and six months ended June 30, 2012 and 2013 are as follows:

   

 

   

For the three months ended
June 30,

   

      

For the six months ended
June 30,

   

   

2012

   

   

2013

   

      

2012

   

   

2013

   

   

(Unaudited)

   

   

(Unaudited)

   

      

(Unaudited)

   

   

(Unaudited)

   

Beginning balance

$

28,135

      

   

$

50,998

      

      

$

22,292

      

   

$

39,018

      

Bad debt expense

   

(5,783

   

   

8,051

      

      

   

5,968

      

   

   

20,031

      

Uncollectible accounts written off

   

—  

      

   

   

—  

      

      

   

(5,908

   

   

—  

      

Ending balance

$

22,352

      

   

$

59,049

      

      

$

22,352

      

   

$

59,049

      

   

   

3. Inventories

Inventories consisted of the following:

   

 

   

December 31,
2012

   

   

June 30,
2013

   

   

   

   

   

(Unaudited)

   

Purchased materials

$

1,013,492

      

   

$

809,139

      

Finished goods

   

1,561,043

      

   

   

2,028,673

      

Reserve

   

(451,156

   

   

(693,042

   

$

2,123,379

      

   

$

2,144,770

      

   

   

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, (the “Purchase Agreement”). ViewCast’s wholly-owned subsidiary, Ancept Corporation, was renamed ViewCast Solutions, Inc. (“VSI”) and no longer operates this business.

Upon the terms and subject to the conditions of the Purchase Agreement, Genus Technologies LLC 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. At December 31, 2012, the Company recorded an impairment of earn-out receivable in the amount of $80,000.

 

 8 


The net loss from discounted operations related to Ancept for the six months ended June 30, 2012 is as follows:

   

 

   

For the Six
Months ended
June 30,

   

   

2012

   

   

(Unaudited)

   

Net revenue

$

22,255

      

Cost of revenue

   

39,057

      

Gross profit

   

(16,802

Operating expenses

   

62,745

      

Loss on sale of assets

   

2,047

      

Net loss from discontinued operations

$

(81,594

   

   

5. Intangible Assets

Intangible assets consisted of the following:

   

 

   

   

   

      

December 31, 2012

   

      

June 30, 2013

   

   

   

   

      

   

   

      

   

   

      

(Unaudited)

   

   

Average  life
(years)

   

      

Gross carrying
amount

   

      

Accumulated
amortization

   

      

Gross carrying
amount

   

      

Accumulated
amortization

   

Patents

10

      

      

$

145,995

      

      

$

61,302

      

      

$

145,995

      

      

$

72,679

      

   

   

   

   

      

$

145,995

      

      

$

61,302

      

      

$

145,995

      

      

$

72,679

      

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

   

 

Six months ending December 31, 2013

$

11,377

      

Year ending December 31, 2014

   

22,754

      

Year ending December 31, 2015

   

22,754

      

Year ending December 31, 2016

   

16,431

      

   

$

73,316

      

   

   

6. Accrued Expenses

Accrued expenses consisted of the following:

   

 

   

December 31,
2012

   

      

June 30,
2013

   

   

   

   

      

(Unaudited)

   

Accrued stockholder interest

$

10,769

      

      

$

38,314

      

Accrued compensation

   

320,251

      

      

   

298,511

      

Accrued warranty

   

115,566

      

      

   

106,703

      

Accrued inventory purchases

   

81,146

      

      

   

228,728

      

Customer deposits

   

5,841

      

      

   

53,827

      

Deferred rent

   

65,380

      

      

   

68,957

      

Accrued taxes and other

   

124,118

      

      

   

64,190

      

   

$

723,071

      

      

$

859,230

      

   

   

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.

 

 9 


The following table shows the changes in accrued warranty expense for the three and six months ended June 30, 2012 and 2013:

   

 

   

For the three months ended
June 30,

   

      

For the six months ended
June 30,

   

   

2012

   

   

2013

   

      

2012

   

   

2013

   

   

(Unaudited)

   

   

(Unaudited)

   

      

(Unaudited)

   

   

(Unaudited)

   

Beginning balance

$

142,396

      

   

$

107,589

      

      

$

135,708

      

   

$

115,566

      

Additions

   

22,195

      

   

   

12,149

      

      

   

49,958

      

   

   

31,721

      

Usage

   

(24,284

   

   

(13,035

      

   

(45,359

   

   

(40,584

Ending balance

$

140,307

      

   

$

106,703

      

      

$

140,307

      

   

$

106,703

      

   

   

8. Property and Equipment

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

   

 

   

Estimated
Useful Life
(Years)

   

      

December 31,
2012

   

   

June 30,
2013

   

   

   

   

      

   

   

   

(Unaudited)

   

Computer equipment

   

2 to 7

      

      

$

574,096

      

   

$

574,096

      

Software

   

3 to 5

      

      

   

104,500

      

   

   

104,500

      

Leasehold improvements

   

1 to 5

      

      

   

174,429

      

   

   

174,429

      

Office furniture and equipment

   

5 to 7

      

      

   

1,452,675

      

   

   

1,452,675

      

   

   

   

   

      

   

2,305,700

      

   

   

2,305,700

      

   

   

   

   

   

   

   

   

   

   

   

   

Less accumulated depreciation and amortization

   

   

   

      

   

(2,170,488

)

   

   

(2,228,806

)

   

   

   

   

      

$

135,212

      

   

$

76,894

      

   

   

   

   

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 provided 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 was 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 was 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 was calculated for each day that the amount advanced by Amegy was 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 was $1,000,000, reviewed as growth of business dictates. To secure the amounts due under the agreement, the Company granted Amegy a security interest in all of its assets owned as of the date of the agreement or thereafter acquired. The Company had $1,143,920 and $573,542 outstanding as of December 31, 2012 and June 30, 2013, respectively, under this facility.

As discussed in Note 18, on August 13, 2013, the Company terminated the Agreement with Amegy Bank National Association.

   

 

 10 


10. Long-Term Debt

Since October 1998, the Company has maintained a credit facility with an entity controlled by the Ardinger Family Partnership, LTD., the estate of 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. (“Ardinger”) 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 that is the greater of 5.0% or the effective prime rate plus 0.75% (5.00% as of December 31, 2012 and June 30, 2013, respectively). Interest on the secondary principal shall accrue based on the effective Applicable Federal Rate, as defined in the agreement, (0.21% and 0.18% as of December 31, 2012 and June 30, 2013, 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 was 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 $10,769 and $38,314 at December 31, 2012 and June 30, 2013, respectively. The amended note agreement is secured by all the assets of the Borrower.

On May 6, 2013, the Company entered into a Loan and Security Agreement effective April 30, 2013 (the “Loan Agreement”) with Ardinger Family Partnership, Ltd. (“Ardinger”) whereby Ardinger agreed to make a term loan to the Company in the amount of $550,000. The interest rate on the unpaid principal amount under the Loan Agreement is seven and a half percent (7.5%) per annum. Interest on the unpaid principal amount under the Loan Agreement is due in full at maturity. Within fifteen (15) days after each month end, beginning with the month ending May 31, 2013, the Company shall pay a portion of the indebtedness under the Loan Agreement in an amount equal to five percent (5.0%) of the Company’s total revenue or income earned during such prior month before any deductions or allowances. Within three (3) business days of the Company receiving the net proceeds of any asset sale that is not in the ordinary course of business, the Company shall pay a portion of the indebtedness under the Loan Agreement in an amount equal to one hundred percent (100%) of the net proceeds of such sale. The maturity date is April 30, 2015, subject to certain exceptions. Under the terms of the Loan Agreement, payments of $18,447, $46,583, and approximately $20,000 were due June 15th, July 15th, and August 15th 2013, respectively. The Company has not made any of these payments, and accordingly, the debt is in default. This default has been waived by Ardinger as of August 19, 2013.

Absent approval from Ardinger, the Loan Agreement prohibits the Company from taking certain actions, including, but not limited to (i) incurring any lien on any of its assets, subject to certain exceptions; (ii) incurring indebtedness in excess of $250,000 in any fiscal year, subject to certain exceptions; (iii) granting any dividends on any equity interest of the Company; (iv) liquidating, merging, or consolidating with or into any entity; or (v) making capital expenditures in excess of $100,000 in any fiscal year; or (vi) creating, incurring, assuming, or suffering, to exist, any obligations as lessee under any lease, except leases in an aggregate amount less than $500,000 in any fiscal year and with lease terms of thirty-six (36) months or less. The Company ratified and confirmed existing liens previously granted by the Company to Ardinger and granted to Ardinger a first priority lien and security interest in and to all of the collateral granted under the prior loan agreement between the same parties, which loan agreement is still in existence.

The Company’s long-term debt consisted of:

   

 

   

December 31, 2012

   

   

June 30, 2013

   

   

   

   

   

(Unaudited)

   

Outstanding Primary Principal Amount

$

1,078,621

      

   

$

1,078,621

      

Outstanding Secondary Principal Amount

   

4,591,361

      

   

   

5,141,361

      

Other debt

   

32,156

      

   

   

20,193

      

Total long-term debt

   

5,702,138

      

   

   

6,240,175

      

Less current maturities

   

(150,870

   

   

(275,056

)

Total long-term debt less current maturities

$

5,551,268

      

   

$

5,965,119

      

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

 

 11 


the average market price during the period. The average market price of the common stock was $0.06 during the six months ended June 30, 2013. 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 June 30,

   

   

Six Months Ended June 30,

   

   

2012

   

   

2013

   

   

2012

   

   

2013

   

   

(Unaudited)

   

   

(Unaudited)

   

   

(Unaudited)

   

   

(Unaudited)

   

Loss from continuing operations

$

(581,844

)

   

$

(1,145,630

)

   

$

(905,356

)

   

$

(1,603,427

)

Net loss from discontinued operations

   

—  

   

   

   

—  

   

   

   

(81,594

)

   

   

—  

   

Net loss applicable to common stockholders—numerator for basic and diluted loss per share

$

(581,844

)

   

$

(1,145,630

)

   

$

(986,950

)

   

$

(1,603,427

)

Weighted—average common shares and dilutive potential common shares outstanding—denominator for diluted earning per share

   

62,355,462

   

   

   

62,386,490

   

   

   

61,881,237

   

   

   

62,386,490

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Net loss per common share (basic and diluted):

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Continuing operations

$

(0.01

)

   

$

(0.02

)

   

   

(0.01

)

   

$

(0.03

)

Discontinued operations

$

—  

   

   

$

—  

   

   

   

(0.00

)

   

$

—  

   

Net loss

$

(0.01

)

   

$

(0.02

)

   

   

(0.02

)

   

$

(0.03

)

   

 

Anti-dilutive securities excluded from diluted earnings per share:

   

   

   

   

   

   

   

   

   

   

   

   

   

   

   

Stock options

   

4,235,835

   

   

   

5,076,750

   

   

   

4,298,335

   

   

   

4,561,195

   

Private warrants

   

6,618,068

   

   

   

6,618,068

   

   

   

5,670,515

   

   

   

6,618,068

   

Convertible preferred stock—Series E

   

16,000,000

   

   

   

13,333,333

   

   

   

16,000,000

   

   

   

13,333,333

   

   

   

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, 2012, as amended by Amendment No. 1 thereto.

Stock-based compensation expense was $56,544 and $51,407 for the six months ended June 30, 2012 and June 30, 2013, respectively. There were 2,025,000 new options granted by the Company during the six months ended June 30, 2013. 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 June 30, 2013, 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 $187,000. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately three years.

 

 12 


The following table is a summary of stock option activity from January 1, 2013 through June 30, 2013:

   

 

   

Stock Options

   

   

Number
of Shares

   

      

Exercise Price
Per Share

   

      

Weighted-
Average
Exercise Price
Per Share

   

Outstanding at December 31, 2012

   

3,530,085

      

      

$

0.11 - $0.62

      

      

$

0.24

      

Granted

   

2,025,000

      

      

$

0.05

      

      

   

0.05

      

Canceled/forfeited

   

(618,335

      

$

0.05 - $0.62

      

      

   

0.27

      

Outstanding at June 30, 2013

   

4,936,750

      

      

$

0.05 - $0.62

      

      

$

0.16

      

The following information applies to options outstanding at June 30, 2013:

   

 

Range of Exercise Prices

   

Outstanding at
June 30,
2013

   

      

Weighted-

Average

Remaining

Contractual

Life

   

      

Weighted-

Average

Exercise

Price

   

      

Exercisable at

June 30,

2013

   

      

Weighted-

Average

Exercise

Price

   

$0.01 - 0.19

   

3,330,000

      

      

   

6.3

      

      

$

0.08

      

      

   

261,945

      

      

$

0.16

      

0.20 - 0.29

   

663,000

      

      

   

3.9

      

      

$

0.26

      

      

   

580,776

      

      

$

0.26

      

0.30 - 0.39

   

717,500

      

      

   

3.9

      

      

$

0.35

      

      

   

593,750

      

      

$

0.35

      

0.40 - 0.49

   

226,250

      

      

   

1.5

      

      

$

0.47

      

      

   

226,250

      

      

$

0.47

      

   

   

4,936,750

      

      

   

5.4

      

      

$

0.16

      

      

   

1,662,721

      

      

$

0.30

      

   

   

13. Income Taxes

At December 31, 2012 the Company has federal income tax net operating loss carryforwards of approximately $65,000,000, 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 second quarter of 2013 as it has recorded a valuation allowance to fully reserve all deferred tax assets.  

   

14. Stockholders’ Equity

Preferred Stock

In December 2006, the Company retired certain debt from the Ardinger Family 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 accruing 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. The Series E Preferred Stock provides for a conversion option to common stock at $0.60 per share of common stock, subject to certain requirements and adjustments.

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, 2012 and June 30, 2013, the Company had outstanding warrants to purchase 6,618,068 shares of Common Stock 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 and cash equivalents, receivable from sale of assets, and short-term debt, approximate fair value. The Company also has long-term debt with its primary shareholder, of

 

 13 


which fair value is not practical to determine. Cash and cash equivalents fall within Level 1 of the valuation hierarchy. Receivable from sale of assets and short-term debt fall within Level 3 of the valuation hierarchy.

   

16. Related Party Transactions

As discussed in Note 10, the Company has outstanding notes payable to the Ardinger Family Partnership, Ltd., an entity controlled by the estate of one of its principal 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

Lance E. Ouellette – 888,331 shares

George C. Platt – 177,667 shares

Messrs. Hammock, Ouellette and Platt are directors of the Company, and Mr. Platt is the Interim Chief Executive Officer of the Company and Mr. Hammock is the Vice President of Sales of the Company. Mr. Brandenburg resigned from the board of directors on August 14, 2013. They acquired the shares of Common Stock on the same terms as the other seven Investors. Mr. Ouellette is the stepson of the recently deceased 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.

   

17. Current Economic Conditions

The current economic environment 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.

   

18. Subsequent Event

On August 14, 2013, the Company entered into a Factoring Agreement (the “Factoring Agreement”) with Variosystems, Inc. whereby Variosystems agreed to advance $200,000 to the Company on or before August 15, 2013, and an additional amount of up to $150,000 on or before December 31, 2013 at the request of the Company, but with the final authority and approval to pay at the final, irrevocable option of Variosystems.    

   

 

 14 


In consideration for agreeing to advance such funds to the Company, Variosystems will have the right to factor certain of the Company’s invoices at a rate of 15% of the gross amount due to Variosystems.  In addition, Variosystems will have a joint and equal security interest with Ardinger on all of the Company’s assets.

   

The term of the Factoring Agreement is open, and may be terminated by Variosystems at its sole discretion upon written notice to the Company.

   

On August 13, 2013, the Company terminated the Agreement with Amegy Bank National Association.

   

 

 15 


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, and delivery of digital media over IP and mobile networks.  ViewCast’s solutions simplify the complex workflows required for these tasks, allowing broadcasters, businesses, governments, and the various distribution entities 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 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.

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.

 

·   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).

 

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Results of Operations

Three and Six Months Ended June 30, 2013 compared to

Three and Six Months Ended June 30, 2012.

Net Sales. During the second quarter ended June 30, 2013, net sales decreased $1,287,828 to $1,603,627 from $2,891,455 in the second quarter 2012, representing a 45% decrease.  During the six months ended June 30, 2013, net sales decreased $2,299,014 to $3,981,250 from $6,280,264 for the same period in 2012, representing a 37% decrease.  The overall sales decrease during the first six months of 2013 was primarily due to decreases in Osprey and Niagara product sales in the North America, the Pacific Rim (“PacRim”), and the Europe, Middle East and Africa (“EMEA”) sales regions, of which a large portion was from the cancellation of a large Niagara OEM customer’s orders during 2012 in the North American sales region.  ViewCast expects improvement as new personnel gain traction and as new Osprey and Niagara products are introduced during the last half of the year.

Osprey Product Sales. During the second quarter ended June 30, 2013, Osprey sales decreased $775,300 to $1,193,016 from $1,968,316 in the second quarter 2012, representing a 39% decrease from the 2012 levels and 74% of total second quarter 2013 revenue, compared to 68% in 2012.  During the six months ended June 30, 2013, Osprey sales decreased $1,073,455 to $2,901,277 from $3,974,732 for the same period in 2012, representing a 27% decrease from the 2012 levels and 73% of total revenue, compared to 63% in 2012.  The decrease in sales for the six months ended June 30, 2013 was primarily due to decreases of volume sales to integrators, particularly in the second quarter.

ViewCast Niagara® Streaming/Encoding System Sales. During the second quarter ended June 30, 2013, combined system sales decreased $487,977 to $369,024 from $857,001 in the second quarter 2012, representing a 57% decrease from the 2012 levels and 23% of total second quarter 2013 revenue, compared to 30% in 2012.  During the six months ended June 30, 2013, combined system sales decreased $1,222,099 to $953,866 from $2,175,965 for the same period in 2012, representing an 56% decrease from the 2012 levels and 24% of total revenue, compared to 35% in 2012.  The decrease in sales for the six months ended June 30, 2013 was primarily due to decreases in the North America and the PacRim and the EMEA sales regions, of which a large portion was from the cancellation of a large OEM customer’s orders during 2012 in the North American sales region.

Other Revenues. During the second quarter ended June 30, 2013, other revenues from support and maintenance decreased $24,551 to $41,587 from $66,138 in the second quarter 2012, representing a 37% decrease from the 2012 levels and 3% of total second quarter 2013 revenue, compared to 2% in 2012.  During the six months ended June 30, 2013, other revenues decreased $3,460 to $126,107 from $129,567 for the same period in 2012, representing a 3% decrease from the 2012 levels and 3% of total revenue, compared to 2% in 2012.  We anticipate that other revenue will vary quarter to quarter depending on the amount of support and maintenance revenues that are amortized over the contract period.

Cost of Sales/Gross Profit. During the second quarter ended June 30, 2013, cost of sales decreased $140,548 to $891,669 from $1,032,217 in the second quarter 2012, representing a 14% decrease from the 2012 levels and 56% of total second quarter 2013 revenue, compared to 36% in 2012.  During the second quarter ended June 30, 2013, gross profit decreased $1,147,280 to $711,958 from $1,859,238 in the second quarter 2012, representing a 62% decrease from the 2012 levels and 44% of total second quarter 2013 revenue, compared to 64% in 2012.  The gross profit margin in the second quarter ended June 30, 2013 was lower than historical margins because the Company accrued a higher than normal non-recurring obsolescence reserve in the amount of approximately $200,000 during a quarter that had lower than normal sales volume.  During the six months ended June 30, 2013, cost of sales decreased $579,606 to $1,758,484 from $2,338,090 in the same period 2012, representing a 25% decrease from the 2012 levels and 44% of total revenue, compared to 37% in 2012.  During the six months ended June 30, 2013, gross profit decreased $1,719,408 to $2,222,766 from $3,942,174 in the same period in 2012, representing a 44% decrease from the 2012 levels and 56% of total revenue, compared to 63% in 2012.  

We expect future margins for the software and hardware products to remain comparable to historical margins in the 55%-65% range.  Margins for the Company will be affected quarter to quarter by promotional activities, price adjustments, cost of materials, inventory obsolescence, the introduction of new products and the sales mix between the products, software, services and third-party products sold in any one reporting period.

Selling, General and Administrative Expenses. During the second quarter ended June 30, 2013, selling, general and administrative expenses decreased $110,399 to $1,251,034 from $1,361,433 in the second quarter 2012, representing an 8% decrease from the 2012 levels.  During the six months ended June 30, 2013, selling, general and administrative expenses decreased $138,027 to $2,607,145 from $2,745,172 in the same period in 2012, representing a 5% decrease from the 2012 levels.  The decrease is primarily due to decreases in sales and marketing expenses.

 

 17 


Research and Development Expense. During the second quarter ended June 30, 2013, research and development expense, net of capitalized software development, decreased $502,455 to $450,841 from $953,296 in the second quarter 2012, representing a 53% decrease from the 2012 levels.  During the six months ended June 30, 2013, research and development expense, net of capitalized software development, decreased $885,846 to $925,296 from $1,811,142 in the same period in 2012, representing a 49% decrease from the 2012 levels.  Research and development expenses vary period to period depending on the number of product introductions planned and as new product prototypes, testing and certifications are completed.

Depreciation and Amortization Expense. During the second quarter ended June 30, 2013, depreciation and amortization expense decreased $27,013 to $67,937 from $94,950 in the second quarter 2012, representing a 28% decrease from the 2012 levels.  During the six months ended June 30, 2013, depreciation and amortization expense decreased $65,837 to $145,105 from $210,942 in the same period 2012, representing a 31% decrease from the 2012 levels.  The decrease was primary due to lower capital expenditures in recent prior periods.

Other Income (Expense). During the second quarter ended June 30, 2013, total other expenses increased $56,374 to $87,777 from $31,403 in the second quarter 2012, representing a 180% increase from the 2012 levels.  During the six months ended June 30, 2013, total other expenses increased $68,373 to $148,647 from $80,274 in the same period 2012, representing an 85% increase from the 2012 levels.  The increase is predominately from increased interest expense due primarily from the increase in the average outstanding balance and interest rate on the Amegy Bank Credit Facility (see Note 9).

Net Loss from Continuing Operations. During the second quarter ended June 30, 2013, the net loss from continuing operations increased $563,787 to a net loss of $1,145,631 from a net loss of $581,844 in the second quarter 2012.  During the six months ended June 30, 2013, the net loss from continuing operations increased $698,071 to a net loss of $1,603,427 from a net loss of $905,356 in the same period in 2012.  The increase in net loss was mainly due to decreased sales, which was partially offset by reduced operating expenses.

Net Loss from Discontinued Operations. During the second quarters ended June 30, 2013 and 2012, there were no net losses from discontinued operations.  During the six months ended June 30, 2013, there was no net loss from discontinued operations, a decrease of $81,594 from a net loss of $81,594 in the same period in 2012.  See Note 4 to the Financial Statements regarding the sale of the Ancept Assets effective January 15, 2013.

Net Loss. During the second quarter ended June 30, 2013, net loss increased $563,787 to a net loss of $1,145,631 from a net loss of $581,844 in the second quarter 2012.  The net loss per share applicable to the common shareholders for the second quarter of 2013 was ($0.02) per share, compared to ($0.01) per share for the same period 2012.  During the six months ended June 30, 2013, the net loss increased $616,477 to a net loss of $1,603,427 from a net loss of $986,950 in the same period 2012.  The net loss per share applicable to the common shareholders for the six months ended June 30, 2013 was ($0.03) per share, compared to ($0.02) per share for the same period 2012.

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 provided from operating activities for the six months ended June 30, 2013 was $278,789, resulting from a net loss of $1,603,427, plus non-cash operating expense of $216,542 and net cash provided from changes in operating assets and liabilities of $1,665,674. Cash provided from changes in operating assets and liabilities was primarily due to decreased accounts receivable, prepaid expenses, and net assets held for sale, and increased account payable, accrued expenses and other current liabilities, and deferred revenue, which was partially offset by cash used for increased inventory.

Cash used in investing activities during the six months ended June 30, 2013 was $70,001, which was for capitalized software development costs and patents.

During the six months ended June 30, 2013, ViewCast’s financing activities used cash of $32,341, of which $570,378 was for net payments on the line of credit, which was partially offset by net cash of $538,037 provided from long-term debt.

Since October 1998, the Company has maintained a credit facility with an entity controlled by the Ardinger Family Partnership, LTD., the estate of 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

 

 18 


certain earlier payment conditions. The interest on the primary principal amount will accrue based on an interest rate per annum that is the greater of 5.0% or the effective prime rate plus 0.75% (5.00% as of December 31, 2012 and June 30, 2013, respectively). Interest on the secondary principal shall accrue based on the effective Applicable Federal Rate, as defined in the agreement, (0.21% and 0.18% as of December 31, 2012 and June 30, 2013, 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 $10,769 and $38,314 at December 31, 2012 and June 30, 2013, respectively.  The amended note agreement is secured by all the assets of the Borrower.

On May 6, 2013, ViewCast entered into a Loan and Security Agreement effective April 30, 2013 (the “Loan Agreement”) with Ardinger Family Partnership, Ltd. (“Ardinger”) whereby Ardinger agreed to make a term loan to the Company in the amount of $550,000. The interest rate on the unpaid principal amount under the Loan Agreement is seven and a half percent (7.5%) per annum. Interest on the unpaid principal amount under the Loan Agreement is due in full at maturity. Within fifteen (15) days after each month end, beginning with the month ending May 31, 2013, the Company shall pay a portion of the indebtedness under the Loan Agreement in an amount equal to five percent (5.0%) of ViewCast’s total revenue or income earned during such prior month before any deductions or allowances. Within three (3) business days of ViewCast receiving the net proceeds of any asset sale that is not in the ordinary course of business, the Company shall pay a portion of the indebtedness under the Loan Agreement in an amount equal to one hundred percent (100%) of the net proceeds of such sale. The maturity date is April 30, 2015, subject to certain exceptions. Under the terms of the Loan Agreement, payments of $18,447, $46,583, and approximately $20,000 were due June 15th, July 15th, and August 15th 2013. The Company has not made any of these payments, accordingly, the debt is in default. This default has been waived as of August 19, 2013.

Absent approval from Ardinger, the Loan Agreement prohibits ViewCast from taking certain actions, including, but not limited to (i) incurring any lien on any of its assets, subject to certain exceptions; (ii) incurring indebtedness in excess of $250,000 in any fiscal year, subject to certain exceptions; (iii) granting any dividends on any equity interest of the Company; (iv) liquidating, merging, or consolidating with or into any entity; or (v) making capital expenditures in excess of $100,000 in any fiscal year; or (vi) creating, incurring, assuming, or suffering, to exist, any obligations as lessee under any lease, except leases in an aggregate amount less than $500,000 in any fiscal year and with lease terms of thirty-six (36) months or less. ViewCast ratified and confirmed existing liens previously granted by ViewCast to Ardinger and granted to Ardinger a first priority lien and security interest in and to all of the collateral granted under the prior loan agreement between the same parties, which loan agreement is still in existence.

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 June 30, 2013, we have an outstanding balance of $573,542 under this facility. As discussed in Note 18, on August 13, 2013, the Company terminated the Agreement with Amegy Bank National Association.

There were no preferred stock dividends declared or paid during the six months of 2013.

At June 30, 2013, ViewCast had working capital of $457,041 and cash and cash equivalents of $434,706.  ViewCast expects to obtain additional working capital by increasing revenue, maintaining reduced operating expenses, borrowing on its loan facilities, and through other initiatives that may include raising additional capital through issuing debt and/or equity securities.  There can be no assurance that additional capital will be available to ViewCast on acceptable terms, or at all.  Additional equity financing may involve substantial dilution to its then existing stockholders.  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 2013 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, and to transition adverse economic conditions.

Although ViewCast has no firm arrangements with respect to additional capital financing on an ongoing basis beyond what is explained in Note 18, 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 ViewCast’s results of operations or financial position.

At June 30, 2013, ViewCast had no material commitments for capital expenditures.

 

 19 


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.

   

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 Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2012. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of June 30, 2013, 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)

   

   

On August 14, 2014, the Company entered into a Factoring Agreement (the “Factoring Agreement”) with Variosystems, Inc. whereby Variosystems agreed to advance $200,000 to the Company on or before August 15, 2013, and an additional amount of up to $150,000 on or before December 31, 2013 at the request of the Company, but with the final authority and approval to pay at the final, irrevocable option of Variosystems.    

In consideration for agreeing to advance such funds to the Company, Variosystems will have the right to factor certain of the Company’s invoices at a rate of 15% of the gross amount due to Variosystems.  In addition, Variosystems will have a joint and equal security interest with Ardinger on all of the Company’s assets.

The term of the Factoring Agreement is open, and may be terminated by Variosystems at its sole discretion upon written notice to the Company.

(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:

August 19, 2013

/s/    George C. Platt

   

   

George C. Platt

   

   

Interim Chief Executive Officer

   

   

(Principal Executive Officer)

   

   

   

Date:

August 19, 2013

/s/    George C. Platt

   

   

George C. Platt

   

   

Interim Chief Executive Officer

   

   

(Principal Financial and Accounting Officer)

   

   

   

   

 

 22 


EXHIBIT INDEX

   

 

Exhibit Number

   

   

31.1

   

Rule 13a-14(a)/15d-14(a) Certification

   

   

   

31.2

   

Rule 13a-14(a)/15d-14(a) Certification

   

   

   

32.1

   

Section 1350 Certification

   

   

   

32.2

   

Section 1350 Certification

   

   

   

101

   

Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets at December 31, 2012 and June 30, 2013 (Unaudited), (ii) Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2012 and 2013 (Unaudited), (iii) Condensed Consolidated Statement of Stockholders’ Deficit for the Six Months Ended June 30, 2013 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2012 and 2013 (Unaudited) and (v) Notes to the Condensed Consolidated Financial Statements. (1)

   

   

   

   

   

   

 

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