OVERVIEW
ViewCast.com, Inc., doing business as ViewCast Corporation, ("ViewCast") develops and markets a variety of products and services that enable networked video communications and through its wholly owned subsidiary, Delta Computec Inc. ("DCi") provides professional information technology and customized network support services. We continue to be a leading global provider of enterprise-wide, video communication products for both real-time and on-demand applications which has been expanded and supplemented with the acquisition of the DCi's technology services and sales operations in October 2002.
Prior to October 2002, ViewCast's organizational structure was based on one business segment engaged in the design, development and marketing of video products, systems and services. Since the acquisition of Delta Computec Inc. in October 2002, ViewCast now operates in two distinct business segments as follows:
VIDEO COMMUNICATIONS PRODUCTS AND SERVICES
This business segment is engaged in designing, developing and marketing video communications products and services. ViewCast's Interactive Video Network is a suite of products and offerings that addresses the processing, distribution, and use of high-quality video throughout the enterprise in a variety of forms and applications and includes the Osprey(R) line of video capture and video compression-decompression cards, Viewpoint VBX(TM) video distribution systems and Niagara(TM) line of encoding and streaming video servers. Corporations, media organizations, financial institutions, educational networks, healthcare facilities, and government agencies utilize our products and services, as do their customers, vendors and others with whom they may communicate. ViewCast markets its video products and services directly to end-users, through original equipment manufacturers, value-added resellers and computer system integrators, worldwide.
IT SERVICES AND PRODUCTS
This business segment includes the operations of DCi which provides customized network support, Internet and Intranet consulting, networking, maintenance and disaster recovery services as well as computer and networking product sales to Fortune 500 and 1000 companies. Customers include financial institutions, accounting firms, healthcare providers, pharmaceutical companies and educational institutions primarily in the northeastern United States.
ViewCast's senior executives are: President and Chief Executive Officer George C. Platt, Chief Financial Officer and Senior Vice President Laurie L. Latham, Senior Vice President of Sales and Marketing Harry E. Bruner, Senior Vice President of Operations David T. Stoner, and Corporate Vice President John DeVito. John DeVito also serves as President of Delta Computec Inc. Our business was established in 1994 and became a public company in 1997. Our common stock and public warrants currently trade on the OTC Bulletin Board ("OTC BB") under the symbol VCST-OB and VCSTW-OB. We are headquartered in Dallas, Texas with the Osprey development office in Morrisville, North Carolina and Delta Computec Inc. located in Teterboro, New Jersey.
INDUSTRY BACKGROUND
Video Communications
Low cost and highly versatile networks have propagated throughout the media, business, government, and education arenas. These organizations increasingly expect video to be an integral part of their communications and information source in parallel with data, text and voice. We believe organizations seek video products and services from network integrators and suppliers to implement and support workable solutions for their applications. We believe there will be increased usage of products and services that enable video communication within the desired quality, scalability and affordability parameters.
Video enhances communications over networks, whether it is video streaming, broadcasting or conferencing. We believe cost-effective video communication applications and services are now attainable because the performance, capabilities and cost continue to improve significantly. Video can utilize existing network capabilities and equipment but is enhanced with the appropriate matching of hardware, software and networks for the specific application.
HOW VIEWCAST ADDRESSES THE INDUSTRY.
ViewCast provides:
o TECHNOLOGY.
o PRODUCTS AND APPLICATIONS.
o EXPERTISE AND SERVICES
The chart below shows some of the leading video applications and the ViewCast video communications core products that are combined with codecs, gateways and endpoint technologies from other leading manufacturers to address these applications.
ViewCast's recently added IT Services business segment, DCi, increases our ability to successfully implement and support our products by providing installation, training, customer service, integration, customization, and contract development. ViewCast provides directly, and through its IT Services operation, comprehensive technology, network and video expertise enabling us to assist customers and other channel partners in identifying their communication and network needs and determine appropriate mechanisms for their requirements. IT Services and Products includes applications consulting and implementation, traditional network services, remote help desk and technology support, technology integration, maintenance, and product sales.
THE VIEWCAST STRATEGY
Our objective is to establish ViewCast as a leading provider of video communications products and services and to enhance the provision of IT services to organizations and global enterprises. Our skills are applied to the processing, distribution and use of high-quality video along with networked data, text and voice. Our initiatives are directed to increase top line revenue, produce profitable results and increase balance sheet strength through the following:
o FOCUS AND LEVERAGE OUR EXPERTISE, DEVELOPMENT AND TECHNOLOGY -- By leveraging our current core competencies and successful products and services, we maximize our return on development, increase margins in our offerings, and address the essential areas of the recovering video communications and technology market. Thus, we believe we are positioned to grow organically with the market, build market share and add revenues.
o CONTINUE TO INCREASE AND ENHANCE OUR STRATEGIC PARTNERSHIPS -- We have established significant industry partnerships with leaders in the technology and video industry. We intend to strengthen these partnerships and continue to establish new partnerships to enhance endorsements, referrals, technology, product development, channel distribution, and sales. We seek companies who can add valuable services, technology or bundling opportunities to our offerings with the potential of future co-development, merger or acquisition by ViewCast.
o EXPAND SALES, MARKETING AND DISTRIBUTION -- Critical to our success is an effective sales, marketing, and channel partner program. During 2002 we expanded our sales and marketing channels, including the launch of an e-commerce site for our video products and the acquisition of the assets and operations of DCi, an integrator and reseller of IT services and products in the northeastern United States. Many of DCi's existing customers are current or prospective users of video communications technologies especially within the financial, health and educational industries. ViewCast anticipates expanding DCi's technology and service offerings to include our video communications products and expertise. During 2003, we continue these efforts to increase sales as the economy recovers and expand on our current customer successes in the market. Our strategy is to utilize a combination of our direct sales force, resellers, system integrators, OEMs and custom application developers to distribute our product and service solutions.
o MAINTAIN EFFICIENT AND COST-REDUCED OPERATIONS -- We have reduced costs significantly during 2002 and shall continue to maintain a reduced cost structure during 2003.
o IMPLEMENT GROWTH AND STRATEGIC ALTERNATIVES/ INCREASE FINANCIAL STRENGTH -- We have completed one acquisition during 2002, and we believe the operations of DCi will more than double our 2003 revenues, compared to 2002, while increasing our customers, capabilities and sales channels. We intend to continue to progress on plans and alternatives to increase the revenue growth rate and financial resources of the ViewCast, including seeking additional product, technology or channel related acquisitions.
VIEWCAST PRODUCTS AND SERVICES
VIDEO COMMUNICATIONS PRODUCTS AND SERVICES
ViewCast offers an array of video communication products that can be used for multiple applications in the private and public sectors. Our standards-based and multi-standards based products complement each other and can be used in a variety of ways to best serve our customers' needs. Our products also work within the framework of legacy systems, and are flexible enough to meet present and future needs. The ViewCast product family includes the Osprey(R) line of video capture cards and codecs, the Niagara(TM) Streaming Systems, the Viewpoint VBX(TM) video distribution and switching system and several other complementary products and technologies from leading suppliers.
OSPREY VIDEO CAPTURE CARDS, CODECS AND VIDEO PERIPHERAL PRODUCTS. Under the well-known Osprey(R) brand, we design, develop, manufacture and market standards-based video and audio capture cards, codecs, and peripheral products for multimedia applications. Osprey(R) cards and codecs are sold worldwide through OEMs, integrators, and a worldwide network of VARs and distributors and are recommended by both Real Networks and Microsoft.
We believe our Osprey(R) capture cards offer unique advantages to application developers, integrators and OEMs including a cross-platform API (application programming interface). These cards comply with most popular industry video standards, and we provide an expert support and development staff to enable custom development of required applications. The codecs capture, digitize, compress, transmit, receive, decompress and display full-motion video. The codecs are compatible with multiple video and audio compression standards and can be used for PCs and workstations that are based on the standard PCI-bus.
NIAGARA STREAMING SYSTEMS(TM). We believe the growth in popularity of our Niagara Streaming Systems series of rack mount and portable systems is due to the growing sector of professional media creators, broadcasters and production professionals seeking state-of-the-art streaming solutions which provide a powerful, low-cost, turnkey option. The Niagara product line consists of a series of capture/encoding systems and streaming servers plus accessories and optional software and professional video equipment.
Our Niagara Streaming Systems are designed to simplify the encoding and streaming of video. This product family offers capabilities that remove deployment barriers. Niagara Streaming Systems are fully integrated and optimized for media systems with Osprey(R) video devices and software, encoding management and control software, media capture software, and video encoding and streaming software.
Niagara Streaming Systems, and derivative appliances thereof, are distributed directly or through channels to video professionals in media and entertainment enterprises, corporations, ISPs, broadband networks, CDNs, educational institutions and governmental agencies.
VIEWPOINT VBX(TM) SYSTEMS. Our Viewpoint VBX(TM) enterprise-wide video communication system provides switching, distribution, conferencing and gateway capabilities between broadband and narrowband networks and between desktops, conference rooms, and a variety of video communication resources. This suite of hardware and software technologies, inclusive of the Viewpoint VBX, Niagara and other products from leading suppliers, is also known as the "VIEWCAST INTERACTIVE VIDEO NETWORK" that collectively integrates previously separate video technologies into a single video switching and delivery environment. Video management software developed by ViewCast provides appropriate controls to each class of video user while removing the user from awareness of the technologies that source and deliver the video. ViewCast's VBX video network integrates technologies that source, switch, distribute and manage live and stored video assets in a variety of applications including video conferencing, premise video distribution, distance learning, video resource sharing and personal video communication.
Viewpoint VBX's conferencing, switching, and codec product line has been applied to manage and deliver multiple simultaneous TV quality video connections to desktops, conference rooms, boardrooms, classrooms, lobbies, visitor centers, medical centers, trading floors, securities trading centers, industrial process control centers, courtrooms, correctional facilities, banks, and airports. Virtually every conceivable type of video source has at one time or another been distributed around the office or around the globe by a Viewpoint VBX - video from VCRs, DVD players, satellite receivers, cable TV receivers, security cameras, desktop workstation cameras, conference room cameras, and process control system video. Display devices range from PC workstations, TV sets, plasma displays, film recorders, streaming encoders, video projectors, and LCD video.
Benefits of the Viewpoint VBX(TM) include:
o USER-CONTROLLED ENVIRONMENT.
o APPLICATION-CONTROLLED ENVIRONMENT.
o VIDEO TRANSPORT TRANSPARENCY.
o VIDEO STANDARDS BRIDGING / INTEGRATED VIDEO NETWORK.
o FLEXIBLE APPLICATION OPTIONS.
o SCALABILITY.
OTHER VIDEO COMMUNICATIONS PRODUCTS AND SERVICES
ViewCast created a patent-pending process for providing the creation, management, distribution and viewing of streaming media called EZStream(SM). Our process is embedded within the outsourced service models that we have developed to address the business market. We have developed extensive account management, measurement, and upload capabilities with a secure database that is optimized for media management and delivery. As part of focusing our resources, we currently do not actively market this service. We believe a new strategic alliance, channel, or licensing arrangement with a network or ISP company will provide new potential for this service.
IT SERVICES AND PRODUCTS
Beginning October 11, 2002, ViewCast provides IT Services and Products through its subsidiary Delta Computed Inc. or DCi. DCi specializes in onsite professional services solutions, including Internet and Intranet consulting and networking, network support, maintenance and disaster recovery. With a 25-year operating history, DCi provides a wide array of computer systems, data communications and LAN/WAN information technology services and products in the northeastern United States. As a full service systems integrator, DCi analyzes customer's business needs and makes recommendations for current improvements and for the future. DCi services include:
MARKETING AND SALES
We market our products and services directly or via third-party distribution channels including, but not limited to, OEMs, resellers and system integrators. These relationships are non-exclusive and typically require that these resellers participate in the marketing, installation and technical support of our products. DCi, ViewCast's wholly owned IT Services subsidiary, is also reseller of our video communications products. In addition, we plan to continue to expand our distribution channels both domestically and internationally.
Our video communication products and services are marketed primarily to media and entertainment, Internet, corporate, financial, educational, security/telejustice, healthcare, governmental and network enterprises. In addition, our products are sold or licensed to integrators and value added resellers to integrate with their products or services.
In early 2002, we added a retail storefront sales channel to the website offering Osprey and Niagara hardware and software. The 2002 e-commerce sales generated from this storefront totaled $417,000 and represented 5.3% of total video communication product revenue.
The Video Communications Product Reseller Marketing program enhances our ability to cover domestic and international geographical territories and market segments in an efficient and cost-effective manner. This multi-tiered program provides benefits and rewards to our reseller partners for aggressively marketing ViewCast video products and services. Under the terms of the new reseller program, an authorized reseller of ViewCast products must meet certain qualifications regarding its business, personnel, product and market knowledge, and support and service capabilities. Through this authorized reseller program, we intend to expand and enhance channels of distribution that will most effectively place ViewCast video products into the marketplace.
IT Services and Products are marketed directly to new and current customers mainly in the northeastern United States from DCi's offices in New Jersey and Delaware by its sales representatives and by its technical services managers.
PRODUCTION AND SUPPLY
We build our current video products using contract manufacturers in the U.S and Asia. Our operations personnel in Dallas, Texas are responsible for parts planning, procurement, final testing and inspection to quality standards. We plan for most high-volume production to be handled through large OEMs or contract manufacturers.
We have been and will continue to be dependent on third parties for the supply and manufacture of our components and electronic parts, including standard and custom-designed components. We generally do not maintain supply agreements with such third parties but instead purchase components and electronic parts pursuant to purchase orders in the ordinary course of business. We are substantially dependent on the ability of our third-party manufacturers and suppliers to meet our design, performance and quality specifications.
INSTALLATION, SERVICE AND MAINTENANCE
Most of our video card products are customer installable. We depend on our resellers to install and service the majority of our system products. Further, we maintain an in-house technical support group to assist our resellers and customers as required. The addition of DCi provides to our customers comprehensive installation, technical services, customer support and maintenance on a contract or project basis in the northeastern United States.
We offer limited warranties covering workmanship and materials, during which period our resellers or ViewCast will replace parts or make repairs. We maintain an in-house staff of engineering personnel and offer telephone support to assist resellers and end-users during normal business hours. In addition, we enter into annual contracts with end-users to provide software and hardware maintenance on our products.
RESEARCH AND DEVELOPMENT
We continue to focus on research and development activities related to video communications applications. Our recent development efforts have been devoted to the design and development of our products and software applications, primarily in the streaming and network sector. We will continue to make investments in core video technology and processing techniques, focusing on how to best apply the latest advancements in the industry into commercially viable products. In some cases, strategic partnerships will be utilized to offset some research and development costs.
New products are scheduled for launch in 2003 in the Osprey, Niagara and Viewpoint VBX product families that will provide new capabilities and features for professional streaming video applications. New managed technical service options are scheduled for launch in 2003 by DCi that will provide new financing and budgeting flexibility for DCi's customers. We believe these products and services will be competitive and feature unique capabilities.
We will continue integration efforts with third party application software and hardware for our products and services.
COMPETITION
The market for video communication systems and services is highly competitive and characterized by the frequent introduction of new products based upon innovative technologies. We compete with numerous well-established manufacturers and suppliers of video streaming technologies, videoconferencing, networking, telecommunications and multimedia products, certain of which dominate the existing video communications market for such products. In addition, we are aware of others that are developing, and in some cases have introduced, new video communications systems.
We are not aware of any direct competitors that compete in all of our video communication product families and applications. However, among our direct competitors competing with one or more of our products or applications are: Winnov, LP, Optibase Ltd., Video Network Communications, Inc., Avistar Communications Corp., Pinnacle Systems, Inc., Tandberg Inc., and Polycom, Inc. Electronics manufacturers such as Cisco Systems, Inc. may be sales channels for our products but also actively compete for business in this market.
The market for IT Service and Products is highly competitive and characterized by a large number of participants and is subject to rapid change and intense competition. Competitors in this area include consulting companies, information technology vendors, value added resellers, system integrators, local and regional IT services firms, telecommunications providers and equipment vendors. We compete with numerous well-established IT service companies, and product suppliers. Certain of our competitors have significantly greater name recognition and financial and marketing dominance than does DCi.
The competitors for IT Services and Products include consulting and service firms such as Seimens, EDS, IBM Global Services; hardware firms such as Dell Computers; and telecommunications firms such as AT&T Corporation.
PATENTS, COPYRIGHTS, TRADEMARKS AND PROPRIETARY INFORMATION
We hold a U.S. patent covering certain aspects of compressed video and have a patent pending covering certain aspects of a process to create, manage, distribute and view streaming video. Although we do not believe these patents or any other patent is essential to our business operations, we may apply for additional patents relating to other aspects of our products. We also rely on copyright laws to protect our software applications, which we consider proprietary.
We believe that product recognition is an important competitive factor and, accordingly, we promote the ViewCast(R), Osprey(R), Niagara(TM), Viewpoint VBX(TM), SimulStream(TM), Niagara SCX(TM), PC Reserve(SM) and EZStreamSM names, among others, in connection with our marketing activities, and have applied for or received trademark or service mark registration for such names. Our use of these marks and our trade names may be subject to challenge by others, which, if successful, could have a material adverse effect on us.
We also rely on confidentiality agreements with our directors, employees, consultants and manufacturers and employ various methods to protect the source codes, concepts, ideas, proprietary know-how and documentation of our proprietary technology. However, such methods may not afford us complete protection, and there can be no assurance that others will not independently develop similar know-how or obtain access to our know-how or software codes, concepts, ideas and documentation. Furthermore, although we have and expect to continue to have confidentiality agreements with our directors, employees, consultants, manufacturers, and appropriate vendors, there can be no assurance that such arrangements will adequately protect our trade secrets.
We purchase certain components that are incorporated into our products from third-party suppliers and rely on their assurances that such components do not infringe on the patents of others. A successful claim against any components used in our products could affect our ability to manufacture, supply and support our products. We use commercially reasonable efforts to ensure third-party supplied components are non-infringing, but there can be no assurances against future claims.
GOVERNMENT REGULATION
We are subject to Federal Communications Commission regulations relating to electromagnetic radiation from our products, which impose compliance burdens on us. In the event we redesign or otherwise modify our products or complete the development of new products, we will be required to comply with Federal Communications Commission regulations with respect to such products. Our foreign markets require us to comply with additional regulatory requirements.
EMPLOYEES
As of March 31, 2003, we had one hundred forty-six (146) employees, five (5) of whom are in executive positions, fourteen (14) of whom are engaged in engineering, research and development, seventeen (17) of whom are engaged in marketing and sales activities, ninety (90) of whom are engaged in operations and twenty (20) of whom are in finance and administration. None of our employees are represented by a labor union. We consider our employee relations to be satisfactory.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this Report on Form 10-K under "Business", "Management's Discussion and Analysis of Financial Conditions and Results Of Operations", and elsewhere in the Report constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements regarding ViewCast's expectations, beliefs, hopes, intentions or strategies regarding the future. These statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Such factors 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 availability of sufficient working capital, the ability to service our debt, continued significant losses, the ability to successful integrate acquired operations, the effect of our accounting polices and other risks detailed in the Annual Report on Form 10-K for the year ended December 31, 2001, as amended, the Registration Statements on Form S-3 filed on April 26, 2000 and June 30, 2000 and other filings with the Securities and Exchange Commission.
In some cases, you can identify forward-looking statements by terminology such as "may", "will", "expects", "should", "anticipates", "believes", "estimates", "predicts", "plans", "potential", "intends" or "continue" or the negative of such terms or other comparable terminology.
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such statements. We are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results.
