<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 June 30, 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.
-----------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 75-2528700
------------------------------ ------------------------------
(State or other Jurisdiction of (I.R.S. Employer Incorporation
Incorporation or Organization) Identification No.)
2665 VILLA CREEK DRIVE, SUITE 200, DALLAS, TX 75234
---------------------------------------------------
(Address of principal executive offices)
972/488-7200
---------------------------
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of August 7, 2000, 15,731,663 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
June 30, 2000 (Unaudited)............................................ 3
Consolidated Statements of Operations for the Three and Six Months
ended June 30, 1999 and 2000 (Unaudited) ............................ 4
Consolidated Statement of Stockholders' Equity for the
Six Months ended June 30, 2000 (Unaudited)........................... 5
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 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 ................................................. 15
SIGNATURES ................................................................. 16
</TABLE>
2
<PAGE> 3
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 2000
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,315,980 $ 7,492,466
Available-for-sale securities 3,410,853 3,488,992
Accounts receivable, less allowance for doubtful accounts
of $117,000 and $186,000 at December 31, 1999 and
June 30, 2000 (unaudited), respectively 1,386,395 1,737,633
Inventory 2,526,096 2,460,949
Prepaid expenses 93,598 208,540
------------ ------------
Total current assets 11,732,922 15,388,580
Property and equipment, net 1,338,143 1,344,791
Software development costs, net 429,502 418,467
Deferred charges -- 1,136,815
Deposits 64,815 67,848
------------ ------------
Total assets $ 13,565,382 $ 18,356,501
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 662,247 $ 740,714
Accrued compensation 418,360 452,297
Deferred revenue 270,779 398,354
Other accrued liabilities 392,713 638,887
Shareholder line of credit 2,408,827 2,408,827
Short-term debt, other 4,842 2,420
------------ ------------
Total current liabilities 4,157,768 4,641,499
Long-term debt -- 4,450,000
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 June 30, 2000 (unaudited), respectively 95 95
Common stock, $.0001 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 14,624,898 and 15,968,160
at December 31, 1999 and June 30, 2000 (unaudited), respectively 1,463 1,597
Additional paid-in capital 44,889,810 49,565,361
Unrealized gain on securities reported at fair value and accumulated
other comprehensive income 1,410,853 1,488,992
Accumulated deficit (36,882,701) (41,779,137)
Treasury stock, 261,497 shares at December 31, 1999 and
June 30, 2000 (unaudited) (11,906) (11,906)
------------ ------------
Total stockholders' equity 9,407,614 9,265,002
------------ ------------
Total liabilities and stockholders' equity $ 13,565,382 $ 18,356,501
============ ============
</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,
---------------------------- -----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 2,219,826 $ 2,360,138 $ 4,233,990 $ 4,296,796
Cost of goods sold 1,157,784 1,146,491 2,206,249 2,013,202
------------ ------------ ------------ ------------
Gross profit 1,062,042 1,213,647 2,027,741 2,283,594
Operating expenses:
Selling, general and administrative 1,763,229 2,385,411 3,418,191 4,477,808
Research and development 683,405 1,054,653 1,658,672 1,946,722
Depreciation and amortization 150,206 176,320 304,581 324,443
------------ ------------ ------------ ------------
Total operating expenses 2,596,840 3,616,384 5,381,444 6,748,973
------------ ------------ ------------ ------------
OPERATING LOSS (1,534,798) (2,402,737) (3,353,703) (4,465,379)
Other income (expense):
Dividend and interest income 63,277 119,640 106,640 181,935
Interest expense (253,519) (166,823) (579,697) (237,058)
Other 67 -- 67 --
------------ ------------ ------------ ------------
Total other income (expense) (190,175) (47,183) (472,990) (55,123)
------------ ------------ ------------ ------------
NET LOSS $ (1,724,973) $ (2,449,920) $ (3,826,693) $ (4,520,502)
============ ============ ============ ============
NET LOSS PER SHARE: BASIC AND DILUTED $ (0.15) $ (0.17) $ (0.34) $ (0.32)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 12,847,820 15,547,614 12,244,894 15,195,411
============ ============ ============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
CONVERTIBLE ADDITIONAL OTHER
PREFERRED STOCK COMMON STOCK PAID-IN COMPREHENSIVE
SHARES PAR VALUE SHARES PAR VALUE CAPITAL INCOME
----------- --------- ------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 945,000 $ 95 14,624,898 $ 1,463 $ 44,889,810 $ 1,410,853
Exercise of options and warrants -- -- 1,189,311 119 3,990,869 --
Value of options and warrants
issued for consulting services -- -- -- -- 226,737 --
Sale of common stock, employee
stock purchase plan -- -- 24,354 2 74,066 --
Common stock issued for legal
services -- -- 2,500 -- 15,000 --
Other -- -- -- -- (9,199) --
Convertible preferred stock
dividends - Series B -- -- 127,097 13 378,078 --
Unrealized gain on securities reported
at fair value -- -- -- -- -- 78,139
Net loss -- -- -- -- -- --
Comprehensive loss (4,442,363)
------------ ------- ------------ -------- ------------ ------------
BALANCE, JUNE 30, 2000 945,000 $ 95 15,968,160 $ 1,597 $ 49,565,361 $ 1,488,992
============ ======= ============ ======== ============ ============
<CAPTION>
TOTAL
ACCUMULATED TREASURY STOCKHOLDERS'
DEFICIT STOCK EQUITY
----------- ---------- -------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1999 $(36,882,701) $ (11,906) $ 9,407,614
Exercise of options and warrants -- -- 3,990,988
Value of options and warrants
issued for consulting services -- -- 226,737
Sale of common stock, employee
stock purchase plan -- -- 74,068
Common stock issued for legal
services -- -- 15,000
Other -- -- (9,199)
Convertible preferred stock
dividends - Series B (375,934) -- 2,157
Unrealized gain on securities reported
at fair value -- -- 78,139
Net loss (4,520,502) -- (4,520,502)
-----------
Comprehensive loss (4,442,363)
------------ --------- -----------
BALANCE, JUNE 30, 2000 $(41,779,137) $ (11,906) $ 9,265,002
============ ========= ===========
</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,
----------------------------
1999 2,000
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (3,826,693) $ (4,520,502)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of fixed assets 244,122 271,592
Amortization of software development costs 60,459 52,851
Non-cash charges to interest expense 379,951 40,401
Non-cash consulting fees exchanged for options and warrants 24,500 19,367
Changes in operating assets and liabilities:
Accounts receivable (296,057) (351,238)
Inventory 406,499 65,147
Prepaid expenses 8,668 (114,942)
Deposits 11,277 (3,033)
Accounts payable (2,062,183) 93,467
Accrued compensation 1,076 33,937
Accrued restructuring charges (243,457) --
Deferred revenue (1,497) 127,575
Other accrued liabilities (139,586) 248,331
------------ ------------
Net cash used in operating activities (5,432,921) (4,037,047)
------------ ------------
INVESTING ACTIVITIES:
Purchase of property and equipment (153,895) (278,241)
Software development costs (34,152) (41,815)
------------ ------------
Net cash used in investing activities (188,047) (320,056)
------------ ------------
FINANCING ACTIVITIES:
Net proceeds from convertible preferred stock subscription - Series B 8,834,346 --
Net proceeds for the issuance of long-term debt -- 3,480,154
Net proceeds from the exercise of options and warrants 4,135,843 3,990,988
Proceeds from sale of common stock 43,089 74,068
Repayment of shareholder line of credit (923,595) --
Repayment of short-term debt-officer (96,285) --
Repayment of short-term debt-other -- (2,422)
Other (43,878) (9,199)
------------ ------------
Net cash provided by financing activities 11,949,520 7,533,589
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,328,552 3,176,486
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 439,791 4,315,980
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,768,343 $ 7,492,466
============ ============
</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 and six months ended June 30, 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, JUNE 30,
1999 2000
---------- ----------
(UNAUDITED)
<S> <C> <C>
Purchased materials $ 766,533 $ 787,591
Finished goods 1,759,543 1,673,358
---------- ----------
$2,526,096 $2,460,949
========== ==========
</TABLE>
Inventory at December 31, 1999 and June 30, 2000 is presented net of
reserves of $346,153 and $365,562 respectively. Reserves are provided for lower
of cost or market adjustments, obsolescence and for slow moving and damaged
inventory.
3. LONG-TERM DEBT
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.
7
<PAGE> 8
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 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.
4. SHAREHOLDERS' EQUITY - COMMON STOCK
In January through June 2000, the Company received gross proceeds of
$3,683,189 from the exercise of 1,072,245 private and public warrants to
purchase 1,091,556 common shares of the Company at exercise prices ranging from
$3.00 to $4.50 per share.
In January through June 2000, the Company received gross proceeds of
$307,799 from the exercise of 97,755 employee stock options to purchase 97,755
common shares of the Company at exercise prices ranging from $2.06 to $4.63 per
share.
8
<PAGE> 9
VIEWCAST.COM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. 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 and six months ended June 30,
1999 and 2000 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (1,724,973) $ (2,449,920) $ (3,826,693) $ (4,520,502)
Preferred dividends and accretion of
issue costs (182,099) (187,967) (385,048) (375,934)
------------ ------------ ------------ ------------
Net loss applicable to common shareholders $ (1,907,072) $ (2,637,887) $ (4,211,741) $ (4,896,436)
============ ============ ============ ============
Weighted average number of common shares
outstanding 12,847,820 15,547,614 12,244,894 15,195,411
============ ============ ============ ============
Loss per share as reported in the financial
statements: basic and diluted $ (0.15) $ (0.17) $ (0.34) $ (0.32)
============ ============ ============ ============
</TABLE>
6. COMPREHENSIVE INCOME
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Reporting Comprehensive Income. The calculation of
comprehensive income for the six months ended June 30, 2000 includes net loss as
reported in the Consolidated Statements of Operations and unrealized gains and
losses on available-for-sale securities. At June 30, 2000, the Company had gross
unrealized gains on available-for-sale securities of $1,488,992. In addition,
during the six months ended June 30, 2000, unrealized gains on
available-for-sale securities increased $78,139.
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,
June 30, 2000 and July 31, 2000 was $2.75, $2.81 and $2.44, respectively.
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 Statements on Form S-3 filed on April 26, 2000 and
June 28, 2000 and other filings with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
QUARTER ENDED JUNE 30, 2000 COMPARED TO QUARTER ENDED JUNE 30, 1999.
Net Sales. Net sales for the quarter ended June 30, 2000 increased 6.3% to
$2,360,138 from $2,219,826 reported during the same period last year. The
increase is attributed to growth in sales of the Company's video distribution
system products offset in part by a decline in sales of the Company's Osprey(R)
subsystem products.
o Osprey(R) Subsystem Products. During the 2nd quarter of 2000, sales of
Osprey codecs and video capture cards decreased 12.7% over 1999 levels
and represented 63.3% of quarterly revenues compared to 77.1% of total
revenues in the 2nd quarter of 1999. The decrease can be attributed to
a decline in sales to one of Company's major OEM partners offset in
part by the growth in demand for the Company's subsystems from channel
partners in the Pacific Rim and Western Europe. During June 2000, the
Company began limited shipments of its new Osprey-500 line of video
capture cards designed specifically for the capture of
broadcast-quality digital video for streaming media. The
Oprey-500DVPro was developed by ViewCast and was optimized exclusively
to support the Microsoft(R) Windows Media(TM) Format with cooperation
from Microsoft's Digital Media division. The Company expects to see
increased subsystem sales for the remainder of 2000, much of the
increase due to the introduction of the Osprey-500 products which have
increased average selling prices and gross margins over established
subsystem products.
10
<PAGE> 11
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
o ViewCast(R) Streaming and Encoding Systems. During the quarter ended
June 30, 2000, sales of ViewCast streaming and encoding systems were
$83,772 and represented 3.5% of quarterly revenues compared to
$174,269 during the quarter ended June 30, 1999. To encourage new
sales and enhance functionality of its ViewCast streaming video
systems, the Company is integrating the Osprey-500 and Osprey-200
series of products and incorporating additional custom and third party
software into new platforms designed for use by broadcasters and other
professional rich-media suppliers.
o ViewPoint VBX(TM) Video Distribution Systems. Sales of VBX video
distribution systems for the second quarter of 2000 increased by
$347,786 or 152.0% compared to the same period in 1999. Sales of VBX
video distribution systems represented 24.4% of quarterly revenues,
compared to 10.3% of revenues in the second quarter of 1999. The
increase can be attributed to growth in VBX sales in Europe and North
America. During June of 2000, the Company sold VBX equipment to a
leading Wall Street investment management company in the U.S. and
expects additional revenue from this institution during the 2nd half
of 2000. The Company expects sales of its VBX systems to increase for
the balance of 2000 as new product features are added and as new
vertical markets are identified and developed.
o Other Revenues. Other revenues consisting of software maintenance,
training, engineering consulting fees and professional services
amounted to $205,856 for the quarter ended June 30, 2000 and
represented 8.7% of quarterly revenues compared to $105,000, or 4.7%,
of total revenues during the 2nd quarter of 1999.
Cost of Goods Sold. Cost of goods sold decreased $11,293 to $1,146,491 for
the quarter ended June 30, 2000 compared to the same period in 1999 primarily
due to increased margins from the introduction of new subsystem products with
higher gross margins and to increased manufacturing efficiencies. Gross profit
margin for the quarter ended June 30, 2000 was 51.4%, representing an increase
from the 47.8% margin reflected in the same period in 1999. The Company
anticipates that, over extended periods, its margins will remain in the range of
46% - 53%.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased from $1,763,229 in the 2nd quarter of 1999 to
$2,385,411 in the 2nd quarter of 2000 primarily due to an increase in sales
employees and related overhead expenses. During the 2nd quarter of 2000, sales
and sales related expenses increased 68.3% over 1999 levels. Since December
1999, the Company has added eleven sales employees consisting of regional sales
managers, vertical market specialists and sales engineers to bolster sales of
its ViewCast streaming/encoding servers, VBX video distribution systems and
Osprey subsystem products. In addition, sales expenses were much reduced during
the first half of 1999 due to workforce reductions and restructuring efforts
instituted in the fourth quarter of 1998. Additionally, during the three months
ended June 30, 2000, marketing expenses increased 43.4% over 1999 levels due
principally to increases in promotional expenses associated with introduction of
new products and trade show expenditures.
Research and Development Expense. Total research and development expense
increased approximately 54.3%, or $371,248, compared to the 2nd quarter of 1999
as a result of additional engineering headcount, increased spending on
development and testing of new subsystem products, and enhancement and
development of new features to its already existing system products.
Other Income (Expense). During the quarter ended June 30, 2000, other
expense decreased by $142,922 to $47,183, 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 of interest expense
associated with the amortization of debt issue costs related to Company's line
of credit financing that were fully amortized in October of 1999. On April 28,
2000 the Company sold $4.45 million of 7% Senior
11
<PAGE> 12
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Convertible Debentures due 2004 and interest expense will increase in accordance
with the 7% stated rate of the Debentures and amortization of related debt issue
costs.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999.
Net Sales. Net sales for the six months ended June 30, 2000 increased 1.5%
to $4,296,796 from $4,233,990 reported during the same period last year. The
increase can be attributed to growth in other revenues, principally consulting
and professional services, and to a modest increase in sales of the Company's
ViewCast streaming servers and encoding systems. These increases were offset by
slight declines in sales of the Company's video capture cards and codecs and VBX
video distribution systems.
o Osprey(R) Subsystem Products. During the first six months of 2000,
sales of Osprey codecs and video capture cards decreased 3.3% over
1999 levels and represented 68.2% of quarterly revenues compared to
71.6% of revenues during the first six months of 1999. The decrease
can be attributed to a decline in sales to one of the Company's major
OEM partners offset in part by the growth in demand for the Company's
video capture cards and codec from channel partners in the Pacific Rim
and Europe. During June 2000, the Company began limited shipments of
its new Osprey-500 line of video capture cards designed specifically
for the capture of broadcast-quality digital video for streaming
media. The Oprey-500DVPro was developed by ViewCast and was optimized
exclusively to support the Microsoft(R) Windows Media(TM) Format with
cooperation from Microsoft's Digital Media division. The Company
expects to see increased subsystem sales for the remainder of 2000,
much of the increase due to the introduction of the Osprey-500
products which have increased average selling prices and gross margins
over existing subsystem products.
o ViewCast(R) Streaming and Encoding Systems. During the six months
ended June 30, 2000, sales of ViewCast streaming and encoding systems
increased 16.1% to $202,409 from the $174,269 reported during the
during the first half of 1999. The Company has incorporated its newest
product offerings, the Osprey-500 and Osprey-200 series of board
products, into its ViewCast line of streaming server products to
increase sales volumes during the second half of 2000.
o ViewPoint VBX(TM) Video Distribution Systems. Sales of VBX video
distribution systems for the first half of 2000 declined $99,515 or
10.8% compared to the same period in 1999. Sales of VBX video
distribution systems represented 19.0% of total revenues for the six
months ended June 30, 2000 compared to 21.7% of total revenues during
the first half of 1999. Although VBX sales during the current period
have declined slightly over 1999 levels, during June 2000, the Company
sold VBX equipment to a leading Wall Street investment management
company in the U.S. and expects additional revenue from this
institution during the 2nd half of 2000. Demand for VBX systems has
also increased in Europe and the Company expects sales of its VBX
systems to increase for the balance of 2000 as new product features
are added and as new vertical markets are identified and developed.
o Other Revenues. Other revenues consisting of software maintenance,
training, engineering consulting fees and professional services
amounted to $345,552 for the six months ended June 30, 2000 and
represented 8.1% of year-to-date revenues compared to 2.6% of total
revenues during the six months ended June 30, 1999.
12
<PAGE> 13
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
Cost of Goods Sold. Cost of goods sold decreased $193,047 to $2,013,202 for
the quarter ended June 30, 2000 compared to the same period in 1999 primarily
due to the introduction of new subsystem products with higher gross margins and
increased manufacturing efficiencies. Gross profit margin for the six months
ended June 30, 2000 was 53.1%, representing an increase from the 47.9% margin
reflected in the same period in 1999. The Company anticipates that, over
extended periods, its margins will remain in the range of 46% - 53%.
Selling, General and Administrative Expense. Selling, general and
administrative expenses increased from $3,418,191 during the six months ended
June 30, 1999 to $4,477,808 during the six months ended June 30, 2000 primarily
due to the addition of eleven new sales employees and associated overhead
expenses since December of 1999. The additional employees consisted of regional
sales managers, vertical market specialists and sales engineers to bolster sales
of its ViewCast streaming/encoding servers, VBX video distribution systems and
Osprey subsystem products. In addition, sales expenses were much reduced during
the first half of 1999 due to workforce reductions and restructuring efforts
instituted in the fourth quarter of 1998. Likewise, marketing expenses during
the first half of 2000 increased $146,543 or 39.9% over 1999 levels due
primarily to increased promotional expenses associated with introduction of new
products and trade show expenditures.
Research and Development Expense. During the first half of 2000, total
research and development expenses increased approximately 17.4%, or $288,050,
compared to same period of 1999 as a result of increased spending on the
development and testing of new subsystem products, enhancement and addition of
new features to its already existing system products, and the addition of four
software engineers since December of 1999.
Other Income (Expense). During the six months ended June 30, 2000,
total other expense decreased by $417,867 to $55,123, primarily due to an
increase in interest income generated from higher average cash and cash
equivalent balances during the current period, and from the elimination of
interest expense associated with the amortization of debt issue costs from
Company's line of credit financing which was fully amortized in October 1999. On
April 28, 2000 the Company sold $4.45 million of 7% Senior Convertible
Debentures due 2004. Accordingly, future interest expense will increase in
accordance with the 7% stated rate of the Debentures and amortization of related
debt issue costs.
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.
Net cash used in operating activities for the six months ended June 30,
2000 was $4,037,047 due primarily to the $4,520,502 net loss for the period
offset by changes in operating assets and liabilities of $99,244 and non-cash
operating expenses of $384,211.
Investing activities utilized cash of $320,055 during the six months
ended June 30, 2000 for capital expenditures for 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 first half of the year.
13
<PAGE> 14
VIEWCAST.COM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS - (CONTINUED)
During the first half of 2000, the Company received proceeds of $3,683,189
from the exercise of 1,072,245 warrants to purchase 1,091,556 shares of the
Company's common stock at exercise prices ranging from $3.00 to $4.50 per share,
and gross proceeds of $307,799 from the exercise of 97,755 employee stock
options to purchase 97,755 common shares of the Company at exercise prices
ranging from $2.06 to $4.63 per share.
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. Net proceeds to the
Company from the sale of the Debentures were $3,480,154.
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 the Company 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 June 30, 2000. The quoted
market price of TEKS registered common stock at December 31, 1999, June 30, 2000
and July 31, 2000 was $2.75, $2.81 and $2.44 per share, respectively.
At June 30, 2000, the Company had working capital of $10,747,801 compared to
$7,575,154 at December 31, 1999 and cash and cash equivalents of $7,492,466 at
June 30, 2000 compared to $4,315,980 at December 31, 1999. The Company
experienced a slight sales decline during the first half of 2000 compared to the
first half 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.
As of June 30, 2000, 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.
The Company believes that it has cash, cash equivalents and marketable
securities on hand are adequate to meet its working capital requirements for the
next ten to 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.
14
<PAGE> 15
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
On May 5, 2000, the Company filed a Form 8-K describing
the terms and conditions of the sale of $4.45 million
aggregate principal amount of 7% Senior Convertible
Debentures due 2004.
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: August 14, 2000 /s/ Laurie L. Latham
--------------------
Laurie L. Latham
Chief Financial Officer
Principal Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
