<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________
Commission File Number: 0-29020
VIEWCAST.COM, INC.
------------------
(FORMERLY MULTIMEDIA ACCESS CORPORATION)
(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 75-2528700
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer Incorporation
Incorporation or Organization) Identification No.)
2665 VILLA CREEK DRIVE, SUITE 200, DALLAS, TX 75234
---------------------------------------------------
(Address of principal executive offices)
972/488-7200
------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of November 5, 1999, 14,067,380 shares of the Registrant's common stock were
outstanding.
<PAGE> 2
VIEWCAST.COM, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1998 and
September 30, 1999 (Unaudited).................................................................................3
Consolidated Statements of Operations for the Three Months
ended September 30, 1998 and 1999 (Unaudited) and the Nine Months
ended September 30, 1998 and 1999 (Unaudited)..................................................................4
Consolidated Statement of Stockholders' Equity for the
Nine Months ended September 30, 1999 (Unaudited)...............................................................5
Consolidated Statements of Cash Flows for the Nine Months ended
September 30, 1998 and 1999 (Unaudited)........................................................................6
Notes to Consolidated Financial Statements.......................................................................7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................................................................10
PART II. OTHER INFORMATION...............................................................................................14
SIGNATURES.................................................................................................................16
</TABLE>
2
<PAGE> 3
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 439,791 $ 6,107,841
Available-for-sale securities -- 1,534,850
Accounts receivable, less allowance for doubtful accounts of $823,500
at December 31, 1998 and $804,000 at September 30, 1999 (unaudited) 1,839,783 953,850
Stock subscription receivable 3,400,000 --
Inventory 3,110,588 2,724,222
Prepaid expenses 90,646 85,451
Deferred charges, principally deferred debt issue costs 568,252 --
------------ ------------
Total current assets 9,449,060 11,406,214
Property and equipment, net 1,382,044 1,268,624
Software development costs, net 431,500 417,997
Deferred charges 213,048 22,173
Investment in equity securities 2,000,000 1,010,022
Deposits 135,938 124,917
------------ ------------
Total assets $ 13,611,590 $ 14,249,947
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,847,807 $ 945,071
Accrued compensation 326,169 325,305
Deferred revenue 157,891 179,631
Accrued restructuring charges 275,000 --
Other accrued liabilities 488,337 611,727
Short-term debt, officer 96,285 --
Shareholder line of credit 3,687,513 2,425,568
Short-term debt, other 117,280 62,840
------------ ------------
Total current liabilities 7,996,282 4,550,142
Long-term debt 1,360,000 --
Commitments
Stockholders' equity:
Convertible preferred stock, $.0001 par value:
Authorized shares - 5,000,000
Series A issued and outstanding shares - 334,000 at December 31, 1998
and none at September 30, 1999 (unaudited) 33 --
Series B shares - 400,000 shares subscribed at December 31, 1998 and
945,000 shares issued and outstanding at September 30, 1999 (unaudited) 40 95
Common stock, $.0001 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 11,324,974 at December 31, 1998
and 14,323,579 at September 30, 1999 (unaudited) 1,132 1,433
Additional paid-in capital 31,947,418 43,846,352
Unrealized gain on securities reported at fair value -- 544,872
Accumulated deficit (27,681,409) (34,681,041)
Treasury stock, 261,497 shares at December 31, 1998 and
September 30, 1999 (unaudited) (11,906) (11,906)
------------ ------------
Total stockholders' equity 4,255,308 9,699,805
------------ ------------
Total liabilities and stockholders' equity $ 13,611,590 $ 14,249,947
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 2,648,567 $ 1,046,292 $ 7,049,173 $ 5,280,282
Cost of goods sold 1,372,956 678,475 3,614,300 2,884,724
------------ ------------ ------------ ------------
GROSS PROFIT 1,275,611 367,817 3,434,873 2,395,558
Operating expenses:
Selling, general and administrative 1,954,777 1,918,214 5,593,754 5,336,405
Research and development 740,430 738,569 2,221,403 2,397,241
Depreciation and amortization 165,866 153,881 379,829 458,462
------------ ------------ ------------ ------------
Total operating expenses 2,861,073 2,810,664 8,194,986 8,192,108
------------ ------------ ------------ ------------
OPERATING LOSS (1,585,462) (2,442,847) (4,760,113) (5,796,550)
Other income (expense):
Dividend and interest income 2,592 78,068 33,185 184,708
Interest expense (187,370) (271,068) (579,033) (850,765)
Other 68 27 48 40
------------ ------------ ------------ ------------
Total other income (expense) (184,710) (192,973) (545,800) (666,017)
------------ ------------ ------------ ------------
NET LOSS $ (1,770,172) $ (2,635,820) $ (5,305,913) $ (6,462,567)
============ ============ ============ ============
NET LOSS PER SHARE: BASIC AND DILUTED $ (0.20) $ (0.21) $ (0.60) $ (0.55)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,307,884 13,817,456 8,930,913 12,774,842
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
<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, 1998 734,000 $ 73 11,324,974 $ 1,132 $ 31,947,418
Sale of convertible preferred stock -
Series B, net 545,000 55 -- -- 5,434,291
Conversion of convertible preferred
stock - Series A to common stock (334,000) (33) 921,505 92 (59)
Conversion of 8% convertible notes
to common stock -- -- 317,313 32 1,162,818
Exercise of options and warrants -- -- 1,685,993 169 4,885,185
Value of options and warrants
issued for consulting services -- -- -- -- 53,932
Sale of common stock, employee
stock purchase plan -- -- 29,494 3 43,086
Other -- -- -- -- (9,320)
Unrealized gain on securities reported
at fair value -- -- -- -- --
Convertible preferred stock
dividends - Series A and B -- -- 44,300 5 329,001
Net loss -- -- -- -- --
------------ ------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1999 945,000 $ 95 14,323,579 $ 1,433 $ 43,846,352
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
OTHER TOTAL
COMPREHENSIVE ACCUMULATED TREASURY STOCKHOLDERS'
INCOME DEFICIT STOCK EQUITY
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $ -- $(27,681,409) $ (11,906) $ 4,255,308
Sale of convertible preferred stock -
Series B, net -- -- -- 5,434,346
Conversion of convertible preferred
stock - Series A to common stock -- -- -- --
Conversion of 8% convertible notes
to common stock -- -- -- 1,162,850
Exercise of options and warrants -- -- -- 4,885,354
Value of options and warrants
issued for consulting services -- -- -- 53,932
Sale of common stock, employee
stock purchase plan -- -- -- 43,089
Other -- -- -- (9,320)
Unrealized gain on securities reported
at fair value 544,872 -- -- 544,872
Convertible preferred stock
dividends - Series A and B -- (537,065) -- (208,059)
Net loss -- (6,462,567) -- (6,462,567)
------------ ------------ ------------ ------------
BALANCE, SEPTEMBER 30, 1999 $ 544,872 $(34,681,041) $ (11,906) $ 9,699,805
============ ============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------
1998 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (5,305,913) $ (6,462,567)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of fixed assets 270,451 367,774
Amortization of software development costs 109,378 90,688
Non-cash charges to interest expense 121,850 561,977
Non-cash consulting fees exchanged for options and warrants 110,114 53,932
Changes in operating assets and liabilities:
Accounts receivable (1,868,083) 885,933
Inventory (1,128,558) 386,366
Prepaid expenses (90,116) 5,195
Deferred charges (41,463)
Deposits (98,967) 11,021
Accounts payable 1,426,887 (1,902,736)
Accrued compensation 119,420 (864)
Accrued restructuring charges -- (275,000)
Deferred revenue 80,788 21,740
Other accrued liabilities 328,932 (84,664)
------------ ------------
Net cash used in operating activities (5,965,280) (6,341,205)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (649,813) (254,354)
Software development costs (282,342) (77,185)
------------ ------------
Net cash used in investing activities (932,155) (331,539)
------------ ------------
FINANCING ACTIVITIES:
Net proceeds from convertible preferred stock subscription - Series B -- 8,834,344
Net proceeds from the exercise of options and warrants 1,857,253 4,885,352
Net proceeds from issuance of short-term debt 2,062,830 --
Proceeds from sale of common stock and warrants 66,554 43,089
Repayment of shareholder line of credit -- (1,261,945)
Repayment of short-term debt-officer (194,576) (96,285)
Other 119,512 (63,761)
------------ ------------
Net cash provided by financing activities 3,911,573 12,340,794
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,985,862) 5,668,050
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,117,202 439,791
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 131,340 $ 6,107,841
============ ============
</TABLE>
See accompanying notes.
6
<PAGE> 7
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
include the accounts of ViewCast.com, Inc. and its wholly-owned subsidiaries,
Viewpoint Systems, Inc., VideoWare, Inc. and Osprey Technologies, Inc.
(collectively, the Company). All material inter-company accounts and
transactions have been eliminated in consolidation. On April 8, 1999, the
Company changed its name from MultiMedia Access Corporation to ViewCast.com,
Inc. As a result, references to MultiMedia Access Corporation have been changed
to ViewCast.com, Inc. in this report.
The financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months and nine months ended September 30, 1999, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998 filed with the Securities and
Exchange Commission.
2. SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale at September 30, 1999, consist of the
investment in equity securities of a strategic business alliance partner, and
are stated at fair market value as determined by quoted market sources and
management estimates of the number of shares expected to be available for sale
within one year in accordance with Rule 144 of the Securities and Exchange
Commission. The cost of the shares at September 30, 1999 was $989,978. Gross
unrealized gains for the nine months ended September 30 1999, which have been
included as a separate component of shareholders' equity, were $544,872. No
unrealized holding gains or losses have been included in earnings during the
nine months ended September 30, 1999.
3. INVENTORY
Inventory is comprised primarily of purchased electronic components and
computer system products, along with related documentation manuals and packaging
materials and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
<S> <C> <C>
Purchased materials $ 815,999 $ 738,841
Work in progress 108,639 --
Finished goods 2,185,950 1,985,381
------------ ------------
$ 3,110,588 $ 2,724,222
============ ============
</TABLE>
Inventory at December 31, 1998 and September 30, 1999 is presented net of
reserves of $199,255 and $345,914, respectively. Reserves are provided for lower
of cost or market adjustments, obsolescence and for slow moving and damaged
inventory.
7
<PAGE> 8
4. LONG-TERM DEBT - CONVERTIBLE
In February through April 1999, holders of $1,360,000 principal amount of
8% convertible debt exchanged their notes for 317,313 shares of common stock of
the Company at conversion prices ranging from of $3.625 to $4.625 per share
completing the exchange of all 8% convertible notes that were outstanding at
December 31, 1998.
5. CONVERTIBLE PREFERRED STOCK
In January through August 1999, holders of 334,000 shares of Series A
convertible preferred stock converted their shares into 921,505 shares of common
stock of the Company at a conversion rate of 2.759 shares of common for each
share of Series A convertible preferred stock.
6. COMMON STOCK
In January through September 1999, the Company received gross proceeds of
$1,422,912 from the exercise of 377,254 warrants at exercise prices ranging from
$3.00 to $4.19 per share, and gross proceeds of $3,462,442 from the exercise of
1,308,658 stock options at exercise prices ranging from $0.10 to $5.84 per
share.
7. NET LOSS PER SHARE
Basic earnings per share is calculated by dividing net income/loss
applicable to common shareholders by the weighted average number of common
shares outstanding for the period. Since the Company has reported net losses for
the periods presented, the computation of diluted loss per share excludes the
effects of options, warrants and convertible debt since their effect is
anti-dilutive.
Loss per share calculations for the three and six month periods ended June
30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- -------------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (1,770,172) $ (2,635,820) $ (5,305,913) $ (6,462,567)
Preferred dividends and
accretion of issue costs (61,563) (202,779) (61,563) (587,827)
------------ ------------ ------------ ------------
Net loss applicable to
common shareholders $ (1,831,735) $ (2,838,599) $ (5,367,476) $ (7,050,394)
============ ============ ============ ============
Weighted average number of
common shares outstanding 9,307,884 13,817,456 8,930,913 12,774,842
============ ============ ============ ============
Loss per share as reported in the financial
statements: basic and diluted $ (0.20) $ (0.21) $ (0.60) $ (0.55)
============ ============ ============ ============
</TABLE>
8
<PAGE> 9
8. BUSINESS RESTRUCTURING
Results of operations for 1998 included charges of $402,800 for resizing
and restructuring the Company's operations and workforce. The charges were
recorded in the fourth quarter of 1998 in accordance with a plan of
restructuring approved by the Board of Directors. The charges included severance
costs for work force reductions of 16 employees including two Executive Officers
of the Company, closure of three sales offices and losses on impairment of
certain assets. Personnel reductions were made in the Company's sales,
development and finance and administration departments in an effort to reduce
operating expenses. As of July 31, 1999, the Company had paid all of the
$275,000 of restructuring charges accrued at December 31, 1998.
9
<PAGE> 10
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
ViewCast.com, Inc. develops, manufactures and markets standards-based
systems that provide advanced video communications applications for business
customers. The Company's VBX(TM) video distribution and switching systems,
Osprey(R) video codecs and video peripherals and ViewCast(R) Internet video
systems deliver popular video applications, including videoconferencing, video
broadcasting, video-based training, surveillance, distance learning,
telemedicine and Internet/Intranet video communications. The Company's products
are available from leading resellers, systems integrators, OEMs, and
applications developers worldwide. On April 8, 1999, the Company changed its
name to ViewCast.com, Inc. from MultiMedia Access Corporation. As a result,
references to MultiMedia Access Corporation have been changed to ViewCast.com,
Inc. in this report.
This Form 10-QSB contains forward-looking statements, which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, product demand and
market acceptance risks, the impact of competitive products and pricing, product
development, commercialization and technological difficulties, capacity and
supply constraints or difficulties, general business and economic conditions,
the effect of the Company's accounting policies and other risks detailed in the
Company's Annual Report on Form 10-KSB and other filings with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1999 compared to Nine Months Ended September 30,
1998.
Net Sales. Net sales for the nine months ended September 30, 1999 decreased
25.1% to $5,280,282 from $7,049,173 reported during the same period last year.
The decrease can be attributed to a decline in revenues for the Company's video
distribution systems offset in part by increased revenues for its video
peripheral and video streaming products during 1999 compared to the same period
in 1998. Net sales of $1,046,292 for the quarter ended September 30, 1999 were
down significantly from $2,648,567 reported during the third quarter of 1998.
This 60.5% decline can be attributed to delays in orders from a number of
channel partners and to a loss in sales momentum during the Company's
restructuring efforts and search for new management.
During the first nine months of 1999, sales of Osprey(R) peripheral
products increased 29.0% over the same period in 1998 and represented 70.5% of
1999 revenues compared to 40.9% of 1998 revenues. Sales of ViewCast(R) streaming
server products showed a significant increase since its launch in the first
quarter of 1999 and represented 7.2% of total 1999 revenues. VBX(TM) video
distribution systems sales decreased 73.4% compared the same period in 1998 and
represented 20.2% of 1999 revenues compared to 56.9% of 1998 revenues. Sales of
VBX(TM) systems are expected to vary from quarter to quarter due to the long
sales cycle for this product. However, it is anticipated that sales for VBX(TM)
systems will represent a larger percentage of total revenues during the fourth
quarter of 1999.
Cost of Goods Sold. Cost of goods sold decreased $729,576 to $2,884,724 for
the first nine months of 1999 compared to the same period last year, primarily
due to the decrease in net sales described above. Gross profit margin for first
nine months of 1999 was 45.4%, representing decline from the 48.7% margin
reflected last year. The decrease in gross margin can be attributed primarily to
the 1999 increase in sales of the Company's Osprey(R) codecs and ViewCast(R)
video-streaming products which have lower profit margins and charges of $125,000
during the third quarter of 1999 to increase the Company's inventory reserves.
10
<PAGE> 11
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Selling, General and Administrative Expense. Selling, general and
administrative expenses decreased from $5,593,754 during the first nine months
of 1998 to $5,336,405 during the first nine months of 1999 primarily due to the
cost reduction efforts instituted during the fourth quarter of 1998 to reduce
the Company's sales staff and sales administrative costs. The savings generated
from reduced sales expenses were offset in part by increases in marketing,
customer service and administrative expenses during the first nine months of
1999.
Research and Development Expense. Research and development expense
increased from $2,221,403 during the first nine months of 1998 to $2,397,241
during the first nine months of 1999. This increase of $175,838 can be
attributed to a lower of cost or market adjustment to inventory of $275,000
during the first quarter of 1999 as a result of new contractual pricing from one
of the Company's major suppliers. Development expenses during the first three
months of 1999 showed a decline of $149,998 over last year due to development
staff reductions initiated during the fourth quarter of 1998.
Other Income (Expense). For the nine months ended September 30, 1999,
other expense increased $120,217 compared to the same period in 1998. The change
was due primarily to an increase in interest expense and amortization of debt
issue costs associated with the Company's line of credit financing consummated
in November 1998 offset in part by the increase in interest income during 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds for conducting its business
activities are from the sale of its debt and equity securities and from
operations. The Company requires liquidity and working capital primarily to fund
increases in inventories and accounts receivable associated with sales growth,
development of its products, debt service and for capital expenditures.
Net cash used in operating activities for the nine months ended September
30, 1999 was $6,341,205 due primarily to the $6,462,567 net loss for the period
and changes in operating assets and liabilities of $953,009 offset in part by
noncash operating expenses of $1,074,371.
Investing activities utilized cash of $331,539 during the nine months ended
September 30, 1999 for capital expenditures of computer equipment, test
equipment and purchased software to aid the marketing, development and testing
of the Company's products.
During the first nine months of 1999, financing activities generated cash
in the amount of $12,340,794 due principally to the completion of the Company's
private placement of Series B Convertible Preferred Stock which provided cash of
$8,834,346. The Company also received proceeds of $4,885,352 from the exercise
of options and warrants and utilized cash in the amount $1,421,991 to retire
short-term debt.
During September of 1998, the Company entered into a strategic business
relationship with Tadeo Holdings, Inc. ("THI") that involved a stock purchase
agreement whereby the Company acquired 1,240,310 shares of THI common stock in
exchange for 1,000,000 shares of the Company's common stock. Management has
estimated that approximately 49% of the THI shares held by the Company would be
available for trading within one year and accordingly reported those shares at
their fair market value on the balance sheet as of September 30, 1999. The
remaining THI shares held by the Company are valued at cost due to limitations
imposed by Rule 144 of the Securities and Exchange Commission limiting trading
for the first two years the stock is held. At September 30, 1999, the quoted
market price of THI registered shares was $2.50 per share.
11
<PAGE> 12
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
The Company had working capital of $6,856,072 at September 30, 1999
compared to $1,452,778 at December 31, 1998 and cash and cash equivalents of
$6,107,841 at September 30, 1999 compared to $439,791 at December 31, 1998. The
Company experienced a sales decline during first nine months of 1999 compared to
1998. It is anticipated that losses will continue during 1999 and until such
time as gross margins from the sales of its products exceed its development,
selling, administrative and financing costs. As revenues grow, operating
expenses are forecasted to decline as a percent of revenues and the Company's
quarterly results are expected to continue to move toward profitability.
The Company believes it has sufficient cash and cash equivalents on hand to
meet its working capital requirements at least through the second quarter of
2000. In November 1998, the Company entered into a working capital line of
credit financing arrangement for up to $9 million with one of its principal
shareholders. The availability of funds under this facility is subject to
certain borrowing base limitations based principally on outstanding accounts
receivable and inventory. At September 30, 1999, the Company had utilized $2.43
million of this facility and may further utilize the facility to fund future
sales growth. Additionally, the Company expects to receive additional funds from
the exercise of options and warrants during the remainder of 1999 and first
quarter of 2000.
YEAR 2000
The "Year 2000" issue (Y2K) refers to potential complications that may be
caused by computer hardware and software that were not designed for the change
in the century. If not corrected, such computer hardware and software may cause
management information systems and devices with embedded microprocessors to fail
or miscalculate data.
The Company has largely completed all phases of its Y2K readiness review,
except for contingency planning, with respect to the currently supported
versions of all of its products. As a result, the current versions of each of
the Company products are "Year 2000 Compliant" as defined below, when configured
and used in accordance with the related documentation, and provided that any
other software used with the Company's products are also Year 2000 Compliant.
The Company continues to respond to customer questions about prior versions of
its products on a case-by-case basis.
"Year 2000 Compliant" is defined as the ability to:
(a) correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
(b) function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new century,
assuming correct configuration;
(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
12
<PAGE> 13
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
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 ("IT"),
and non-IT systems. An assessment of the Company's material internal IT systems
has been initiated, including both its own software products and third-party
software and hardware technology, but the Company has not initiated an
assessment of its non-IT systems. The Company expects to complete testing its IT
and non-IT systems in 1999. To the extent that it is not able to test the
technology provided by third-party vendors, it is seeking assurances from such
vendors that their systems are Year 2000 Compliant. Although the Company is not
currently aware of any material operational issues or costs associated with
preparing its internal IT and non-IT systems for the Year 2000, the Company may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in its internal IT and non-IT systems.
The Company does not currently have any information concerning the Y2K
compliance status of its customers. The Company's current and potential clients
may incur significant expenses to achieve Y2K compliance. If its clients are not
Y2K compliant, they may experience material costs to remedy problems or they may
face litigation costs. In either case, Y2K issues could reduce or eliminate
budgets that current or potential customers could have for purchases of the
Company's products and services. As a result, the Company's business, results of
operations or financial condition could be materially adversely affected.
The Company has funded its Y2K plan from available cash and has not
separately accounted for these costs in the past. To date, these costs have not
been material. Any additional costs that may be incurred are not anticipated to
be material. The Company may experience material problems and costs with Y2K
compliance that could adversely affect its business, results of operations and
financial condition.
The Company has not yet fully developed a contingency plan to address
situations that may result if it is unable to achieve Y2K readiness of its
critical operations. The costs of developing and implementing such a plan may
itself be material. Finally, the Company is also subject to external forces that
might generally affect industry and commerce, such as utility or transportation
company Y2K compliance failures and related service interruptions. There can be
no assurance that Y2K will not adversely affect the Company and its operations.
13
<PAGE> 14
VIEWCAST.COM, INC. AND SUBSIDIARIES
OTHER INFORMATION - (CONTINUED)
VIEWCAST.COM, INC. AND SUBSIDIARIES
OTHER INFORMATION
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
(Not Applicable)
Item 2. Changes in Securities
(Not Applicable)
Item 3. Defaults Upon Senior Securities
(Not Applicable)
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on July 22,
1999 and the following proposals were submitted to a vote by
proxy of the shareholders of record on June 3, 1999:
Proposal No. 1. To elect the Board of Directors (five directors)
to serve until the next Annual Meeting of Shareholders. The
following persons were nominated for election as directors of the
Company with the following voting results:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Shares
Voted
Shares Against/ Share Broker Total Shares
Director Nominees Voted For Withheld Abstentions Non-votes Results Represented
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
H.T. Ardinger, Jr 12,651,582 51,798 -- -- Elected 12,703,380
-----------------------------------------------------------------------------------------------------------
Joseph Autem 12,647,597 55,783 -- -- Elected 12,703,380
-----------------------------------------------------------------------------------------------------------
William D. Jobe 12,615,282 88,098 -- -- Elected 12,703,380
-----------------------------------------------------------------------------------------------------------
William E. Johnson 12,651,282 52,098 -- -- Elected 12,703,380
-----------------------------------------------------------------------------------------------------------
Glenn A. Norem 12,600,380 103,300 -- -- Elected 12,703,380
-----------------------------------------------------------------------------------------------------------
</TABLE>
Proposal No. 2. To increase the authorized shares of Common Stock
of ViewCast.com, Inc. from 30,000,000 shares to 40,000,000
shares:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Shares
Voted
Shares Against/ Share Broker Total Shares
Proposal Voted For Withheld Abstentions Non-votes Results Represented
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Increased in
Authorized Shares 11,597,493 1,088,180 17,707 -- Pass 12,703,380
-----------------------------------------------------------------------------------------------------------
</TABLE>
Proposal No. 3. Shareholder approval of convertibility of the of
the Series B Convertible Preferred Stock to Common stock:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Shares
Voted
Shares Against/ Share Broker Total Shares
Proposal Voted For Withheld Abstentions Non-votes Results Represented
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Convertibility of
Series B Converti-
ble Preferred Stock 4,507,557 991,716 31,530 7,172,577 Pass 12,703,380
-----------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 15
Proposal No. 4. Amendment of the 1995 Employee Stock Option Plan
to increase the number of shares available under the plan from
3,900,000 shares to 4,900,000 shares:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Shares
Voted
Shares Against/ Share Broker Total Shares
Proposal Voted For Withheld Abstentions Non-votes Results Represented
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Amend 1995
Employee Stock
Option Plan 4,463,748 1,006,257 60,798 7,172,577 Pass 12,703,380
-----------------------------------------------------------------------------------------------------------
</TABLE>
Proposal No. 5. To ratify the appointment of Ernst & Young, LLP
as the Company's independent public accountants for the year
ending December 31, 1999. Voting results were as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
Shares
Voted
Shares Against/ Share Broker Total Shares
Proposal Voted For Withheld Abstentions Non-votes Results Represented
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Ernst & Young,
LLP Ratification 12,670,689 24,288 8,403 -- Pass 12,703,380
-----------------------------------------------------------------------------------------------------------
</TABLE>
Item 5. Other Information
(None)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits filed with this report:
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
On March 15, 1999, the Company filed a Form 8-K
describing the terms of private placement of a newly
created Series B convertible preferred stock.
On September 22, 1999, the Company filed a Form 8-K
describing the appointment of George C. Platt as its
new Chief Executive Officer and the resignations of
William D. Jobe and William E. Johnson as directors
of the Company.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ViewCast.com, Inc.
------------------
(registrant)
BY:
Date: November 10, 1999 /s/ Frederick B. Cowen
----------------------
Frederick B. Cowen
Chief Accounting Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF VIEWCAST.COM, INC. AND SUBSIDIARIES AS OF
SEPTEMBER 30, 1999 (UNAUDITED) AND THE RELATED CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)AND QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,107,841
<SECURITIES> 1,534,850
<RECEIVABLES> 1,757,850
<ALLOWANCES> 804,000
<INVENTORY> 2,724,222
<CURRENT-ASSETS> 11,406,214
<PP&E> 2,568,179
<DEPRECIATION> 1,299,555
<TOTAL-ASSETS> 14,249,947
<CURRENT-LIABILITIES> 4,550,142
<BONDS> 0
0
95
<COMMON> 1,433
<OTHER-SE> 9,698,277
<TOTAL-LIABILITY-AND-EQUITY> 14,249,947
<SALES> 5,170,282
<TOTAL-REVENUES> 5,280,282
<CGS> 2,884,724
<TOTAL-COSTS> 2,884,724
<OTHER-EXPENSES> 2,855,703
<LOSS-PROVISION> 106,189
<INTEREST-EXPENSE> 850,765
<INCOME-PRETAX> (6,462,567)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,462,567)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,462,567)
<EPS-BASIC> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
