-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R6tk2bc90F/7Lac7hPcRgw4AOKqvIaVMBzIyP5pmdJ+yFhLx52qD/JPvQ8v1tSIw 6GCFBkOAN4QFEmRoTqZ3LQ== 0000950134-99-007411.txt : 19990817 0000950134-99-007411.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950134-99-007411 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIEWCAST COM INC CENTRAL INDEX KEY: 0000921313 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 752528700 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-29020 FILM NUMBER: 99690008 BUSINESS ADDRESS: STREET 1: 2665 VILLA CREEK DR STREET 2: STE 200 CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 9724887200 MAIL ADDRESS: STREET 1: 2665 VILLA CREEK DR CITY: DALLAS STATE: TX ZIP: 75234 FORMER COMPANY: FORMER CONFORMED NAME: MULTIMEDIA ACCESS CORP DATE OF NAME CHANGE: 19950202 10QSB 1 FORM 10QSB FOR QUARTER ENDING JUNE 30, 1999 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ___________ Commission File Number: 0-29020 VIEWCAST.COM, INC. ------------------ (FORMERLY MULTIMEDIA ACCESS CORPORATION) (Exact Name of Small Business Issuer as Specified in its Charter) DELAWARE 75-2528700 -------- ---------- (State or other Jurisdiction of (I.R.S. Employer Incorporation Incorporation or Organization) Identification No.)
2665 VILLA CREEK DRIVE, SUITE 200, DALLAS, TX 75234 --------------------------------------------------- (Address of principal executive offices) 972/488-7200 ------------ (Issuer's Telephone Number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 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 ---- ---- As of August 03, 1999, 13,848,159 shares of the Registrant's common stock were outstanding. 2 VIEWCAST.COM, INC. AND SUBSIDIARIES INDEX TO FORM 10-QSB PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at December 31, 1998 and June 30, 1999 (Unaudited)...............................................3 Consolidated Statements of Operations for the Three Months ended June 30, 1998 and 1999 (Unaudited) and the Six Months ended June 30, 1998 and 1999 (Unaudited)................................4 Consolidated Statement of Stockholders' Equity (Deficit) for the Six Months ended June 30, 1999 (Unaudited)..............................5 Consolidated Statements of Cash Flows for the Six Months ended June 30, 1998 and 1999 (Unaudited)......................................6 Notes to Consolidated Financial Statements.................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................10 PART II. OTHER INFORMATION..................................................14 SIGNATURES....................................................................15
2 3 VIEWCAST.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30, 1998 1999 -------------- -------------- ASSETS (UNAUDITED) Current assets: Cash and cash equivalents $ 439,791 $ 6,768,343 Available-for-sale securities -- 1,762,715 Accounts receivable, less allowance for doubtful accounts of $823,500 at December 31, 1998 and $780,400 at June 30, 1999 (unaudited) 1,839,783 2,135,840 Stock subscription receivable 3,400,000 -- Inventory 3,110,588 2,704,089 Prepaid expenses 90,646 81,978 Deferred charges, principally deferred debt issue costs 568,252 204,199 -------------- -------------- Total current assets 9,449,060 13,657,164 Property and equipment, net 1,382,044 1,291,817 Software development costs, net 431,500 405,193 Deferred charges 213,048 -- Investment in equity securities 2,000,000 1,272,305 Deposits 135,938 124,661 -------------- -------------- Total assets $ 13,611,590 $ 16,751,140 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,847,807 $ 785,624 Accrued compensation 326,169 327,245 Deferred revenue 157,891 156,394 Accrued restructuring charges 275,000 31,543 Other accrued liabilities 488,337 683,037 Short-term debt, officer 96,285 -- Shareholder line of credit 3,687,513 2,763,918 Short-term debt, other 117,280 82,386 -------------- -------------- Total current liabilities 7,996,282 4,830,147 Long-term debt 1,360,000 -- Commitments Stockholders' equity: Convertible preferred stock, $.0001 par value: Authorized shares - 5,000,000 Series A issued and outstanding shares - 334,000 at December 31, 1998 and 50,000 at June 30, 1999 (unaudited) 33 5 Series B shares - 400,000 shares subscribed at December 31, 1998 and 945,000 shares issued and outstanding at June 30, 1999 (unaudited) 40 95 Common stock, $.0001 par value: Authorized shares - 30,000,000 Issued and outstanding shares - 11,324,974 at December 31, 1998 and 13,920,916 at June 30, 1999 (unaudited) 1,132 1,392 Additional paid-in capital 31,947,418 42,738,775 Unrealized gain on securities reported at fair value -- 1,035,020 Accumulated deficit (27,681,409) (31,842,388) Treasury stock, 261,497 shares at December 31, 1998 and June 30, 1999 (unaudited) (11,906) (11,906) -------------- -------------- Total stockholders' equity 4,255,308 11,920,993 -------------- -------------- Total liabilities and stockholders' equity $ 13,611,590 $ 16,751,140 ============== ==============
See accompanying notes. 3 4 VIEWCAST.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 1998 1999 1998 1999 ------------ ------------ ------------ ------------ NET SALES $ 2,565,638 $ 2,219,826 $ 4,400,606 $ 4,233,990 Cost of goods sold 1,340,542 1,157,784 2,241,344 2,206,249 ------------ ------------ ------------ ------------ GROSS PROFIT 1,225,096 1,062,042 2,159,262 2,027,741 Operating expenses: Selling, general and administrative 1,923,852 1,763,229 3,638,977 3,418,191 Research and development 709,210 683,405 1,480,973 1,658,672 Depreciation and amortization 110,688 150,206 213,963 304,581 ------------ ------------ ------------ ------------ Total operating expenses 2,743,750 2,596,840 5,333,913 5,381,444 ------------ ------------ ------------ ------------ OPERATING LOSS (1,518,654) (1,534,798) (3,174,651) (3,353,703) Other income (expense): Dividend and interest income 4,477 63,277 30,593 106,640 Interest expense (230,269) (253,519) (391,663) (579,697) Other (27) 67 (20) 67 ------------ ------------ ------------ ------------ Total other income (expense) (225,819) (190,175) (361,090) (472,990) ------------ ------------ ------------ ------------ NET LOSS $ (1,744,473) $ (1,724,973) $ (3,535,741) $ (3,826,693) ============ ============ ============ ============ NET LOSS PER SHARE: BASIC AND DILUTED $ (0.20) $ (0.15) $ (0.40) $ (0.34) ============ ============ ============ ============ WEIGHTED AVERAGE NUMBER OF COMMON shares outstanding 8,743,556 12,847,820 8,739,303 12,244,894 ============ ============ ============ ============
See accompanying notes. 4 5 VIEWCAST.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
CONVERTIBLE PREFERRED STOCK COMMON STOCK SHARES PAR VALUE SHARES PAR VALUE ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1998 734,000 $ 73 11,324,974 $ 1,132 Sale of convertible preferred stock - Series B, net 545,000 55 -- -- Conversion of convertible preferred stock - Series A to common stock (284,000) (28) 783,555 78 Conversion of 8% convertible notes to common stock -- -- 317,313 32 Exercise of options and warrants -- -- 1,465,580 147 Value of options and warrants issued for consulting services -- -- -- -- Sale of common stock, employee stock purchase plan -- -- 29,494 3 Other -- -- -- -- Convertible preferred stock dividends - Series A and B -- -- -- -- Net loss net of comprehensive gain -- -- -- -- ------------ ------------ ------------ ------------ BALANCE, JUNE 30, 1999 995,000 $ 100 13,920,916 $ 1,392 ============ ============ ============ ============
ADDITIONAL TOTAL PAID-IN ACCUMULATED TREASURY STOCKHOLDERS' CAPITAL DEFICIT STOCK EQUITY ------------ ------------ ------------ ------------ BALANCE, DECEMBER 31, 1998 $ 31,947,418 $(27,681,409) $ (11,906) $ 4,255,308 Sale of convertible preferred stock - Series B, net 5,434,291 -- -- 5,434,346 Conversion of convertible preferred stock - Series A to common stock (50) -- -- -- Conversion of 8% convertible notes to common stock 1,162,818 -- -- 1,162,850 Exercise of options and warrants 4,135,696 -- -- 4,135,843 Value of options and warrants issued for consulting services 24,500 -- -- 24,500 Sale of common stock, employee stock purchase plan 43,086 -- -- 43,089 Other (8,984) -- -- (8,984) Convertible preferred stock dividends - Series A and B -- (334,286) -- (334,286) Net loss net of comprehensive gain -- (2,791,673) -- (2,791,673) ------------ ------------ ------------ ------------ BALANCE, JUNE 30, 1999 $ 42,738,775 $(30,807,368) $ (11,906) $ 11,920,993 ============ ============ ============ ============
See accompanying notes. 5 6 VIEWCAST.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------ 1998 1999 ------------ ------------ OPERATING ACTIVITIES: Net loss $ (3,535,741) $ (3,826,693) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation of fixed assets 169,467 244,122 Amortization of software development costs 44,496 60,459 Non-cash charges to interest expense 96,119 379,951 Non-cash consulting fees exchanged for options and warrants 62,232 24,500 Changes in operating assets and liabilities: Accounts receivable (935,568) (296,057) Inventory (389,342) 406,499 Prepaid expenses (39,960) 8,668 Deferred charges (41,463) Deposits (103,551) 11,277 Accounts payable 1,256,688 (2,062,183) Accrued compensation 132,552 1,076 Accrued restructuring charges -- (243,457) Deferred revenue 144,635 (1,497) Other accrued liabilities (31,553) (139,586) ------------ ------------ Net cash used in operating activities (3,170,989) (5,432,921) ------------ ------------ INVESTING ACTIVITIES: Purchase of property and equipment (360,136) (153,895) Software development costs (183,992) (34,152) ------------ ------------ Net cash used in investing activities (544,128) (188,047) ------------ ------------ FINANCING ACTIVITIES: Net proceeds from convertible preferred stock subscription - Series B -- 8,834,346 Net proceeds from the exercise of options and warrants 389,374 4,135,843 Net proceeds from issuance of short-term debt 936,764 -- Proceeds from sale of common stock and warrants 66,554 43,089 Repayment of shareholder line of credit -- (923,595) Repayment of short-term debt-officer (194,576) (96,285) Other 8,922 (43,878) ------------ ------------ Net cash provided by financing activities 1,207,038 11,949,520 ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,508,079) 6,328,552 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,117,202 439,791 ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 609,123 $ 6,768,343 ------------ ------------
See accompanying notes. 6 7 VIEWCAST.COM, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements include the accounts of ViewCast.com, Inc. and its wholly-owned subsidiaries, Viewpoint Systems, Inc., VideoWare, Inc. and Osprey Technologies, Inc. (collectively, the Company). All material inter-company accounts and transactions have been eliminated in consolidation. On April 8, 1999, the Company changed its name from MultiMedia Access Corporation to ViewCast.com, Inc. As a result, references to MultiMedia Access Corporation have been changed to ViewCast.com, Inc. in this report. The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. 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 only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 filed with the Securities and Exchange Commission. 2. SECURITIES AVAILABLE-FOR-SALE Securities available-for-sale at June 30, 1999, consist of the investment in equity securities of a strategic business alliance partner, and are stated at fair market value as determined by quoted market sources and management estimates of the number of shares expected to be available for sale within one year in accordance with Rule 144 of the Securities and Exchange Commission. The cost of the shares at June 30, 1999 was $727,695. Gross unrealized gains for the six months ended June 30 1998, which have been included as a separate component of shareholders' equity, were $1,035,020. No unrealized holding gains or losses have been included in earnings during the six months ended June 30, 1999. 2. INVENTORY Inventory is comprised primarily of purchased electronic components and computer system products, along with related documentation manuals and packaging materials and consists of the following:
DECEMBER 31, JUNE 30, 1998 1999 ---------- ---------- (UNAUDITED) Purchased materials $ 815,999 $ 734,816 Work in progress 108,639 -- Finished goods 2,185,950 1,969,273 ---------- ---------- $3,110,588 $2,704,089 ========== ==========
Inventory at December 31, 1998 and June 30, 1999 is presented net of reserves of $199,255 and $202,942, respectively. Reserves are provided for lower of cost or market adjustments, obsolescence and for slow moving and damaged inventory. 7 8 VIEWCAST.COM, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 3. LONG-TERM DEBT - CONVERTIBLE In February through April 1999, holders of $1,360,000 principal amount of 8% convertible debt exchanged their notes for 317,313 shares of common stock of the Company at conversion prices ranging from of $3.625 to $4.625 per share completing the exchange of all 8% convertible notes that were outstanding at December 31, 1998. 4. CONVERTIBLE PREFERRED STOCK In January through June 1999, holders of 284,000 shares of Series A convertible preferred stock converted their shares into 783,555 shares of common stock of the Company at a conversion rate of 2.759 shares of common for each share of Series A convertible preferred stock. 5. COMMON STOCK In January through June 1999, the Company received gross proceeds of $1,218,464 from the exercise of 309,654 warrants at exercise prices ranging from $3.00 to $4.19 per share, and gross proceeds of $2,917,379 from the exercise of 1,155,926 stock options at exercise prices ranging from $0.10 to $5.84 per share. 6. NET LOSS PER SHARE Basic earnings per share is calculated by dividing net income/loss applicable to common shareholders by the weighted average number of common shares outstanding for the period. Since the Company has reported net losses for the periods presented, the computation of diluted loss per share excludes the effects of options, warrants and convertible debt since their effect is anti-dilutive. Loss per share calculations for the three and six month periods ended June 30, 1998 and 1999 are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 1998 1999 1998 1999 ------------ ------------ ------------ ------------ Net loss $ (1,744,473) $ (1,724,973) $ (3,535,741) $ (3,826,693) Preferred dividends and accretion of issue costs -- (182,099) -- (385,048) ------------ ------------ ------------ ------------ Net loss applicable to common shareholders $ (1,744,473) $ (1,907,072) $ (3,535,741) $ (4,211,741) ============ ============ ============ ============ Weighted average number of common shares outstanding 8,743,556 12,847,820 8,739,303 12,244,894 ============ ============ ============ ============ Loss per share as reported in the financial statements: basic and diluted $ (0.20) $ (0.15) $ (0.40) $ (0.34) ============ ============ ============ ============
8 9 VIEWCAST.COM, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED) 7. BUSINESS RESTRUCTURING Results of operations for 1998 included charges of $402,800 for resizing and restructuring the Company's operations and workforce. The charges were recorded in the fourth quarter of 1998 in accordance with a plan of restructuring approved by the Board of Directors. The charges included severance costs for work force reductions of 16 employees including two Executive Officers of the Company, closure of three sales offices and losses on impairment of certain assets. Personnel reductions were made in the Company's sales, development and finance and administration departments in an effort to reduce operating expenses. During the six months ended June 30, 1999, the Company paid $243,457 of accrued restructuring charges that consisted principally of employee severance. At June 30, 1999, the Company had accrued restructuring charges of $31,543 that consisted mainly of obligations due for early cancellation of contracts. 9 10 VIEWCAST.COM, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL ViewCast.com, Inc. develops, manufactures and markets standards-based systems that provide advanced video communications applications for business customers. The Company's VBX(TM) video distribution and switching systems, Osprey(R) video codecs and video peripherals and ViewCast(R) Internet-video systems deliver popular video applications, including videoconferencing, video broadcasting, video-based training, surveillance, distance learning, telemedicine and Internet/Intranet video communications. The Company's products are available from leading resellers, systems integrators, OEMs, and applications developers worldwide. On April 8, 1999, the Company changed its name to ViewCast.com, Inc. from MultiMedia Access Corporation. As a result, references to MultiMedia Access Corporation have been changed to ViewCast.com, Inc. in this report. This Form 10-QSB contains forward-looking statements, which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference 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 effect of the Company's accounting policies and other risks detailed in the Company's Annual Report on Form 10-KSB and other filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS Six Months Ended June 30, 1999 compared to Six Months Ended June 30, 1998. Net Sales. Net sales for the six months ended June 30, 1999 decreased 3.8% to $4,223,990 from $4,400,606 reported during the same period last year. The decrease can be attributed to a decline in revenues for the Company's video distribution systems offset in part by increased revenues for its video peripheral and video streaming products during the first half of 1999 as compared to the same period in 1998. The Company is experiencing a growing acceptance of its streaming products and technologies in the market place and expects total sales volumes to increase for the balance of 1999 as the demand for video communications products expands. During the first six months of 1999, sales of Osprey(R) peripheral products increased 48.6% over the same period in 1998 and represented 71.6% of 1999 revenues compared to 46.4% of 1998 revenues. Sales of ViewCast(R) streaming server products showed a significant increase since its launch in the first quarter of 1999 and represented 4.1% of total 1999 year-to-date revenues. VBX(TM) video distribution systems sales decreased 58.9% compared the same period in 1998 and represented 21.7% of 1999 revenues compared to 50.7% of 1998 revenues. Sales of VBX(TM) systems are expected to vary from quarter to quarter due to the long sales cycle for this product. However, it is anticipated that sales for VBX(TM) systems will represent a larger percentage of total revenues during the second half of 1999. 10 11 VIEWCAST.COM, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) Cost of Goods Sold. Cost of goods sold decreased $35,098 to $2,206,249 for the first half of 1999 compared to the same period last year, primarily due to the decrease in net sales described above. Gross profit margin for first half of 1999 was 47.9%, representing a decline from the 49.1% margin reflected last year. The decrease in gross margin can be attributed primarily to the 1999 increase in sales of the Company's Osprey(R) codecs and ViewCast(R) video-streaming products which have lower profit margins, and to increased sales to major distribution partners with higher contractual sales discounts. Selling, General and Administrative Expense. Selling, general and administrative expenses decreased from $3,638,977 in the first half of 1998 to $3,418,191 in the first half of 1999 primarily due to the cost reduction efforts instituted during the fourth quarter of 1998 to reduce the Company's sales staff and sales administrative costs. The savings generated from reduced sales expenses were offset in part by increases in both marketing and customer service expenses during the first half of 1999. Research and Development Expense. Research and development expense increased from $1,480,973 in the first half of 1998 to $1,658,672 in the first half of 1999. This increase of $177,699 can be attributed to a lower of cost or market adjustment to inventory of $275,000 during the first quarter of 1999 as a result of new contractual pricing from one of the Company's major suppliers. Development expenses during the first half of 1999 showed a decline of $166,411 over last year due to development staff reductions initiated during the fourth quarter of 1998. Other Income (Expense). For the six months ended June 30, 1999, other expense increased $111,900 compared to the same period in 1998. The change was due primarily to an increase in interest expense and amortization of debt issue costs associated with the Company's line of credit financing consummated in November 1998 offset in part by the increase in interest income during the first half of 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of funds for conducting its business activities are from the sale of its debt and equity securities and from operations. The Company requires liquidity and working capital primarily to fund increases in inventories and accounts receivable associated with sales growth, development of its products, debt service and for capital expenditures. Net cash used in operating activities for the six months ended June 30, 1999 was $5,432,921 due primarily to the $3,826,693 net loss for the period and changes in operating assets and liabilities of $2,315,260 offset in part by noncash operating expenses of $709,032. Investing activities utilized cash of $188,047 during the six months ended June 30, 1999 for capital expenditures of computer equipment, test equipment and purchased software to aid the marketing, development and testing of the Company's products. During the first half of 1999, financing activities generated cash in the amount of $11,949,520 due principally to the completion of the Company's private placement of Series B Convertible Preferred Stock which provided cash of $8,834,346. The Company also received proceeds of $4,135,843 from the exercise of options and warrants and utilized cash in the amount $1,063,758 to retire short-term debt. 11 12 VIEWCAST.COM, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) During September of 1998, the Company entered into a strategic business relationship with Tadeo Holdings, Inc. ("THI") that involved a stock purchase agreement whereby the Company acquired 1,240,310 shares of THI common stock in exchange for 1,000,000 shares of the Company's common stock. Management has estimated that approximately 36% of the THI shares held by the Company would be available for trading within one year and accordingly reported those shares at their fair market value on the balance sheet as of June 30, 1999. The remaining THI shares held by the Company are valued at cost due to governmental limitations imposed by Rule 144 of the Securities and Exchange Commission limiting trading for the first two years the stock is held. At June 30, 1999, the quoted market price of THI registered shares was $3.91 per share. The Company had working capital of $8,827,017 at June 30, 1999 compared to $1,452,778 at December 31, 1998 and cash and cash equivalents of $6,768,343 at June 30, 1999 compared to $439,791 at December 31, 1998. The Company experienced a modest sales decline during the half of 1999 compared to 1998. It is anticipated that losses will continue during 1999 and until such time as gross margins from the sales of its products exceed its development, selling, administrative and financing costs. As revenues grow, operating expenses are forecasted to decline as a percent of revenues and the Company's quarterly results are expected to continue to move toward profitability. The Company believes it has sufficient cash and cash equivalents on hand to meet its working capital requirements at least through the end of 1999. In November 1998, the Company entered into a working capital line of credit financing arrangement for up to $9 million with one of its principal shareholders. The availability of funds under this facility is subject to certain borrowing base limitations based principally on outstanding accounts receivable and inventory. At June 30, 1999, the Company had utilized $2.76 million of this facility and may further utilize the facility to fund future sales growth. Additionally, the Company expects to receive additional funds from the exercise of options and warrants during the remainder of 1999. YEAR 2000 The "Year 2000" issue (Y2K) refers to potential complications that may be caused by computer hardware and software that were not designed for the change in the century. If not corrected, such computer hardware and software may cause management information systems and devices with embedded microprocessors to fail or miscalculate data. The Company has largely completed all phases of its Y2K readiness review, except for contingency planning, with respect to the currently supported versions of all of its products. As a result, the current versions of each of the Company products are "Year 2000 Compliant" as defined below, when configured and used in accordance with the related documentation, and provided that any other software used with the Company's products are also Year 2000 Compliant. The Company continues to respond to customer questions about prior versions of its products on a case-by-case basis. "Year 2000 Compliant" is defined as the ability to: (a) correctly handle date information needed for the December 31, 1999 to January 1, 2000 date change; (b) function according to the product documentation provided for this date change, without changes in operation resulting from the advent of a new century, assuming correct configuration; 12 13 VIEWCAST.COM, INC. AND SUBSIDIARIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED) (c) where appropriate, respond to two-digit date input in a way that resolves the ambiguity as to century in a disclosed, defined, and predetermined manner; (d) if the date elements in interfaces and data storage specify the century, store and provide output of date information in ways that are unambiguous as to century; and (e) recognize year 2000 as a leap year. The Company has received assurances from its vendors that licensed software incorporated in its products is Year 2000 Compliant. Despite testing by the Company and by current and potential clients, and assurances from developers of products incorporated into the Company's products, the Company's products may contain undetected errors or defects associated with year 2000 date functions. Known or unknown errors or defects in the Company's products could result in delay or loss of revenue, diversion of development resources, damage to its reputation, or increased service and warranty costs, any of which could materially adversely affect its business, operating results, or financial condition. The Company's internal systems include both information technology, or IT, and non-IT systems. An assessment of the Company's material internal IT systems has been initiated, including both its own software products and third-party software and hardware technology, but the Company has not initiated an assessment of its non-IT systems. The Company expects to complete testing its IT and non-IT systems in 1999. To the extent that it is not able to test the technology provided by third-party vendors, it is seeking assurances from such vendors that their systems are Year 2000 Compliant. Although the Company is not currently aware of any material operational issues or costs associated with preparing its internal IT and non-IT systems for the Year 2000, the Company may experience material unanticipated problems and costs caused by undetected errors or defects in the technology used in its internal IT and non-IT systems. The Company does not currently have any information concerning the Y2K compliance status of its customers. The Company's current and potential clients may incur significant expenses to achieve Y2K compliance. If its clients are not Y2K compliant, they may experience material costs to remedy problems or they may face litigation costs. In either case, Y2K issues could reduce or eliminate budgets that current or potential customers could have for purchases of the Company's products and services. As a result, the Company's business, results of operations or financial condition could be materially adversely affected. The Company has funded its Y2K plan from available cash and has not separately accounted for these costs in the past. To date, these costs have not been material. Any additional costs that may be incurred are not anticipated to be material. The Company may experience material problems and costs with Y2K compliance that could adversely affect its business, results of operations and financial condition. The Company has not yet fully developed a contingency plan to address situations that may result if it is unable to achieve Y2K readiness of its critical operations. The costs of developing and implementing such a plan may itself be material. Finally, the Company is also subject to external forces that might generally affect industry and commerce, such as utility or transportation company Y2K compliance failures and related service interruptions. There can be no assurance that Y2K will not adversely affect the Company and its operations. 13 14 VIEWCAST.COM INC. AND SUBSIDIARIES OTHER INFORMATION PART II: OTHER INFORMATION Item 1. Legal Proceedings (Not Applicable) Item 2. Changes in Securities (Not Applicable) Item 3. Defaults Upon Senior Securities (Not Applicable) Item 4. Submission of Matters to a Vote of Security Holders (None) Item 5. Other Information (None) Item 6. Exhibits and Reports on Form 8-K (a) Exhibits filed with this report: Exhibit 27: Financial Data Schedule (b) Reports on Form 8-K On March 15, 1999, the Company filed a Form 8-K describing the terms of private placement of a newly created Series B convertible preferred stock. 14 15 SIGNATURES In accordance with 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 13, 1999 /s/ Frederick B. Cowen ------------------------------- Frederick B. Cowen Chief Accounting Officer 15 16 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF VIEWCAST.COM, INC. AND SUBSIDIARIES AS OF JUNE 30, 1999 (UNAUDITED) AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JUN-30-1999 6,768,343 1,762,715 2,916,240 780,400 2,704,089 13,657,164 2,467,324 1,175,507 16,751,140 4,830,147 0 0 100 1,392 11,919,501 16,751,140 4,123,990 4,233,990 2,206,249 2,206,249 1,963,253 85,249 579,697 (3,826,693) 0 (3,826,693) 0 0 0 (3,826,693) (0.34) (0.34)
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