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