Notes to the Consolidated Financial Statements
1. The Company and Description of Business and Future Liquidity Needs
The accompanying consolidated financial statements include the accounts of ViewCast.com, Inc. dba
ViewCast Corporation and its wholly-owned subsidiaries, VideoWare, Inc., Osprey Technologies, Inc., ViewCast Solutions, Inc. previously known as Ancept Corporation, and ViewCast Technology Services Corporation (collectively, ViewCast or the
Company). The Company develops industry-leading hardware and software for the capture, management, transformation and delivery of digital media over IP and mobile networks. ViewCast’s solutions simplify the complex workflows required for these
tasks, allowing broadcasters, businesses, governments and the various distribution entities to reach and expand their distribution of digital media easily and effectively. ViewCast’s Niagara
®
streaming systems and Osprey
®
video capture cards, provide the technology required to deliver the multi-platform experiences driving today’s digital media market. ViewCast markets and sells its products and professional services worldwide directly to end-users or through
indirect channels including original equipment manufacturers (“OEMs”), value-added resellers (“VARs”), resellers, distributors and computer system integrators.
On January 15, 2012, ViewCast completed the sale of certain assets from Ancept Corporation (the “Ancept Assets”) related
to the development and licensing of the VMp software products that provide the management of the life cycle phases of digital media pursuant to the terms of the Asset Purchase Agreement dated January 13, 2012, by and between ViewCast, Ancept
Corporation and Genus Technologies LLC and its subsidiary. ViewCast’s wholly-owned subsidiary, Ancept Corporation, was renamed ViewCast Solutions, Inc. and no longer operates this business.
During the year ended December 31, 2012, the Company incurred a net loss of $1,521,522 and used cash in operations of $883,520. At
December 31, 2012, the Company has working capital of $1,492,906 and cash and cash equivalents of $258,259. The Company expects to obtain additional working capital by increasing revenue, reducing operating expenses, borrowing on its line of
credit and through other initiatives that may include raising additional capital through issuing debt and/or equity securities. There can be no assurance that additional capital will be available to the Company on acceptable terms, or at all.
Additional equity financing may involve substantial dilution to its then existing stockholders. The Company believes that these items will provide sufficient cash to fund operations during 2013, however, the Company may require additional working
capital during 2013 to support operations and the expansion of sales channels and market distribution, to develop and introduce new products and services, to enhance existing product offerings, to address unanticipated competitive threats or
technical problems, to transition adverse economic conditions and for potential acquisition transactions. In the event the Company is unable to raise additional debt and/or equity capital or execute other alternatives, it may be required to sell
segments of the business, or substantially reduce or curtail its activities. However, no assurance can be given that we will be able to sell any segments of the business on terms that are acceptable to us. Such actions could result in charges that
could be material to ViewCast’s results of operations or financial position.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its subsidiaries, all of which are wholly-owned. All
inter-company accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. At December 31,
2012 and 2011, cash equivalents consisted primarily of money market accounts with brokers and certificates of deposit.
At
December 31, 2012, the Company’s cash accounts exceeded federally insured limits by approximately $8,000.
Pursuant
to legislation enacted in 2010, the FDIC fully insured all noninterest-bearing transaction accounts beginning December 31, 2010, through December 31, 2012, at all FDIC-insured institutions. This legislation expired on December 31,
2012. Beginning January 1, 2013, noninterest-bearing transaction accounts are subject to the $250,000 limit on FDIC insurance per covered institution.
20
Accounts Receivable
The Company’s accounts receivable are primarily due from resellers and distributors of its video products. Credit is extended based
on evaluation of each customer’s financial condition and, generally collateral is not required except for certain international customers. Accounts receivable are generally due within 30 days and are stated net of an allowance for doubtful
accounts. Accounts are considered past due if outstanding longer than contractual payment terms. The Company records an allowance on a specific basis by considering a number of factors, including the length of time trade accounts are past due, the
Company’s previous loss history, the credit-worthiness of individual customers, economic conditions affecting specific customer industries and economic conditions in general. The Company writes-off accounts receivable when they become
uncollectible and payments subsequently received on such receivables are credited against write-offs in the period the payment is received.
Changes in the Company’s allowance for doubtful accounts for the years ended December 31, 2011 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Beginning balance
|
|
$
|
67,436
|
|
|
$
|
22,292
|
|
|
Bad debt expense (recoveries)
|
|
|
(45,144
|
)
|
|
|
22,634
|
|
|
Uncollectible accounts written off
|
|
|
—
|
|
|
|
(5,908
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
22,292
|
|
|
$
|
39,018
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
Inventories consist primarily of purchased electronic components and finished goods. Finished goods include computer system products, along with the related documentation manuals and packaging materials.
Inventories are carried at the lower of cost or market, cost being determined using average cost. In order to assess the ultimate realization of inventories, the Company is required to make judgments as to the future demand requirements compared to
current or committed inventory levels. Write downs are made to the lower of cost or market when projected demand requirements decrease due to market conditions, technological obsolescence and product life cycle changes.
Property and Equipment
Property and equipment is recorded at cost, less accumulated depreciation. Depreciation is determined using the straight-line method over
the estimated useful lives, generally two to seven years, of the related assets. Leasehold improvements are amortized over the shorter of the useful life or the remaining term of the related leases. Expenditures for repairs and maintenance are
charged to operations as incurred; renewals and betterments are capitalized. Gains and losses on the disposition of property and equipment are recorded in the period incurred.
Capitalized Software Development Costs
Costs of developing new software products and substantial enhancements to existing software products are expensed as incurred as research
and development expenses. When technological feasibility is established, additional costs incurred are capitalized. Amortization of capitalized software development costs begins when products are available for general release to customers, and is
computed using the greater of the revenue method or the straight-line method over a period not to exceed three years.
Intangible Assets and Amortization
Legal fees and similar capitalizable costs relating to patents, copyrights, and trademarks are capitalized as appropriate. Patent costs
are generally amortized on a straight-line basis over 10 years. Non-compete agreements are amortized over their estimated useful lives of three years. See Note 3 for capitalized software held as assets for sale as of December 31, 2011, and
Note 4 for $93,840 impairment of the discontinued operations’ customer lists and software recognized during 2011. No impairment of any intangible assets was recognized in 2012.
21
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
December 31, 2012
|
|
|
|
|
Average life
(years)
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Gross carrying
amount
|
|
|
Accumulated
amortization
|
|
|
Non-Compete agreements
|
|
3
|
|
|
24,000
|
|
|
|
22,387
|
|
|
|
—
|
|
|
|
—
|
|
|
Patents
|
|
10
|
|
|
145,897
|
|
|
|
38,548
|
|
|
|
145,995
|
|
|
|
61,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
169,897
|
|
|
$
|
60,935
|
|
|
$
|
145,995
|
|
|
$
|
61,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated aggregate amortization expense for the succeeding years are as follows:
|
|
|
|
|
|
|
Year ending December 31, 2013
|
|
$
|
22,754
|
|
|
Year ending December 31, 2014
|
|
|
22,754
|
|
|
Year ending December 31, 2015
|
|
|
22,754
|
|
|
Year ending December 31, 2016
|
|
|
16,431
|
|
|
|
|
|
|
|
|
|
|
$
|
84,693
|
|
|
|
|
|
|
|
The weighted average remaining amortization period for intangible assets at December 31, 2012 is 3.7 years.
Impairment of Long-Lived Assets
Assets that are held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable. Impairment is recognized when the estimated undiscounted cash flow generated by those assets is less than the carrying amounts of such assets. The amount of impairment is the excess of the carrying amount over the fair value
of such assets. Assets held for sale are carried at the lower of carrying amount or fair value less selling costs. See Note 4 for impairment charges.
Goodwill
Goodwill is evaluated annually for impairment. A qualitative assessment is performed to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the
carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases
in goodwill value are not recognized in the financial statements.
Discontinued Operations / Assets Held for Sale
In accordance with FASB ASC 205-20, “Presentation of Financial Statements—Discontinued Operations”, assets held for sale
are reported separately on the balance sheet by class of asset and/or liability, not as a single net amount, and these new line items are reclassified on the face financial statements (Balance Sheet) for the prior year(s). The net income or loss
from the operations of the assets held for sale are reported separately on the Income Statement, located below Income from Continuing Operations and above any Extraordinary Items; and similar to the Balance Sheet presentation, the prior year(s) are
also reclassified. Additionally, where any of these items affect the Statement of Cash Flow and/or Shareholders’ Equity, those items will be a new line item on the face of those financial statements and they will also be reclassified for prior
year(s). The Company recognizes contingent earn-out receivable by using the cost recovery method, based on the present value of the estimated earn-out payments at the time of the sale. The Company applies the quarterly payments towards the carrying
value of the earn-out receivable. An assessment of the expected future cash flows of the earn-out receivable is performed annually.
22
Revenue Recognition
The Company recognizes revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in financial Statement as revised by SAB 104, Revenue Recognition, FASB ASC 605, “Revenue Recognition” and FASB ASC 985, “Software”. Under these guidelines, the Company recognizes revenue on transactions where
persuasive evidence of an arrangement exists, title has transferred, product payment is not contingent upon performance of installation or service obligations, the price is fixed or determinable and payment is reasonably assured. The Company accrues
warranty costs and sales allowances for promotional activities at time of shipment based on historical experience.
Product
sales are recognized upon shipment, provided title and risk of loss has passed to the customer, there is evidence of an arrangement, fees are fixed or determinable, and collectability is reasonably assured. Transactions that do not meet all these
requirements are deferred until the point at which these requirements are satisfied. Maintenance, support and extended warranties are recognized monthly over the contract term. Professional services revenues contracts are generally sold separately
and revenues are recognized as provided.
Taxes Collected From Customers and Remitted To Government Authorities
Taxes collected from customers and remitted to governmental authorities are presented in the accompanying statements of
operations on a net basis.
Shipping and Handling Costs
Shipping and handling costs are included in cost of revenue in the accompanying statements of operations.
23
Net Earnings Per Share
Basic earnings per share (“EPS”) is calculated by dividing net income or loss applicable to common stockholders by the
weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares
of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. Dilutive potential shares of common stock include convertible preferred stock, options and warrants which are exercisable based on the
average market price during the year. For 2011 and 2012, the computation of diluted loss per share excludes the convertible preferred stock, options and warrants as they are anti-dilutive. The following table sets forth the computation of basic and
diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Loss from continuing operations
|
|
$
|
(1,393,163
|
)
|
|
$
|
(1,439,928
|
)
|
|
Preferred stock dividends
|
|
|
(282,444
|
)
|
|
|
—
|
|
|
Preferred stock redemption
|
|
|
5,586,666
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations applicable to common stockholders
|
|
$
|
3,911,059
|
|
|
$
|
(1,439,928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
(1,628,258
|
)
|
|
|
(81,594
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) applicable to common stockholders—numerator for basic and diluted loss per share
|
|
$
|
2,282,801
|
|
|
$
|
(1,521,522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted—average common shares and dilutive potential common shares outstanding—denominator for dilluted earning per
share
|
|
|
50,080,639
|
|
|
|
62,125,538
|
|
|
Net income (loss) per common share (basic and diluted):
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.08
|
|
|
$
|
(0.02
|
)
|
|
Discontinued operations
|
|
$
|
(0.03
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.05
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the anti-dilutive securities excluded from diluted earnings per share:
Anti-dilutive securities excluded from diluted
earnings per share:
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
5,146,485
|
|
|
|
4,330,285
|
|
|
Stock warrants
|
|
|
3,775,408
|
|
|
|
6,049,536
|
|
|
Convertible preferred stock—Series E
|
|
|
14,933,333
|
|
|
|
14,400,000
|
|
Warranty Reserves
Reserves are provided for the estimated base warranty costs when revenue is recognized. The costs of warranty obligations are estimated
based on the Company’s warranty policy or applicable contractual warranty obligations, historical experience of known product failure rates and use of materials and service delivery charges incurred in correcting product failures. Specific
warranty accruals may be made if unforeseen technical problems arise. If actual experience, relative to these factors, adversely differs from these estimates, additional warranty expense may be required.
The following table below shows the roll forward of the warranty reserve for the years ended December 31, 2011 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Beginning balance
|
|
$
|
155,918
|
|
|
$
|
135,708
|
|
|
Charged to expense
|
|
|
21,955
|
|
|
|
51,977
|
|
|
Usage
|
|
|
(42,165
|
)
|
|
|
(72,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
135,708
|
|
|
$
|
115,566
|
|
|
|
|
|
|
|
|
|
|
|
24
Risk and Uncertainties
Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents and trade accounts
receivable. The Company invests its cash and cash equivalents with commercial banks in Texas. The Company sells its products and services primarily to end users, distributors and resellers without requiring collateral; however, the Company routinely
assesses the financial condition of its customers and maintains allowances for anticipated losses. The following table discloses the number of customers that accounted for more than 10% of annual sales and receivable balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Exceeding 10%
|
|
|
Customer Exceeding 10% of Year-End
|
|
|
|
|
of Net Sales
|
|
|
Accounts Receivable Balance
|
|
|
|
|
Number of
|
|
|
Combined
|
|
|
Number of
|
|
|
Combined
|
|
|
Year
|
|
Customers
|
|
|
Percent
|
|
|
Customers
|
|
|
Percent
|
|
|
2011
|
|
|
2
|
|
|
|
34
|
%
|
|
|
2
|
|
|
|
36
|
%
|
|
2012
|
|
|
2
|
|
|
|
33
|
%
|
|
|
3
|
|
|
|
51
|
%
|
The Company believes it has no significant credit risk in excess of recorded reserves.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Significant estimates used in preparing these financial statements are related primarily to accounts receivable allowances, inventory valuation, warranty reserves, deferred tax
asset valuation allowances and stock options. Management believes the estimates used in preparing the financial statements are reasonable; however, actual results could differ from those estimates.
Income Taxes
The Company utilizes the liability method of accounting for income taxes wherein deferred tax assets and liabilities are determined based upon the differences between the financial statement and tax bases
of assets and liabilities, as measured by enacted tax rates expected to be in effect when these differences reverse. Deferred tax assets are recognized when it becomes more likely than not that the assets will be realized. The Company files tax
returns with the U.S. Federal and various state jurisdictions and is no longer subject to income tax examinations for years before 2007.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2011 and 2012 was $651,195 and
$296,183, respectively.
Fair Value of Financial Instruments
The Company believes that the carrying amount of its financial instruments, which include cash and cash equivalents, receivable from sale
of assets, and short-term debt, approximate fair value. The Company also has long-term debt with its primary shareholder, of which fair value is not practical to determine. Cash and cash equivalents fall within Level 1 of the valuation hierarchy.
Receivable from sale of assets and short-term debt fall within Level 3 of the valuation hierarchy.
Stock-Based Compensation
The Company accounts for all share-based payment awards made to employees and directors including stock options and employee stock
purchases based on estimated fair values. The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing model and the value of the portion of the award that is ultimately expected to vest is
recognized as expense over the requisite service period, net of forfeitures.
25
The Company uses the Black-Scholes option-pricing model (“Black-Scholes”) as its
method of valuation. The fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair value of share-based payment awards on the date of grant as determined by the
Black-Scholes model is affected by the Company’s stock price as well as other assumptions. These assumptions include, but are not limited to the expected stock price volatility over the term of the awards, the actual and projected employee
stock option exercise behaviors and an estimated forfeiture rate. The weighted-average estimated value of employee stock options granted during the years ended December 31, 2011 and 2012 was estimated using the Black-Scholes model with the
following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Expected volatility
|
|
|
127
|
%
|
|
|
119
|
%
|
|
Risk-free interest rate
|
|
|
2.16
|
%
|
|
|
1.22
|
%
|
|
Expected dividends
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
Expected term in years
|
|
|
4.44
|
|
|
|
4.08
|
|
Reclassifications
Certain reclassifications have been made to the 2012 financial statements to conform to the 2011 financial statement
presentation. These reclassifications had no effect on net earnings.
3. Sale of Ancept Assets and Contingent Consideration
On January 15, 2012, ViewCast completed the sale of certain assets from Ancept Corporation (the “Ancept
Assets”) related to the development and licensing of the VMp software products that provide the management of the life cycle phases of digital media pursuant to the terms of the Asset Purchase Agreement dated January 13, 2012, by and
between ViewCast, Ancept Corporation, Genus Technologies LLC and its subsidiary. ViewCast’s wholly-owned subsidiary, Ancept Corporation, was renamed ViewCast Solutions, Inc. (“VSI”) and no longer operates this business. The Ancept
Assets are classified as held for sale at December 31, 2011, and the assets and liabilities are included in the respective current assets and liabilities sections of the Consolidated Balance Sheet.
Upon the terms and subject to the conditions of the purchase agreement, the buyer has agreed to pay an earn-out payment as follows: until
the earlier of paying VSI $650,000 or January 15, 2017 (the “Earn-Out Period”), the buyer shall pay VSI on a quarterly basis a percentage of the net license fees, subscription fees and similar revenues paid or payable to the buyer or
otherwise earned by buyer with respect to the software sold from Ancept to the buyer (“Net Software License Revenue”). The buyer agreed to pay VSI (i) 20% of the Software License Revenue from sales opportunities in the pipeline on
January 15, 2012 and from post-closing referrals from ViewCast plus (ii) 10% of Net Software License Revenue, up to a maximum of $400,000, generated from buyer’s customers not derived from ViewCast. Prior to January 15, 2014, the
buyer may terminate the earn-out payment obligations by paying VSI $400,000 which amount shall not be reduced by any prior earn-out payments. On or after January 15, 2014 until the end of the Earn-Out Period, Buyer may terminate the earn-out
payment obligations by paying Ancept $650,000 less any prior earn-out payments. The buyer also (i) assumed specified liabilities related to the Ancept Assets, and (ii) paid $47,026 in cash to VSI.
Proceeds from the sale totaled $592,976 and were comprised of the following: cash of $47,026, receivable for future
earn out consideration having a fair value of $227,531, and liabilities assumed by the buyer of $318,419. The carrying value of the reporting unit approximated the proceeds received on the date of the transaction; as a result, a loss of $2,047 was
recorded on the sale. Management recorded the contingent earn out consideration at estimated fair value determined using discounted estimated future cash flows. Subsequent to the sale, proceeds received under the arrangement will be applied to the
carrying value of the asset. Subsequently, earn-out receivable was decreased by $80,000 in 4
th
quarter of 2012.
26
The following table provides a detail of the net assets held for sale as of
December 31, 2011:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
Assets:
|
|
|
|
|
|
Accounts receivable
|
|
$
|
67,086
|
|
|
Prepaid expenses
|
|
|
4,381
|
|
|
Property and equipment, net
|
|
|
17,415
|
|
|
Deposit
|
|
|
3,250
|
|
|
Capitalized software development cost, net
|
|
|
442,775
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
534,907
|
|
|
|
|
|
|
|
|
Liabilities related to assets held for sale
|
|
|
250,837
|
|
|
|
|
|
|
|
|
Net assets held for sale
|
|
$
|
284,070
|
|
|
|
|
|
|
|
4. Discontinued operations
As described in Note 3, the assets of Ancept were sold effective January 15, 2012, and were classified as held for
sale at December 31, 2011. The table below calculates the $656,329 impairment based upon the difference between the value of proceeds received from the transaction in January 2012 and the carrying amount of the Ancept Assets, including the
goodwill prior to any impairment adjustment:
|
|
|
|
|
|
|
|
|
Held for sale
as of 1/15/12
|
|
|
Assets (exclude goodwill)
|
|
$
|
911,397
|
|
|
Less: liabilities
|
|
|
(318,420
|
)
|
|
|
|
|
|
|
|
Net assets before goodwill
|
|
|
592,977
|
|
|
Goodwill
|
|
|
—
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
592,977
|
|
|
|
|
|
|
|
|
Value of proceeds received
|
|
|
650,490
|
|
|
Impairment expense
|
|
$
|
713,842
|
|
|
Goodwill
|
|
|
(620,002
|
)
|
|
Customer List, net
|
|
|
(26,419
|
)
|
|
Software
|
|
|
(67,421
|
)
|
|
|
|
|
|
|
|
Total Asset Impairment
|
|
$
|
(713,842
|
)
|
|
|
|
|
|
|
Goodwill of $620,002 is solely related to Ancept was adjusted for impairment of $620,002 along with $93,840 impairment
to intangible assets and capitalized software.
27
The net loss from discontinued operations related to the Ancept for years ended
December 31, 2011 and 2012 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Net revenue
|
|
$
|
1,111,559
|
|
|
$
|
22,255
|
|
|
Cost of revenue
|
|
|
885,879
|
|
|
|
39,057
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
225,680
|
|
|
|
(16,802
|
)
|
|
Operating expenses
|
|
|
1,140,096
|
|
|
|
64,792
|
|
|
Impairment of goodwill and other intangible assets
|
|
|
713,842
|
|
|
|
—
|
|
|
Impairment of Earn-out receivable
|
|
|
—
|
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from net assets held for sale
|
|
$
|
(1,628,258
|
)
|
|
$
|
(161,594
|
)
|
|
|
|
|
|
|
|
|
|
|
5. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Purchased materials
|
|
$
|
1,369,041
|
|
|
$
|
1,013,492
|
|
|
Finished goods
|
|
|
1,596,877
|
|
|
|
1,561,043
|
|
|
Inventory obsolescence reserve
|
|
|
(257,837
|
)
|
|
|
(451,156
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,708,081
|
|
|
$
|
2,123,379
|
|
|
|
|
|
|
|
|
|
|
|
6. Property and Equipment
Property and equipment, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
December 31,
|
|
|
|
|
(Years)
|
|
|
2011
|
|
|
2012
|
|
|
Computer equipment
|
|
|
2 to 7
|
|
|
$
|
568,899
|
|
|
$
|
574,096
|
|
|
Software
|
|
|
3 to 5
|
|
|
|
104,500
|
|
|
|
104,500
|
|
|
Leasehold improvements
|
|
|
1 to 5
|
|
|
|
174,429
|
|
|
|
174,429
|
|
|
Office furniture and equipment
|
|
|
5 to 7
|
|
|
|
1,405,559
|
|
|
|
1,452,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,253,387
|
|
|
|
2,305,700
|
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(2,001,539
|
)
|
|
|
(2,170,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
251,848
|
|
|
$
|
135,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
7. Accrued expenses and other current liabilities
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Accrued interest
|
|
$
|
27,906
|
|
|
$
|
10,769
|
|
|
Accrued compensation
|
|
|
310,500
|
|
|
|
320,251
|
|
|
Accrued warranty
|
|
|
135,708
|
|
|
|
115,566
|
|
|
Accrued inventory purchases
|
|
|
59,577
|
|
|
|
81,146
|
|
|
Customer deposits
|
|
|
135,597
|
|
|
|
5,841
|
|
|
Deferred rent
|
|
|
25,341
|
|
|
|
65,380
|
|
|
Accrued taxes and other
|
|
|
155,671
|
|
|
|
124,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
850,300
|
|
|
$
|
723,071
|
|
|
|
|
|
|
|
|
|
|
|
8. Line of Credit
On June 29, 2007, the Company entered into a Purchase and Sale Agreement/Security Agreement with Amegy Bank
National Association (“Amegy”), a national banking association. This agreement provides the Company with an accounts receivable loan facility to provide a source of working capital with advances generally limited to 85% of submitted
accounts receivable. Upon collection of an account receivable, the remaining fifteen percent is rebated to the Company less the Amegy fixed and variable discounts. The Amegy fixed discount equals 0.2% of the account receivable for the first 15 days
the account receivable is outstanding plus an additional 0.2% for each additional 15 day period, up to 1.2% for receivables 76 to 90 days outstanding. The variable discount is calculated for each day that the amount advanced by Amegy is outstanding
until repaid by collection of the account receivable and equals the prime rate plus 1.5% divided by 360 multiplied by the advance amount for each account receivable. The general borrowing availability under this facility is $1,000,000, reviewed as
growth of business dictates. However, this may be exceeded without penalty. To secure the amounts due under the agreement, the Company granted Amegy a security interest in all of its assets owned as of the date of the agreement or thereafter
acquired. The Company had $335,641 outstanding as of December 31, 2011 and $1,143,920 outstanding as of December 31, 2012 under this facility based on the outstanding accounts receivable at year end.
9. Long-term Debt
Stockholder Term Notes
Since October 1998, the Company has maintained a credit facility with an entity controlled by one of its principal stockholders, Mr. H.T. Ardinger. Most recently, ViewCast.com, Inc., Osprey
Technologies, Inc. and VideoWare, Inc. (jointly and severally, “the Borrower”) amended the terms and conditions of the loan and security agreement with the Ardinger Family Partnership, Ltd. on December 30, 2011, to be effective as of
October 1, 2011. Under the amended terms any amounts outstanding of the primary principal amount and secondary principal amount mature December 31, 2014, subject to certain earlier payment conditions. The interest on the primary principal
amount will accrue based on an interest rate per annum which is the greater of 5.0% or the effective prime rate plus 0.75% (5.00% as of December 31, 2011 and 2012). Interest on the secondary principal shall accrue based on the effective
Applicable Federal Rate, as defined in the agreement, (1.27% and 0.21%) as of December 31, 2011 and 2012, respectively). The amendment defers the payment of the accrued interest on the unpaid primary and secondary principal amounts from
October 1, 2011 through March 31, 2012. Beginning April 30, 2012 payment of such accrued interest was paid in three approximately equal monthly payments. The amended terms call for interest accruing after March 31, 2012 to be
paid monthly; and beginning July 31, 2013, minimum monthly principal payments of $21,422, in addition to the monthly interest payments. The amended note agreement is secured by all the assets of the Borrower.
29
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Outstanding Primary Principal Amount
|
|
$
|
1,078,621
|
|
|
$
|
1,078,621
|
|
|
Outstanding Secondary Principal Amount
|
|
|
4,591,361
|
|
|
|
4,591,361
|
|
|
Other debt
|
|
|
75,143
|
|
|
|
32,156
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
5,745,125
|
|
|
|
5,702,138
|
|
|
Less current maturities
|
|
|
(171,525
|
)
|
|
|
(150,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt, less current maturities
|
|
$
|
5,573,600
|
|
|
$
|
5,551,268
|
|
|
|
|
|
|
|
|
|
|
|
The following are the scheduled maturities of long-term debt at December 31, 2012:
|
|
|
|
|
|
|
|
|
Long Term Debt
|
|
|
Year ended December 31,
|
|
|
|
|
|
2013
|
|
$
|
150,870
|
|
|
2014
|
|
|
5,550,377
|
|
|
2015
|
|
|
891
|
|
|
|
|
|
|
|
|
|
|
$
|
5,702,138
|
|
|
|
|
|
|
|
10. Income Taxes
The Company records a valuation allowance when it is more likely than not that some portion or all of the deferred tax
assets will not be realized. In the opinion of management, realization of the Company’s net operating loss carryforward is not reasonably assured, and a valuation allowance of $24,471,000 and $25,023,000 has been provided against deferred tax
assets in excess of deferred tax liabilities in the accompanying consolidated financial statements at December 31, 2011 and 2012, respectively.
The components of the Company’s net deferred taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
Deferred tax assets (liability):
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
23,741,000
|
|
|
$
|
24,182,000
|
|
|
Deferred revenue
|
|
|
176,000
|
|
|
|
192,000
|
|
|
Goodwill and other intangibles
|
|
|
(30,000
|
)
|
|
|
(53,000
|
)
|
|
Stock based Compensation
|
|
|
251,000
|
|
|
|
281,000
|
|
|
Inventory
|
|
|
177,000
|
|
|
|
167,000
|
|
|
Allowance for Dobtful accounts
|
|
|
8,000
|
|
|
|
14,000
|
|
|
Accrued liabilities
|
|
|
104,000
|
|
|
|
101,000
|
|
|
Property and equipment
|
|
|
80,000
|
|
|
|
159,000
|
|
|
Software development costs
|
|
|
(36,000
|
)
|
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
24,471,000
|
|
|
|
25,023,000
|
|
|
Less: valuation allowance
|
|
|
(24,471,000
|
)
|
|
|
(25,023,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
30
The reconciliation between the income tax expense (benefit) calculated by applying statutory
rates to net loss and the income tax benefit reported in the accompanying consolidated financial statements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
|
2011
|
|
|
2012
|
|
|
U.S. federal statutory rate applied to pretax income
|
|
$
|
(1,027,000
|
)
|
|
$
|
(521,058
|
)
|
|
Change in valuation allowance
|
|
|
(2,868,000
|
)
|
|
|
552,000
|
|
|
Expiration of net operating loss carryforwards
|
|
|
4,218,000
|
|
|
|
—
|
|
|
Permanent Differences & Other
|
|
|
(323,000
|
)
|
|
|
(30,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 the Company has federal income tax net operating loss carryforwards of approximately
$65,000,000, which expire at various dates beginning in 2017. The Company is subject to limitations existing under Internal Revenue Code Section 382 (Change of Control) relating to the availability of the operating loss carryforward.
11. Stockholders’ Equity
Preferred Stock
On May 4, 2011, the Company entered into a Preferred Stock Exchange Agreement (the “Exchange Agreement”) with Ardinger, Ardinger Partnership (the “Ardinger Partnership”), Adkins
Family Partnership, Ltd. and RDB Limited, p/k/a Baker Family Partnership, Ltd. to convert the outstanding shares of its Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and Series C Convertible Preferred Stock (the
“Series C Preferred Stock”) and to restructure Series E Convertible Redeemable Preferred Stock (the “Series E Preferred Stock), collectively the “Preferred Stock”. The Exchange Agreement and all related changes to the
Preferred Stock (collectively the “Preferred Stock Redemption”) have been accounted for as an extinguishment of Preferred Stock.
As of May 4, 2011, 800,000 shares of Series B Preferred Stock were outstanding at a stated value of $10 per share. Ardinger, a principal stockholder of the Company, held 400,000 shares of Series B
Preferred Stock, with the remainder held by other stockholders. The Series B Preferred Stock was convertible into common stock of the Company (“Common Stock”) at a fixed price of $3.625 per share, subject to certain requirements, which was
modified under the Exchange Agreement to $0.60 per share of underlying Common Stock and was converted on May 4, 2011 into a total of 13,333,333 shares of Common Stock.
As of May 4, 2011, 200,000 shares of Series C Preferred Stock were outstanding at a stated value of $10 per share held by Ardinger. The Series C Preferred Stock was convertible into Common Stock at a
fixed price of $0.60 per share, subject to certain requirements, which remained the conversion price under the Exchange Agreement and was converted on May 4, 2011 into a total of 3,333,333 shares of Common Stock.
Holders of Series B Preferred Stock and Series C Preferred Stock had no voting rights except on amendments to the Company’s
Certificate of Incorporation to change the authorized shares, or par value, or to alter or change the powers or preferences of their respective preferred stock issues. The Series B Preferred Stock and Series C Preferred Stock carried cumulative
dividends of 8% and 9% per year, respectively, and were generally payable semi-annually in arrears in cash or Common Stock, at the Company’s option. On May 4, 2011, under the Exchange Agreement, when the Series B Preferred Stock and
Series C Preferred Stock were converted into Common Stock, any and all dividends, owed or owing on the Preferred Stock, were cancelled.
In December 2006, the Company retired certain debt from the Ardinger Partnership in exchange for certain Company securities, including 80,000 shares of Series E Preferred Stock with each share having a
stated value of $100 with voting rights on an “as converted’ basis with the Common Stock and accrues no dividends. The liquidation preference on the Series E Preferred Stock is the $100 per share stated value multiplied by 107% if the
liquidation event occurs after December 11, 2010.
31
The Company has also agreed under the Exchange Agreement, among other things: (i) that
the definition of registrable securities under that certain Registration Rights Agreement, dated December 11, 2006, between the Company and the Ardinger Partnership (the “Registration Rights Agreement”) shall include any shares of
Common Stock issued in exchange for the shares of Preferred Stock previously held by Ardinger or the Ardinger Partnership, (ii) that Ardinger shall be a party to the Registration Rights Agreement, and (iii) to use commercially reasonable
efforts to: (a) meet the applicable listing requirements of the NASDAQ Stock Market and (b) upon meeting such requirements, list its Common Stock on the NASDAQ Stock Market.
The Company accounted for the changes made to its Preferred Stock in connection with the exchange agreement as an extinguishment in
accordance with FASB’s Codification at ASC 260-10-S99-2. Therefore, in calculating the net income (loss) applicable to common shareholders, the Company has recognized an imputed amount for the extinguishment which represents the carrying amount
of securities and other consideration issuable pursuant to the original terms in excess of the fair value of all securities and other consideration transferred in the transaction.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock redemption
|
|
Carrying amount of
Preferred Stock
|
|
|
Fair value as of
May 4, 2011
|
|
|
Change of value as
of May 4, 2011
|
|
|
Series B—Preferred Stock
|
|
|
8,000,000
|
|
|
|
5,066,667
|
|
|
|
2,933,333
|
|
|
Series C—Preferred Stock
|
|
|
2,000,000
|
|
|
|
1,266,667
|
|
|
|
733,333
|
|
|
Series E—Preferred Stock
|
|
|
8,000,000
|
|
|
|
6,080,000
|
|
|
|
1,920,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock redemption
|
|
|
18,000,000
|
|
|
|
12,413,334
|
|
|
|
5,586,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Preferred Stock extinguishment value results in an adjustment to the net loss, which is a reconciling adjustment in
calculating the net income (loss) applicable to common shareholders.
Common Stock
During 2012, the Company had no proceeds from the exercise of its outstanding employee stock options. During 2011, the Company received
$567 in proceeds from the exercise of 3,333 of its outstanding employee stock options, with a weighted-average exercise price of approximately $0.17 per share.
During 2011 and 2012, the Company received $8,623 and $3,306 in proceeds from the purchase of 45,624 and 36,481 shares of Common Stock by employees through the 2005 Employee Stock Purchase Plan.
On December 27, 2011, ViewCast entered into the Subscription Agreements with investors for the purchase of private
placement units consisting of an aggregate 6,618,068 shares of Common Stock and warrants to purchase 6,618,068 shares of Common Stock for an aggregate purchase price of $745,000. In December 2011, $425,000 was received for 3,775,408 shares of Common
Stock and warrants to purchase 3,775,408 shares of Common Stock, and in January 2012, the remaining $320,000 was received for 2,842,660 shares of Common Stock and warrants to purchase 2,842,660 shares of Common Stock. The purchase price per private
placement unit was $0.1125707, which was the weighted average closing price for the five trading days immediately prior to December 27, 2011. Pursuant to the Subscription Agreements, the warrants are exercisable into shares of Common Stock at
an exercise price of $0.1238278 per share of Common Stock which was 110% of the weighted average closing price for the five trading days immediately prior to December 27, 2011.
Warrants
At December 31, 2011 and December 31, 2012, the Company had outstanding warrants to purchase 3,775,408 and 6,618,068 shares of
Common Stock, respectively, with an exercise price of $0.1238278 per share of Common Stock that will expire on December 31, 2014.
32
Stock Option Plan
In October 2005, the Company adopted the ViewCast 2005 Stock Incentive Plan, which replaced the Company’s expired stock option plans
(the 1995 Employee Stock Option Plan and the 1995 Director Stock Option Plan) and become the sole plan for providing equity-based incentive compensation to the Company’s employees, non-employee directors and other service providers. Options
granted under the expired stock option plans will continue to be subject to the terms of those plans in effect before the effective date of the 2005 Stock Incentive Plan. The plan allows for the grant of stock options, restricted stock, restricted
stock units, stock appreciation rights, performance awards and other incentive awards to employees, non-employee directors and other service providers of the Company and its affiliates who are in a position to make a significant contribution to the
success of the Company and its affiliates. The purposes of the plan are to attract and retain individuals, further align employee and stockholder interests, and closely link compensation with Company performance. The plan is administered by the
Board of Directors.
The maximum number of shares available for grant under the plan is 6,000,000 shares of Common Stock, plus
any shares of Common Stock subject to outstanding awards under the Company’s prior stock option plans as of the date the plan was approved by ViewCast’s stockholders that later cease to be subject to such awards for any reason other than
such awards having been exercised or expired. The number of shares available for award under the plan is subject to adjustment for certain corporate changes in accordance with the provisions of the plan.
Following is a summary of stock option activity from January 1, 2011 through December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
|
|
Number
of Shares
|
|
|
Exercise
Price Per
Share
|
|
Weighted-
Average
Exercise Price
Per Share
|
|
|
Outstanding at January 1, 2010
|
|
|
4,787,085
|
|
|
$0.17 – $1.09
|
|
$
|
0.41
|
|
|
Granted
|
|
|
2,565,000
|
|
|
0.13 – 0.36
|
|
|
0.31
|
|
|
Exercised
|
|
|
(3,333
|
)
|
|
0.17
|
|
|
0.17
|
|
|
Canceled/forfeited
|
|
|
(2,925,417
|
)
|
|
0.13 – 1.09
|
|
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2011
|
|
|
4,423,335
|
|
|
$0.13 – $0.62
|
|
$
|
0.31
|
|
|
Granted
|
|
|
2,105,000
|
|
|
0.11 – 0.21
|
|
|
0.11
|
|
|
Canceled/forfeited
|
|
|
(2,998,250
|
)
|
|
0.11 – 0.49
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2012
|
|
|
3,530,085
|
|
|
$0.11 – $0.62
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of options granted was $0.26 and $0.09 for the years ended December 31,
2011 and 2012, respectively.
33
The following information applies to options outstanding at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of
Exercise
Prices
|
|
Outstanding at
December 31,
2012
|
|
|
Weighted-
Average
Remaining
Contractual
Life
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Exercisable at
December 31,
2012
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
$0.01 – 0.19
|
|
|
1,485,000
|
|
|
|
6.0
|
|
|
$
|
0.12
|
|
|
|
370,278
|
|
|
$
|
0.16
|
|
|
0.20 – 0.29
|
|
|
886,335
|
|
|
|
4.2
|
|
|
$
|
0.25
|
|
|
|
626,613
|
|
|
$
|
0.25
|
|
|
0.30 – 0.39
|
|
|
772,500
|
|
|
|
4.3
|
|
|
$
|
0.35
|
|
|
|
576,528
|
|
|
$
|
0.35
|
|
|
0.40 – 0.49
|
|
|
376,250
|
|
|
|
2.1
|
|
|
$
|
0.46
|
|
|
|
376,250
|
|
|
$
|
0.46
|
|
|
0.60 – 0.69
|
|
|
10,000
|
|
|
|
1.0
|
|
|
$
|
0.62
|
|
|
|
10,000
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,530,085
|
|
|
|
4.8
|
|
|
$
|
0.24
|
|
|
|
1,959,669
|
|
|
$
|
0.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense was $131,858 and $ 80,896 for the years ended December 31, 2011 and
December 31, 2012, respectively. At December 31, 2012, the balance of unearned stock-based compensation to be expensed in future periods related to unvested share-based awards, as adjusted for expected forfeitures, is approximately
$179,000. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately three years.
Employee Stock Purchase Plan
In October 2005, the Company established the
ViewCast 2005 Employee Stock Purchase Plan (the “ESPP”) to provide employees of the Company with an opportunity to purchase common stock through payroll deductions. Under the ESPP, 1,000,000 shares of Common Stock have been reserved for
issuance, subject to certain antidilution adjustments. The ESPP is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the IRS Code.
Under the ESPP, each offering is for a period of six months ending March 31 and September 30 of each year. Eligible employees
may participate in the ESPP by authorizing payroll deductions during an offering period within a percentage range determined by the Board of Directors. Initially, the amount of authorized payroll deductions is not more than ten percent of an
employee’s cash compensation during an offering period, and not more than $25,000 per year. Amounts withheld from payroll are applied at the end of each offering period to purchase shares of Common Stock. Participants may withdraw their
contributions at any time before stock is purchased, and in the event of withdrawal such contributions will be returned to participants. The purchase price of the Common Stock is equal to ninety-five percent (95%) of the market price of Common
Stock at the end of each offering period (the “Exercise Date”). The Purchase Price may be changed by the Board or its committee but in any case shall never be lower than 85% of the fair market value of a share of Common Stock on the
Exercise Date. ViewCast pays all expenses incurred in connection with the implementation and administration of the ESPP.
During 2011 and 2012, 45,624 and 36,481 shares of common stock were issued under the ESPP.
12. Employee Benefit Plan
Effective March 1, 1997, the Company adopted a profit sharing plan pursuant to Section 401(k) of the Internal
Revenue Code whereby participants may elect to contribute up to sixty percent (60%) of their compensation subject to statutory limitations. The plan provides for discretionary matching and profit sharing contributions by the Company. All
employees are eligible to participate in the plan provided they meet minimum age requirement of eighteen. The Company discontinued matching contributions under this plan in December 2011. The Company made $40,906 and $0 matching contributions to
this plan for the years ended December 31, 2011 and December 31, 2012, respectively.
34
13. Commitments and Contingencies
The Company leases offices and manufacturing space at various locations under non-cancelable operating leases extending
through 2021. The Company also leases certain office and computer equipment under non-cancelable operating leases. Future minimum operating lease payments with initial or remaining terms of one year or more are as follows:
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
Year ended December 31:
|
|
|
|
|
|
2013
|
|
$
|
304,298
|
|
|
2014
|
|
|
333,445
|
|
|
2015
|
|
|
345,997
|
|
|
2016
|
|
|
345,997
|
|
|
Thereafter
|
|
|
1,226,555
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
2,556,292
|
|
|
|
|
|
|
|
Rent expense was $458,734 and $402,599 for the years ended December 31, 2011 and 2012, respectively.
14. Related Party Transactions
As discussed in Note 9, the Company has two outstanding notes payable to an entity controlled by one of its principal
stockholders, Mr. H.T. Ardinger. See Note 11 for prefer stock activities.
Other than as permitted in the Exchange
Agreement, from May 4, 2011 through July 31, 2011, the holders of the shares of Common Stock issued pursuant to the Series B/C Conversion have agreed not to sell or otherwise transfer such shares of Common Stock. Additionally, from
August 1, 2011 through January 27, 2012, such holders agreed to limit any sales or transfers of such Common Stock in accordance with the volume limitations of Rule 144 of the Securities Act of 1933, as amended (the “Securities
Act”), as if such holders were affiliates of the Company. If during the Temporary Conversion Period, a change in control of the Company occurs, these transfer restrictions shall terminate.
Ardinger is the largest stockholder of the Company and the sole general partner of the Ardinger Partnership. Immediately prior to the
Series B/C Conversion, Ardinger: (i) directly beneficially held (a) 400,000 shares of Series B Preferred Stock and (b) 200,000 shares of Series C Preferred Stock and (ii) indirectly beneficially held, as sole general partner of
the Ardinger Partnership, 80,000 shares of Series E Preferred Stock. The Company reimbursed the Ardinger Partnership $10,000 for their legal expenses related to this transaction.
On December 27, 2011, ViewCast entered into the Subscription Agreements with the Investors for the purchase of private placement
units consisting of an aggregate 6,618,068 shares of Common Stock and Warrants to purchase 6,618,068 shares of Common Stock for an aggregate purchase price of $745,000, of which $425,000 was received in December 2012 and the remaining $320,000 was
received in January 2012. The purchase price per private placement unit was $0.1125707, which was the weighted average closing price for the five trading days immediately prior to December 27, 2011. Pursuant to the Subscription Agreements, the
Warrants are exercisable into shares of Common Stock at an exercise price of $0.1238 per share of Common Stock which was 110% of the weighted average closing price for the five trading days immediately prior to December 27, 2011. The Warrants
will expire on December 31, 2014.
The following Investors have a relationship to the Company and subscribed for the
following number of shares of Common Stock and Warrants exercisable into the same number of shares of Common Stock:
David W.
Brandenburg RIRA – 888,331 shares
Diana L. Brandenburg RIRA – 888,331 shares
John C. Hammock – 888,331 shares
Laurie L. Latham – 888,331 shares
Lance E. Ouellette – 888,331 shares
Christina K. Hanger – 222,083 shares
George C. Platt – 177,667 shares
35
Messrs. Brandenburg, Hammock, Ouellette and Platt are directors of the Company,
Ms. Hanger was director of the Company until November 28, 2012. Mr. Hammock is the President and Chief Executive Officer of the Company and Ms. Latham was, until August 21, 2012, the Chief Financial Officer and Senior Vice
President of Finance and Administration of the Company. They acquired the shares of Common Stock on the same terms as the other five Investors. Mr. Ouellette is the stepson of H.T. Ardinger, Jr., a principal stockholder of the Company. There
are no additional material relationships between the Company and the Investors aside from entering into the Subscription Agreements. Each of the Investors is an “accredited investor” as defined under Rule 501 promulgated pursuant to the
Securities Act of 1933, as amended (the “Securities Act”), and the shares of Common Stock and the Warrants are being issued pursuant to Rule 506 promulgated pursuant to the Securities Act.
15. Current Economic Conditions
The current protracted economic decline continues to present companies with difficult circumstances and challenges,
which in some cases have resulted in large and unanticipated declines in the fair value of certain assets, declines in the volume of business, constraints on liquidity and difficulty obtaining financing. The financial statements have been prepared
using values and information currently available to the Company.
Current economic and financial market conditions could
adversely affect the Company’s results of operations in future periods. The current instability in the financial markets may make it difficult for certain of the Company’s customers to obtain financing, which may significantly impact the
volume of future sales which could have an adverse impact on the Company’s future operating results.
In addition, given
the volatility of current economic conditions, the values of assets and liabilities recorded in the financial statements could change rapidly, resulting in material future adjustments in allowances for accounts receivable, inventory and valuation of
intangibles and other long-lived assets.
16. Fair Value Measurements
ASC Topic 820, Fair Value Measurements, defines fair value as the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
|
|
Level 1:
|
Quoted prices in active markets for identical assets or liabilities
|
|
|
Level 2:
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that
are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
|
|
|
Level 3:
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities
|
Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a
nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
36
Goodwill and Other Intangible Assets
The fair value is estimated using discounted cash flows that are unobservable or that cannot be corroborated by observable market data
and, therefore, are classified within Level 3 of the valuation hierarchy.
The following table presents the fair value
measurement of assets and liabilities measured at fair value on a non-recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011 for the Ancept Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Goodwill
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Customer List
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Software
|
|
|
442,775
|
|
|
|
—
|
|
|
|
—
|
|
|
|
442,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
442,775
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
442,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37