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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For Fiscal Year Ended December 31, 1998
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 of Incorporation) (I.R.S. Employer Identification No.)
2665 VILLA CREEK DRIVE, SUITE 200 DALLAS, TEXAS 75234 (972) 488-7200
(Address including zip code, area code and telephone number of
Registrant's executive offices.)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, $.0001 par value NASDAQ
Redeemable Common Stock Purchase Warrants NASDAQ
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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
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $8,027,948
As of March 22, 1999, 12,133,595 shares of the Registrant's common stock were
outstanding.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of March 22, 1999 - $44,543,850. This amount was computed by reference
to the average of the bid and asked prices of registrant's common stock.
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TABLE OF CONTENTS
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ITEM NO. PAGE
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PART I
1. Description of Business 3 - 9
2. Description of Property 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 10
6. Management's Discussion and Analysis of Financial Condition and Results 10 - 14
of Operations
7. Consolidated Financial Statements 15 - 36
8. Changes in and Disagreements with Accountants on Accounting and Financial 36
Disclosure
PART III
9. Directors, Executive Officers, Promoters and Control Persons; Compliance 37
with Section 16(a) of the Exchange Act
10. Executive Compensation 40
11. Security Ownership of Certain Beneficial Owners and Management 44
12. Certain Relationships and Related Transactions 46
13. Exhibits List and Reports on Form 8-K 46, 48
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PART I
Item 1. Description of Business
GENERAL
ViewCast.com, Inc. develops, manufactures and markets high-quality
standards-based video communications equipment for businesses and professional
enterprises. The Company's solutions are used to enhance communication and
increase productivity in corporations, educational networks, healthcare
facilities, financial institutions and government agencies. The Company's
ViewCast(R) web-video systems, Osprey(R) video codecs and peripherals and
VBX(TM) enterprise video PBX deliver popular video communications applications
including Internet/intranet-based video streaming, distance learning,
telemedicine and video conferencing. 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 amended report.
The Company's products are available from leading resellers, systems
integrators, OEMs and application developers worldwide. Many of these resellers
are the same entities that market, install and support a customer's telephone
PBX, LAN, e-mail file servers, routers and other communication systems. The
Company's products are compatible with existing communications equipment and
infrastructure.
The Company believes that increased utilization of the Internet and
corporate intranets, the convergence of multimedia PCs and the establishment of
new standards-based audio and video technologies, combined with lower price
levels for such capabilities, will generate a rapid adoption of video
communication products and services.
BUSINESS STRATEGY
The Company is a leading provider of enterprise-wide video communications
solutions. Key elements of the Company's strategy include:
o Provide Enterprise-Wide Video Communication Systems, Solutions and
Applications.
The Company's practice is to offer turn-key video communications systems,
including the individual components and applications, which appeal to customers
who are looking for a complete solution to their video communications needs.
These systems are designed to be easy to install, cost-effective and
user-friendly. The Company believes its enterprise-wide systems and applications
approach provides a significant competitive advantage, whether dealing with
streaming video over the Internet or corporate intranet or distributing
full-motion video throughout the enterprise.
o Distribute Through Established Channels of Distribution.
The Company's strategy is to utilize resellers, system integrators, OEMs
and custom application developers to distribute its systems and applications.
These distributors are typically the same companies that market, install and
support an organization's Internet service, telephone PBX, LAN, e-mail file
servers, routers and other communication systems. These distributors offer
access to an existing customer base, along with continuing service and support
organizations.
o Develop and Acquire New Applications.
The Company believes that the continued growth of the video communications
market will be driven by the development of new applications in response to
customer needs. The Company intends to continue to invest significant resources
to develop and acquire value-added and technologically superior applications.
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o Develop Brand-Name Recognition.
The Company's strategy is to develop a strong brand identity in the
Internet/intranet and video communications marketplace. The Company believes a
strong brand identity will result in a significant competitive advantage and
permit it to more easily introduce new products and applications.
o Enhance Growth through Strategic Acquisitions and Alliances.
An important part of the Company's growth strategy is to seek strategic
alliances and joint marketing relationships with companies that have
complementary technologies, products or customers. The Company believes that the
video communications industry is highly fragmented and that this environment
provides an excellent opportunity to expand its business through such alliances.
PRODUCT FAMILY
The Company currently offers a broad array of products which when used
together provide an enterprise-wide solution for multiple video communications
applications for business customers. The MultiMedia product family includes: the
ViewCast(R) line of Internet streaming-video servers, the Osprey(R) line of
video peripheral products and Codec cards and the VBX video distribution and
switching system.
Internet Video. The Company designs, manufactures and markets several video
products which capitalize on the growth of the Internet and corporate intranets.
Industry improvements in video and audio compression technology, the
establishment of standards and increased access to the Internet have made
delivering new forms of motion-video content over the Internet possible. The
Company's Osprey(R) Codecs provide the necessary capability at the Web site
server to allow the one-way transmission of live broadcasts over the Internet.
The Company has recently introduced a line of ViewCast(R) streaming video
servers that combine the Company's Osprey(R) Codecs with popular video-streaming
software to provide a complete hardware and software system for Internet video
broadcasting. The Company has announced video-streaming compatibility with the
following software providers: RealNetworks, Inc., VXtreme, Inc., Vosaic LLC,
Precept Software, Inc., Iterated Systems, Inc. and Microsoft Corporation.
The Company's products have allowed Internet users to view live broadcasts
of the NASA Mars Pathfinder expedition, the Indy 500 time trials, the Pope's
visit to St. Louis and other live events from their respective Web sites through
Microsoft and Netscape Internet browsers.
Codecs and Video Peripheral Products. The Company designs, develops,
manufactures and markets standards-based video and audio peripheral products and
Codecs that video enable individual PCs and workstations for multimedia
applications. The Company's Osprey(R) Codecs enable video transmissions across
several different types of existing communication networks. The Osprey(R) Codecs
perform this function by capturing, digitizing, compressing, transmitting,
receiving, decompressing and displaying full-motion video. The Osprey(R) Codecs
are compatible with multiple video and audio compression standards and are
available for PCs and workstations that are equipped with the standard PCI-bus
or Sun's S-bus. The Codecs also support Microsoft's WindowsNT, Windows 3.1 and
Windows95, and Sun's Solaris and UNIX operating systems. The Company believes
its Osprey(R)-1000 is the leading standards-based, multi-algorithm Codec for the
WindowsNT operating system and that its Osprey(R)-1500 is currently the only
Codec available for Sun's new family of Ultra Workstations.
The Osprey(R) Codecs are used in connection with the Company's VBX video
distribution system as a shared Codec server to enable VBX users to communicate
by video with remote locations. In addition, the Osprey(R) Codecs may be used in
remote facilities to video enable individual desktop computers.
The Company also offers a line of video peripheral products for PCs and
workstations, including SLIC-Video(R), Osprey(R)-100 and Osprey(R)-150 video
capture cards and WorkFone(R) video applications software. SLIC-Video(R) is a
video capture product that enables Sun S-bus workstation users to view
uncompressed, high-quality video and to capture full-motion video frames.
SLIC-Video(R) software also provides access to closed caption data which allows
key words to act as filters and thereby control video
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displayed on the screen. SLIC-Video(R)'s compatibility with Sun products allows
this product to support a wide variety of video applications on existing Sun
workstations. The Company's WorkFone(R) product provides affordable,
consumer-quality video communications capabilities over standard telephone lines
with 28.8 Kbps modems. Examples of uses of this product include: families and
grandparents exchanging live video greetings, college students videoconferencing
with their parents, business workers accessing video-training courses or
videoconferencing with co-workers in remote locations.
Video Switching and Distribution System. The Company's VBX is an
enterprise-wide video distribution and switching system, which can video enable
hundreds of desktops with multiple video communications applications. The VBX
switches and distributes video content throughout an organization in much the
same way as a telephone PBX switches and distributes voice communications. The
VBX provides workgroup video communications and connectivity via shared Codecs
and WAN gateways to remote users equipped with stand-alone desktop computers,
video tele-conferencing room systems or users on another VBX. The VBX, a
PC-based WindowsNT system, employs a switched architecture to distribute
uncompressed, TV-quality video within a building or campus using unshielded
twisted pair (UTP) wiring (which typically already exists within the
organization's infrastructure as part of its telephone system or which may be
installed more cost-effectively than coaxial cable). The VBX can support
hundreds of users and allows point-to-point, multipoint and broadcast modes of
operation. The VBX is compatible with standard cameras, audio components,
speakerphones, PC video peripherals, videoconferencing systems and other
videocom products produced by third-party manufacturers.
A typical VBX system includes a video switch, a shared Codec server, WAN
interfaces and desktop components. Video and audio signals are distributed with
TV quality by utilizing the Company's VBX transceiver technology to send video
over existing UTP wiring at distances of up to 3,500 feet. An existing LAN or
telephone system is used only for non-video communications between the
multimedia switch and each user, requiring minimal use of the computer network.
The VBX also provides shared access to video sources and storage devices
located anywhere within the network. VCRs, videodisk players, broadcast or cable
TV and Direct Broadcast Satellite programming sources may also be connected to
the switch over UTP wiring or coaxial cabling and distributed on-demand to any
equipped desktop or TV monitor.
VBX transceivers allow desktop PCs, TV monitors, room systems and standard
video and audio devices to be connected to the VBX via UTP wiring. The VBX
client software allows users to place calls through a personal or system-wide
dialing directory, to subscribe to live video broadcasts, to access pre-recorded
video content or to establish a point-to-point or a multipoint videoconference.
The Company believes the VBX appeals to businesses and other institutions
with multiple users and with multiple geographic locations, such as college
campuses, office complexes, government bases and organizations with regional
offices. The VBX permits these customers to communicate and share video-based
information and resources, to distribute business and financial TV broadcasts,
to videoconference with co-workers and to receive business or industry
presentations or live broadcasts from local or remote locations.
APPLICATIONS
Internet Applications --Video communications products and technologies play
an important role in the development of live communications and entertainment on
the Internet. The Company markets its compression and video capture products to
many players in the Web video-streaming marketplace.
Three key applications in the Internet video marketplace include: (i)
Internet video publishing, (ii) Internet video broadcasting and (iii) Internet
video call center. Internet Video publishing refers to stored-video content,
designed to be played back to a user's system in real-time. Internet video
publishing entails compressing a video "clip" and storing it on a server which
is available to the user by accessing the relevant Web page. Internet video
broadcasting has recently come to the Internet and is characterized by one-way
live audio and motion-video. Although video broadcasting presents technical
challenges such as
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the limited bandwidth and multi-cast capabilities of most Web sites, Internet
video broadcasting is well suited to delivering video to distant learning sites
and to special interest broadcast recipients. The Company's ViewCast(R)
streaming-video server works in conjunction with Web servers and browser
software to establish connections between multiple users and a broadcast source
allowing businesses to deliver live programs, commercials and other information
over the Internet. The Internet video call center is a new concept to the
Internet, allowing one-way live video and two-way audio across the Internet. The
term "call center" is used because the technology is well suited to utilize
existing call center staff such as help desks, catalog ordering centers,
reservation systems and corporate receptionists to provide live Web site sales
assistance.
Videoconferencing -- The Company's products offer the business and
institutional customer a cost-effective and efficient means of establishing an
enterprise-wide videoconferencing system. The VBX and Osprey(R) Codecs permit
employees, students or other members of the organization in different offices or
geographic locations to communicate with each other via live video.
Video Presentations or Live Video -- The Company's products offer
businesses or organizations the opportunity to broadcast live events. These
events could include educational seminars, management briefings, human resources
orientations or breaking news being created and transmitted by the organization
itself or by outside sources.
Surveillance -- Video surveillance has expanded beyond internal systems
placed in businesses to monitor intrusions to include systems that monitor
daycare and nursing home facilities, traffic patterns and other relevant live
information which the Internet user can access from a Web site. The commercial
surveillance market represents strong business opportunity.
Industry Specific Applications -- The Company's products offer a broad
array of applications within specific industries. For instance, in the health
and medical industry, the Company's products allow doctors to collaborate via
videoconferencing, to receive computed tomography (CT) scans, ultrasounds and
other diagnostic tests at locations remote from the hospital or patient and to
take part in educational and training broadcasts. The judicial system and
correctional institutions are also taking advantage of the Company's videocom
products. In addition to surveillance, the VBX and Osprey(R) Codecs enable
prisons to hold arraignments by videoconference, to allow prisoner visitation
and legal consultation with persons in remote locations and to provide
vocational training and counseling for prisoners from outside sources.
MARKETING AND SALES
The Company markets its products primarily via third-party distribution
channels including, but not limited to, OEMs, resellers and system integrators.
The Company currently has distribution and reseller agreements with over 71
companies worldwide. In addition, the Company plans to continue to expand its
distribution channels both domestically and internationally.
The Company establishes distribution relationships with resellers and
integrators who service corporate, institutional and government customers. These
relationships are non-exclusive and typically require that these resellers
participate in the marketing, installation and technical support of the
Company's products.
The Company's Internet related products are marketed primarily to Web site
designers. The Company bundles its products with other popular Web-video
products and sells or licenses its subsystems to resellers to integrate with
their Web development products. Such strategic business alliances provide Web
developers with a rich array of innovative capabilities with the familiarity of
existing tools.
For consumer products the Company will depend on major OEM customers who
provide access to consumer marketing channels. These OEMs have established
relationships with manufacturers and resellers and typically pay licensing fees
and royalties to bring new leading-edge products to market.
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The Company continues to expand its marketing activities over the Internet.
The Company's products enable new ways to promote products over the Internet.
The Company intends to use its own products to increase sales productivity and
to pursue alternate selling strategies. In addition, the Company utilizes press
releases, product literature, presentations to industry analysts and
participation in trade shows to enhance brand awareness.
PRODUCTION AND SUPPLY
The Company builds its current products using contract manufacturers in the
United States. The Company's operations personnel in Dallas are responsible for
parts planning, procurement and final testing and inspection to quality
standards. The Company plans for most high-volume production to be handled
through large OEMs or contract manufacturers. The Company has been and will
continue to be dependent on third parties for the supply and manufacture of its
components and electronic parts, including standard and custom-designed
components. The Company generally does not maintain supply agreements with such
third parties but instead purchases components and electronic parts pursuant to
purchase orders in the ordinary course of business. The Company is substantially
dependent on the ability of its third-party manufacturers and suppliers to,
among other things, meet the Company's design, performance and quality
specifications.
The electronics industry from time to time experiences short supplies of
certain high demand components, which may adversely affect the Company's ability
to meet its production schedules. Failure of manufacturers or suppliers to
supply or delays in supplying the Company with components, or allocations in the
supply of certain high-demand components, could adversely affect the Company's
operations and ability to meet delivery schedules on a timely and competitive
basis.
INSTALLATION, SERVICE AND MAINTENANCE
Many of the Company's products are customer installable. The Company has
contracted with Data General Corporation to provide third-party field
installation and support. The Company maintains a small in-house technical
support group and also depends on its resellers to install and service its
products.
The Company offers limited warranties covering workmanship and materials,
during which period the Company or its resellers will replace parts or make
repairs. The Company also maintains an in-house staff of engineering personnel
and offers telephone support to assist resellers and end-users during normal
business hours.
In addition, the Company enters into annual contracts with end-users to
provide software and/or hardware maintenance on its products.
RESEARCH AND DEVELOPMENT
The Company has focused and will continue to focus on research and
development activities related to video communications applications. The
Company's recent development efforts have been devoted to the design and
development of its products and software applications, including the ViewCast(R)
streaming video server, the VBX, the VBX Codec server, the WorkFone(R), the
Osprey(R) line of Codecs and the applications software for these systems.
Total research and development expense for 1997 and 1998 was approximately
$2.7 million and $3.1 million, respectively.
COMPETITION
The market for video communications systems is highly competitive and
characterized by the frequent introduction of new products based upon innovative
technologies. The Company competes with numerous well-established manufacturers
and suppliers of videoconferencing, networking, telecommunications and
multimedia products, certain of which dominate the existing videoconferencing
market for such products.
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In addition, the Company is aware of others that are developing, and in some
cases have introduced, new video communications systems. Most of the Company's
competitors possess substantially greater financial, marketing, personnel and
other resources than the Company, have established reputations relating to
product design, development, manufacture, marketing and service of networking,
telecom and video products and have significant budgets to permit them to
implement extensive campaigns to market new products in response to competitors.
The Company is not aware of any direct competitors that compete in all of the
Company's product families and applications. However, among the Company's direct
competitors competing in one or more of the Company's products or applications
are C-Phone Corporation, Zydacron, Inc., VCON, Ltd., Corel Computer Corporation,
Objective Communications, Inc. and Datapoint Corporation. In addition,
electronics manufacturers such as Intel actively compete for business in this
market.
PATENTS, COPYRIGHTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company holds a United States patent covering certain aspects of
compressed video. Although the Company does not believe this patent or any other
patent is essential to its business operations, the Company may apply for
additional patents relating to other aspects of its products. The Company also
relies on copyright laws to protect its software applications, which it
considers proprietary. There can be no assurance as to the breadth or degree of
protection which existing or future patents, copyrights and trademarks, if any,
may afford the Company, that any patent, copyright or trademark applications
will result in issued patents, registered copyrights or registered trademarks,
as the case may be, that the Company's patents, copyrights or trademarks will be
upheld, if challenged, or that competitors will not develop similar or superior
methods, products or names outside the protection of any patent issued to or
copyright held by the Company.
The Company believes that product recognition is an important competitive
factor and, accordingly, the Company promotes the ViewCast(R), Osprey(R),
SLIC-Video(R), Viewpoint VBX(TM) and WorkFone(R) names, among others, in
connection with its marketing activities, and has applied for or received
trademark registration for such names. The Company's use of those marks may be
subject to challenge by others, which, if successful, could have a material
adverse effect on the Company.
The Company also relies on confidentiality agreements with its directors,
employees, consultants and manufacturers and employs various methods to protect
the source codes, concepts, ideas, proprietary know-how and documentation of its
proprietary technology. However, such methods may not afford the Company
complete protection, and there can be no assurance that others will not
independently develop similar know-how or obtain access to the Company's
know-how or software codes, concepts, ideas and documentation. Furthermore,
although the Company has and expects to continue to have confidentiality
agreements with its directors, employees, consultants, manufacturers, and
appropriate vendors, there can be no assurance that such arrangements will
adequately protect the Company's trade secrets. The Company purchases certain
components that are incorporated into its products from third-party suppliers
and relies on their assurances that such components do not infringe on the
patents of others. A successful claim against any components used in the
Company's products could affect the ability of the Company to manufacture,
supply and support its products. The Company uses commercially reasonable
efforts to ensure third-party supplied components are non-infringing, but there
can be no assurances against future claims.
GOVERNMENT REGULATION
The Company is subject to regulations relating to electromagnetic radiation
from its products, which impose compliance burdens on the Company. In the event
the Company redesigns or otherwise modifies its products or completes the
development of new products, it will be required to comply with Federal
Communications Commission regulations with respect to such products, of which
there can be no assurance prior to their commercialization. In addition, new
legislation and regulations, as well as revisions to existing laws and
regulations, at the federal, state and local levels may be proposed in the
future affecting the video communications industries. Such proposals could
affect the Company's operations, result in material capital expenditures, affect
the marketability of its products and limit opportunities for the Company with
respect to modifications of its products or with respect to new
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or proposed products or technologies. Expansion into foreign markets may also
require the Company to comply with additional regulatory requirements.
Currently, the Company is seeking certain foreign certificates in order to
expand its international marketing opportunities.
There can be no assurance that such export controls, either in their
current form or as may be subsequently enacted, will not delay introduction of
new products or limit the Company's ability to distribute products outside of
the United States. Further, various countries may regulate the import of certain
technologies contained in the Company's products. Any such export or import
restrictions, new legislation or regulation or government enforcement of
existing regulations could have a material adverse effect on the Company's
business, operating results and/or financial condition. There can be no
assurance that the Company will be able to comply with additional applicable
laws and regulations without excessive cost or business interruption, if at all,
and failure to comply could have a material adverse effect on the Company.
EMPLOYEES
As of December 31, 1998, the Company had sixty-five (65) full-time
employees, three (3) of whom are in executive positions, twenty-eight (28) of
whom are engaged in engineering, research and development, twenty (20) of whom
are engaged in marketing and sales activities, eight (8) of whom are engaged in
operations and six (6) of whom are in administration. None of the Company's
employees are represented by a labor union. The Company considers its employee
relations to be satisfactory.
Item 2. Description of Property
The Company's executive offices and some of its sales, design and
development activities are located in approximately 21,100 square feet of leased
space in Dallas, Texas. The lease expires in September of 1999 and provides for
a base annual rent of $316,512. The Company's assembly operations are located in
approximately 4,065 square feet of leased space in Dallas, Texas. The lease
expires in August 1999 and provides for a base annual rent of $33,372. Osprey's
design and development activities are located in approximately 10,000 square
feet of leased space in Morrisville, North Carolina. The lease expires in
December of 2002 and provides for a base annual rent of $99,000. The company
leases office space for a sales office in Fairfax, Virginia consisting of
approximately 2,152 square feet of leased space. This lease expires in February
2001 and provides for base annual costs of $55,952. The Company believes that
its facilities are adequate for its current and reasonable foreseeable future
needs and its current facilities can accommodate expansion, as required.
Item 3. Legal Proceedings
The Company is not currently a party to any litigation that it believes
could have a material adverse effect on the Company or its business.
Item 4. Submission of Matters to a Vote of Security Holders
None
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PART II
Item 5. Market for Company's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded on the Nasdaq Stock Market under the
symbol "VCST." The Company's redeemable common stock purchase warrants (the
"Public Warrants") are traded on the Nasdaq Stock Market under the symbol
"VCSTW." As of December 31, 1998, there were 11,063,477 shares of Common Stock
and 2,851,977 Public Warrants outstanding. The shares of Common Stock are held
by approximately 850 beneficial holders and the Public Warrants are held of
record by approximately 24 holders. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock and the
Public Warrants on the Nasdaq Stock Market. These over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The Company's IPO became
effective on February 4, 1997. Before this date, there was no public market for
the Company's securities.
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COMMON STOCK PUBLIC WARRANTS
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FISCAL 1997 HIGH LOW HIGH LOW
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1st Quarter $ 5.8750 $ 4.1875 $ 2.3750 $ 1.0000
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2nd Quarter 6.5000 5.0000 2.3750 1.3750
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3rd Quarter 6.0000 4.0000 2.0000 1.0000
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4th Quarter 6.0000 3.8125 2.1250 0.9375
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COMMON STOCK PUBLIC WARRANTS
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FISCAL 1998 HIGH LOW HIGH LOW
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1st Quarter $ 5.0000 $3.0000 $1.8750 $0.8750
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2nd Quarter 3.8125 2.6875 1.2500 0.6563
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3rd Quarter 3.5000 1.8125 0.8750 0.3438
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4th Quarter 3.6875 0.8750 1.6875 0.2500
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On March 22, 1999, the last reported sales prices for the Common Stock and the
Public Warrants as reported on the Nasdaq Stock Market were $4.969 and $2.75,
respectively.
The Company declared no cash dividends in 1997 or 1998. The Company
does not anticipate paying cash dividends in the future as it intends to retain
earnings to finance the growth of the business. The payment of future dividends
will depend on such factors as earnings levels, anticipated capital
requirements, the operating and financial condition of the Company and other
factors deemed relevant by the Company's Board of Directors.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
ViewCast.com, Inc. develops, manufacturers and markets advanced video
communications solutions for business and professional enterprises. The
Company's systems and solutions provide enhanced communication and increased
productivity for major corporations, educational institutions and healthcare,
financial and governmental organizations. The Company's products deliver popular
video communication applications including Internet and intranet media
streaming, live broadcasting, video-based training, surveillance, distance
learning, videoconferencing and telemedicine. Its products are available from
leading resellers, systems integrators, OEMs and application developers
worldwide.
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RESULTS OF OPERATIONS
Year Ended December 31, 1998 compared to Year Ended December 31, 1997.
Net Sales. Net sales for the year ended December 31, 1998 increased 139% to
$8,027,948 from $3,360,703 reported in 1997. This increase can be attributed to
significant growth in sales of both video peripheral products and video systems
during 1998 compared to 1997.
During the year ended December 31, 1998, sales of video peripheral products
increased 69% over 1997 and represented approximately 45.5% of total 1998
revenues, compared to approximately 64% of total revenues in 1997. Sales of
video systems increased 296% in 1998, compared to the same period in 1997 and
represented approximately 53% of total 1998 revenues, compared to approximately
32% of total revenues in 1997. The Company expects its product mix to change
slightly in 1999 as sales of its video peripheral products and video systems
continue to increase while its newest product family, the ViewCast(R) Streaming
Video Server, which was introduced in late 1997, completes its beta testing and
begins generating revenue in 1999.
Cost of Goods Sold. Cost of goods sold increased $2,485,206 to $4,181,128
for the year ended December 31, 1998 compared to the same period in 1997
primarily due to the increase in net sales described above. Gross profit margin
for 1998 was 47.9%, representing a decline from the 49.5% margin during 1997.
This decline in gross margin can be attributed to increased sales in 1998 to
distribution and OEM partners with contractual sales discounts. The Company does
not anticipate that this decline in gross profit margin is permanent but
believes that, over extended periods, its margins will remain in the range of
48 - 52%.
Selling, General and Administrative Expense. Selling, general, and
administrative expense increased to $8,352,476 for the year ended December 31,
1998 from $4,243,485 in 1997 due to a significant expansion of the Company's
sales, marketing and customer support efforts in 1998. In late 1997, the Company
added 14 sales positions and three customer support positions, the full effect
of which was reflected in 1998. Also contributing to the increase are expenses
related to being a public company, including significant increases in investor
relations, legal and professional fees and consulting fees. Also, in 1998 the
Company incurred a $610,000 bad debt write-off that arose when a reseller failed
to meet its financial obligations.
Research and Development Expense. Research and development expense
increased $349,245 to $3,090,102 for the year ended December 31, 1998 compared
to 1997, primarily due to an increase in the Company's manufacturing staff and
contract consultants during 1998. The new staff and consultants were principally
involved in the continued development of the Company's Viewpoint VBX(TM) system,
Osprey(R) video products and the newly announced ViewCast(R) Streaming-video
servers.
Other Income (Expense). For the year ended December 31, 1998, other expense
increased $645,322 to $843,708, primarily as a result of an increase in interest
expense during the year. The changes to other expense can be attributed
principally to an increase in outstanding debt, reflecting the convertible debt
placed in December 1997 and the working capital lines of credit put in place
during 1998.
Year Ended December 31, 1997 compared to Year Ended December 31, 1996.
Net Sales. Net sales for the year ended December 31, 1997 increased 206.9%
to $3,360,703 from $1,095,012 reported in 1996. This increase can be attributed
to significant growth in sales of both video peripheral products and video
systems during 1997 compared to 1996, offset in part by a decline in custom
programming and design revenue between the same periods.
During the year ended December 31, 1997, sales of video peripheral products
increased 193.9% over 1996 and represented approximately 65.5% of total 1997
revenues, compared to approximately 68.4% of total revenues in 1996. Sales of
video systems increased 602.2% in 1997, compared to the same period in
11
<PAGE> 12
1996 and represented approximately 31.8% of total 1997 revenues, compared to
approximately 13.9% of total revenues in 1996. While sales of video peripheral
products are expected to continue to increase during 1998 as new products are
developed and marketed and new contracts are finalized, the percentage of
peripheral product sales to total sales is expected to decline as the Company
also expects to see a significant increase in video systems revenue during 1998.
Cost of Goods Sold. Cost of goods sold increased $1,302,004 to $1,695,922
for the year ended December 31, 1997 compared to the same period in 1996
primarily due to the increase in net sales described above. Gross profit margin
for 1997 was 49.5%, representing a decline from the 64.0% margin during 1996.
This decline in gross margin can be attributed to greater custom programming and
design revenue in 1996, which had little or no associated costs, and to
increased sales in 1997 to distribution partners with contractual sales
discounts. The Company anticipates that its gross profit margin will generally
average 50% for the foreseeable future.
Selling, General and Administrative Expense. Selling, general, and
administrative expense increased to $4,243,485 for the year ended December 31,
1997 from $2,378,653 in 1996 due to a significant expansion of the Company's
sales, marketing and customer support efforts in 1997. During 1997, the Company
added 14 sales positions and three customer support positions that did not exist
during 1996. Also contributing to the increase are expenses related to being a
public company that were incurred subsequent to the Company's initial public
offering in February 1997, including significant increases in insurance,
investor relations, travel, legal and professional fees.
Research and Development Expense. Research and development expense
increased $743,711 to $2,740,857 for the year ended December 31, 1997 compared
to 1996, primarily due to an increase in the Company's development staff,
contract consultants and manufacturing staff during 1997. The new staff and
consultants were principally involved in the continued development of the
Company's Viewpoint VBX(TM) system, Osprey(R) video products and the newly
announced ViewCast(R) Web-video servers.
Other Income (Expense). For the year ended December 31, 1997, other expense
decreased $314,833 to $198,386, primarily as a result of an increase in interest
income and a reduction in interest expense during the year. The changes to other
income and expense can be attributed principally to increased capital and
retirement of debt in conjunction with the Company's initial public offering in
February 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds for conducting its business
activities come from operations and from the sale of its debt and equity
securities. 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.
The Company successfully completed an IPO of its Common Stock and Public
Warrants on February 7, 1997 and on March 13, 1997 sold the over-allotment
option, raising a total of $5,427,000 of net proceeds. During 1997, with the
proceeds of the IPO, the Company endeavored to build an effective marketing and
sales organization, develop a network of independent resellers and achieve
market acceptance of its products.
In August 1997, the Company registered, in a Registration Statement on Form
SB-2, 2,981,573 shares of Common Stock underlying Private Warrants that had
previously been issued by the Company at various times between June 1995 and
February 1997 in connection with various financing transactions. Each such
private warrant entitles the holder to purchase one share of Common Stock at
prices ranging from $1.00 to $3.00 per share at any time commencing immediately
upon issuance through and including three (3) years from the date of issuance.
The Company will not receive any of the proceeds of the sale of such shares of
Common Stock, but will receive proceeds of up to $7,529,719 from the exercise of
the Private Warrants. During the years ended December 31, 1997 and 1998, 821,667
and 976,557, respectively, of the Private Warrants were exercised, resulting in
net proceeds to the Company of $1,676,533 and $2,148,225,
12
<PAGE> 13
respectively. These proceeds and any additional proceeds have been used for
working capital and general corporate purposes.
On December 9, 1997 the Company sold, in a private placement, $5,000,000
aggregate principal amount of 8% Senior Convertible Notes due 2002 (the "Notes")
at an initial offering price of 100% of the principal amount thereof, less 8%
gross commission. The Notes are convertible into shares of Common Stock of the
Company at a conversion price of $4.625 per share of Common Stock, subject to
adjustment in certain circumstances (including upon certain issuances of Common
Stock or Common Stock Equivalents at less than the then effective conversion
price). The Notes rank senior to all existing and future subordinated
obligations and rank pari passu with all present and future senior indebtedness
of the Company, except to the extent of any collateral securing such debt. Net
proceeds to the Company in December 1997 after expenses amounted to $4,168,000.
In August 1998, the Company exchanged $3,640,000 of the Notes for 364,000 shares
of Series A Convertible Preferred Stock. The Series A preferred stock carries a
dividend of 8.5% per year payable in cash or common stock of the Company, at the
Company's option, and is convertible into Common Stock of the Company at a fixed
conversion price of $3.635 per share (subject to certain conditions). In
September 1998, holders of 30,000 shares of Series A preferred stock converted
their shares into 82,770 shares on the Company's Common Stock.
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 qualifying accounts
receivable and inventory. The initial draw under this facility, which contains
terms that are more favorable to the Company than its existing facility, was
approximately $3.7 million, a portion of which was used to repay an existing
credit facility.
In December 1998, the Company initiated a private placement of 945,000
shares of a newly created Series B Convertible Preferred Stock at $10 per share.
The Series B preferred stock is convertible into Common Stock of the Company at
a fixed price of $3.625 per share, subject to certain requirements, and carries
a dividend of 8% per year payable in cash or common stock of the Company, at the
Company's option. In December 1998, the Company received a $4,000,000
subscription for the Series B preferred stock from a principal shareholder of
the Company, of which $600,000 was paid in December 1998. The balance of
$3,400,000 was classified as a stock subscription receivable at December 31,
1998 and was received in January 1999. In January and February 1999, the Company
placed the balance of the Series B preferred stock, receiving an additional
$5,450,000 of new equity.
The Company believes that the proceeds from the above offering together
with cash provided by operations will be sufficient to meet the Company's
operating expenses and capital requirements through at least the end of 1999. At
December 31, 1998, the Company had working capital of $1,452,778 and did not
have any material commitments for capital expenditures.
YEAR 2000 COMPLIANCE
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.
13
<PAGE> 14
"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;
(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.
14
<PAGE> 15
Item 7. Financial Statements
As described in Part I, Item 1, effective April 8, 1999, the Company
changed its name from MultiMedia Access Corporation to ViewCast.com, Inc.
Accordingly, prior references to MultiMedia Access Corporation in the following
financial statements have been changed to reflect the Company's new name.
VIEWCAST.COM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.................................................16
Consolidated Balance Sheets at December 31, 1997 and 1998......................17
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1998...................................................18
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1997 and 1998 ..................................19
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1998 ..................................................20
Notes to Consolidated Financial Statements.....................................21
</TABLE>
15
<PAGE> 16
Report of Independent Auditors
The Board of Directors
ViewCast.com, Inc.
We have audited the accompanying consolidated balance sheets of ViewCast.com,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ViewCast.com, Inc. and subsidiaries at December 31, 1997 and 1998, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Dallas, Texas ERNST & YOUNG LLP
February 25, 1999
16
<PAGE> 17
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,117,202 $ 439,791
Accounts receivable, less allowance for doubtful accounts of
$65,000 and $823,500 at December 31, 1997 and 1998, respectively 1,195,230 1,839,783
Stock subscription receivable -- 3,400,000
Inventory 1,762,186 3,110,588
Prepaid expenses 75,096 90,646
Deferred charges, principally deferred debt issue costs 191,287 568,252
------------ ------------
Total current assets 6,341,001 9,449,060
Property and equipment, net 877,440 1,382,044
Software development costs, net 203,858 431,500
Deferred charges 752,125 213,048
Investment in equity securities -- 2,000,000
Deposits 36,991 135,938
------------ ------------
Total assets $ 8,211,415 $ 13,611,590
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 759,319 $ 2,847,807
Accrued compensation 313,634 326,169
Deferred revenue 52,784 157,891
Accrued restructuring charges -- 275,000
Other accrued liabilities 343,051 488,337
Short-term debt, officer 311,243 96,285
Shareholder line of credit -- 3,687,513
Short-term debt, other 13,120 117,280
------------ ------------
Total current liabilities 1,793,151 7,996,282
Long-term debt 5,000,000 1,360,000
Commitments
Stockholders' equity:
Convertible preferred stock, $.0001 par value:
Authorized shares - 5,000,000
Series A issued and outstanding shares - none at -- 33
December, 31, 1997 and 334,000 at December 31, 1998
Series B shares subscribed - none at December 31, 1997
and 400,000 at December 31, 1998 -- 40
Common stock, $.0001 par value:
Authorized shares - 20,000,000 and 30,000,000 at
December 31, 1997 and 1998, respectively
Issued and outstanding shares - 8,955,455 and 11,324,974
at December 31, 1997 and 1998, respectively 900 1,132
Additional paid-in capital 19,628,703 31,947,418
Accumulated deficit (18,199,433) (27,681,409)
Treasury stock, 261,497 shares at December 31, 1997 and 1998 (11,906) (11,906)
------------ ------------
Total stockholders' equity 1,418,264 4,255,308
------------ ------------
Total liabilities and stockholders' equity $ 8,211,415 $ 13,611,590
============ ============
</TABLE>
See accompanying notes.
17
<PAGE> 18
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
NET SALES $ 3,360,703 $ 8,027,948
Cost of goods sold 1,695,922 4,181,128
------------ ------------
GROSS PROFIT 1,664,781 3,846,820
Operating expenses:
Selling, general and administrative 4,243,485 8,352,476
Research and development 2,740,857 3,090,102
Restructuring charge -- 402,800
Depreciation and amortization 309,458 524,427
------------ ------------
Total operating expenses 7,293,800 12,369,805
------------ ------------
OPERATING LOSS (5,629,019) (8,522,985)
Other income (expense):
Dividend and interest income 63,613 34,117
Interest expense (290,492) (877,873)
Other 28,493 48
------------ ------------
Total other income (expense) (198,386) (843,708)
------------ ------------
NET LOSS $ (5,827,405) $ (9,366,693)
============ ============
NET LOSS PER SHARE: BASIC AND DILUTED (0.75) $ (1.02)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
outstanding 7,806,378 9,367,537
============ ============
</TABLE>
See accompanying notes.
18
<PAGE> 19
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN
SHARES PAR VALUE SHARES PAR VALUE CAPITAL
-------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 -- $ -- 5,315,811 $ 532 $ 6,602,572
Sale of common stock and Public
Warrants, net of expenses -- -- 1,610,000 161 5,427,077
Exchange of short-term and
long-term debt for common stock
and Public Warrants -- -- 1,241,977 124 5,713,003
Warrants issued for inducement
of debt -- -- -- -- 191,500
Exercise of options and warrants, net -- -- 827,667 83 1,694,551
Net loss and comprehensive loss -- -- -- -- --
-------- --------- ----------- --------- ------------
BALANCE, DECEMBER 31, 1997 -- -- 8,995,455 900 19,628,703
Conversion of long-term debt to
convertible preferred stock - Series A 364,000 36 -- -- 2,903,604
Sale of convertible preferred stock -
Series B 400,000 40 -- -- 3,999,960
Conversion of convertible preferred
stock - Series A to common stock (30,000) (3) 82,770 8 (5)
Common stock issued in exchange
for equity securities -- -- 1,000,000 100 1,999,900
Exercise of options and warrants -- -- 1,043,374 104 2,185,392
Sale of common stock, employee
stock purchase plan -- -- 73,787 7 139,109
Value of options and warrants
issued for consulting services -- -- -- -- 461,851
Warrants issued for inducement
of debt -- -- -- -- 266,000
Accelerated vesting of employee
stock options in connection with
restructuring -- -- -- -- 127,800
Common stock issued for
consulting services -- -- 73,443 7 133,389
Convertible preferred stock
dividends - Series A -- -- 56,145 6 101,715
Net loss and comprehensive loss -- -- -- -- --
======== ========= =========== ========= ============
BALANCE, DECEMBER 31, 1998 734,000 $ 73 11,324,974 $ 1,132 $ 31,947,418
======== ========= =========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
TOTAL
ACCUMULATED TREASURY STOCKHOLDERS'
DEFICIT STOCK EQUITY
------------ --------- -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $(12,372,028) $ (11,906) $ (5,780,830)
Sale of common stock and Public
Warrants, net of expenses -- -- 5,427,238
Exchange of short-term and
long-term debt for common stock
and Public Warrants -- -- 5,713,127
Warrants issued for inducement
of debt -- -- 191,500
Exercise of options and warrants, net -- -- 1,694,634
Net loss and comprehensive loss (5,827,405) -- (5,827,405)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 (18,199,433) (11,906) 1,418,264
Conversion of long-term debt to
convertible preferred stock - Series A -- -- 2,903,640
Sale of convertible preferred stock -
Series B -- -- 4,000,000
Conversion of convertible preferred
stock - Series A to common stock -- -- --
Common stock issued in exchange
for equity securities -- -- 2,000,000
Exercise of options and warrants -- -- 2,185,496
Sale of common stock, employee
stock purchase plan -- -- 139,116
Value of options and warrants
issued for consulting services -- -- 461,851
Warrants issued for inducement
of debt -- -- 266,000
Accelerated vesting of employee
stock options in connection with
restructuring -- -- 127,800
Common stock issued for
consulting services -- -- 133,396
Convertible preferred stock
dividends - Series A (115,283) -- (13,562)
Net loss and comprehensive loss (9,366,693) -- (9,366,693)
============ ============ ============
BALANCE, DECEMBER 31, 1998 $(27,681,409) $ (11,906) $ 4,255,308
============ ============ ============
</TABLE>
See accompanying notes.
19
<PAGE> 20
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (5,827,405) $ (9,366,693)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of fixed assets 229,659 380,742
Amortization of software development 79,799 143,685
Non-cash charges to interest expense 168,691 289,885
Non-cash charge to restructuring costs -- 127,800
Non-cash consulting fees exchanged for options, warrants
and common stock 595,247
Changes in operating assets and liabilities:
Accounts receivable (1,009,666) (644,553)
Inventory (1,452,053) (1,348,402)
Prepaid expenses (28,857) (15,550)
Deferred charges (416,308) (598,132)
Deposits (18,719) (98,947)
Accounts payable 76,630 2,088,488
Accrued compensation 73,927 12,535
Accrued restructuring charges -- 275,000
Deferred revenue 37,193 105,107
Other accrued liabilities (133,228) 131,723
------------ ------------
Net cash used in operating activities (8,220,337) (7,922,065)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (649,938) (885,350)
Software development costs (136,336) (371,323)
Other 3,734 --
------------ ------------
Net cash used in investing activities (782,540) (1,256,673)
------------ ------------
FINANCING ACTIVITIES:
Net proceeds from convertible preferred stock subscription - Series B -- 600,000
Net proceeds from issuance of short-term debt 212,202 3,687,512
Repayment of short-term debt-officer (235,000) (214,958)
Net proceeds from capital leases 2,466 104,161
Proceeds from issuance of long-term debt 5,000,000 --
Proceeds from the exercise of options and warrants 1,694,634 2,185,496
Net proceeds from sale of common stock and warrants 5,427,238 139,116
------------ ------------
Net cash provided by financing activities 12,101,540 6,501,327
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,098,663 (2,677,411)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,539 3,117,202
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,117,202 $ 439,791
============ ============
</TABLE>
See accompanying notes.
20
<PAGE> 21
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. THE COMPANY AND DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the accounts
of ViewCast.com, Inc. (VCST), and its wholly-owned subsidiaries, Viewpoint
Systems, Inc. (Viewpoint), VideoWare, Inc. (VideoWare) and Osprey Technologies,
Inc. (Osprey) (collectively, the Company). The Company operates in one business
segment and is engaged in developing and marketing advanced, standards-based
video communications products that integrate video capabilities into existing
desktop computers, applications and networks. The Company markets its products
directly to end-users, through value-added resellers and computer system
integrators, primarily in the continental United States.
The Company has sustained operating losses since its inception in
February 1994, and expects losses to continue during the first half of 1999 and
until such time, if ever, as gross margins from the sales of its products exceed
its development, selling, administrative and financing costs. In December 1998
through February 1999, the Company received $9.45 million in gross proceeds from
the sale of 945,000 shares of a newly created Series B convertible preferred
stock at $10 per share (See Note 10). During 1999, with the proceeds from the
preferred stock sale, the Company will endeavor to introduce new products,
strengthen its sales and marketing organizations, increase its base of
value-added resellers and computer system integrators, and achieve market
acceptance of its products at prices and volumes which will, in the future,
result in profitable operations. However, there are no assurances that the
Company will be successful in its efforts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All material inter-company accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
INVENTORY
Inventory consists primarily of purchased electronic components and
computer system products, along with the related documentation manuals and
packaging materials. Inventory is carried at the lower of cost or market, cost
being determined on a standard cost basis, which approximates average cost.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Depreciation is determined
using the straight-line method over the estimated useful lives, generally five
years, of the related assets. Leasehold improvements are amortized over the
lives of the related leases. Expenditures for repairs and maintenance are
charged to operations as incurred; renewals and betterments are capitalized.
SOFTWARE DEVELOPMENT COSTS
Costs of developing new software products and substantial enhancements
to existing software products are expensed as incurred until technological
feasibility has been established, after which time additional costs incurred are
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Amortization of capitalized software development costs
begins when products are available for general release to customers, and is
computed using the straight-line method over a period not to exceed three years.
21
<PAGE> 22
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
REVENUE RECOGNITION
Revenue from the sale of video communication systems and products and
licensing of the related software is recognized upon shipment to customers. With
pre-approval by a return merchandise authorization, a customer may return
undamaged product to the Company, subject to a 30-day money back guarantee. The
Company maintains an accrued warranty reserve for products which are returned
defective during the warranty period.
NET LOSS PER SHARE
Basic earnings per share is calculated by dividing net income/loss by
the number of weighted average common shares outstanding for the period. Since
the Company has reported net losses for all periods presented, the computation
of diluted loss per share excludes the effects of options (see Note 10),
warrants (see Note 10) and convertible debt (see Note 8) since their effect is
anti-dilutive.
Loss per share calculations for the years ended December 31, 1997 and 1998 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Net loss $ (5,827,405) $ (9,366,693)
Preferred dividends and accretion of
issue costs -- (175,945)
------------- -------------
Net loss applicable to common shareholders $ (5,827,405) $ (9,542,638)
============= =============
Weighted average number of common shares
outstanding 7,806,378 9,367,537
============= =============
Loss per share as reported in the financial
statements: basic and diluted $ (0.75) $ (1.02)
============= =============
</TABLE>
DEFERRED CHARGES AND OTHER ASSETS
Deferred charges at December 31, 1998 consist of legal, accounting and
lead manager fees and expenses associated with the issuance of 8 % senior
convertible notes in December 1997 as well as fees and expenses associated with
the procurement of a $9 million working capital credit facility in October of
1998. During August 1998, the Company exchanged $3.64 million of its 8% senior
convertible notes for newly created shares of Series A convertible preferred
stock and, accordingly, a proportionate share of issue costs in the amount
$736,359 were charged against the exchange proceeds. Net debt issue costs at
December 31, 1998 were $781,300 of which $568,252 has been classified as
current.
22
<PAGE> 23
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Deferred charges at December 31, 1997 were $943,412, of which $191,287
has been classified as current, consisting solely of fees and expenses
associated with the issuance of the 8% senior convertible notes.
Deferred charges are being amortized using the straight-line method over
the term of the notes. Amounts charged to operations for the years ended
December 31, 1997 and 1998 were $168,691 and $289,885, respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of cash, cash equivalents and trade accounts receivable. The
Company invests its cash and cash equivalents with a Texas commercial bank and a
commercial brokerage firm. The brokerage firm maintains accounts in several
banks throughout the country and in government securities. The Company sells its
products and services primarily to distributors and resellers without requiring
collateral; however, the Company routinely assesses the financial condition of
its customers and maintains allowances for anticipated losses. During the years
ended December 31, 1997 and 1998, one customer accounted for 14% and three
customers accounted for 41% of total consolidated revenues, respectively.
Balances due from these customers at December 31, 1997 and 1998 represented 10%
and 39% of net accounts receivable, respectively. During December 1998, the
Company provided an additional accounts receivable reserve and charge against
income of $610,000 when a major reseller of the Company failed to meet its
payment obligations in accordance with contracted terms. In January 1999, the
Company initiated legal action against the reseller and will vigorously pursue a
collection process to recover the receivable. The Company believes it has no
significant credit risk in excess of provided reserves.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
The Company utilizes the liability method of accounting for income taxes
wherein deferred tax assets and liabilities are determined based upon the
differences between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates expected to be in effect when
these differences reverse.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the
years ended December 31, 1997 and 1998 was $353,024 and $226,413, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents, accounts receivable, accounts
payable, short-term debt and accrued expenses approximate fair value due to the
short-term maturities of these instruments. The Company also believes the
carrying value of its long-term debt approximates fair value at December 31,
1998 since actual interest rates were consistent with rates estimated to be
available for obligations with similar terms and conditions.
23
<PAGE> 24
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based
Compensation. SFAS 123 defines a fair-value based method of accounting for an
employee stock option or similar equity instrument. As permitted by SFAS 123,
the Company has elected to continue to measure the cost of its stock-based
compensation plans using the intrinsic-value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees. See Note 10 to the Consolidated Financial Statements for
additional information concerning stock-based compensation.
SEGMENT REPORTING
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and
Related Information. SFAS 131 supersedes SFAS 14, Financial Reporting for
Segments of Business Enterprise, replacing the "industry segment" approach with
the "management" approach. The management approach designates the internal
reporting that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. Under
this definition, the company operated, for all periods presented, in a single
segment.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive
Income. SFAS 130 requires that total comprehensive income and comprehensive
income per share be disclosed with equal prominence as net income and earnings
per share. Comprehensive income is defined as changes in stockholder's equity
exclusive of transactions with owners such as capital contributions and
dividends. The Company adopted the standard in 1998, however the Company had no
material comprehensive income transactions during the years ended December 31,
1997 and 1998.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Accounting Standards No. 121(SFAS 121),
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, the Company reviews its long-lived assets for impairment when
events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. This review consists of a comparison of the
carrying value of the asset with the asset's expected future undiscounted cash
flows without interest costs. Estimates of expected future cash flows represent
management's best estimate based on reasonable and supportable assumptions
and projections. If the expected future cash flow exceeds the carrying value of
the asset, no impairment is recognized. If the carrying value of the asset
exceeds the expected future cash flows, impairment is measured by the excess of
the carrying value over the fair value of the asset. Any impairment provisions
recognized are permanent and may not be restored in the future. Impairment
expense of $30,000 was recognized in 1998, and is included as a component of the
restructuring charge (See Note 3).
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 is effective for transactions
entered into after January 1, 2000. SFAS 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The ineffective portion
of all hedges will be recognized in earnings. The Company's management is
currently evaluating the impact of the statement.
24
<PAGE> 25
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. BUSINESS RESTRUCTURING
Results of operations for 1998 include 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. Charges include 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. At December 31, 1998 the Company had $275,000 of accrued restructuring
charges consisting mainly of severance to be paid in 1999.
4. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Purchased materials $1,035,006 $ 815,999
Work in progress -- 108,639
Finished goods 727,180 2,185,950
---------- ----------
$1,762,186 $3,110,588
========== ==========
</TABLE>
Inventory at December 31, 1998 is presented net of a reserve of $199,255
for obsolete, slow moving and damaged inventory.
5. INVESTMENT IN EQUITY SECURITIES
In September 1998, the Company entered into a strategic business alliance
with Tadeo Holdings, Inc. ("THI"), that included 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. As specified in the purchase
agreement, the number of shares exchanged was determined by dividing $2,000,000
by the average closing price per share of each company's common stock for the
five trading days prior to September 24, 1998. The shares issued by the Company
and THI are not registered under the Securities Act of 1993, as amended, and may
not be sold, transferred or otherwise distributed in the absence of such
registration or an applicable exemption therefrom.
At December 31, 1998, the Company valued its investment in THI common stock
at cost due to governmental limitations imposed by Rule 144 of the Securities
and Exchange Commission limiting trading for the first two years that the stock
is held. At December 31, 1998, the quoted market price of THI registered shares
was $1.00 per share.
25
<PAGE> 26
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Computer equipment $ 933,767 $ 1,397,444
Software 270,386 374,403
Leasehold improvements 43,951 100,779
Office furniture and equipment 180,256 441,080
----------- -----------
1,428,360 2,313,706
Less accumulated depreciation
and amortization (550,920) (931,662)
----------- -----------
$ 877,440 $ 1,382,044
=========== ===========
</TABLE>
7. SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
OFFICER:
Unsecured note payable to an officer and affiliate
of the Company, due on demand with interest at 15%. $ 311,243 $ 96,285
=========== ===========
OTHER:
Fully secured $9,000,000 working capital credit
facility payable to a principal shareholder of the
Company, with interest payable monthly at 12%. $ -- $ 3,687,513
Other 13,120 117,280
----------- -----------
Total short-term debt, other. $ 13,120 $ 3,804,793
=========== ===========
</TABLE>
In January and February 1997, the Company issued $600,000 of 8% unsecured
debt to two principal stockholders of the Company. The unsecured debt was due on
demand 10 days subsequent to an initial public offering of the Company's equity
securities or 180 days from the date of issue. As an incentive to advance the
debt, the stockholders were issued 60,000 three-year warrants to purchase
Company stock at $3.00 per share. Based on independent appraisal, the fair
market value of these warrants of $1.00 per share was charged to interest
expense. In February 1997, the $600,000 unsecured debt was exchanged for shares
of common stock and public warrants in the Company's initial public offering.
In February 1997, $2,915,000 principal amount of secured and unsecured
notes then outstanding were exchanged for 633,694 shares of common stock and
public warrants in the Company's initial public offering. Additionally, in
February 1997, the Company repaid $377,548 principal amount of secured and
demand notes together with total accrued interest of $90,745.
26
<PAGE> 27
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In May 1998, the Company entered into an accounts receivable line of credit
financing arrangement with a Texas commercial bank for up to $1.5 million
(extended to $1.7 million in July 1998). The financing arrangement allowed the
bank to purchase all domestic and foreign accounts of the Company at a discount
from face value of each invoice and reserve 10% of the face amount of each
account receivable for doubtful accounts. The line of credit was collateralized
by the accounts receivable, inventory, furniture and fixtures of the Company
until the line was retired in November 1998.
In November 1998, the Company entered into a working capital line of credit
facility for up to $9 million with one of its principal shareholders, H.T.
Ardinger, Jr. This one year, renewable facility, which contains terms more
favorable than the Company's prior facility, bears interest at 12% per annum and
is secured by all assets of the Company. The availability of funds under this
facility is subject to certain borrowing base limitations based principally on
qualifying accounts receivable and inventory. A portion of the proceeds from
this facility was used to retire the Texas commercial bank line of credit. As an
incentive to advance the line of credit, Mr. Ardinger was issued 200,000
three-year warrants to purchase Company stock at $4.50 per share. The value of
the warrants of $1.33 per share, as determined using the Black-Sholes option
valuation model, is being charged to interest expense over the term of the note.
At December 31, 1998, the Company had $96,285 of 15% notes outstanding to
its former Chief Executive Officer. The 15% notes were due on demand with
interest payable monthly and were retired in January of 1999.
Other notes payable at December 31, 1997 and 1998 of $13,120 and 117,280,
respectively, are comprised of various capital leases for telephone and voice
mail equipment and have been classified as current due to their immateriality.
Interest paid was $253,675 and $528,301 for the years ended December 31,
1997 and 1998, respectively.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Senior 8% convertible notes issued December 9,
1997 due December 2002 with interest payable
semi-annually in arrears. $ 5,000,000 $ 1,360,000
=========== ===========
</TABLE>
In February 1997, $2,430,300 principal amount of then outstanding 8% senior
convertible notes together with accrued interest of $367,827 were exchanged for
608,283 shares of common stock and public warrants in the Company's initial
public offering. Additionally, in February 1997, the Company repaid $247,250
principal amount of 8% convertible debt together with accrued interest of
$118,726. Converting noteholders received 1,215,150 three-year warrants to
purchase Company stock at $3.00 per share while repayment noteholders received
82,418 three-year warrants to purchase Company stock at $3.00 per share.
On December 9, 1997 the Company sold $5,000,000 aggregate principal amount
of 8% senior convertible notes due 2002 (the "Notes") at an initial offering
price of 100% of the principal amount thereof, less 8% gross commission. The
Notes are convertible to common stock of the Company at the initial conversion
price of $4.625 per share. The Notes rank senior to all existing and future
subordinated obligations and rank pari passu with all present and future senior
indebtedness of the Company, except to the extent of any collateral securing
such debt. Lead managers in connection with the Notes offering received 108,108
warrants to purchase Company stock at an exercise price of $4.625 per share. In
December 1997, the Company received net proceeds of $4,168,000 from the Notes
offering.
27
<PAGE> 28
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In August 1998, the Company exchanged $3,640,000 of its 8% senior
convertible notes for 364,000 shares of its newly created Series A convertible
preferred stock. The Series A preferred stock carries a dividend of 8.5% per
year payable in cash or common stock of the Company, at the Company's option,
and is convertible into Common Stock of the Company at a fixed conversion price
of $3.625 per share (subject to certain conditions).
9. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes.
SFAS 109 requires a valuation allowance to be recorded when it is "more likely
than not that some portion or all of the deferred tax assets will not be
realized." In the opinion of management, realization of the Company's net
operating loss carryforward is not reasonably assured, and a valuation allowance
of $6,716,000 and $9,327,000 has been provided against deferred tax assets in
excess of deferred tax liabilities in the accompanying consolidated financial
statements at December 31, 1997 and 1998, respectively.
The components of the Company's net deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 6,357,000 $ 8,182,000
Revenue deferred for financial statements, recognized
for tax -- 38,000
Excess of tax over financial statement basis of patent 37,000 33,000
Accruals deductible for tax purposes when paid 241,000 606,000
Excess of tax over financial statement basis of software
development costs 130,000 532,000
----------- -----------
Total deferred tax assets 6,765,000 9,391,000
Less: valuation allowance (6,716,000) (9,327,000)
----------- -----------
49,000 64,000
Deferred tax liabilities:
Excess of financial statement over tax basis of
of property and equipment 49,000 64,000
----------- -----------
Total deferred tax liabilities 49,000 64,000
=========== ===========
Net deferred taxes $ -- $ --
=========== ===========
</TABLE>
A reconciliation between the federal income tax benefit calculated by
applying U.S. federal statutory rates to net loss and the absence of a tax
benefit reported in the accompanying consolidated financial statements is as
follows:
28
<PAGE> 29
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1998
------------ ------------
<S> <C> <C>
U.S. federal statutory rate applied to pretax loss $ (1,981,000) $ (3,185,000)
Accrued compensation and other accruals 70,000 31,000
Amortization of patent (4,000) (4,000)
Depreciation of property and equipment (12,000) (28,000)
Software development costs for financial reporting
purposes (43,000) 121,000
Net operating loss carryforward not recognized for
financial reporting purposes 1,966,000 2,573,000
Inventory and doubtful account reserves (66,000) 326,000
Non-deductible restructuring charges -- 44,000
Non-deductible interest expense 58,000 99,000
Other 12,000 23,000
============ ============
$ -- $ --
============ ============
</TABLE>
At December 31, 1998 the Company has federal income tax net operating loss
carryforwards of approximately $24,100,000 which expire as follows:
<TABLE>
<CAPTION>
YEAR
ENDED AMOUNT
----- -----------
<S> <C>
2009 $ 2,700,000
2010 4,700,000
2011 4,000,000
2012 5,200,000
2013 7,500,000
</TABLE>
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. Beginning with 1994, approximately $21,000,000 of the
carryforward is limited.
No income taxes were paid during the years ended December 31, 1997 and
1998, respectively.
10. STOCKHOLDERS' EQUITY
PREFERRED STOCK
In August 1998, the Company exchanged $3,640,000 of its 8% senior
convertible notes for 364,000 shares of its newly created Series A convertible
preferred stock. The Series A preferred stock carries a dividend of 8.5% per
year payable in cash or common stock of the Company, at the Company's option,
and is convertible into Common Stock of the Company at a fixed conversion price
of $3.625 per share (subject to certain conditions).
29
<PAGE> 30
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In December 1998, the Company began a private placement of 945,000 shares
of a newly created Series B convertible preferred stock at $10 per share. The
Series B preferred stock is convertible into common stock of the Company at a
fixed price of $3.625 per share, subject to certain requirements, and carries a
dividend of 8% per year payable in cash or common stock of the Company, at the
Company's option. In December 1998, the Company received a $4,000,000
subscription for the Series B preferred stock from H.T. Ardinger Jr., a
principal shareholder of the Company, of which $600,000 was paid in December
1998 and the balance of $3,400,000 was classified as a stock subscription
receivable at December 31, 1998 and paid January 27, 1999.
Holders of the Series A and Series B preferred stock have no voting rights
except on amendments to the Company's Articles of Incorporation to change the
authorized shares, or par value, or to alter or change the powers or preferences
of their respective preferred stock issues. Additionally, the holders of Series
A preferred stock have Board of Director representation privileges in instances
of dividend default by the Company.
COMMON STOCK
In February 1997, the Company completed an underwritten initial public
offering of 1,400,000 shares of its common stock and 1,400,000 redeemable common
stock purchase warrants (public warrants). The shares of common stock and the
public warrants were sold on the basis of one public warrant for each share of
common stock at a unit price to the public of $4.60, and were separately
transferable immediately upon issuance. Each public warrant entitles the holder
to purchase one share of common stock at $4.50 per share, subject to adjustment
under certain circumstances, at any time commencing six months from the date of
the Prospectus through and including five years from the date of the Prospectus.
The public warrants are redeemable by the Company at any time commencing twelve
months from the date of the Prospectus, upon notice of not less than thirty
days, at a price of $.10 per public warrant, provided that the closing price or
bid price of the common stock for any twenty trading days within a period of
thirty consecutive trading days ending on the fifth day prior to the day on
which the Company gives notice of redemption has been at least 150% (currently
$6.285, subject to adjustment) of the initial public offering price per share of
common stock. In March 1997, the Company issued 210,000 additional shares of
common stock and public warrants upon exercise of the underwriter's
over-allotment option. The Company received net proceeds of $5,427,000 during
February and March 1997 related to this sale. Additionally, in February of 1997,
$5,345,300 principal amount of convertible and bridge notes together with
accrued interest of $367,827 were converted into 1,241,977 shares of common
stock and public warrants in the offering.
In August 1997, the Company registered, in a Registration Statement on Form
SB-2, 2,981,573 shares of common stock underlying private warrants that had
previously been issued by the Company at various times between June 1995 and
February 1997 in connection with various financing transactions. Each such
private warrant entitles the holder to purchase one (1) share of common stock at
prices ranging from $1.00 to $3.00 per share at any time commencing immediately
upon issuance through and including three years from date of issuance. The
Company does not receive any of the proceeds of the sale of such shares of
common stock, but will receive proceeds of up to $7,529,719 from the exercise of
the private warrants, to the extent the warrants are exercised. In September and
October 1997, the Company received net proceeds of $1,676,533 upon the exercise
of 821,677 private warrants at prices ranging from $1.00 to $3.00 per share. As
an inducement for early exercise of the private warrants, exercising warrant
holders received 82,000 three-year warrants to purchase Company stock at $4.50
per share. In June and July of 1998, the Company received $1,804,996 in net
proceeds from the exercise of 633,332 warrants to purchase Company common stock
at $3.00 per share. As an incentive for early exercise, warrant holders were
issued 1,266,664 warrants to purchase Company stock at $4.50 per share. The
warrants will expire in February 2002 and have exercise price adjustment terms
identical to the public warrants issued in connection with Company's initial
public offering.
In September 1998, holders of 30,000 shares of Series A preferred stock
converted their shares into 82,770 shares of common stock of the Company.
30
<PAGE> 31
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In June through December of 1998, the Company received $343,225 in proceeds
from the exercise of 343,225 warrants to purchase Company common stock at an
exercise price of $1.00 per share.
During 1998, the Company received proceeds of $37,275 from the exercise of
66,817 stock options with exercise prices ranging from $.04 to $3.00 per share.
In September 1998, the Company entered into a strategic business alliance
with Tadeo Holdings, Inc. ("THI"), 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. The number of Company shares exchanged was determined by dividing
$2,000,000 by the average closing price per share of the Company's common stock
for the five trading days prior to September 24, 1998 which was $2.00 per share
(see Note 5).
In December 1998, the Company issued 56,145 shares of Company common stock
to Series A preferred shareholders of record on December 15, 1998 as payment of
$101,721 of 8.5% dividends accrued from August 17, 1998 through December 15,
1998. Series A preferred dividends are paid semi-annually on June 15th and
December 15th of each year in cash or, at the option of the Company, in common
stock. The common stock is valued at the average of the market prices for the 20
consecutive stock exchange business days ending ten stock exchange business days
prior to the dividend payment date. The computed common stock value at December
15, 1998 was $1.812 per share.
During 1998 the Company issued 73,443 shares of common stock to various
consultants in exchange for financial services. The number of common shares
issued was determined by dividing the fair market value of services by an
average of the common stock market prices on the date of issuance. Total value
of the consulting services provided during 1998 amounted to $133,396 and prices
for common stock shares issued ranged from $1.77 to $2.81 per share.
During 1998, the Company received $139,117 in proceeds from the sale of
73,787 shares of common stock to employees under the terms of the Company's
Employee Stock Purchase Plan. The employee purchase price for the offering
periods ended April 30, 1998 and October 31, 1998 were $2.62 and $1.50 per
share, respectively.
In May 1998, shareholders of the Company approved a proposal to increase
the number of authorized shares of common stock of the Company from 20,000,000
shares to 30,000,000 shares.
STOCK OPTION PLANS
In April 1995, the Company adopted its 1995 Stock Plan (the 1995 Stock
Option Plan) under which 2,000,000 shares of the Company's common stock are
reserved for issuance to officers, key employees and consultants of the Company.
The objectives of the stock plan are to attract and retain qualified personnel
for positions of substantial responsibility, and to provide additional
incentives to employees and consultants to promote the success of the Company's
business. Options granted under the plan may be incentive stock options or
non-qualified stock options. The plan is administered by the Board of Directors.
The options are granted at the discretion of the Board of Directors at an option
price per share not less than fair market value at the date of grant. In May
1998, shareholders of the Company approved a proposal to increase the number of
shares available for issuance under the 1995 Stock Plan from 2,000,000 shares to
3,900,000 shares.
In April 1995, the Company also adopted the 1995 Director Option Plan under
which 250,000 shares of the Company's common stock are reserved for issuance to
outside directors of the Company. The objective of the director plan is to
attract and retain qualified personnel for service as outside directors of the
Company, and to encourage their continued service to the Board. Only
non-qualified stock options may be granted. Grants under the plan are automatic
and nondiscretionary, and are issued at an option price per share not less than
fair market value at the date of grant.
31
<PAGE> 32
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Following is a summary of stock option activity from December 31, 1996
through December 31, 1998:
<TABLE>
<CAPTION>
STOCK OPTIONS
--------------------------------------------------
WEIGHTED-
AVERAGE
NUMBER PRICE PER EXERCISE PRICE
OF SHARES SHARE PER SHARE
------------ ------------ ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 2,093,961 $.04 - 4.00 $ 2.81
Granted 780,666 3.00 - 5.84 4.55
Exercised 6,000 3.00 3.00
Canceled/forfeited 130,817 2.20 - 4.63 3.42
------------
Outstanding at December 31, 1997 2,737,810 .04 - 5.84 3.27
Granted 1,638,009 2.06 - 4.09 2.69
Exercised 66,817 .04 - 3.00 .56
Canceled/forfeited 654,999 2.06 - 5.84 3.58
------------
Outstanding at December 31, 1998 3,654,003 $.10 - 5.84 $ 3.00
============
</TABLE>
The weighted-average grant-date fair value of options granted was $2.23 and
$1.60 for the years ended December 31, 1997 and 1998, respectively.
The following information applies to options outstanding at December 31,
1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ -------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
------------- -------------- ----------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 - 1.00 103,670 4.8 $ 0.13 101,337 $ 0.13
1.01 - 2.00 -- -- -- -- --
2.01 - 3.00 2,292,168 6.2 2.64 1,616,600 2.69
3.01 - 4.00 782,750 6.4 3.45 238,649 3.53
4.01 - 5.00 386,832 7.2 4.45 157,579 4.44
5.01 - 6.00 88,583 4.9 5.23 66,891 5.17
-------------- ----------- ----------- -------------- ---------
3,654,003 6.3 $ 3.00 2,181,056 $ 2.87
</TABLE>
Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
For Stock Based Compensation, requires the disclosure of pro forma net income
and earnings per share information computed as if the Company had accounted for
its employee stock options granted subsequent to December 31, 1994 under the
fair value method set forth in SFAS 123. The fair value for these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions:
32
<PAGE> 33
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Risk-free interest rate 6% 5.35%
Dividend yield 0% 0%
Volatility factor of the
market price of the
Company's common stock 40% 60%
Expected life of the options
(years) 6 6
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimated, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. In addition, because SFAS 123 is applicable only to
options granted subsequent to December 31, 1994, the pro forma information
presented below is not necessarily indicative of the effects on reported net
income in future years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Pro forma
information for the years ended December 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998
------------ -------------
<S> <C> <C>
Pro forma net loss $ (6,212,743) $ (10,741,022)
Pro forma net loss per share:
basic and diluted $ (.80) $ (1.15)
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In May 1995, the Company established an Employee Stock Purchase Plan (ESPP)
to provide employees of the Company with an opportunity to purchase common stock
through payroll deductions. Under the ESPP, up to 250,000 shares of common stock
have been reserved for issuance, subject to certain antidilution adjustments.
The ESPP, by its terms, became effective at the time of the Company's IPO. The
ESPP is intended to qualify as an employee stock purchase plan within the
meaning of Section 423 of the Internal Revenue Code.
Each offering period will be for a period of six months except the first
offering period under the ESPP was from October 1, 1997 through April 30, 1998.
The ESPP terminates in April, 2005. Eligible employees may participate in the
ESPP by authorizing payroll deductions during an offering period within a
percentage range determined by the Board of Directors. Initially, the amount of
authorized payroll deductions is not more than ten percent of an employee's cash
compensation during an offering period, but not more than $25,000 per year.
Amounts withheld from payroll are applied at the end of each offering period to
purchase shares of common stock. Participants may withdraw their contributions
at any time before stock is purchased, and in the event of withdrawal such
contributions will be returned to participants. The purchase price of the common
stock is equal to eighty-five percent (85%) of the lower of (i) the market price
of common stock immediately before the beginning of the applicable offering
period or (ii) the market price of common stock at the end of each offering
period. The Company will pay all expenses incurred in connection with the
implementation and administration of the ESPP.
33
<PAGE> 34
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
WARRANTS
The Company has issued private warrants to purchase common stock of the
Company in connection with the issuance and repayment of certain notes payable
(as described in Notes 7 and 8), as inducement for early exercise of private
warrants and as compensation for services rendered by various consultants.
Additionally, the Company has issued public warrants to purchase common stock of
the Company in connection with its initial public offering and concurrent debt
retirement and debt for equity exchange (as described in the Common Stock
section of Note 10).
The following is a summary of warrant activity from December 31, 1996
through December 31, 1998:
<TABLE>
<CAPTION>
WARRANTS
----------------------------------------------------
WEIGHTED-
AVERAGE
NUMBER OF PRICE PER EXERCISE PRICE
SHARES SHARE PER SHARE
----------------------------------------------------
<S> <C> <C> <C>
Outstanding at December 31, 1996 1,524,005 $ 1.00 - 3.00 $ 2.07
Granted - non-public warrants 1,717,676 3.00 - 4.63 3.24
Granted - public warrants 2,851,977 4.50 4.50
Exercised 821,667 1.00 - 3.00 2.13
-----------
Outstanding at December 31, 1997 5,271,991 1.00 - 4.63 3.76
Granted - non-public warrants 1,796,664 3.00 - 4.50 4.02
Exercised 976,557 1.00 - 3.00 2.30
Canceled 23,442 1.00 - 4.50 3.49
-----------
Outstanding at December 31, 1998 6,068,656 $ 1.00 - 4.50 $ 3.91
===========
</TABLE>
In addition, at December 31, 1998 the Company's IPO representative holds
warrants to purchase 140,000 units at $6.44 per unit, each unit consisting of
one share of common stock and one common stock purchase warrant exercisable at
$4.50 per share through February 2002.
In October 1998, the Company reduced the exercise price of 2,851,977
redeemable common stock purchase warrants (public warrants) that were issued in
connection with the Company's initial public offering, from $4.50 per share to
$4.19 per share in accordance with certain provisions in the warrant agreement.
Concurrently, the exercise price of 1,266,664 private warrants that were issued
in connection with the early exercise of warrants was also lowered from $4.50 to
$4.19 per share.
At December 31, 1998, 6,043,656 warrants at prices ranging from $1.00 to
$4.50 with a weighted-average exercise price of $3.91 were exercisable.
11. EMPLOYEE BENEFIT PLAN
Effective March 1, 1997, the Company adopted a profit sharing plan pursuant
to Section 401(k) of the Internal Revenue Code whereby participants may elect to
contribute up to twenty percent (20%) of their compensation subject to statutory
limitations. The plan provides for discretionary matching and profit sharing
contributions by the Company. All full-time employees are eligible to
participate in the plan provided they meet a minimum service requirement of six
consecutive months and a minimum age requirement of twenty-one. For the years
ended December 31, 1997 and 1998, the Company made no matching or profit sharing
contributions.
34
<PAGE> 35
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
The Company leases various office and manufacturing space under
non-cancelable operating leases extending through 2003. The Company also leases
certain office and computer equipment under non-cancelable operating leases.
Future minimum operating lease payments with initial or remaining terms of one
year or more are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
---------
<S> <C>
Year ended December 31:
1999 $ 445,587
2000 191,854
2001 149,890
2002 134,529
2003 12,211
Thereafter -
=========
Total minimum lease payments $ 934,071
=========
</TABLE>
Rent expense was $261,400 and $545,174 for the years ended December 31,
1997 and 1998, respectively.
13. RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENTS
During January and February of 1997, the Company issued $600,000 of 8%
unsecured notes to two principal stockholders of the Company. The notes were due
on demand 10 days subsequent to an initial public offering of the Company's
equity securities or 180 days from date of issue. During February of 1997 these
notes were converted into common stock and public warrants in the Company's
initial public offering as described in Note 7.
During February 1997, $1,915,000 principal amount of 8% unsecured
bridge notes and $1,000,000 principal amount of 8% secured convertible notes
owing to four principal stockholders of the Company were converted into 633,694
shares of common stock and public warrants in the Company's initial public
offering at $4.60 per share. Additionally, during February 1997, the Company
paid accrued interest of $76,634 to the stockholders.
During February 1997, $1,905,000 principal amount of 8% convertible
debt and accrued interest of $282,992 owing to four principal stockholders, its
Chief Executive Officer and the spouse of another principal stockholder and
former director, were converted into 475,647 shares of common stock and public
warrants in the Company's initial public offering at $4.60 per share.
During 1997, the Company repaid $235,000 principal amount of 15% debt
to its Chief Executive Officer together with accrued of $53,568. During 1998,
the Company repaid $214,958 principal amount of 15% debt together with accrued
interest of $27,036. In January 1999, the principal balance in the amount of
$96,285 was retired together with accrued interest of $719.
35
<PAGE> 36
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
In August 1997, the Company registered, in a Registration Statement on Form
SB-2, 2,981,573 shares of common stock underlying private warrants (see Note 9),
some of which are held by affiliates of the Company. In September and October of
1997, the Company received gross proceeds of $1,700,000 upon exercise of 805,000
private warrants from three principal stockholders of the Company and the spouse
of a principal stockholder. As an incentive for early exercise of the warrants,
the stockholders were issued 82,000 three-year private warrants to purchase
Company stock at $4.50 per share.
During 1997 and 1998, the Company paid consulting fees to its Chairman in
the amount of $56,000 and $48,000, respectively.
In June and July of 1998, the Company received $1,849,998 in gross proceeds
from the exercise of 616,666 warrants to purchase Company common stock at $3.00
per share from three principal shareholders. As an incentive for early exercise,
shareholders were issued 1,233,332 warrants to purchase Company stock at $4.50
per share. The warrants will expire in February 2002 and have exercise price
adjustment terms identical to the public warrants issued in connection with
Company's initial public offering.
In November 1998, the Company entered into a working capital line of credit
facility for up to $9 million with one of its principal shareholders. This one
year, renewable facility, bears interest at 12% per annum and is secured by all
assets of the Company (See Note 6). At December 31, 1998 the outstanding
principal balance of the note was $3,687,513 and accrued interest thereon was
$77,692.
In December 1998 through February 1999, the Company received $9.45 million
in gross proceeds from the sale of 945,000 shares of a newly created Series B
convertible preferred stock at $10 per share. Two principal shareholders of the
Company purchased $4,000,000 each and other existing shareholders purchased the
balance of $1.45 million. The Series B preferred stock is convertible into
common stock of the Company at a fixed price of $3.625 per share, subject to
certain requirements, and carries a dividend of 8% per year payable in cash or
common stock of the Company, at the Company's option.
Item 8. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
There have been no disagreements concerning any matter of accounting
principle or financial statement disclosure between the Company and its
independent auditors.
36
<PAGE> 37
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act.
The names of the nominees for Director and certain other information about
them are set forth below:
<TABLE>
<CAPTION>
NOMINEE AGE DIRECTOR SINCE OFFICE HELD WITH COMPANY
------- --- -------------- ------------------------
<S> <C> <C> <C>
Joseph Autem 41 1999 Director
William D. Jobe 61 1994 Director, President and Chief Executive
Officer
William E. Johnson 54 1998 Director
Glenn A. Norem 46 1994 Director
H. T. Ardinger 74 1999 Director and Chairman of the Board
</TABLE>
MR. AUTEM has served as a Director of the Company since January 1999 and has
served as a Director of broadcast.com since September 1996. Mr. Autem has served
in various consulting capacities from July 1998 to the present. Mr. Autem
previously served as Senior Vice President and Chief Financial Officer of CS
Wireless, Inc., a privately held company that provides wireless video and high
speed internet access, from June to July 1998. Mr. Autem was also a partner of
Vision Technology Partners, a private investment company, from March 1997 to
June 1998. From July 1996 to December 1996, Mr. Autem served as Chief Financial
Officer of the broadcast.com. From 1992 to 1996, Mr. Autem served as Vice
President of Finance, Secretary, Treasurer and Chief Financial Officer of
OpenConnect Systems, Inc., a software company. Mr. Autem became a certified
public accountant in 1987 and holds a B.S. in Accounting from Pittsburg State
University.
MR. JOBE has been a Director of the Company since November 1994, President
and Chief Executive Officer since January 1999 and served as Chairman of the
Board from November 1994 to April 1999. Since July 1991, Mr. Jobe has been a
private venture capitalist and computer industry advisor. From June 1990 to July
1991, Mr. Jobe was President of MIPS Technology Development, a subsidiary of
MIPS Computer Systems, Inc., a supplier of reduced instruction set computing
products and technology. From September 1987 to June 1990, Mr. Jobe was
Executive Vice President for Sales, Marketing and Service of MIPS Computer
Systems, Inc. From 1993 through 1995, Mr. Jobe was Chairman and a director of
Great Bear Technology, Inc., a publicly-traded supplier of interactive
multimedia software. Mr. Jobe received a B.S.M.E. and a M.S.M.E. from Texas A &
M University and a P.M.D. from Harvard Business School.
MR. JOHNSON has been director of the Company since April 1998. He has been
President of William E. Johnson Associates, a private investment company, since
1993. From 1986 to 1992, Mr. Johnson served as Chairman and Chief Executive
Officer of Scientific-Atlanta, Inc. a manufacturer of telecommunications
instruments and equipment. Mr. Johnson currently serves as a director of
TSAT-Primestar Satellite, a publicly-traded provider of digital video services
and of XL Connect, a publicly-traded provider of computer services. Mr. Johnson
received a B.A. degree in American Studies from Yale University and an M.B.A.
from Harvard University.
MR. NOREM has been a director of the Company since its inception in February
1994. Mr. Norem was Chief Executive Officer of the Company and each of the
Company's subsidiaries from their respective inceptions until his resignation in
January 1999. Mr. Norem will continue as a director of the Company. Mr. Norem
has also been Chairman and Chief Executive Officer of Catalyst Financial
Corporation ("Catalyst"), an investment and business advisory firm to
development stage companies in the computer and communications industries, since
its inception in January 1990. From March 1984 to December 1989, Mr. Norem was a
general partner of Barry Cash Southwest Partnership, L.P., a venture capital
partnership. From May 1985 to December 1989, Mr. Norem was a general partner of
InterWest III, L.P. a venture
37
<PAGE> 38
capital partnership. Previously, he was Corporate Strategic Business Development
Manager at Texas Instruments, Inc. Mr. Norem began his career with IBM
Corporation's System Communications Division R & D Laboratory. Mr. Norem
received a B.S. degree in Electrical Engineering/Systems Engineering from
Southern Illinois University and an M.B.A. (Finance and Marketing) from the
University of Chicago.
MR. ARDINGER has served as a Director and Chairman of the Board of the
Company since April 1999. Mr. Ardinger co-founded H.T. Ardinger & Son Co., a
specialty import wholesaler, where he has served as Chairman of the Board and
Chief Executive Officer since 1964. Mr. Ardinger served as a Director and
Executive Committee Member of Home Interiors & Gifts, Dallas, Texas, from 1958
through 1998 and was a founding Limited Partner of the Dallas Maverick's
National Basketball Association Franchise in 1980. Mr. Ardinger received a B.B.A
degree in Business Administration from Southern Methodist University.
EXECUTIVE OFFICERS
The following table contains information as of April 22, 1999 as to the
executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD WITH COMPANY
---- --- ------------------------
<S> <C> <C>
William D. Jobe 61 President and Chief Executive Officer
William S. Leftwich 49 Chief Financial Officer and Secretary
David T. Stoner 41 Vice President of Operations
Neal S. Page 39 Vice President of Osprey Products
</TABLE>
MR. JOBE'S information can be found with the above information concerning
nominees for director.
MR. LEFTWICH has been Chief Financial Officer of the Company since March
1995. From January 1993 to March 1995, Mr. Leftwich served as Chief Financial
Officer, Treasurer and Secretary of Integrated Security Systems, Inc., a
manufacturer, developer, and distributor of integrated security solutions. From
August 1992 to December 1992, Mr. Leftwich served as Controller of Thomas Group
Holding Company, an affiliate of Integrated Security Systems, Inc. Mr. Leftwich
was self-employed as a financial consultant from January 1992 to July 1992. From
January 1989 to December 1991, Mr. Leftwich served as the Chief Financial
Officer of OKC Limited Partnership, an oil and gas exploration company. For
approximately seven years prior to joining OKC Limited Partnership, Mr. Leftwich
served as Vice President - Finance for Endevco, Inc., a natural gas
transportation and processing company. Mr. Leftwich is a C.P.A. and received a
B.B.A. from Texas A&M University.
MR. STONER joined the Company as Vice President of Operations in August
1996. From August 1994 to August 1996, Mr. Stoner was Vice President of
Engineering for the Connectworks Division of Connectware, Inc., a wholly owned
subsidiary of AMP Inc. From July 1986 to August 1994, Mr. Stoner was employed by
Visual Information Technologies, Inc. ("VITec"), a manufacturer of video,
imaging, and graphics products, which was purchased by Connectware, Inc. At
VITec, Mr. Stoner was responsible for the development of hardware and software
products, and served in various positions including Vice President of
Engineering. From January 1979 to July 1986, Mr. Stoner served in various
engineering positions at Texas Instruments, Inc. Mr. Stoner received his B.S.
degree in Electrical Engineering from the University of Kansas.
MR. PAGE has been Vice President of Osprey Products since January 1995. From
October 1994 to December 1994, Mr. Page served as Director of Product
Development of the Company. From April 1988
38
<PAGE> 39
to September 1994, Mr. Page was employed by Sun Microsystems, Inc., where he
held management positions directing development and strategic relationships for
multimedia technology products. Mr. Page developed advanced graphics and imaging
products at General Electric from 1984 to 1988 and at Data General from 1983 to
1984. Mr. Page holds B.S. and M.S. degrees in Electrical and Computer
Engineering from North Carolina State University.
There are no family relationships among the directors, executive officers,
or other significant employees of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers,
directors and persons who own more that 10% of a registered class of the
Company's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% shareholders are required by the regulation to furnish the
Company with copies of the Section 16(a) forms which they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company, and written representations that no
other reports were required during the year ended December 31, 1998, all
Section 16(a) filing requirements applicable to the Company's officers,
directors and greater than ten percent (10%) beneficial owners were complied
with, with the exception of Glenn A. Norem, a director of the Company and H. T.
Ardinger, a 10% shareholder of the Company, who each failed to timely file a
Form 5. Mr. Norem is now current in his Section 16(a) filings. The Company is
currently working with Mr. Ardinger to comply with the requirements of Section
16(a).
39
<PAGE> 40
Item 10. Executive Compensation
DIRECTOR COMPENSATION
Directors currently receive no cash compensation for serving on the Board
of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. In June 1993, Mr. Jobe was granted an option to purchase
5,110 shares of Common Stock under the 1993 Stock Option Plan at an exercise
price of $0.20 per share. This option is fully vested. In November 1994, Mr.
Jobe was granted an option to purchase 125,000 shares of Common Stock under the
1994 Option Plan, at an exercise price of $3.00 per share. The option vests as
to one quarter of the shares subject to the option one year from the date of
grant and one quarter of the shares subject to the option each year thereafter
subject to acceleration based on the Company's performance. In November 1995,
Mr. Jobe was granted options to purchase 40,000 shares of Common Stock
exercisable at $3.00 per share under the 1995 Option Plan for consulting
activity in addition to his director responsibilities. These options are fully
vested.
In September 1998, Mr. Jobe was granted an option to purchase 120,000
shares of Common Stock under the 1995 Option Plan, at an exercise price of
$2.0625 per share. The option vests over a four year period. In December 1998,
Mr. Jobe was granted an option to purchase 150,000 shares of Common Stock under
the 1995 Option Plan, at an exercise price of $3.625 per share. The option
vests over a one year period.
In April 1998, Mr. Johnson was granted an option to purchase 25,000 shares
of Common Stock under the 1995 Option Plan, at an exercise price of $3.1875 per
share. The option vests over a four year period.
In January 1999, Mr. Autem was granted an option to purchase 40,000 shares
of Common Stock under the 1995 Option Plan, at an exercise price of $3.625 per
share. The option vests over a four year period.
In May 1995, the Company adopted a 1995 Director Option Plan (the "Director
Plan") under which only outside directors are eligible to receive stock
options. The Director Plan provides for the grant of nonstatutory stock options
to directors who are not employees of the Company. A total of 250,000 shares of
Common Stock have been authorized for issuance under the Director Plan. As of
December 31, 1998, options to purchase an aggregate of 90,000 shares at
exercise prices ranging from $3.00 to $4.03125 per share had been granted under
the Director Plan. Each non-employee director who joins the Board after May 1,
1995 will automatically be granted a nonstatutory option to purchase 15,000
shares of Common Stock on the date upon which such person first becomes a
director. In addition, each such non-employee director will automatically be
granted a nonstatutory option to purchase 10,000 shares of Common Stock upon
annual re-election to the Board, provided the director has been a member of the
Board for at least six months upon the date of re-election. The exercise price
of each option granted under the Director Plan is equal to the fair market
value of the Common Stock on the date of grant. Each initial 15,000 share grant
vests at the rate of 25% of the option shares upon the first anniversary of the
date of grant and one forty-eighth of the options shares per month thereafter,
and each annual 10,000 share grant vests at the rate of 25% of the option
shares upon the first anniversary of the date of grant and one forty-eighth of
the options shares per month thereafter, in each case unless terminated sooner
upon termination of the optionee's status as a director or otherwise pursuant
to the Director Plan. In the event of a merger of the Company with or into
another corporation or a consolidation, acquisition of assets or other change
in control transaction involving the Company, each option becomes exercisable
unless assumed or an equivalent option substituted by the successor
corporation. Unless terminated sooner, the Director Plan will terminate in
2005. The Director Plan is currently administered by the Board of Directors.
The Board has authority to amend or terminate the Director Plan, provided that
no such action may impair the rights of any optionee without the optionee's
consent.
40
<PAGE> 41
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation paid by
the Company to the Chief Executive Officer and to all other executive officers
of the Company whose total salary and bonus exceeded $100,000 for the year
ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
NAME AND ------------------------ OPTIONS
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS (IN SHARES)
------------------ ----------- -------- ------- ------------
<S> <C> <C> <C> <C>
Glenn A. Norem 1998 $ 182,292 -- 360,000
Chief Executive Officer 1997 161,042 -- 50,000
1996 135,000 -- 160,000
William S. Leftwich 1998 $ 120,000 -- 10,000
Chief Financial Officer 1997 120,000 -- 20,000
1996 110,000 -- 30,000
Philip M. Colquhoun (3) 1998 $ 150,000 -- 25,000
President and Chief 1997 148,334 -- --
Operating Officer 1996 140,000 $ 35,000 50,000
Neal S. Page 1998 $ 114,990 $ 25,783 35,000
Vice President of 1997 112,490 10,000 20,000
Osprey Products 1996 99,990 -- 50,000
David T. Stoner 1998 $ 120,000 -- 5,000
Vice President of 1997 $ 120,000 -- --
Operations 1996 120,000(1) -- 100,000
J. D. Vaughn (3) 1998 $ 110,000 $ 68,714 50,000
Vice President of Sales 1997 120,000(2) 10,000 100,000
and Marketing
</TABLE>
(1) Represents Mr. Stoner's annual salary. He assumed his duties with the
Company on August 16, 1996 and earned $44,615 in salary in 1996.
(2) Represents Mr. Vaughn's annual salary. He assumed his duties with the
Company on November 1, 1997 and earned $20,000 in salary in 1997.
(3) Mr. Colquhoun and Mr. Vaughn resigned from their employment with the
Company in December 1998.
41
<PAGE> 42
The following table provides information concerning options granted to the
executive officers of the Company in 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEE IN BASE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE/SHARE DATE
---- ------- ----------- ----------- ----
<S> <C> <C> <C> <C>
Glenn A. Norem.................. 360,000 21.6 $2.2700 9/09/03
William S. Leftwich............. 10,000 0.6 2.0625 9/09/08
Philip M. Colquhoun............. 25,000 1.5 2.0625 9/09/08
Neal S. Page.................... 35,000 2.1 2.0625 9/09/08
David T. Stoner................. 5,000 0.3 2.0625 9/09/08
J. D. Vaughn.................... 50,000 3.0 2.0625 9/09/08
</TABLE>
YEAR-END OPTION VALUES
The following table sets forth certain information as of December 31, 1998
concerning the value of unexercised options held by the officers named in the
Summary Compensation Table above.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998(1)
--------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn A. Norem 242,532 457,468 $ 30,713 $ 139,050
William S. Leftwich 84,500 35,500 -- 5,938
Philip M. Colquhoun 149,168 125,832 -- --
Neal S. Page 115,666 69,334 -- 20,781
David T. Stoner 46,667 58,333 -- 2,969
J. D. Vaughn 20,000 -- -- --
</TABLE>
(1) Represents the difference between the exercise price of the outstanding
options and the fair market value of the Common Stock on December 31, 1998
of $2.65625 per share.
EMPLOYMENT AGREEMENTS
The Company entered into a five-year employment agreement with Glenn A.
Norem, effective February 7, 1994, which provided for his employment as Chief
Executive Officer. This agreement was terminated effective February 6, 1999,
upon his resignation from the Company. A separation agreement, dated January
15, 1999 provides for a continuation of Mr. Norem's annual base compensation of
$175,000 through June 30, 1999, the payment to Mr. Norem of all notes,
interest, expenses and accrued compensation ($90,082) within seven days of the
date of the agreement, the immediate vesting of all stock options owned by Mr.
Norem and the removal of all restrictive legends from all Company securities
owned by Mr. Norem. The agreement also included a non-compete, non-solicitation
and non-circumvention agreement with the Company until June 30, 1999. Mr. Norem
also agreed to stand for re-election to the Company's Board of Directors. In
addition, Mr. Norem agreed to provide consulting services to the Company at
least through October 15, 1999.
The Company has also entered into employment agreements with Messrs.
Colquhoun, Leftwich, Page, Stoner and Vaughn. These employment agreements
provide (i) for annual base compensation of
42
<PAGE> 43
$90,000, $90,000, $90,000, $120,000 and $120,000 respectively, as adjusted
periodically by the Board of Directors; (ii) that the officer is eligible to
participate in the Company's Employee Stock Option Plans and Executive Bonus
Plans; and (iii) that the employment of each officer with the Company is "at
will" and may be terminated by the officer or the Company at any time, for any
reason or no reason.
The employment agreement for Mr. Colquhoun was terminated effective
December 1,1998 upon his resignation from the Company. A separation agreement
dated December 15, 1998 provides for continuation of Mr. Colquhoun's annual
base compensation of $150,000 through May 31, 1999. In addition, Mr. Colquhoun
agreed to provide consulting services to the Company for a period of twelve
months.
The employment agreement for Mr. Vaughn was terminated effective
December 2, 1998 upon his resignation from the Company. He received two weeks
severance at his annual base compensation of $120,000 through December 17,
1998.
43
<PAGE> 44
Item 11. Security Ownership of Certain Beneficial Owners and Management
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of March 25, 1999 regarding
the beneficial ownership of the Company's Common Stock of (i) each person known
to the Company to be the beneficial owner, within the meaning of Section 13(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of
more than 5% of the outstanding shares of Common Stock, (ii) each director of
the Company, (iii) each executive officer of the Company named in the Summary
Compensation Table (see "Executive Compensation") and (iv) all executive
officers and directors of the Company as a group. Unless otherwise indicated,
the address of each named beneficial owner is c/o ViewCast.com, Inc., 2665
Villa Creek Drive, Suite 200, Dallas, TX 75234. Except to the extent indicated
in the footnotes, each of the beneficial owners named below has sole voting and
investment power with respect to the shares listed.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENTAGE OF OUTSTANDING SHARES
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OWNED (1) (2)
---------------- --------------------- ------
<S> <C> <C>
Estate of Fred Kassner.................... 1,954,063 (3) 15.3
69 Spring Street
Ramsey, NJ 07446
H. T. Ardinger, Jr........................ 2,812,890 (4) 19.9
9040 Governors Row
Dallas, TX 75247
M. Douglas Adkins......................... 1,202,890 (5) 9.3
1601 Elm Street
Dallas, TX 75201
Robert Moody, Jr.......................... 972,251 (6) 7.8
601 Moody National Bank Bldg.
Galveston, TX 77550
Glenn A. Norem............................ 1,417,354 (7) 11.0
121 Dickens Drive
Coppell, TX 75019
William D. Jobe........................... 225,733 (8) 1.8
William E. Johnson........................ 10,832 (9) *
William S. Leftwich....................... 90,587 (10) *
Neal S. Page.............................. 123,529 (11) 1.0
David T. Stoner........................... 57,541 (12) *
Philip M. Colquhoun....................... -- *
J. D. Vaughn.............................. -- *
Joseph Autem.............................. -- *
All executive officers and directors
as a group (nine persons)............. 1,938,076(7)(8)(9)(10)(11)(12) 14.5
</TABLE>
- ----------
44
<PAGE> 45
* Less that 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from March 25, 1999 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from March 25, 1999 have been exercised. Unless
otherwise indicated, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(2) Based on a total of 12,133,595 shares issued and outstanding plus, for
each person listed, any common stock that person has the right to acquire
as of May 25, 1999 pursuant to options, warrants, conversion privileges,
etc.
(3) Includes (i) 486,666 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants at $4.19 per share, (ii) 71,667 shares of
Common Stock reserved for issuance upon the exercise of outstanding
warrants to purchase common stock at $3.00 per share and (iii) 50,000
shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants to purchase Common Stock at $4.50 per share.
(4) Includes (i) 134,334 shares owned by Mr. Ardinger's wife, (ii) 22,000
shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants at $4.50 per share, (iii)720,000 shares of Common
Stock reserved for issuance upon the exercise of outstanding warrants at
$4.19 per share and (iv) 130,000 shares of Common Stock reserved for
issuance upon the exercise of outstanding warrants at $3.00 per share and
(v) 1,103,448 shares of Common Stock reserved for issuance upon the
conversion of $4,000,000 of Series B Convertible Preferred Stock at $3.625
per share.
(5) Includes (i) 56,667 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants at $3.00 per share, (ii) 10,000 shares of
Common Stock reserved for issuance upon the exercise of outstanding
warrants at $4.50 per share, (iii) 226,666 shares of Common Stock reserved
for issuance upon the exercise of outstanding warrants at $4.19 per share
and (iv) 551,724 shares of Common Stock reserved for issuance upon the
conversion of $2,000,000 of Series B Convertible Preferred Stock at $3.625
per share.
(6) Includes (i) 250,000 shares beneficially owned by Moody Insurance Group,
Inc., of which Mr. Moody is Chairman, President and the sole stockholder
and (ii) 275,000 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants at $3.00 per share.
(7) Includes (i) 130,000 shares issuable at $2.42 per share upon exercise of
options issued under the 1994 Option Plan, (ii) 160,000 shares issuable at
$3.30 per share upon exercise of options issued under the 1995 Option
Plan, (iii) 50,000 shares issuable at $5.0875 per share upon exercise of
options issued under the 1995 Option Plan, (iv) 360,000 shares of Common
Stock reserved for issuance upon the exercise of outstanding options at
$2.27 per share, (v) 25,000 shares of Common Stock reserved for issuance
upon the exercise of outstanding warrants at $3.00 per share and (vi)
13,200 shares owned by Mr. Norem's children.
(8) Includes (i) 5,110 shares issuable at $.20 per share upon the exercise of
options issued under the 1993 Option Plan, (ii) 122,500 shares issuable at
$3.00 per share upon the exercise of options issued under the 1994 Option
Plan, (iii) 40,000 shares issuable at $3.00 per share upon the exercise of
options issued under the 1995 Option Plan and (iv) 20,623 shares issuable
at prices ranging from $3.00 - $4.03 per share upon the exercise of
options issued under the 1995 Directors Option Plan and (v) 37,500 shares
issuable at $3.625 per share upon the exercise of options issued under the
1995 Option Plan.
(9) Includes (iI) 4,062 shares issuable at $3.1875 per share upon the exercise
of options issued under the 1995 Directors Option Plan and (ii) 6,770
shares issuable at $3.1875 per share upon the exercise of options issued
under the 1995 Option Plan.
(10) Includes (i) 80,000 shares issuable $3.00 per share upon the exercise of
options issued under the 1995 Option Plan and (ii) 8,666 shares issuable
at $4.625 per share upon the exercise of options issued under the 1995
Option Plan.
(11) Includes (i) 80,000 shares issuable at $3.00 per share upon the exercise
of options issued under the 1994 Option Plan, (ii) 32,667 shares issuable
at $3.00 per share upon the exercise of options under the 1995 Option Plan
and (iii) 8,666 shares issuable at $4.625 per share upon the exercise of
options issued under the 1995 Option Plan.
(12) Includes 55,000 shares issuable at $4.00 per share upon the exercise of
options granted under the 1995 Option Plan.
45
<PAGE> 46
Item 12. Certain Relationship and Related Transactions
CERTAIN TRANSACTIONS
In October 1996, Glenn A. Norem, director and former Chief Executive
Officer of the Company, agreed to defer the receipt of $170,308 principal
amount of secured and demand notes, accrued interest of $13,154 and accrued
salary and bonuses of $127,781 until February 1998. The Company agreed to pay
Mr. Norem interest at a rate of 15% per annum on the deferred amount. The
amounts were paid in full in February 1999. In addition, Mr. Norem was repaid
$200,000 principal amount of secured and demand notes plus accrued interest of
$8,921 on convertible notes from the proceeds of the Company's initial public
offering on February 7, 1997. Also, G. A. Norem I L.P., a partnership managed
by Mr. Norem, was repaid $35,000 principal amount of secured and demand notes
plus accrued interest of $10,068 from the proceeds of the offering.
In November 1998, the Company entered into a working capital line of
credit facility for up to $9 million with one of its principal shareholders and
now Chairman of the Board, H.T. Ardinger, Jr. This one year, renewable
facility, which contains terms more favorable than the Company's prior
facility, bears interest at 12% per annum and is secured by all assets of the
Company. The availability of funds under this facility is subject to certain
borrowing base limitations based principally on qualifying accounts receivable
and inventory.
Item 13. Exhibits and Report on Form 8-K
a.) Exhibits
See Exhibit index.
b.) Reports on Form 8-K
On November 30, 1998, the Company filed a Form 8-K describing the
terms of a $9,000,000 working capital credit facility payable to a
principal shareholder of the Company and the consummation of a
strategic business alliance with Tadeo Holdings, Inc. that included
a stock purchase of 1,240,310 shares of Tadeo Holdings, Inc. common
stock in exchange for common stock of the Company.
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<PAGE> 47
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date ViewCast.com, Inc.
April 29, 1999 By: /s/ William S. Leftwich
-------------------------------------
William S. Leftwich
Chief Financial Officer and
Secretary
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Date ViewCast.Com, Inc.
----
<S> <C>
April 29, 1999 By: /s/ H.T. Ardinger
-------------------------------------
H.T. Ardinger
Director and Chairman of the Board
April 29, 1999 By: /s/ William D. Jobe
-------------------------------------
William D. Jobe
Director, President and Chief Executive Officer
April 29, 1999 By: /s/ William S. Leftwich
-------------------------------------
William S. Leftwich
Chief Financial Officer and Secretary
April 29, 1999 By: /s/ William E. Johnson
-------------------------------------
William E. Johnson
Director
April 29, 1999 By: /s/ Joseph W. Autem
-------------------------------------
Joseph W. Autem
Director
April 29, 1999 By: /s/ Glenn A. Norem
-------------------------------------
Glenn A. Norem
Director
</TABLE>
47
<PAGE> 48
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
PAGE NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2 Agreement and Plan of Merger and Reorganization (1)
3(a) Certificate of Incorporation (1)
3(b) Amendment to Certificate of Incorporation (1)
3(c) Restated By-Laws (1)
3(d) Certificate of Designations of Series B Convertible Preferred Stock (1)
4(a) Form of Common Stock Certificate (1)
4(b) Form of Warrant Certificate (1)
4(c) Form of Warrant Agreement between the Company and Continental Stock Transfer &
Trust Company (1)
4(d) Form of Representative's Warrant Agreement (1)
4(e) Form of Trust Indenture - $5,000,000 8% Senior Convertible Notes Due 2002 (1)
4(f) Form of Lead Managers Warrant Agreement (1)
9(a) Voting Trust Agreement between Robert M. Sterling, Jr. and Thomas E. Brown (1)
9(b) Voting Trust Agreement between Robert P. Bernardi and Richard Bernardi (1)
9(c) Form of Lock-Up Agreement (1)
9(d) Lock-Up Agreement with Robert Sterling Trust (1)
9(e) Lock-Up Agreement with Robert Bernardi Trust (1)
9(f) Lock-Up Agreement with Michael Nissenbaum (1)
10(a) Modified Employment Agreement between the Company and Glenn A. Norem (1)
10(b) Modified Consulting Agreement between the Company and Sterling Capital Group Inc. (1)
10(c) Form of Indemnification Agreement between the Company and Executive Officers and Directors (1)
10(d) 1995 Stock Option Plan (1)
10(e) 1994 Stock Option Plan (1)
10(f) 1993 Viewpoint Stock Plan (1)
l0(g) 1995 Director Option Plan (1)
10(h) Lease Agreement between the Company and Metro Squared, L P (1)
10(i) Employee Stock Purchase Plan (1)
l0(j) Licensing Agreement between the Company and Boca Research, Inc. (1)
10(k) Agreement between the Company and Unisys(TM)(1)
10(l) Employment Agreement between the Company and Philip M. Colquhoun (1)
10(m) Employment Agreement between the Company and William S. Leftwich (1)
10(n) Employment Agreement between the Company and David T. Stoner (1)
10(o) Employment Agreement between the Company and Neal Page (1)
10(p) Employment Agreement between the Company and A. David Boomstein (1)
10(r) Lease between the Company and Burlingame Home Office, Inc. (1)
10(s) Lease between the Company and Family Funds Partnership (1)
10(t) Agreement between the Company and Catalyst Financial Corporation (1)
10(u) Promissory Note by the Company payable to Robert Rubin dated September 5, 1996. (1)
10(v) Promissory Note by the Company payable to M. Douglas Adkins dated November 15, 1996. (1)
10(w Promissory Note by the Company payable to H.T. Ardinger dated November 15, 1996. (1)
10(x) Promissory Note by the Company payable to H.T. Ardinger dated January 15, 1997. (1)
10(y) Promissory Note by the Company payable to Adkins Family Partnership, Ltd. dated January 15,
1997. (1)
10(z) Lease between the Company and the Air Force Association. (1)
10(aa) Lease between the Company and Airport Boulevard Partners, LLC. (1)
10(bb) Stock Purchase Agreement between the Company and Tadeo Holdings, Inc. (2)
10(cc) Working Capital Line of Credit Loan Agreement by the Company payable to the Ardinger Family
Partnership, Ltd. (2)
21 List of Subsidiaries of the Company (1)
23 Consent of Ernst & Young LLP (2)
27 Financial Data Schedule (2)
</TABLE>
(1) Incorporated by reference to the Registration Statement on Form SB-2 and
all amendments thereto as declared effective on February 4, 1997 and to
Forms 10-KSB and Form 8-K filed March 31,1998 and November 30, 1998,
respectively.
(2) Previously Filed.
48
