<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
--------------
[ ] 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.
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(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
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(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 May 5, 2000, 15,540,630 shares of the Registrant's common stock were
outstanding.
<PAGE> 2
VIEWCAST.COM, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1999 and
March 31, 2000 (Unaudited)................................................................3
Consolidated Statements of Operations for the Three Months
ended March 31, 1999 and 2000 (Unaudited) ................................................4
Consolidated Statement of Stockholders' Equity for the
Three Months ended March 31, 2000 (Unaudited).............................................5
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1999 and 2000 (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......................................................................13
SIGNATURES......................................................................................14
</TABLE>
2
<PAGE> 3
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,315,980 $ 5,293,542
Available-for-sale securities 3,410,853 4,922,790
Accounts receivable, less allowance for doubtful accounts
of $117,000 and $147,000 at December 31, 1999 and
March 31, 2000 (unaudited), respectively 1,386,395 1,109,772
Inventory 2,526,096 2,702,231
Prepaid expenses 93,598 246,408
------------ ------------
Total current assets 11,732,922 14,274,743
Property and equipment, net 1,338,143 1,326,249
Software development costs, net 429,502 443,737
Deferred charges -- 94,259
Deposits 64,815 67,860
------------ ------------
Total assets $ 13,565,382 $ 16,206,848
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 662,247 $ 913,360
Accrued compensation 418,360 459,273
Deferred revenue 270,779 233,040
Other accrued liabilities 392,713 737,764
Shareholder line of credit 2,408,827 2,408,827
Short-term debt, other 4,842 3,650
------------ ------------
Total current liabilities 4,157,768 4,755,914
Commitments
Stockholders' equity:
Convertible preferred stock, $.0001 par value:
Authorized shares - 5,000,000
Series B - issued and outstanding shares - 945,000 at
December 31, 1999 and March 31, 2000 (unaudited), respectively 95 95
Common stock, $.0001 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 14,624,898 and 15,521,847
at December 31, 1999 and March 31, 2000 (unaudited), respectively 1,463 1,553
Additional paid-in capital 44,889,810 47,679,654
Unrealized gain on securities reported at fair value and accumulated
other comprehensive income 1,410,853 2,922,790
Accumulated deficit (36,882,701) (39,141,252)
Treasury stock, 261,497 shares at December 31, 1999 and
March 31, 2000 (unaudited) (11,906) (11,906)
------------ ------------
Total stockholders' equity 9,407,614 11,450,934
------------ ------------
Total liabilities and stockholders' equity $ 13,565,382 $ 16,206,848
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
NET SALES $ 2,014,164 $ 1,936,658
Cost of goods sold 1,048,465 866,711
------------ ------------
GROSS PROFIT 965,699 1,069,947
Operating expenses:
Selling, general and administrative 1,654,962 2,092,399
Research and development 975,267 892,069
Depreciation and amortization 154,375 148,123
------------ ------------
Total operating expenses 2,784,604 3,132,591
------------ ------------
OPERATING LOSS (1,818,905) (2,062,644)
Other income (expense):
Dividend and interest income 43,363 62,295
Interest expense (326,178) (70,235)
------------ ------------
Total other income (expense) (282,815) (7,940)
------------ ------------
NET LOSS $ (2,101,720) $ (2,070,584)
============ ============
NET LOSS PER SHARE: BASIC AND DILUTED $ (0.20) $ (0.15)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 11,690,614 14,843,209
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (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, 1999 945,000 $ 95 14,624,898 $ 1,463 $ 44,889,810
Exercise of options and warrants -- -- 896,949 90 2,784,195
Value of options and warrants
issued for consulting services -- -- -- -- 11,140
Other -- -- -- -- (5,491)
Convertible preferred stock
dividends - Series B -- -- -- -- --
Unrealized gain on securities reported
at fair value -- -- -- -- --
Net loss -- -- -- -- --
Comprehensive loss
-------- ------------ ---------- ------------ ------------
BALANCE, DECEMBER 31, 1999 945,000 $ 95 15,521,847 $ 1,553 $ 47,679,654
======== ============ ========== ============ ============
<CAPTION>
OTHER TOTAL
COMPREHENSIVE ACCUMULATED TREASURY STOCKHOLDERS'
INCOME DEFICIT STOCK EQUITY
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 $ 1,410,853 $(36,882,701) $ (11,906) $ 9,407,614
Exercise of options and warrants -- -- -- 2,784,285
Value of options and warrants
issued for consulting services -- -- -- 11,140
Other -- -- -- (5,491)
Convertible preferred stock
dividends - Series B -- (187,967) -- (187,967)
Unrealized gain on securities reported
at fair value 1,511,937 -- -- 1,511,937
Net loss -- (2,070,584) -- (2,070,584)
------------
Comprehensive loss (558,647)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 $ 2,922,790 $(39,141,252) $ (11,906) $ 11,450,934
============ ============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE> 6
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------
1999 2,000
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,101,720) $(2,070,584)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of fixed assets 124,146 120,543
Amortization of software development costs 30,229 27,580
Non-cash charges to interest expense 194,625 --
Non-cash consulting fees exchanged for options and warrants 24,500 11,140
Changes in operating assets and liabilities:
Accounts receivable 105,567 276,623
Inventory 371,086 (176,135)
Prepaid expenses (6,699) (152,810)
Deferred charges -- (94,259)
Deposits 1,000 (3,045)
Accounts payable (2,228,916) 251,113
Accrued compensation (14,707) 40,913
Accrued restructuring charges (174,957) --
Deferred revenue (599) (37,739)
Other accrued liabilities (117,335) 157,084
----------- -----------
Net cash used in operating activities (3,793,780) (1,649,576)
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (67,985) (108,649)
Software development costs -- (41,815)
----------- -----------
Net cash used in investing activities (67,985) (150,464)
----------- -----------
FINANCING ACTIVITIES:
Net proceeds from convertible preferred stock subscription - Series B 8,834,346 --
Net proceeds from the exercise of options and warrants 963,569 2,784,285
Repayment of shareholder line of credit (923,595) --
Repayment of short-term debt-officer (96,285) --
Repayment of short-term debt-other (20,600) (1,192)
Other -- (5,491)
----------- -----------
Net cash provided by financing activities 8,757,435 2,777,602
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,895,670 977,562
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 439,791 4,315,980
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,335,461 $ 5,293,542
=========== ===========
</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.
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 ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000. 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, 1999, as amended, filed with the Securities and Exchange
Commission.
2. INVENTORIES
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, MARCH 31,
1999 2000
---------- ----------
(UNAUDITED)
<S> <C> <C>
Purchased materials $ 766,533 $ 743,235
Finished goods 1,759,543 1,958,996
---------- ----------
$2,526,096 $2,702,231
========== ==========
</TABLE>
Inventory at December 31, 1999 and March 31, 2000 is presented net of
reserves of $346,153 and $344,133, respectively. Reserves are provided for lower
of cost or market adjustments, obsolescence and for slow moving and damaged
inventory.
3. SHAREHOLDERS' EQUITY - COMMON STOCK
In January through March 2000, the Company received gross proceeds of
$2,508,828 from the exercise of 811,276 private warrants to purchase 811,276
common shares of the Company at exercise prices ranging from $3.00 to $4.50 per
share.
In January through March 2000, the Company received gross proceeds of
$275,457 from the exercise of 85,673 employee stock options to purchase 85,673
common shares of the Company at exercise prices ranging from $2.06 to 4.63 per
share.
7
<PAGE> 8
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. 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 outstanding options, warrants, convertible debt and convertible
preferred stock since their effect is anti-dilutive.
Loss per share calculations for the three months ended March 31, 1999 and
2000 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Net loss $ (2,101,720) $ (2,070,584)
Preferred dividends and accretion of
issue costs (202,949) (187,967)
------------ ------------
Net loss applicable to common shareholders $ (2,304,669) $ (2,258,551)
============ ============
Weighted average number of common shares
outstanding 11,690,614 14,843,209
============ ============
Loss per share as reported in the financial
statements: basic and diluted $ (0.20) $ (0.15)
============ ============
</TABLE>
5. COMPREHENSIVE INCOME
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Reporting Comprehensive Income. The calculation of
comprehensive income for the three months ended March 31, 2000 includes net loss
as reported in the Consolidated Statements of Operations and unrealized gains
and losses on available-for-sale securities. At March 31, 2000, the Company had
gross unrealized gains on available-for-sale securities of $2,922,790. In
addition, during the three months ended March 31, 2000, unrealized gains on
available-for-sale securities increased $1,511,937.
Available-for-sale securities is comprised exclusively of shares of
TekInsight.com, Inc. (TEKS) acquired through a strategic business alliance in
September of 1998. The quoted market price of TEKS shares at December 31, 1999,
March 31, 2000 and April 30, 2000 was $2.75, $3.97 and $3.50, respectively.
6. SUBSEQUENT EVENTS.
On April 28, 2000, the Company sold $4,450,000 aggregate principal amount
of 7% Senior Convertible Debentures Due 2004 (the "Debentures") pursuant to a
placing agreement dated March 28, 2000, and amended on April 28, 2000, by and
among the Company and RP&C International Inc. and
8
<PAGE> 9
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
RP&C International Limited (the "Lead Managers") at an initial offering price of
100% of the principal amount thereof, less 8% gross commission. In addition, the
Company issued the Lead Managers a warrant (the "Warrant") on April 28, 2000, in
the name of RP&C International (Guernsey) Limited, pursuant to Regulation S, to
purchase an aggregate of 89,000 shares of Common Stock, at an exercise price of
$5.00 per share, subject to adjustment in the event of adjustment of the
Conversion Price of the Debentures. The Warrant has a term of five (5) years and
may be exercised as to all or any lesser number of shares of Common Stock
covered thereby, commencing twelve (12) months after the date of issuance.
Unless previously redeemed, the Debentures are convertible into shares of
Common Stock of the Company at the option of the holder at any time at a fixed
conversion price of $5.00 per share of Common Stock, subject to adjustment in
certain circumstances (the "Conversion Price"). Upon voluntary conversion of any
Debenture by its holder, no payment will be made for interest accrued during the
period (i) from the most recent interest payment date preceding the applicable
conversion date, or (ii) from the date of issuance of the Debentures if the
Debenture is converted before the first interest payment (absent default by the
Company, in which event interest shall continue to accrue at a specified default
rate). Debentures which are converted prior to the first interest payment date
of November 1, 2000 will be converted at a ten percent (10%) discount from the
then effective Conversion Price, and Debentures which are converted prior to the
second interest payment date of May 1, 2001 will be converted at a five percent
(5%) discount from the then effective Conversion Price.
The Debentures were sold outside the United States to non-U.S. persons in
reliance on Regulation S under the Securities Act of 1933, as amended (the
"Act"). Each purchaser certified that it was not a U.S. person (as defined in
Regulation S under the Act) and that it was not acquiring the Debentures for the
account or benefit of any U.S. person. Further each purchaser agreed that prior
to the end of the one-year Distribution Compliance Period (as defined in
Regulation S under the Act), the Debentures may be resold, pledged or
transferred only (i) to the Company, (ii) pursuant to offers and sales outside
the United States in a transaction meeting the requirements of Rules 901 through
905 of Regulation S under the Act, or (iii) pursuant to an effective
registration statement under the Act, each in accordance with any applicable
securities laws of the United States.
The Company can cause the Debentures to be converted into shares of Common
Stock at the Conversion Price at any time and from time to time after October
28, 2001, if the closing sale price of the Common Stock on each day during any
twenty (20) consecutive trading day period commencing on or after October 1,
2001, has equaled or exceeded 160% of the Conversion Price. The Company can
cause the Debentures to be converted into shares of Common Stock at the
Conversion Price at any time and from time to time after April 28, 2002, if the
closing sale price of the Common Stock on each day during any twenty (20)
consecutive trading day period commencing on or after April 1, 2002, has equaled
or exceeded 140% of the Conversion Price.
The Company has agreed to file a registration statement with the Securities
and Exchange Commission (the "SEC") covering the resale of the Common Stock
issuable upon the conversion of the Debentures and the exercise of the Warrant
and to use all commercially reasonable efforts to cause such registration
statement to become effective with the SEC. If the registration statement is not
declared effective within four months of April 28, 2000, the Conversion Price of
the Debentures is subject to specified discounts; but in no event will these
discounts and the early conversion discounts described previously cause the
Conversion Price to be less than $4.20.
The Company may redeem all outstanding Debentures at their principal
amount, together with accrued interest, in the event that prior to the
redemption notice, 85% or more in principal amount of the Debentures have been
converted or purchased by the Company.
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
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 designing, developing and marketing advanced,
standards-based video products that enable video communication over the Internet
and corporate networks. The Company's Viewpoint VBX(TM) video distribution
system, Osprey(R) line of video capture cards and video
compression-decompression cards ("codecs") and ViewCast(R) line of Internet
encoding and streaming video servers deliver business applications for video
conferencing, video broadcasting, video-based training, distance learning,
telemedicine, surveillance and Internet and intranet video communications. The
Company markets its products directly to end-users, through original equipment
manufacturers, value-added resellers and computer system integrators, worldwide.
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including, but not limited to, statements containing the words "will" and
"expects" and similar words, 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 for the year ended December 31, 1999, as
amended, the Registration Statement on Form S-3 filed on April 26, 2000 and
other filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Quarter Ended March 31, 2000 compared to Quarter Ended March 31, 1999.
Net Sales. Net sales for the quarter ended March 31, 2000 decreased 3.8% to
$1,936,658 from $2,014,164 reported for the same period last year. The decrease
is attributed to a decline in video distribution system sales, offset in part
by growth in sales of the Company's video peripheral and video streaming system
products.
o First Quarter 2000 vs. First Quarter 1999 - Osprey(R) Board Products.
During the first quarter of 2000, sales of Osprey codecs and video
capture cards increased 8.8% over 1999 levels and represented 74.2%
of quarterly revenues compared to 65.6% of revenues in the first
quarter of 1999. The increase can be attributed to new product
introductions, growth in demand for the Company's video capture cards
and increased demand from channel partners in the Pacific Rim and
Western Europe.
o First Quarter 2000 vs. First Quarter 1999 - ViewCast(R) Streaming and
Encoding Systems. During the quarter ended March 31, 2000, sales of
ViewCast streaming and encoding systems were $118,637 and represented
6.1% of quarterly revenues. This product line was introduced late in
the first quarter of 1999, so there were no comparable sales in 1999.
10
<PAGE> 11
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
o First Quarter 2000 vs. First Quarter 1999 - ViewPoint VBX(TM)Video
Distribution Systems. Sales of VBX video distribution systems for the
first quarter of 2000 decreased by $447,301 or 64.9% compared to the
same period in 1999. Sales of VBX video distribution systems
represented 12.5% of quarterly revenues, compared to 34.2% of revenues
in the first quarter of 1999. The decrease is attributed to a decline
in sales from two of the Company's largest VBX resellers, who changed
the strategic focus of their companies, and to the reorganization
efforts and training of the Company's new sales staff. The Company
expects sales of its VBX systems to increase for the balance of 2000
as new product features are added and new vertical markets are
identified and developed.
o First Quarter 2000 vs. First Quarter 1999 - Other Revenues. Other
revenues consisting of software maintenance, training, engineering
consulting fees and professional services amounted to $139,696 for the
quarter ended March 31, 2000 and represented 7.2% of quarterly
revenues compared to 0.2% of total revenues during the first quarter
of 1999.
Cost of Goods Sold. Cost of goods sold decreased $181,754 to $866,711 for
the quarter ended March 31, 2000 compared to the same period in 1999, primarily
due to the decrease in net sales described above. Gross profit margin for the
quarter ended March 31, 2000 was 55.2%, representing an increase from the 47.9%
margin reflected in the same period in 1999. The increase in gross margin in the
first quarter of 2000 is attributed to manufacturing and product design
efficiencies, as well as increased revenues from contract engineering and
professional services with little or no associated cost of goods sold. The
Company anticipates that, over extended periods, its margins will remain in the
range of 48% - 52%.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased from $1,654,962 in the first quarter of 1999
to $2,092,399 in the first quarter of 2000 primarily due to an increase in the
number of sales employees and related overhead expenses. During the first
quarter of 2000, sales and sales administrative expenses increased 65.6% over
1999 levels. During the fourth quarter of 1999 and the first quarter of 2000,
the Company added eleven sales employees consisting of regional sales managers,
vertical market specialists and sales engineers to bolster sales of its ViewCast
streaming/encoding servers and VBX video distribution systems. In addition,
sales expenses were much reduced during the first quarter of 1999 due to
workforce reductions and restructuring efforts instituted in the fourth quarter
of 1998.
Research and Development Expense. Research and development expense
decreased approximately 8.5% as compared to the first quarter of 1999; however,
the Company expects that, over the balance of 2000, total research and
development expense will increase over 1999 levels due to the development and
testing of new products and enhancement and addition of new features to its
already existing products.
Other Income (Expense). For the quarter ended March 31, 2000, other income
(expense) decreased by $274,875 to $7,940, primarily due to an increase in
interest income generated from higher average cash and cash equivalent balances
during the current quarter, and from the elimination, in the current quarter, of
interest expense associated with the amortization of debt issue costs related to
Company's line of credit financing. The issue costs were fully amortized in
October 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
operating losses, increases in inventories and accounts receivable associated
with sales growth, development of its products, debt service and capital
expenditures.
11
<PAGE> 12
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Net cash used in operating activities for the three months ended March 31,
2000 was $1,649,576 due primarily to the $2,070,584 net loss for the period
offset by changes in operating assets and liabilities of $261,745 and noncash
operating expenses of $159,263.
Investing activities utilized cash of $150,464 during the three months
ended March 31, 2000 for capital expenditures of computer equipment, test
equipment and purchased software to aid the development and testing of the
Company's products; for demonstration equipment to showcase its products; and
for computers for new-hires added during the quarter.
During the first quarter of 2000, financing activities generated cash in
the amount of $2,777,602 principally from the exercise of outstanding options
and warrants. During the quarter, the Company received gross proceeds of
$2,508,828 from the exercise of 811,276 private warrants to purchase 811,276
shares of the Company's common stock at exercise prices ranging from $3.00 to
$4.50 per share, and gross proceeds of $275,457 from the exercise of 85,673
employee stock options to purchase 85,673 common shares of the Company at
exercise prices ranging from $2.06 to 4.63 per share.
During September of 1998, the Company entered into a strategic business
relationship with TekInsight.com, Inc. ("TEKS"), formerly Tadeo Holdings, Inc.,
that involved a stock purchase agreement whereby the Company acquired 1,240,310
shares of TEKS common stock in exchange for 1,000,000 shares of its Common
Stock. Because all of the TEKS shares held by us will be available for trading
under Rule 144 of the Securities and Exchange Commission prior to December 31,
2000, we have presented those shares at their quoted market price on the balance
sheet as of December 31, 1999 and March 31, 2000. The quoted market price of
TEKS registered common stock at December 31, 1999, March 31, 2000 and April 30,
2000 was $2.75, $3.97 and $3.50 per share, respectively.
At March 31, 2000, the Company had working capital of $9,518,829 compared
to $7,575,154 at December 31, 1999 and cash and cash equivalents of $5,293,542
at March 31, 2000 compared to $4,315,980 at December 31, 1999. The Company
experienced a slight sales decline during the first quarter of 2000 compared to
the first quarter of 1999, and anticipates that losses will continue during 2000
and until such time as total profit margins from the sales of its products
exceed its total development, selling, administrative and financing costs. In
October of 1998, the Company entered into a working capital line of credit
financing arrangement for up to $9,000,000 with an entity controlled by one of
our principal stockholders, who is currently our Chairman of the Board. The
availability of funds under this facility is subject to certain borrowing base
limitations based principally on outstanding accounts receivable and inventory.
At December 31, 1999, the Company had utilized $2.41 million of this facility
and may further utilize the facility to fund future growth. The line of credit
facility expires in October of 2000, and the Company is currently negotiating to
renew the facility. Additionally, during April of 2000, the Company received
proceeds of $1,174,361 from the exercise of 260,969 redeemable warrants to
purchase 280,280 shares of common stock at an effective price per share of
$4.19.
On April 28, 2000, the Company sold $4,450,000 aggregate principal amount
of 7% Senior Convertible Debentures Due 2004 (the "Debentures") pursuant to a
placing agreement dated March 28, 2000, and amended on April 28, 2000, by and
among the Company and RP&C International Inc. and RP&C International Limited
(the "Lead Managers") at an initial offering price of 100% of the principal
amount thereof, less 8% gross commission. In addition, the Company issued the
Lead Managers a warrant (the "Warrant") on April 28, 2000, in the name of RP&C
International (Guernsey) Limited, pursuant to Regulation S, to purchase an
aggregate of 89,000 shares of Common Stock, at an exercise price of $5.00 per
share, subject to adjustment in the event of adjustment of the Conversion Price
of the Debentures. The Warrant has a term of five (5) years and may be exercised
as to all or any lesser number of shares of Common Stock covered thereby,
commencing twelve (12) months after the date of issuance (see Note 6).
The Company believes that it has cash, cash equivalents and marketable
securities on hand to meet its working capital requirements for the next twelve
months. During the remainder of 2000, the Company expects to significantly
increase its sales, marketing and public relations efforts to promote both its
new and existing product offerings. Depending on future business opportunities,
product development, marketing requirements and sales performance, the Company's
plans may change or prove to be inaccurate. Therefore, the Company may be
required to raise additional capital sooner than currently anticipated.
Additional financing could include the issuance of convertible debt, convertible
preferred stock or other equity securities in exchange for a cash investment in
the Company. There can be no assurance that any such additional financing will
be available to us on acceptable terms, or at all. Additional equity financing
may involve substantial dilution to our then existing stockholders. In the event
we are unable to raise additional capital, we may be required to substantially
reduce or curtail our activities.
12
<PAGE> 13
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
(Not Applicable)
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
(None)
13
<PAGE> 14
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: May 15, 2000 /s/ Laurie L. Latham
-----------------------------------------
Laurie L. Latham
Chief Financial Officer
Principal Financial Officer
14
<PAGE> 15
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 MARCH
31, 2000 (UNAUDITED) AND THE RELATED CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,293,542
<SECURITIES> 4,922,790
<RECEIVABLES> 1,256,772
<ALLOWANCES> 147,000
<INVENTORY> 2,702,231
<CURRENT-ASSETS> 14,274,743
<PP&E> 2,874,352
<DEPRECIATION> 1,548,103
<TOTAL-ASSETS> 16,206,848
<CURRENT-LIABILITIES> 4,755,914
<BONDS> 0
0
95
<COMMON> 1,553
<OTHER-SE> 11,449,286
<TOTAL-LIABILITY-AND-EQUITY> 16,206,848
<SALES> 1,796,962
<TOTAL-REVENUES> 1,936,658
<CGS> 866,711
<TOTAL-COSTS> 866,711
<OTHER-EXPENSES> 1,040,192
<LOSS-PROVISION> 30,286
<INTEREST-EXPENSE> 70,235
<INCOME-PRETAX> (2,070,584)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,070,584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,070,584)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
