VIEWCAST COM INC - 10-K Annual Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2002.
or

[ ] Transition report pursuant to 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 Incorporation or (I.R.S. Employer
Organization) Identification No.)

17300 Dallas Parkway, Suite 2000, Dallas, TX 75248
- ------------------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
- ------------------------------------------------- -------------------

Registrant's telephone Number, Including Area Code: 972-488-7200
- --------------------------------------------------------------------------------

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 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] or No [ ].

Indicate by a check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] or No [X].

The aggregate market value of the voting and non-voting common stock held by
non-affiliates of the registrant as of March 31, 2003 was $3,105,544. As of
March 31, 2003, there were 20,822,847 shares of the Company's common stock (par
value $0.0001) outstanding.

Documents incorporated by reference: None

TABLE OF CONTENTS

2

PART I

ITEM 1. BUSINESS

The statements contained in this Report on Form 10-K and in the Annual
Report that are not purely historical statements are forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934,
including statements regarding the Company's expectations, beliefs, hopes,
intentions or strategies regarding the future. These forward-looking statements
involve risks and uncertainties. Our actual results may differ materially form
those indicated in the forward-looking statements. Please see "Special Note
Regarding Forward-Looking Statements" and the factors and risks discussed in
other reports filed from time to time with the Securities and Exchange
Commission.

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.

3

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.

4

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.

5

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.

6

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:

IT Consulting Network Services Staff Augmentation PrinterCare Program

Help Desk Services PC Reserve/Rapid Microsoft Rollouts Cabling Services
Restore

Video communications and Field & On-site Depot Repair Services Network Query Language
conferencing Maintenance

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.

7

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.

8

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.

9

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.

ITEM 2. PROPERTIES

Our executive offices and some of our sales, design and development
activities are located in approximately 14,731 square feet of leased space in
Dallas, Texas. The lease expires in December 2005 and provides for a base annual
rent of $243,061. Our assembly operations are located in approximately 7,760
square feet of leased space in Dallas, Texas. The lease expires in August 2003
and provides for a base annual rent of $63,740. The assembly operations lease
expiring during 2003 will either be extended or new space will be obtained
within the same geographic area.

The Osprey product development activities are located in approximately
11,900 square feet of leased space in Morrisville, North Carolina. The main
lease for approximately 10,000 square feet expired in December 2002 and provided
for a base annual rent of $129,550. The remaining 1,900 square feet expires in
January 2005 and provides for a base annual rent of $23,831. The main lease that
expired during 2002 has been extended on a short term basis at a similar rental
rate as previously paid and will either be further extended or new space will be
obtained within the same geographic area.

The Delta Computec Inc. office and warehouse operations are located in
approximately 18,300 square feet within a total of 38,000 square feet of leased
space in Teterboro, New Jersey. A sublease tenant occupies the remainder of the
building. The lease for approximately 38,000 square feet expires in July 2007
and provides for a base annual rent of $336,657. A sublease for approximately
19,700 square feet of leased space in the Teterboro facility expires in July
2003 and provides annual base rental income of $137,000 to offset the rental
expense. Management expects the sublease expiring during July 2003 is to be
extended. A field service/sales office is located in Claymont, DE is on a
month-to-month lease and provides for a base annual rental of $13,500.

We believe that our facilities are adequate for our current and reasonable
foreseeable future needs and our current facilities can accommodate expansion,
as required.

10

ITEM 3. LEGAL PROCEEDINGS

We are not currently a party to any litigation that we believe could have a
material adverse effect on our business or us.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(None)

11

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

COMMON STOCK PRICE RANGE

As of March 31, 2003, there were 20,822,847 shares of Common Stock and
2,616,348 Public Warrants outstanding. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock and the
Public Warrants on the Nasdaq prior to April 4, 2002 and the OTC-BB beginning on
April 4, 2002. Our Common Stock prior to April 4, 2002 was traded on the Nasdaq
under the symbol "VCST." Our Public Warrants prior to April 4, 2002 were traded
on the Nasdaq under the symbol "VCSTW." As of April 4, 2002 our Common Stock and
Public Warrants are traded on the OTC-BB under the symbol "VCST.OB" and
"VCSTW.OB" respectively. These over-the-counter market quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions. The trading market in our securities may at times
be relatively illiquid due to low trading volume.

In February 2002, ViewCast received a Nasdaq Staff Determination indicating
that it failed to comply with the minimum net tangible assets or minimum
stockholders' equity requirements for continued listing, set forth in
Marketplace Rule 4310(c)(2)(B) and that its common stock is therefore subject to
delisting from The Nasdaq SmallCap Market. Marketplace Rule 4310(c)(2)(B) states
that "For continued inclusion, the issuer shall maintain: (i) stockholders'
equity of $2.5 million; (ii) market capitalization of $35 million; or (iii) net
income of $500,000 in the most recently completed fiscal year or two of the last
three most recently completed fiscal years." ViewCast requested a hearing before
a Nasdaq Listing Qualifications Panel to review the Staff Determination, but was
unable to meet Nasdaq's timetable for compliance and was delisted from Nasdaq
after trading closed on April 3, 2002. ViewCast began trading on the
Over-the-Counter-Bulletin Board (OTC-BB) effective with the opening of business
on April 4, 2002.

On March 31, 2003, the last reported sales prices for the Common Stock and
the Public Warrants as reported on the OTC-BB were $0.17 and $0.20,
respectively.

DIVIDEND POLICY

We have never paid cash dividends on our Common Stock. The Board of
Directors does not anticipate paying cash dividends in the foreseeable future as
it intends to retain future earnings to finance the expansion of our business
and for general corporate purposes. The payment of future cash dividends will
depend on such factors as our earnings levels, anticipated capital requirements,
operating and financial condition, consent from our lenders and other factors
deemed relevant by our Board of Directors.

12

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
"Managements Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere in
the Form 10-K. Our historical financial results are not necessarily indicative
of results to be expected for any future period.

13

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Report on Form 10-K contains forward-looking statements that involve
risks and uncertainties. Actual results may differ materially form those
indicated in the forward-looking statements. Please see the "Special Note
Regarding Forward-Looking Statements" elsewhere in the Report on Form 10-K.

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 provides professional information technology and
customized network support services through its wholly owned subsidiary, Delta
Computec Inc. ("DCi"). 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
DCi's technology services and sales operation 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 DCi in October 2002,
ViewCast now operates in two distinct business segments, video communications
products and services and IT services and products 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 Delta Computec Inc. which
provides customized network support, Internet and Intranet consulting,
networking, maintenance, 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.

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of our financial condition and results
of operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. We review the accounting policies we use in reporting
our financial results on a regular basis. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an on-going basis we evaluate our
estimates, including those related to accounts receivable, inventories,
investments, warranty obligations, income taxes, restructuring and contingencies
and litigation. Our estimates are based on historical experience and other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. In
addition to the items listed above which are affected by estimates, we believe
that the following are among critical accounting policies used in the
preparation of our consolidated financial statements:

14

o Revenue Recognition - We recognized hardware product revenue using the
guidance from SEC Staff Accounting Bulletin No. 101, Revenue Recognition
in Financial Statements and Statement of Financial Accounting Standards
No. 48, Revenue Recognition When Right of Return Exists. We recognize
software revenue in accordance with SOP 97-2, Software Revenue
Recognition, as amended by SOP 98, Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions. Under these
guidelines, we defer revenue recognition on transactions where
persuasive evidence of an arrangement does not exist, title has not
transferred, product payment is contingent upon performance of
installation or service obligations, the price is not fixed or
determinable or payment is not reasonably assured. In addition we defer
revenue associated with maintenance and support contracts and recognize
revenue ratably over their term.

o Allowance for Doubtful Accounts - We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of our
customers to make required payments. If the financial condition of our
customers or distribution partners were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may
be required.

o Excess and Obsolete Inventories - We write down our inventories for
estimated obsolescence and unmarketable inventory equal to the
difference between the cost of the inventory and the estimated market
value based upon assumptions about future demand and market conditions.
If actual market conditions are less than those projected by management,
additional write-downs may be required.

o Deferred Taxes - We record a valuation allowance to reduce our deferred
tax assets to an amount that we believe is more likely than not to be
realized. In our opinion, realization of our net operating loss
carryforward is not reasonably assured, and a valuation allowance has
been provided against deferred tax assets in excess of deferred tax
liabilities in the accompanying consolidated financial statements.
However, should we in the future determine that realization of deferred
tax assets in excess of recorded amounts is likely, an adjustment to the
deferred tax assets would increase income in the period such
determination was made.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001.

NET SALES. Net sales for the year ended December 31, 2002 increased 31.1% to
$10,427,540 from $7,950,887 reported in 2001. The overall increase was due
principally to the acquisition of DCi and inclusion of their operations during
the fourth quarter of 2002 ($2,542,109) and a modest increase in system sales
from the prior year offset by declines in sales of Osprey video products. Total
2002 sales of $7,885,431 for the video communications products segment declined
slightly by 0.8%, compared to 2001, reflecting continued depressed economic
conditions and reduced levels of technology spending for much of 2002 in the
United States and Europe.

OSPREY PRODUCT SALES. During the year ended December 31, 2002, sales of
Osprey(R) video products decreased 1.7% over 2001 levels and represented 81.1%
of total 2002 video product revenues, compared to 81.8% of total revenues in
2001. The 2002 domestic and European sales of Osprey products declined 13.2% and
10.0%, respectively over 2001 levels, while sales in the Pacific Rim increased
20.1% reflecting increased demand from all major distributors in the region. On
a product basis, 2002 unit sales of all Osprey product families decreased,
compared to last year, with the exception of the Osprey 210/220 series of
products, which have increased 80.3% over 2001 levels and the Osprey 540 product
line which was introduced in April of 2002.

In January 2002, ViewCast opened its new e-commerce site featuring the
Osprey streaming/capture cards as well as, Osprey SimulStream and Niagara SCX
software products. In addition to the new e-commerce offerings, the site offers
a full range of online order processing and tracking services, technical support
content and easy access to product drivers and upgrades. During 2002, e-commerce
sales totaled $408,978 and represented 6.3% of total Osprey 2002 product sales.

In April 2002, ViewCast introduced its new Osprey-540 professional digital
and analog capture card designed specifically for streaming media applications,
and through December 31, 2002 has represented approximately 8.5% of Osprey
product sales. Building on the established quality and reliability of the
Osprey-500 series, the Osprey-540 further expands streaming content creation
into the professional media

15

market and offers an array of inputs, outputs and advanced features that allow
streaming to seamlessly integrate with professional media equipment. The
Osprey-540 directly addresses the needs of professional broadcast facilities,
Fortune 1000 enterprises, entertainment studios and post-production houses. With
new product enhancements, the addition of our e-commerce strategy, and as the
economy recovers, we expect to increase Osprey product sales during 2003.

VIEWPOINT VBX(TM) VIDEO DISTRIBUTION SYSTEM AND NIAGARA(R)
STREAMING/ENCODING SYSTEMS. During the twelve months ended December 31, 2002,
combined systems sales totaled $1,252,553 and represented 15.9% of total 2002
video product revenues, an increase of 11.9 % over 2001 video product revenues.
The increase was due to sales of ViewCast's Niagara systems during 2002,
increasing by 96.2%, over 2001 levels, reflecting increased brand awareness of
our streaming and encoding servers while Viewpoint VBX systems sales experienced
a 19.0% decline over the same period. Enterprise VBX systems sales have been
impacted by the economic slowdown and postponement of information technology
spending.

In 2001, ViewCast announced the sales of VBX video distribution and
conferencing systems to HSBC Bank USA and to Siemens Information and
Communications Group who was chosen to supply a division of The Standard Bank of
South Africa with a fully integrated trading solution incorporating their HiPath
Product suite. VBX System 2002 revenues from expansion and follow-on business
with regard its financial services opportunities accounted for $407,000 of
revenues during 2002 and additional expansion of these opportunities are
expected in the first half of 2003. We continue to note increasing levels of
interest and sales activity our system product offerings and expect that such
activity should result in increased 2003 revenue.

As a reseller for ViewCast's video systems products, DCi should contribute
to improving revenues by creating interest within their customer base to utilize
our system products, by bundling services with hardware and software sales and
by the addition of complementary product offerings. Additionally, DCi will
provide expanded sales channels, enhanced customer support through real-time IT
integration and access to key clients in their vertical markets.

IT SERVICES AND PRODUCTS. In October 2002, ViewCast acquired the assets and
operations of DCi, a provider of professional information technology and
customized network support services to Fortune 500 and Fortune 1000
corporations, mid-sized companies, hospitals, health care facilities and
financial institutions primarily in the northeastern United States. IT services
and product sales totaled $2,542,109 for the three months ended December 31,
2002 and represented 24.4 % of total 2002 ViewCast revenues. Contract service
fees for customized network support, Internet and Intranet consulting,
networking, maintenance, disaster recovery services totaled $2,263,959 and IT
product sales totaled $278,150. There were no comparable IT service and product
sales during 2001.

OTHER REVENUES. Other video product revenues consisting of software
maintenance, training, engineering consulting fees and professional services
totaled $234,574 during 2002, a decrease of $90,401 compared to $324,975
reported in 2001. With the exception of engineering design service revenue,
which showed a slight increase in 2002, maintenance, installation and support
services trended lower in relation to reduced VBX systems revenues.

COST OF GOODS SOLD/GROSS MARGINS. Cost of goods sold totaled $5,526,644 for
the year ended December 31, 2002, a 54.6% increase from 2001 reflecting the
increased cost of goods associated with DCi IT service and product sales. Gross
profit margin for the year ended December 31, 2002 was 47% compared to 55.0% in
2001, although the video products segment's margin was virtually unchanged for
2002 compared to 2001. The lower gross margins during 2002 reflect the fourth
quarter acquisition of DCi which traditionally experiences lower margins in the
20% range (consistent to this industry) compared to the video products segment's
historical margins in the 50% range.

We anticipate total consolidated gross margins, as a percentage of total
revenues, will decline in future periods compared to 2002 due to the acquisition
and consolidation of the operations of DCi. Excluding DCi, however, we expect
margins for our Osprey products, Niagara systems and VBX Systems to remain in
the 50% - 56% range during 2003. Margins will be affected quarter to quarter by
promotional activities, price adjustments, cost of materials, inventory
obsolescence, the introduction of new products and the sales mix between
products and services in any one reporting period.

16

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses for year ended December 31, 2002 totaled $5,248,892, a
decrease of 31.0% from $7,604,415 reported last year. The decrease reflects
workforce reductions and efforts during 2002 to trim operating expenses in all
video product groups offset with the additional expense from DCi's operations.
Sales and sales support expenses decreased 47.5% over last year while finance
and administrative, customer support and marketing expenses decreased 2.3%,
34.8%, and 42.3%, respectively compared to a year ago.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense for 2002
totaled $2,936,778, a decrease of 30.1% over 2001 levels, reflecting a decrease
in personnel and related expenses. In addition, ViewCast incurred significant
prototype development and certification expenses associated with new Osprey
product offering in 2001 with considerably lower comparable expense in 2002.

RESTRUCTURING. During 2002 ViewCast incurred restructuring costs of
$270,000 compared to $219,604 in 2001. In accordance with a Board Of Directors
approved plan of restructuring, charges during 2002 included costs for employee
severance and benefits for personnel reductions made in sales, marketing,
development and manufacturing departments and for impairment of related fixed
assets and capitalized software. At December 31, 2002, ViewCast had no accrued
restructuring charges. DCi currently has no significant research and development
activities.

OTHER (INCOME) EXPENSE. Total other income (expense) for 2002 totaled
$297,638 compared to $(491,287) in 2001. The other income for 2002 includes a
$1,071,891 gain on exchange of available-sale-securities for principal reduction
in line of credit financing arrangement, which occurred on May 6, 2002 (See Part
2. Item 8. Financial Statements, Note 6 and Note 9). Interest expense for 2002
and 2001 was $790,081 and $677,087, respectively, representing interest on
ViewCast's stockholder line-of-credit financing as well as interest on
ViewCast's long-term debt, interest on DCi's line-of-credit financing and
amortization of related issue costs. Interest expense increased 16.7% over 2001
levels due to the increased average balance of its line-of-credit during 2002
and the addition of DCi's line of credit facility with Keltic Financial
Partners, LP. Additionally, 2002 interest income declined over 2001 levels
reflecting reduced earnings on lower cash and cash equivalents balances compared
to 2001.

NET LOSS. Net loss for the year ended December 31, 2002 was $4,104,795, a
54.8% improvement over the $9,072,955 loss reported in the comparable period in
2001 due to significantly reduced operating expenses resulting from ViewCast's
restructuring efforts and a $1,071,891 one-time gain on disposition of
available-for-sale securities. These efforts were offset in part by increased
interest expense and increased expenses from DCi's operations over 2001 levels.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000.

NET SALES. Net sales for the year ended December 31, 2001 decreased 23.8% to
$7,950,887 from $10,439,404 reported in 2000. We believe the overall decrease
was due principally to slowing demand for information technology ("IT") spending
and capital expenditures primarily as result of depressed economic conditions in
the United States. These conditions were further impacted by declining demand
during the last 3.5 months of 2001 in the wake of the September 11, 2001
terrorist attacks, affecting sales of all ViewCast products.

OSPREY PRODUCT SALES. During the year ended December 31, 2001, sales of
Osprey(R) video peripheral products decreased 13.4% over 2000 levels and
represented 81.8% of total 2001 revenues, compared to 72.0% of total revenues in
2000. 2001 domestic channel sales for Osprey products declined 29.8% over 2000
levels reflecting U.S. economic conditions, the demise of many ".com" companies,
and declining purchases from one of its major OEM partners. This decline was
offset in part by channel sales growth in Western Europe and the Pacific Rim of
22.3% and 28.5%, respectively. In September 2001, ViewCast announced
modifications to its popular Osprey-500 video capture card to make it "streaming
neutral" to allow customers the ability to use a broader range of software
applications including Windows Media Encoder, RealNetworks' RealSystem Producer,
Adobe Premier 6.0, Media 100's Cleaner 5, Sorrenson Broadcaster and other
leading applications, as well as streaming directly to Windows Media and Real
formats. We also introduced our new Osprey SimulStream(TM) software for use with
the Osprey-210, Osprey-220, Osprey-500 and Osprey-2000 series of products.
SimulStream gives users the ability to simultaneously output multiple video and
audio streams with independent capture settings from a single Osprey capture
card. By taking what used to be six separate encoding tasks and making it a
single session,

17

SimulStream reduces encoding time up to 83% while greatly improving the video
and audio on the resulting streams.

NIAGARA(R) STREAMING/ENCODING SYSTEMS AND VIEWPOINT VBX(TM) VIDEO
DISTRIBUTION SYSTEM SALES. During the year ended December 31, 2001, combined
systems sales totaled $1,119,243 a decrease of 52.6% compared to the prior year.
System revenues have been most clearly impacted by the economic slowdown and the
general softening and postponement of IT spending, especially in the financial
services sector. In May 2001 through November 2001, we reduced and reorganized
our workforce associated with the product lines and focused our system sales,
marketing and development efforts on education/distance learning, financial
services, security/telejustice and media network applications. In September
2001, ViewCast announced the sale of VBX video distribution and conferencing
systems to HSBC Bank USA through a reseller Delta Computer Group. The systems
provide video distribution capabilities for HSBC's New York and New Jersey
locations, as well as connectivity to VBX systems in Europe and Hong Kong. In
December 2001, we sold VBX equipment to Siemens Information and Communications
Group who was chosen to supply a division of The Standard Bank of South Africa a
fully integrated trading solution incorporating their HiPath Product suite. The
offering incorporates the Viewpoint VBX video communication system as an
integrated touch screen application providing video conferencing and video
broadcast capability with point and click ease.

In March 2001, ViewCast introduced its new Niagara(R) Streaming and Encoding
Systems which are fully integrated rack mount and portable platforms that allow
corporations, broadcasters, productions houses, Internet ASPs and content
producers to stream live video content or create archived video-on-demand
content for viewing over the Internet or Corporate intranets. The exclusive
Niagara SCX(TM) software allows remote encoder control and monitoring across
networks using industry standard protocols, while its SimulStream(TM) software
allows simultaneous multiple bit rate streaming in Real and Windows formats
using only one capture card. The Niagara(R) family of products incorporates the
performance of the Osprey(R)-220, Osprey(R)-500 or Osprey(R)-2000 into its
capabilities. In October 2001, ViewCast also announced that it would bundle
Accordent Technologies' Presenter PRO software with its ViewCast NiagaraMax
portable streaming systems. PresenterPRO enables companies to create live and on
demand streaming presentations enhanced by synchronized PowerPoint slides,
pictures, Flash, URLs, and other features to create professional streaming
presentations in minutes.

OTHER REVENUES. Other revenues consisting of software maintenance, training,
installation, engineering consulting fees and professional services amounted
$324,975 for the year ended December 31, 2001, a decline of 42.7% from the
$566,742 reported in 2000. Installation and maintenance revenues during 2001
decreased in proportion to declining system revenues while other revenues in
2000 included $156,000 of engineering consulting fees for contract development
of the Osprey(R)-500 video capture card with no comparable sales in 2001

COST OF GOODS SOLD/GROSS MARGIN. Cost of goods sold totaled $3,575,411 for
the year ended December 31, 2001, a decline of 25.2% from the prior year period
reflecting the decrease in sales from 2000. Gross profit margin for the year
ended December 31, 2001 was 55.0% compared to 54.2% in 2000. Improved gross
margins during 2001 reflect increased unit sales of new subsystem products with
improved profit margins.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses for year ended December 31, 2001 totaled $7,604,415, a
decrease of 20.3% from $9,545,307 reported last year. The decrease reflects
workforce reductions and reorganization efforts from May 2001 through December
2001 to trim operating expenses in all product groups. Sales and sales support
expenses decreased 29% over last year while finance and administrative, customer
support and marketing expenses decreased 12.9%, 12.7%, and 9.0%, respectively
compared to a year ago.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense for 2001
totaled $4,200,571, an increase of 4.9% over 2000 levels reflecting an increase
in hardware and software engineers and expenses associated with the development,
testing and certification of ViewCast's Osprey(R)-2000 line of video capture
cards, the development and introduction of the Osprey SimulStream software, the
Niagara(R) line of streaming encoders and streaming servers, and the development
of ViewCast Online business applications and systems.

18

RESTRUCTURING. In April 2001, ViewCast's Board of Directors approved a plan
of restructuring that included a reduction in ViewCast's workforce to decrease
operating expenses. Charges during 2001 included costs of $219,604 for employee
severance and benefits associated with the involuntary termination of 26
employees. Personnel reductions were made in ViewCast's finance and
administration, marketing and sales, operations, and engineering, research and
development departments.

OTHER (INCOME) EXPENSE. Total other expense for the twelve months ended
December 31, 2001 totaled $491,287, an increase of 101.3% over the prior year
period reflecting the addition of interest expense and amortization of debt
issue costs associated with ViewCast's 7% Senior Convertible Debentures,
interest from additional line-of-credit borrowings and reduction of interest
income earned on ViewCast's cash and cash equivalents during the nine months
ended September 30, 2001. These expenses were partially offset by other income
of $154,165 from the sale of available-for-sale securities and forfeiture of
conversion inducement fees.

NET LOSS. Net loss for the year ended December 31, 2001 was $9,072,955, an
increase in loss of 2.1% from 2000. Net loss for 2001 reflects decreases in net
sales and increases in research and development expense, partially offset by
declining selling, general and administrative expenses and improving gross
margins.

LIQUIDITY AND CAPITAL RESOURCES

ViewCast's primary sources of funds for conducting its business activities
are derived from sales of its products and from sales of its debt and equity
securities. ViewCast requires working capital primarily to fund operating
losses, increase inventories and accounts receivable during sales growth,
develop products, service debt, purchase capital assets and acquire the
operations of others.

Net cash used in operating activities for the year ended December 31, 2002
totaled $2,179,658 due principally to the reported net loss of $4,104,795 offset
by adjustments for non cash operating expenses of $111,619 and net cash positive
changes in operating assets and liabilities of $1,813,518. Cash generated from
the net change in operating assets was due principally to utilization of
inventory on hand, increased trade receivable collections and a net increase in
trade payables and accrued expenses.

Cash generated from investing activities during the twelve months ended
December 31, 2002 totaled $2,105,313. Proceeds of $2,910,641 were generated from
the sale of available-for-sale securities while cash of $721,694 was utilized to
purchase the assets and operations of Delta Computec Inc. and cash of $107,847
was used to purchase fixed assets.

During the twelve months ended December 31, 2002, ViewCast's financing
activities utilized cash of $488,600 principally due to the net repayment of
$1,185,641 of short-term borrowings under the terms of its asset-based
stockholder line of credit facility offset in part by proceeds of $500,000
advanced from one of its principal stockholders and Chairman of the Board of
ViewCast, H.T. Ardinger, Jr. to fund the initial cash payment for the purchase
of the assets and operations of Delta Computec Inc. Additional financing
proceeds of $179,574 were received from borrowings under Delta Computec's
asset-based lending line of credit. ViewCast also received proceeds of $17,467
from the sale of common stock under the terms of its Employee Stock Purchase
Plan.

Since October 1998, ViewCast has maintained a working capital line of
credit financing arrangement with an entity controlled by one of its principal
stockholders, who is currently Chairman of the Board. In February 2001, ViewCast
amended the facility to increase the credit line commitment from $9.0 million to
$12.0 million, extended the maturity date of the agreement to March 15, 2003,
and expanded the asset base for lending to include DynTek, Inc. ("DYTK") common
stock owned by ViewCast which was acquired in a strategic business alliance in
September of 1998. On February 28, 2003, ViewCast amended the credit facility to
revise and extend the maturity date to March 31, 2004. The availability of funds
under this facility is subject to certain borrowing base limitations based
principally on outstanding accounts receivable and inventory. All of the DYTK
shares were sold in exchange for a reduction in note principal on May 6, 2002.
At December 31, 2002, ViewCast had exceeded its borrowing base by $3.2 million
and had outstanding $5.2 million of the line-of-credit facility. The noteholder
has agreed to waive through June 30, 2003 the repayment of any outstanding
financing that may be in excess of the borrowing base. Effective January 1,
2002, the noteholder also agreed that all accrued and unpaid interest on the
note shall be due and

19

payable on the earlier of (a) sixty (60) days following receipt of written
demand for payment, or (b) the maturity date. The facility will continue to be
utilized for working capital by ViewCast to the extent possible depending on
future levels of accounts receivable and inventory.

Effective May 6, 2002, ViewCast sold all its available-for-sale securities
comprised exclusively of 1,140,310 shares of DYTK common stock for $2,910,641.
All proceeds were used to make a principal reduction in its stockholder
line-of-credit note balance. The price per share of DYTK stock of $2.553 was
determined by negotiations between the parties and represented a premium to the
fair market trading value of DYTK shares on May 6, 2002 of $2.00 per share.
During 2002, ViewCast borrowed $1.7 million under the terms of the stockholder
line of credit financing arrangement and reduced the principal by $2.9 million,
resulting in a net principal note reduction of $1.2 million during 2002.

In January 2002, ViewCast extended the expiration date of its outstanding
public and public equivalent common stock purchase warrants to February 3, 2005
from February 3, 2002. Additionally, effective March 1, 2002, ViewCast decreased
the effective exercise price per share of common stock of the warrants from
$4.19 to $1.00. The warrants are redeemable by ViewCast under certain
conditions. As of December 31, 2002, there were 3,799,680 public and public
equivalent warrants outstanding. The exercise price reduction and extension of
the expiration date also applies to the issuance of up to 122,500 public
warrants upon exercise of certain representative warrants.

Pursuant to Section 8(b) of the Certificate of Designations of Series B
Convertible Preferred Stock, ViewCast was required to temporarily lower the
Series B conversion price from $3.625 per share to $0.60 per share for a period
of ninety (90) days in conjunction with the issuance of Series C Convertible
Preferred Stock in November 2001. In March 2002, holders of $1,450,000 of Series
B Convertible Preferred Stock converted their Series B shares into 2,416,666
shares of common stock at $0.60 per share.

At December 31, 2002, ViewCast had a consolidated stockholders' deficit of
$4,813,331, and in accordance with Delaware law, was precluded from paying
dividends on its outstanding Series B and Series C convertible preferred stock.
As a result, no preferred stock dividends were declared or paid during 2002. The
Series B and Series C preferred stock issues carry cumulative dividends of 8%
and 9% per year, respectively, and are generally payable semi-annually in
arrears in cash or common stock of ViewCast, at ViewCast's option. Cumulative
dividends in arrears on preferred shares are approximately: Series B-$640,000,
Series C-$177,534. Holders of Series B and Series C preferred stock have no
voting rights except as required by law.

On October 11, 2002, ViewCast completed the acquisition of the assets and
operations of Delta Computec Inc. pursuant to an Asset Purchase Agreement dated
as of May 31, 2002 (the "APA") between Delta Computec Inc. (the "Seller"), a New
York corporation, and its parent and sole stockholder, NQL Inc., a Delaware
corporation. The acquisition assets and operations were assigned to ViewCast's
wholly owned subsidiary renamed Delta Computec Inc., a Delaware company ("DCi"),
and known as MMAC Communications Corp. at the time of the acquisition.

DCi is a provider of professional information technology and customized
network support services to Fortune 500 and Fortune 1000 corporations, mid-sized
companies, hospitals, health care facilities and financial institutions
primarily in the northeastern United States. Management believes that this
transaction should enhance ViewCast's ability to move to profitability and to
provide DCi's customers with additional products and support. Management
believes that DCi should not only increase ViewCast's revenue through its
ongoing operations, it should also increase current systems revenue by enabling
ViewCast to bundle services with hardware and software. Additionally, DCi should
provide expanded sales channels, enhanced customer support through real-time IT
integration and access to customers in key vertical markets.

The combined maximum total consideration to be paid by ViewCast pursuant to
the APA is equal to $2.5 million subject to adjustment. ViewCast purchased all
of the Seller's assets, including all of its operating assets, property,
contracts and customer lists for a combination of up to $1 million in cash,
issuance of up to 150,000 shares of Series D Redeemable Convertible Preferred
Stock (the "Series D Preferred Stock"), and the assumption of certain
liabilities as outlined in the terms of the APA established based on arms-length
negotiations. The assets acquired include computers and related equipment used
in providing professional information technology and customized network support
services.

20

On the closing date of October 11, 2002, ViewCast paid $500,000 in cash and
issued 95,500 shares of Series D Preferred Stock. The closing cash payment was
funded from an advance from one of its principal stockholders and Chairman of
the Board of ViewCast, H.T. Ardinger, Jr. On October 30, 2002 and January 10,
2003, ViewCast issued 19,212 and 10,539 additional shares of Series D Preferred
Stock, respectively, as additional consideration for adjustments required by the
APA. Two additional cash payments of up to $250,000 each are to be paid to
Seller in the future. The first payment is due approximately six months and the
second payment is due approximately 12 months after closing, subject to
adjustments as described in the APA, including adjustments related to contract
revenue levels achieved by DCi over six months and twelve months subsequent to
the acquisition date and including a provision providing for a portion of the
cash payment to be made with shares of Series D Preferred Stock.

Each share of Series D Preferred Stock has a stated value of $10.00 with a
conversion option to common stock at $1.50 per share of ViewCast common stock.
The Series D Preferred Stock provides redemption rights for the holders and
ViewCast and other rights as described in the Certificate of Designation of the
Series D Preferred Stock. The Series D Preferred Stock is redeemable at its
stated value at the holders' option upon written notice at any time after
October 11, 2004. The value of the 114,712 shares issued and outstanding at
December 31, 2002 reflect a discount of $160,000 from the stated value of
$1,147,120 and will be reflected as preferred dividends until the initial
redemption date of October 11, 2004. The Series D Preferred Stock is redeemable
at its stated value at ViewCast's option upon written notice at any time after
October 11, 2005 or prior to that date if the ViewCast common stock has a market
value of $3.75 per share for ten consecutive trading days. In conjunction with
the issuance of the Series D Preferred Stock, ViewCast and Seller entered into a
Registration Rights Agreement.

On October 11, 2002, part of the acquisition transaction included the
payoff of the Seller's asset based revolving credit facility with Keltic
Financial Partners, LP ("Keltic") by establishing a new asset based revolving
credit facility for a period of one year with Keltic. DCi will utilize the $1.5
million Keltic credit facility for working capital support. The loan interest
rate is, at the option of Keltic, the greater of: (a) the prime rate published
in the "Money Rates" column of The Wall Street Journal from time to time or, in
the event that The Wall Street Journal is not available at any time, such rate
published in another nationally recognized publication as determined by Keltic,
plus two hundred fifty (250) basis points per annum, or (b) seven and
one-quarter percent (7.25%). In addition, ViewCast entered into a Guaranty of
Payment and a Performance and Subordination Agreement with Keltic relating to
this facility plus agreed to provide $350,000 of working capital to DCi within
ninety days of the closing date. The $350,000 working capital commitment was
supported by the issuance to DCi of a stand-by letter of credit from one of
ViewCast's principal stockholders and Chairman of the Board of ViewCast, H.T.
Ardinger, Jr. The revolving credit facility contains certain financial
covenants. At December 31, 2002, ViewCast was in default of two of these
covenants and has obtained a waiver of the defaults from Keltic.

At December 31, 2002, ViewCast had a working capital deficit of $6,022,351
and cash and cash equivalents of $288,519. ViewCast has experienced an overall
sales increase of 31.1% for 2002 compared to 2001 levels as a direct result of
the DCi acquisition during the fourth quarter of 2002. While wary of current
economic conditions, ViewCast anticipates that revenues will more than double
during 2003 with the addition of DCI operations and assuming moderate growth
across all business segments. ViewCast plans to improve its working capital
position by increasing sales and lowering operating expenses, by further
acquisitions and/or divestitures of its business segments, by exercise of
warrants, as necessary, by additional equity financing and by restructuring its
debt. ViewCast also anticipates that losses will continue into the first half of
2003 but will continue to trend to lower levels than 2002, and until such time
as total profit margins from the sales of its products and services exceeds its
total development, selling, administrative and financing costs. ViewCast will
continue to monitor and restructure its workforce and decrease operating
expenses. During May 2001 through July 2002, ViewCast has reorganized the
operations of its video products business segment and reduced its workforce by
45 individuals and trimmed other related operating expenses. As a direct result
of these measures, ViewCast (excluding DCi) has decreased selling, general and
administrative expenses by over $2.9 million, or 38.7%, and development expenses
by $1,263,793, or 28.2%, during 2002 compared 2001. Net loss for the year ended
December 31, 2002 improved 42.9% over 2001 levels (excluding the effects of the
$1,071,891 gain on sale of securities). ViewCast will remain proactive in
managing its operating expenses.

ViewCast utilizes significant capital to design, develop and commercialize
its products and intends to fund its 2003 operating activities and sales growth
by utilizing cash contributed from operations and its available working capital
lines of credit to the extent possible. ViewCast anticipates it will require
additional capital during 2003 for working capital to support the expansion of
sales channels and market distribution, to develop and introduce new products
and services, to enhance existing product offerings, to

21

address unanticipated competitive threats or technical problems, to transition
adverse economic conditions, to support newly acquired DCi operations and for
completion of other acquisition transactions. Although ViewCast has no firm
arrangements with respect to additional financing, it is currently considering
proposals by potential investors relating to the issuance of equity securities
in exchange for a cash investment in ViewCast. There can be no assurance that
additional financing will be available to ViewCast on acceptable terms, or at
all. Additional equity financing may involve substantial dilution to our then
existing stockholders. In October 2002, to enhance financial performance and
increase revenue, ViewCast acquired the assets and operations of DCi. ViewCast
intends to actively pursue other such strategic merger and acquisition
activities to the extent possible. In the event we are unable to raise
additional capital or execute other alternatives, we may be required to sell
segments of the business, or substantially reduce or curtail our activities.
Such actions could result in charges that could be material to the ViewCast's
results of operations or financial position.

At December 31, 2002, ViewCast had no material commitments for capital
expenditures except as those outlined for the remaining DCi purchase
commitments.

CONTRACTUAL OBLIGATIONS AND CASH COMMITMENTS

The following table summarizes ViewCast's contractual obligations and
commitments with definitive payment terms that will require cash outlays in the
future. These amounts are as of December 31, 2002:

ViewCast has significant operating leases for office facilities and office
equipment, which require monthly payments for facilities ranging from $2,100 to
$28,000. Operating lease obligations in 2003 are shown net of $77,000 of
facility sublease rental income.

Redeemable preferred stock represents outstanding Series D Preferred Stock
which has a stated value of $10.00 with a conversion option to common stock at
$1.50 per share of Company common stock. The Series D Preferred Stock provides
redemption rights for the holders and the Company, and other rights as described
in the Certificate of Designation of the Series D Preferred Stock. The Series D
Preferred Stock is redeemable at its stated value at the holders' option upon
written notice at any time after October 11, 2004. The Series D Preferred Stock
is redeemable at its stated value at the Company's option upon written notice at
any time after October 11, 2005 or prior to that date if the Company's common
stock has a market value of $3.75 per share for ten consecutive trading days.

NEW ACCOUNTING STANDARDS

In July 2002, the Financial Accounting and Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 146 (SFAS 146), "Accounting for
Costs Associated with Exit or Disposal Activities." The standard requires
companies to recognize costs associated with exit (including restructuring) or
disposal activities at fair value when the related liability is incurred rather
than at the date of a commitment to an exit or disposal plan under current
practice. Costs covered by the standard include certain contract termination
costs, certain employee termination benefits and other costs to consolidate or
close facilities and relocate employees that are associated with an exit
activity or disposal of long-lived assets. The new requirements are effective
prospectively for exit or disposal activities initiated after December 31, 2002.
ViewCast cannot reasonably estimate the impact of adopting SFAS 146 until and
unless it undertakes relevant activities in future periods.

22

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN 45 is not expected to have a material effect on
ViewCast's financial position, results of operations, or cash flows.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. ViewCast has adopted the disclosure provisions of this statement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

All of our sales transactions during 2002 were denominated in U.S. dollars
and the majority of our operations are based in the United States, and
accordingly, are denominated in U.S. dollars. We do have a foreign-based sales
office in the London area where transactions are denominated in the foreign
currency. The impact of fluctuations in the relative value of that currency for
2000, 2001 and 2002 was not material.

Our interest income earned on cash and cash equivalents is subject to
interest rate risk from the changes in the general level of U.S. interest rates,
particularly short-term rates.

23

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

VIEWCAST.COM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Certified Public Accountants.................................... 25

Report of Independent Auditors........................................................ 26

Consolidated Balance Sheets a December 31, 2001 and 2002.............................. 27

Consolidated Statements of Operations for the years ended
December 31, 2000, 2001 and 2002.................................................... 28

Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 2000, 2001 and 2002........................................ 29

Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 2001 and 2002.................................................... 32

Notes to Consolidated Financial Statements............................................ 34

24

Report of Independent Certified Public Accountants

The Board of Directors
ViewCast.com, Inc.

We have audited the accompanying consolidated balance sheet of ViewCast.com,
Inc. and subsidiaries as of December 31, 2002, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. Our audit also included the financial statement schedule listed
in the index at Item 14(a) for the year ended December 31, 2002. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of ViewCast.com, Inc.
and subsidiaries as of December 31, 2002, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company incurred significant losses and had significant negative cash flows from
operations during 2002 and has a working capital deficit as of December 31,
2002. The Company is dependent upon the proceeds from additional sales of its
equity securities or other alternative financing. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

GRANT THORNTON LLP
Dallas, Texas
April 4, 2003

25

Report of Independent Auditors

The Board of Directors
ViewCast.com, Inc.

We have audited the accompanying consolidated balance sheet of ViewCast.com,
Inc. and subsidiaries as of December 31, 2001, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the two years in the period ended December 31, 2001. Our audits also included
the financial statement schedule listed in the index at Item 14(a) for each of
the two years in the period ended December 31, 2001. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
ViewCast.com, Inc. and subsidiaries at December 31, 2001, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As more fully described in Note 1, the Company is dependent upon the
proceeds from additional sales of its equity securities or other alternative
financing, has incurred recurring losses from operations, has a working capital
deficit and anticipates negative cash flow from operations during 2002. These
conditions raise substantial doubt about the ability of the Company to continue
as a going concern. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.

ERNST & YOUNG LLP
Dallas, Texas
March 18, 2002

26

VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated statements.

27

VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated statements.

28

VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

The accompanying notes are an integral part of these consolidated statements.

29

VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

The accompanying notes are an integral part of these consolidated statements.

30

VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

The accompanying notes are an integral part of these consolidated statements.

31

VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated statements.

32

VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

The accompanying notes are an integral part of these consolidated statements.

33

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY AND DESCRIPTION OF BUSINESS

The accompanying consolidated financial statements include the accounts of
ViewCast.com, Inc. dba ViewCast Corporation and its wholly-owned subsidiaries,
Delta Computec Inc., VideoWare, Inc., Osprey Technologies, Inc. and ViewCast
Online Solutions, Inc. (collectively, ViewCast or the Company). In October 2002,
the Company acquired certain assets, liabilities and the operations of Delta
Computec Inc which provides information technology services and sells products
to customers they service. Their customers include financial institutions,
accounting firms, healthcare providers, pharmaceutical companies and educational
institutions primarily in the northeastern United States. The Company is also
engaged in designing, developing and marketing advanced, standards-based video
products and services that enable real-time and on-demand video communication
over the Internet and corporate networks. The Company's Osprey(R) line of video
capture and video compression-decompression cards, its Viewpoint VBX(TM) video
distribution system, and its Niagara(TM) line of Internet encoding and streaming
video servers deliver business applications to encode and archive video content,
broadcast video over computer networks (streaming video), deliver video from web
sites (on-demand streaming video), provide interactive video communication
(video conferencing), and distribute video within a network. The Company's
Online Solutions division provides a rich media application service provider
solution for business to business and media communication needs. The Company
markets its video products and services directly to end-users, through original
equipment manufacturers, value-added resellers and computer system integrators,
worldwide.

The Company utilizes significant capital to design, develop and
commercialize its products. During 2003, the Company expects to fund sales
growth and related operational activities by utilizing its working capital line
of credit and cash contributed from operations to the extent possible. At
December 31, 2002, the Company had exceeded the borrowing base on its
line-of-credit facility with a major shareholder and Chairman of the Board of
the Company by $3.2 million and had utilized $5.16 million of the credit
facility. The noteholder has agreed to waive through June 30, 2003 the repayment
of any outstanding financing that may be in excess of the borrowing base from
time to time (See Note 9 regarding the shareholder line of credit). The Company
anticipates that additional financing will be needed during 2003 in order to
meet its working capital requirements and has had preliminary discussions with
potential sources of financing, and may seek additional financing to provide
additional working capital in the future. Such financing may include the
issuance of convertible preferred stock or other equity securities, conversion
of debt to equity securities, exercise of warrants, divestiture of business
segments, or any combination thereof. There can be no assurance that any
additional financing will be available to the Company on acceptable terms, or at
all. Additional equity financing may involve substantial dilution to the
Company's then existing stockholders. In the event the Company is unable to
raise additional capital, it may be required to curtail its activities. Such
actions could result in charges that could be material to the Company's results
of operations or financial position.

The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As reflected in the
accompanying consolidated financial statements, the Company incurred significant
losses of $8,888,985, $9,072,955, and $4,104,795 for the years ended December
31, 2000, 2001 and 2002, respectively. These losses, in conjunction with the
matters discussed above, raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might be necessary should the Company be unable to
continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPALS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and all of its subsidiaries. All material inter-company accounts and
transactions have been eliminated in consolidation.

34

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE

The Company estimates the collectibility of its trade accounts receivable.
In order to asses the collectibility of trade receivables, the Company monitors
the current creditworthiness of each customer and the aging of related past due
balances. The allowance requirements are based on current facts and the
estimates are reevaluated and adjusted as additional information is received.
Accounts receivable are written off when it is determined the receivable will
not be collected.

INVENTORIES

Inventories consist primarily of purchased electronic components and
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 at 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 lower of cost or
market when projected demand requirements decrease due to market conditions,
technological and product life cycle changes.

PROPERTY AND EQUIPMENT

Property and equipment is recorded at cost. Depreciation is determined
using the straight-line method over the estimated useful lives, generally three
to seven years, of the related assets. Leasehold improvements are amortized over
shorter of the useful life or the length of the related leases. Service assets
include equipment located at customer sites. This equipment is depreciated over
three years, or if the equipment is utilized in service operations, it is
immediately expensed if the replacement part, which is recovered, is not
repairable. Expenditures for repairs and maintenance are charged to operations
as incurred; renewals and betterments are capitalized.

SOFTWARE DEVELOPMENT COSTS

Costs of developing new software products and substantial enhancements to
existing software products are expensed as incurred until technological
feasibility has been established, after which time additional costs incurred are
capitalized in accordance with Statement of Financial Accounting Standards No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Amortization of capitalized software development costs
begins when products are available for general release to customers, and is
computed using the straight-line method over a period not to exceed three years.

GOODWILL AND INTANGIBLE ASSETS

The Company adopted Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Intangible Assets on January 1, 2002. The Company
conducts its annual impairment test of goodwill on October 1st of each year. All
goodwill and intangible assets have been assigned to reporting units for
purposes of impairment testing and segment reporting.

REVENUE RECOGNITION

The Company recognizes revenue from its hardware product sales, including
freight charges, in accordance with SEC Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, and Statement of Financial
Accounting Standards No. 48, Revenue Recognition When Right of Return

35

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Exists. The Company recognizes software revenue in accordance with SOP 97-2,
Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. 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. Following is a description of our
revenue recognition policies:

o Product Sales - Revenue from Product sales is 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 collectibility is reasonably assured.

o System Implementations - System transactions in which the
Company has the sole responsibility for installation, product
revenues are deferred until completion of the installation
process and system acceptance by the customer.

o Services - The Company recognizes revenues from information
technology service and maintenance contracts on a
straight-line basis over the contract period, provided no
significant obligations remain and the collection of any
related receivable is probable. Deferred revenues represent
amounts billed and collected in advance for these contracts.

o Other Revenues - Other revenues are related to product sales
and include maintenance, training and installation as well as
engineering contract services, professional services, and
content hosting and distribution services that are recognized
as services are provided. Other revenues have historically
represented less than 10% of total revenues and are presented
combined with product sales in the consolidated statements of
operations.

Transactions which do not meet these requirements are deferred until the
point at which these requirements are satisfied.

NET LOSS PER SHARE

Basic loss per share is calculated by dividing net loss by the number of
weighted average common shares outstanding for the period. Since the Company has
reported net losses for all periods presented, the computation of diluted loss
per share excludes the effects of convertible preferred stock, convertible debt,
options, and warrants since their effect is anti-dilutive.

Following is a summary of excluded securities:

36

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

DEFERRED CHARGES

Short-term deferred charges at December 31, 2002 consist of loan
origination fees for establishing a new asset based revolving credit facility
with Keltic Financial Partners, LP in conjunction with the acquisition of the
Delta Computec Inc. in October 2002 (See Note 3).

Long-term deferred charges at December 31, 2001 and 2002 consisted of
legal, accounting and lead manager fees and expenses associated with the
issuance in April 2000 of $4.45 million principal amount 7% senior convertible
debentures. During September and October of 2000, holders of $3.5 million
principal amount of 7% senior convertible debentures converted their notes to
common stock of the Company and accordingly, a proportionate share of issue
costs in the amount $914,872 was charged against additional paid in capital.

Total deferred charges amortized to interest expense for the years ended
December 31, 2000, 2001 and 2002 were $134,370, $69,530 and $81,375,
respectively.

WARRANTY RESERVES

Reserves are provided for the estimated warranty costs when revenue is
recognized. The costs of warranty obligations are estimated based on warranty
policy or applicable contractual warranty, 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 rollforward of warranty expense for the
years ended December 31, 2000, 2001 and 2002.

RISKS 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 and
New Jersey. 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 outlines the number of
customers that accounted for more than 10% of annual sales and receivable
balances:

37

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The Company believes it has no significant credit risk in excess of
provided reserves.

The Company is substantially dependent on its third-party suppliers and
manufacturers to supply its components and electronic parts, including standard
and custom-designed components.

USE OF ESTIMATES

The preparation of financial statements in conformity 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. 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 asset will be realized.

ADVERTISING COSTS

Advertising costs are expensed as incurred. Advertising expense for the
years ended December 31, 2000, 2001 and 2002 was $732,906, $526,777 and
$102,412, respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents, accounts receivable, accounts
payable, short-term debt and accrued expenses, approximate fair value due to the
short-term maturities of these instruments. At December 31, 2001,
available-for-sale securities was comprised exclusively of 1,140,310 shares of
DynTek, Inc. ("DYTK") common stock acquired in a strategic business alliance in
September of 1998 and were stated at fair market value as determined by quoted
market prices. Effective May 6, 2002, the Company sold all 1,140,310 DYTK common
shares to an entity controlled by a principal stockholder and the Chairman of
the Board of the Company. The proceeds of $2,910,641 were used to reduce the
line-of-credit note balance with the same entity (See Note 6).

STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," in its primary financial
statements and has provided supplemental disclosures required by Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation" and by Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure an
amendment of FASB Statement No. 123."

Option exercise prices are equal to the market price on the date of grant.
A portion of the shares under grant become exercisable after one year and
remaining shares vest monthly thereafter on a straight line basis over the
vesting term of the option (generally five years). Options expire after ten
years.

SFAS 123 requires the disclosure of pro forma net income and earnings per
share information computed as if the Company had accounted for its employee
stock options granted under the fair value method set forth in SFAS 123. The
fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:

38

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Pro forma
information for the years ended December 31, 2000, 2001 and 2002 is as follows:

COMPREHENSIVE INCOME

Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting
Comprehensive Income, requires that total comprehensive income be disclosed with
equal prominence as net income and earnings per share. Comprehensive income is
defined as changes in stockholders' equity exclusive of transactions with owners
such as capital contributions and dividends.

The Company translates assets and liabilities of its foreign operations,
whose functional currency is the local currency, at year-end exchange rates.
Revenues and expenses are translated at the average rates of exchange prevailing
during the year. Adjustments resulting from translating the financial statements
of foreign operations are accumulated in other comprehensive income, which is
reflected as a separate component of stockholders' equity. Additionally, the
Company classifies equity securities it owns that are free of trading
restrictions or to become free of trading restrictions within one year as
"available-for-sale". Available-for-sale securities are carried at fair value
based on quoted market prices, and unrealized gains and losses are accumulated
in other comprehensive income, which is a separate component of stockholders'
equity. If a market value adjustment results in a loss of value due to an
other-than-temporary impairment, a loss will be transferred from accumulated
other comprehensive income and charged to other income in the consolidated
statement of operations. (See Note 6)

IMPAIRMENT OF LONG-LIVED ASSETS

The Company evaluates long-lived assets according to the terms of Statement
of Financial Accounting Standards No. 144 (SFAS 144), Accounting for Impairment
or Disposal of Long-Lived Assets, which the Company adopted on January 1, 2002.
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

39

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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. During the year
ended December 31, 2002, the Company recognized total asset impairment charges
of $150,657 in conjunction with its restructuring efforts (See Note 4).

NEW ACCOUNTING STANDARDS

In July 2002, the Financial Accounting and Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 146 (SFAS 146), "Accounting for
Costs Associated with Exit or Disposal Activities." The standard requires
companies to recognize costs associated with exit (including restructuring) or
disposal activities at fair value when the related liability is incurred rather
than at the date of a commitment to an exit or disposal plan under current
practice. Costs covered by the standard include certain contract termination
costs, certain employee termination benefits and other costs to consolidate or
close facilities and relocate employees that are associated with an exit
activity or disposal of long-lived assets. The new requirements are effective
prospectively for exit or disposal activities initiated after December 31, 2002.
The Company cannot reasonably estimate the impact of adopting SFAS 146 until and
unless it undertakes relevant activities in future periods.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of FIN 45 is not expected to have a material effect on the
Company's financial position, results of operations, or cash flows.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002. The Company has adopted the disclosure provisions of this statement.

RECLASSIFICATIONS OF PRIOR YEAR AMOUNTS

Certain prior year amounts have been reclassified to conform to 2002
presentation.

3. ACQUISITION

On October 11, 2002, the Company completed the acquisition of the assets
and operations of Delta Computec Inc. pursuant to an Asset Purchase Agreement
dated as of May 31, 2002 (the "APA") between Delta Computec Inc. (the "Seller"),
a New York corporation, and its parent and sole shareholder, NQL Inc., a
Delaware corporation. The acquisition assets and operations were assigned to the
Company's wholly owned subsidiary named Delta Computec Inc., a Delaware company
("DCi"). The operations of DCi have been included with those of the Company
since the business valuation date of October 1, 2002 and will be a separate
business segment for the Company.

DCi is a provider of professional information technology and customized
network support services to Fortune 500 and Fortune 1000 corporations, mid-sized
companies, hospitals, health care facilities and

40

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

financial institutions primarily in the northeastern United States. Management
believes that this transaction should enhance the Company's ability to move to
profitability and to provide its customers with innovative products and support.
Management believes that DCi should not only increase the Company's revenue
through its ongoing operations, it should also increase current systems revenue
by enabling the Company to bundle services with hardware and software.
Additionally, DCi should provide expanded sales channels, enhanced customer
support through real-time IT integration and access to key clients in their
vertical markets.

The combined maximum total consideration to be paid by the Company pursuant
to the APA is equal to $2.5 million. The Company purchased all of the Seller's
assets, including all of its operating assets, property, contracts and customer
lists for a combination of up to $1 million in cash, issuance of up to 150,000
shares of Series D Redeemable Convertible Preferred Stock (the "Series D
Preferred Stock"), and the assumption of certain liabilities as outlined in the
terms of the APA established based on arms-length negotiations. The assets
acquired include computers and related equipment used in providing professional
information technology and customized network support services.

On the closing date, the Company paid $500,000 in cash and issued 95,500
shares of Series D Preferred Stock. The closing cash payment was funded
from an advance from one of its principal stockholders and Chairman of the Board
of the Company, H.T. Ardinger, Jr. On October 30, 2002, the Company issued
19,212 additional shares of Series D Preferred Stock as required by the APA
which together with the 95,500 shares issued earlier total 114,712 shares. The
Company also issued 10,539 shares of Series D Preferred Stock on January 10,
2003 as additional consideration of $105,390 required by the APA. Two additional
cash payments of up to $250,000 each are to be paid to Seller in the future. The
first payment is due approximately six months and the second payment is due
approximately 12 months after closing, subject to adjustments as described in
the APA, including adjustments related to contract revenue levels achieved by
DCi over six months and twelve months subsequent to the acquisition date and
including a provision providing for a portion of the cash payment to be made
with shares of Series D Preferred Stock. Because these future payments will
reflect the value of customer relationships as determined by the Seller and the
Company, any future payments have been determined to be the value of customer
relationships existing at DCi at the time of the acquisition. The Company also
incurred approximately $222,000 in transaction costs associated with the
acquisition of DCi.

Each share of Series D Preferred Stock has a stated value of $10.00 with a
conversion option to common stock at $1.50 per share of Company common stock.
The Series D Preferred Stock provides redemption rights for the holders and the
Company, and other rights as described in the Certificate of Designation of the
Series D Preferred Stock. The Series D Preferred Stock is redeemable at its
stated value at the holders' option upon written notice at any time after
October 11, 2004. The value of the 114,712 shares issued and outstanding at
December 31, 2002 reflect a discount of $160,000 from the stated value of
$1,147,120 and will be reflected as preferred dividends until the initial
redemption date of October 11, 2004. The Series D Preferred Stock is redeemable
at its stated value at the Company's option upon written notice at any time
after October 11, 2005 or prior to that date if the Company's common stock has a
market value of $3.75 per share for ten consecutive trading days. In conjunction
with the issuance of the Series D Preferred Stock, the Company and Seller
entered into a Registration Rights Agreement.

On October 11, 2002, part of the acquisition transaction included the
payoff of the Seller's asset based revolving credit facility with Keltic
Financial Partners, LP ("Keltic") by establishing a new asset based revolving
credit facility for a period of one year with Keltic. DCi will utilize the $1.5
million Keltic credit facility for working capital support. The loan interest
rate is, at the option of Lender, the greater of: (a) the prime rate published
in the "Money Rates" column of The Wall Street Journal from time to time or, in
the event that The Wall Street Journal is not available at any time, such rate
published in another nationally recognized publication as determined by Lender,
plus two hundred fifty (250) basis points per annum, or (b) seven and
one-quarter percent (7.25%). In addition, the Company entered into a Guaranty of
Payment and Performance and Subordination Agreement with Keltic relating to this
facility.

The Company and the Seller had prior to the acquisition entered into a
Reseller Agreement to offer ViewCast products and ancillary services.

The Company has accounted for the acquisition using the purchase method in
accordance with Financial Accounting Standards Board Statement No. 141, Business
Combinations and all goodwill is

41

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

expected to be deductible for income tax purposes. Until the contingent purchase
price is resolved, the Company's only intangible asset is the goodwill from the
DCi acquisition which is not amortized.

The following table summarizes the fair value of assets acquired and
liabilities assumed as of the business valuation date of October 1, 2002:

Assets acquired:
Current assets $1,855,397
Fixed assets 1,360,986
Deposits 66,503
Goodwill 1,041,430
----------
Total Assets Acquired 4,324,316

Liabilities assumed:
Accounts payable and accrued expenses 1,108,536
Short-term loans payable 538,131
Deferred revenues 863,455
----------
Total liabilities assumed 2,510,122

Net assets acquired $1,814,194
==========

The following pro forma information combines the results of operations as
if the acquisition of DCi had been consummated as of the beginning of the years
presented.

4. BUSINESS RESTRUCTURING

Results of operations for 2001 and 2002 include charges of $219,604 and
$270,000, respectively for resizing and restructuring the Company's operations
and workforce. Charges were recorded throughout 2001 and 2002 in accordance with
a plan of restructuring approved by the Company's Board of Directors and
included severance costs and asset impairment charges for work force reductions
of 43 employees and closure of sales offices over the two-year period.
Reductions were made in the Company's sales, development, customer support,
marketing, manufacturing and finance and administration departments in an effort
to reduce operating expenses. There was no liability for the restructuring
activity outstanding as of December 31, 2001 and 2002. Details of the
restructuring charges charged to operations are as follows:

42

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

5. INVENTORIES

Inventories consist of the following:

6. INVESTMENT IN EQUITY SECURITIES

Available-for-sale securities at December 31, 2001 is comprised exclusively
of shares of DynTek, Inc. ("DYTK"), formerly TekInsight.com, Inc., common stock
acquired through a strategic business alliance in September of 1998. In June
2001, the Company sold 100,000 shares of DYTK stock on the open market at
selling prices that averaged $2.09 per share. Other income during 2001 includes
realized gains on the stock transactions of $47,425. The quoted market price of
TEKS shares at December 31, 2001 was $2.12.

Effective May 6, 2002, the Company sold its remaining available-for-sale
securities (1,140,310 DYTK common shares) to an entity controlled by a principal
stockholder and the Chairman of the Board of the Company, H.T. Ardinger, Jr. The
proceeds of $2,910,641 were used to reduce the line of credit note balance with
the same entity. The selling price per share of DYTK stock of $2.553 was
determined by negotiations between the parties and represented a premium to the
fair market trading value of DYTK shares on May 6, 2002 of $2.00 per share.
Other income during 2002 includes a realized gain on the exchange transaction of
$1,071,891.

7. PROPERTY AND EQUIPMENT

Property and equipment, at cost, consists of the following:

43

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

8. ACCRUED EXPENSES

Accrued expenses consist of the following:

9. STOCKHOLDER LINE OF CREDIT AND OTHER SHORT-TERM DEBT

Short-term debt consists of the following:

Since October 1998, the Company has maintained a working capital line of
credit facility with an entity controlled by one of its principal stockholders,
Mr. H.T. Ardinger, who also currently serves as a director, and Chairman of the
Board of Directors of the Company. This one-year, renewable facility bears
interest at 12% per annum and is secured by all assets of ViewCast.com, Inc. The
availability of funds under this facility is subject to certain borrowing base
limitations based principally on qualifying accounts receivable and inventory.
In February 2001, the Company amended the facility to increase the credit line
commitment from $9.0 million to $12.0 million, extend the maturity date of the
agreement to March 15, 2003, and expand the asset base for lending to include
certain marketable securities owned by the Company. On February 28, 2003, the
Company amended the credit facility to revise and extend the maturity date to
March 31, 2004. On May 6, 2002, the Company sold securities it owned, comprised
exclusively of 1,140,310 shares of DYTK common stock, to noteholder and applied
the proceeds of $2,910,641 to a principal reduction in the note. The price per
share of DYTK stock of $2.553 was determined by negotiations between the parties
and represented a premium to the trading value of DYTK shares on May 6, 2002 of
$2.00 per share. During the year ended December 31, 2002, ViewCast borrowed
$1,725,000 under the terms of the line of credit financing arrangement, and
after taking in to account the principal reduction of $2,910,641, resulted in a
net principal note reduction of $1,185,641 during 2002. At December 31, 2002,
the Company had exceeded the borrowing base on its existing line of credit by
$3.2 million. The noteholder has agreed to waive through June 30, 2003 the
repayment of any outstanding

44

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

financing that may be in excess of the borrowing base from time to time.
Effective January 1, 2002, noteholder has also agreed that all accrued and
unpaid interest on the note shall be due and payable on the earlier of (a) sixty
(60) days following receipt of written demand for payment, or (b) the maturity
date.

In October 2002, the Company acquired the assets and operations of DCi (See
Note 3). Part of the acquisition transaction included the payoff of the Seller's
asset based revolving credit facility and established a new asset based
revolving credit facility for a period of one year with Keltic. The initial loan
assumed as of the business valuation date of October 1, 2002 was $531,607. DCi
will utilize the $1.5 million Keltic credit facility for working capital
support. The loan interest rate is, at the option of Lender, the greater of: (a)
the prime rate published in the "Money Rates" column of The Wall Street Journal
from time to time or, in the event that The Wall Street Journal is not available
at any time, such rate published in another nationally recognized publication as
determined by Lender, plus two hundred fifty (250) basis points per annum, or
(b) seven and one-quarter percent (7.25%). In addition, the Company entered into
a Guaranty of Payment and Performance and Subordination Agreement with Keltic
relating to this facility. During the quarter ended December 31, 2002, total net
borrowings increased $180,946 resulting in a note balance of $712,553 at
December 31, 2002. The Company had availability of $236,000 under the revolving
credit facility at December 31, 2002.

The revolving credit facility contains certain financial covenants. At
December 31, 2002, the Company was in default of two of these covenants and has
obtained a waiver of the defaults from Keltic.

10. LONG-TERM DEBT

Long-term debt consists of the following:

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
private placement 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.

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 that converted prior to the first interest payment date of
November 1, 2000 converted at a ten percent (10%) discount from the then
effective Conversion Price.

45

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

During September through October 2000, holders of $3,500,000 principal
amount of the Debentures exchanged their notes for 777,777 shares of common
stock of the Company at a conversion price of $4.50 per share. As an incentive
for early conversion, the Company paid debenture holders $124,530, which amount
has been reclassified to interest expense.

11. INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes.
SFAS 109 requires a valuation allowance to be recorded 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 $21,750,000 and $23,410,000 has been provided against deferred tax assets in
excess of deferred tax liabilities in the accompanying consolidated financial
statements at December 31, 2001 and 2002, respectively.

The components of the Company's net deferred taxes are as follows:

A reconciliation between the federal income tax benefit calculated by
applying U.S. federal statutory rates to net loss and the absence of a tax
benefit reported in the accompanying consolidated financial statements is as
follows:

46

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

At December 31, 2002 the Company has federal income tax net operating loss
carryforwards of approximately $59,000,000, which expire as follows:

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.

No income taxes were paid during the years ended December 31, 2000, 2001
and 2002, and there were no foreign taxes.

12. SERIES D REDEEMABLE CONVERTIBLE PREFERRED STOCK

In October 2002, the Company issued 114,712 shares of Series D Preferred
Stock as partial consideration for the acquisition of DCi (See Note 3). Each
share of Series D Preferred Stock has a stated value of $10.00 with a conversion
option to common stock at $1.50 per share of Company common stock. The Series D
Preferred Stock provides redemption rights for the holders and the Company, and
other rights as described in the Certificate of Designation of the Series D
Preferred Stock. The Series D Preferred Stock is redeemable at its stated value
at the holders' option upon written notice at any time after October 11, 2004.
The value of the 114,712 shares issued and outstanding at December 31, 2002
reflect a discount of $160,000 from the stated value of $1,147,120 and will be
reflected as preferred dividends until the initial redemption date of October
11, 2004. The Series D Preferred Stock is redeemable at its stated value at the
Company's option upon written notice at any time after October 11, 2005 or prior
to that date if the Company's common stock has a market value of $3.75 per share
for ten consecutive trading days. Holders of Series D redeemable convertible
preferred stock have no voting rights except on amendments to the Company's
Articles of Incorporation to change the authorized shares, or par value, or to
alter or change the powers or preferences of the Series D Preferred Stock issue.

On January 10, 2003, the Company issued 10,539 shares of Series D
convertible preferred stock as additional consideration for adjustments required
by the APA.

13. STOCKHOLDERS' EQUITY (DEFICIT)

PREFERRED STOCK

In December 1998 through February 1999, the Company received net proceeds
of $8,834,346 from the private placement of 945,000 shares of Series B
convertible preferred stock at $10 per share. Two principal stockholders of the
Company purchased $4,000,000 and $2,000,000 of the offering, respectively and
other existing stockholders purchased the balance of $3.45 million. The Series B
preferred stock is convertible into common stock of the Company at a fixed price
of $3.625 per share, subject to certain requirements, and carries a dividend of
8% per year payable in cash or common stock of the Company, at the Company's
option.

In November 2001, the Company received net proceeds of $2,000,000 from the
private placement of 200,000 shares of Series C convertible preferred stock at
$10 per share with H.T. Ardinger, Jr., a principal

47

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

shareholder and Chairman of the Board of the Company. The Series C preferred
stock is convertible into common stock of the Company at a fixed price of $0.60
per share, subject to certain requirements, and carries a dividend of 9% per
year payable in cash or common stock of the Company, at the Company's option.

Holders of Series B and Series C preferred stock have no voting rights
except on amendments to the Company's Articles 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.

In December 2001, the Company temporarily decreased the Conversion Price of
its outstanding Series B Convertible Preferred Stock from $3.625 per share to
$0.60 per share for a period of ninety (90) days. Pursuant to Section 8(b) of
the Certificate of Designations of Series B Convertible Preferred Stock, the
Company was required to temporarily lower the Series B Conversion Price in
conjunction with the issuance of Series C Convertible Preferred Stock in
November of 2001. Notice was given to Preferred B Stockholders on December 7,
2001 and the temporary Conversion Price Reduction expired at 5:00 p.m. on March
7, 2002. In March 2002, holders of $1,450,000 principal amount of Series B
Convertible Preferred Stock converted their Series B shares into 2,416,666
shares of common stock at $0.60 per share.

At December 31, 2002, the Company had a consolidated stockholders' deficit
of $4,813,331 and in accordance with Delaware law, was precluded from paying
dividends on its outstanding Series B and Series C convertible preferred stock.
As a result, no preferred stock dividends were declared or paid during 2002. The
Series B and Series C preferred stock issues carry cumulative dividends of 8%
and 9% per year, respectively, and are generally payable semi-annually in
arrears in cash or common stock of the Company, at the Company's option.
Cumulative dividends on preferred shares in arrears at December 31, 2002 are
approximately: Series B-$640,000, Series C-$177,534.

COMMON STOCK

During 2000, the Company issued 127,097 shares of Company common stock to
Series B preferred stockholders of record on June 1, 2000 as payment of $378,091
of 8.0% accrued dividends for the six months ended June 15, 2000. Also during
2000, the Company issued 276,129 shares of common stock to Series B preferred
stockholders of record on December 1, 2000 as payment of $380,000 of 8.0%
dividends accrued for the six months ended December 15, 2000. The computed
common stock value at June 15, 2000 and December 15, 2000 was $2.97 and $1.37
per share, respectively.

During 2001, the Company issued 391,849 shares of Company common stock to
Series B preferred stockholders of record on June 1, 2001 as payment of $376,874
of 8.0% accrued dividends for the six months ended June 15, 2001. Also during
2001, the Company issued 591,664 shares of common stock to Series B preferred
stockholders of record on December 1, 2001 as payment of $379,036 of 8.0%
dividends accrued for the six months ended December 15, 2001. The computed
common stock value at June 15, 2001 and December 15, 2001 was $0.96 and $0.64
per share, respectively.

During 2000, the Company received $3,758,188 from the exercise of 1,097,245
private and public warrants to purchase 1,116,556 common shares of the Company
at exercise prices ranging from $3.00 to $4.50 per share. Additionally, during
August 2000, the Company received $2,450 for the partial exercise of 17,500
underwriter warrants to purchase 17,500 public warrants of the Company at an
exercise price of $0.14 per public warrant.

In August 2001, the Company offered certain of its private warrant holders
the right to exercise their warrants at a temporarily reduced exercise price of
$0.75 per share of common stock for a period of 30-days. As an inducement for
exercise of the warrants, exercising warrant holders received a like number of
new warrants to purchase Company stock at $1.00 per share. The Company received
proceeds of $24,999 from the exercise of 33,332 warrants pursuant to this offer
and issued 33,332 new five-year warrants to purchase common stock at $1.00 per
share which expire in February 2007.

48

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

During 2000, the Company received $348,127 from the exercise stock options
to purchase 115,521 common shares of the Company at exercise prices ranging from
$2.06 to $4.63 per share.

During 2000, the Company received $165,490 in proceeds from the sale of
99,990 shares of common stock to employees under the terms of the Company's
Employee Stock Purchase Plan. The employee purchase price for the offering
periods ended April 30, 2000 and October 31, 2000 was $3.04 and $1.21 per share,
respectively. In October 2000, the Board of Directors of the Company amended the
ESPP to change the commencement dates of the six-month offering periods from May
1 and November 1 to April 1 and October 1 of each year.

During 2001, the Company received $106,569 in proceeds from the sale of
190,556 shares of common stock to employees under the terms of the Company's
Employee Stock Purchase Plan. The employee purchase price for the offering
periods ended March 31, 2001 and September 30, 2001 was $0.62 and $0.48 per
share, respectively.

During 2002, the Company received $17,467 in proceeds from the sale of
58,312 shares of common stock to employees under the terms of the Company's
Employee Stock Purchase Plan. The employee purchase price for the offering
periods ended March 31, 2002 and September 30, 2002 was $0.40 and $0.21 per
share, respectively.

During 2000, the Company issued 2,500 shares of common stock to a law firm
as partial payment for legal services rendered in connection with the Debenture
offering. The number of common shares issued was determined by dividing the fair
market value of services by an average of the common stock market prices on the
date of issuance. The value of legal services was $15,000 and the computed price
was $6.00 per share.

In September 2002, stockholders of the Company approved a proposal to
increase the number of authorized shares of common stock of the Company from
40,000,000 shares to 100,000,000 shares.

STOCK OPTION PLANS

In April 1995, the Company adopted its 1995 Stock Plan (the 1995 Stock
Option Plan) under which 2,000,000 shares of the Company's common stock was
reserved for issuance to officers, key employees and consultants of the Company.
The objectives of the stock plan are to attract and retain qualified personnel
for positions of substantial responsibility and to provide additional incentives
to employees and consultants to promote the success of the Company's business.
Options granted under the plan may be incentive stock options or non-qualified
stock options. The plan is administered by the Board of Directors. The options
are granted at the discretion of the Board of Directors at an option price per
share not less than fair market value at the date of grant. In July 1999 and
August 2000, stockholders of the Company approved proposals to increase the
number of shares available for issuance under the 1995 Stock Plan to 4,900,000
and 5,900,000, respectively.

In April 1995, the Company also adopted the 1995 Director Option Plan under
which 250,000 shares of the Company's common stock are reserved for issuance to
outside directors of the Company. The objective of the director plan is to
attract and retain qualified personnel for service as outside directors of the
Company and to encourage their continued service to the Board. Only
non-qualified stock options may be granted. Grants under the plan are automatic
and nondiscretionary and are issued at an option price per share not less than
fair market value at the date of grant. In September 2002, stockholders of the
Company approved a proposal to increase the number of shares available for
issuance under the 1995 Director Option Plan from 250,000 shares to 500,000
shares.

The Company has issued non-qualified stock options to non-employees and
consultants of the Company and accounts for these issuances by estimating their
fair value at date of grant using the Black-Scholes option-pricing model. An
expense is recognized ratably over the vesting period of the option provided all
material terms of the agreement are defined. In instances where the terms are
not defined, the option is accounted for as a variable plan and an expense is
recognized over the expected period of benefit

49

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

of the option. Expenses related to these options are recorded based on an
estimate of the options value computed at the end of each reporting period. The
final expense for the variable plan is recorded when all material terms, i.e. -
the number and exercise price of the options, are known and the options have
been earned. Expense of $28,588, $9,603 and $950 has been recognized for the
years ended December 31, 2000, 2001 and 2002, respectively. These amounts have
been aggregated with the valuation of warrants and disclosed as a component of
Consolidated Statements of Stockholders' Equity.

Following is a summary of stock option activity from January 1, 2000
through December 31, 2002:

The weighted-average grant-date fair value of options granted was $3.07,
$0.92 and $0.34 for the years ended December 31, 2000, 2001 and 2002,
respectively.

The following information applies to options outstanding at December 31,
2002:

50

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

EMPLOYEE STOCK PURCHASE PLAN

In May 1995, the Company established an Employee Stock Purchase Plan (ESPP)
to provide employees of the Company with an opportunity to purchase common stock
through payroll deductions. Under the ESPP, 250,000 shares of common stock were
initially 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 Internal Revenue Code. In August 2000,
stockholders of the Company approved a proposal to increase the number of shares
available for issuance under the ESPP from 250,000 to 500,000 shares and in June
2001, stockholders approved a proposal to increase the number of shares
available for issuance under the ESPP from 500,000 to 1,000,000 shares.

Each ESPP offering is for a period of six months and in October 2000, the
Board of Directors of the Company amended the ESPP to change the commencement
dates of the six-month offering periods from May 1 and November 1 to April 1 and
October 1. 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 not to exceed $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 eighty-five
percent (85%) of the lower of (i) the market price of common stock immediately
before the beginning of the applicable offering period or (ii) the market price
of common stock at the end of each offering period. The Company pays all
expenses incurred in connection with the implementation and administration of
the ESPP. The ESPP terminates in April 2005.

WARRANTS

The Company has issued private warrants to purchase common stock of the
Company in connection with the issuance and repayment of certain notes payable,
as inducement for early exercise of private warrants and as compensation for
services rendered by various consultants. Additionally, the Company has issued
public warrants to purchase common stock of the Company in connection with its
initial public offering and concurrent debt retirement and debt for equity
exchange.

Following is a summary of warrant activity from January 1, 2000 through
December 31, 2002:

51

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

In addition, at December 31, 2002 the Company's lead underwriter for the
initial public offering and assigns held representative warrants to purchase
122,500 full units at $6.44 per unit and 17,500 partial units at $6.30 per
share, each full unit consisting of one share of common stock at $6.30 and one
public warrant at $0.14. Each Public Warrant, when exercised, entitles the
holder to purchase one share of common stock at $1.00.

At December 31, 2002, the Company had outstanding 2,616,348 redeemable
common stock public warrants that were issued in connection with the Company's
initial public offering, as well as 1,183,332 redeemable private warrants, with
terms similar to the public warrants, that were issued in connection with the
early exercise of private warrants during 1998. When initially issued, each
redeemable warrant entitled the holder to purchase 1.0 share of common stock at
$4.50, subject to adjustment under certain circumstances. In October 1998, the
Company reduced the effective exercise price of its then redeemable warrants
from $4.50 to $4.19 per share of common stock in accordance with the provisions
of its warrant agreements, whereby each redeemable warrant entitled the holder
to purchase 1.074 shares for $4.50. In January 2002, the Company extended the
expiration date of its outstanding public and public equivalent warrants to
February 3, 2005 from February 3, 2002. Additionally, effective March 1, 2002,
the Company decreased the effective exercise price per share of common stock
from $4.19 to $1.00, which was above the market price at that date. Both the
public and private redeemable warrants are redeemable by the Company, upon
notice of not less than thirty days, at a price of $.10 per warrant, provided
that the closing price or bid price of the common stock for any twenty trading
days within a period of thirty consecutive trading days ending on the fifth day
prior to the day on which the Company gives notice of redemption has been at
least $6.75 (subject to adjustment under certain circumstances).

At December 31, 2002, the Company also had outstanding 122,332
non-redeemable private warrants with exercise prices ranging from $1.00 to $5.00
per share and with varying expiration dates through February 2007.

In April 2000, the Company issued to Lead Managers of the Debentures
offering a warrant to purchase 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 months after the date of issuance.

In August 2000, the Company issued 17,500 Public Warrants upon partial
exercise of representative warrants at an exercise price of $0.14 per warrant.

In August 2001, the Company offered certain of its private warrant holders
the right to exercise their warrants at a temporarily reduced exercise price of
$0.75 per share of common stock for a period of 30-days. As an inducement for
exercise of the warrants, exercising warrant holders received a like number of
new warrants to purchase Company stock at $1.00 per share. The Company received
proceeds of $24,999 from the exercise of 33,332 warrants pursuant to this offer
and issued 33,332 new five-year warrants to purchase common stock at $1.00 per
share which expire in February 2007.

52

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

14. 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 twenty percent (20%) 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. For the years ended
December 31, 2000, 2001 and 2002, the Company made no matching or profit sharing
contributions.

15. COMMITMENTS AND CONTINGENCIES

The Company leases various office and manufacturing space at various
locations under non-cancelable operating leases extending through 2007. 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:

Rent expense was $774,531, $760,259 and $592,777 for the years ended
December 31, 2000, 2001 and 2002, respectively.

16. SEGMENT INFORMATION

Prior to October 2002, the Company'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, the Company now operates in two distinct business segments as
follows:

IT SERVICES AND PRODUCTS

This business segment includes the operations of Delta Computec Inc. which
is headquartered in Teterboro, New Jersey and provides customized network
support, Internet and Intranet consulting, networking, maintenance, 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.

VIDEO DISTRIBUTION AND NETWORKING PRODUCTS

This business segment is engaged in designing, developing and marketing
video communications products and services. It includes operations of the
Company's Osprey(R) line of video capture and video compression-decompression
cards, its Viewpoint VBX(TM) video distribution system, and its Niagara(TM) line
of encoding and streaming video servers. The Company markets its video products
and services directly to

53

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

end-users, through original equipment manufacturers, value-added resellers and
computer system integrators, worldwide.

CORPORATE

The corporate functions of human resources, legal, financial reporting,
accounting, risk management are located in Dallas, TX. Operating expenses not
distributed to business segments include certain officers' salaries, investor
relations and shareholder meetings, public accounting audit and tax services,
legal fees, directors and officers insurance and other corporate facility
expenses.

The Company's underlying accounting records are maintained on a legal
entity basis for government and public reporting requirements. Segment
disclosures are on a performance basis consistent with internal management
reporting. The Company evaluates performance based on sales, gross margins and
operating income and expense. Not all corporate operating expenses are
distributed to the business segments. The accounting policies of the segments
are the same as those described in Note 2 - Summary of Significant Policies.

The following tables provide financial data by segment for 2002:

SUMMARY OF OPERATIONS BY OPERATING SEGMENT:

54

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

SUMMARY OF SALES BY GEOGRAPHIC AREA:

17. RELATED PARTY TRANSACTIONS

Since October 1998, the Company has maintained a working capital line of
credit facility with a partnership controlled by one of its principal
stockholders and Chairman of the Board of the Company, H. T. Ardinger, Jr. The
one-year, renewable facility, bears interest at 12% per annum and is
collateralized by all ViewCast.com, Inc. assets (See Note 9). During 2000, 2001
and 2002, the Company paid interest of $289,123, $500,850 and $64,690,
respectively to the partnership.

During February 2000, the Company received $390,000 proceeds from the
exercise of 130,000 private warrants by Mr. Ardinger, a principal stockholder
and Chairman of the Board of the Company, at an exercise price of $3.00 per
share.

In November 2001, the Company received net proceeds of $2,000,000 from the
private placement of 200,000 shares of Series C convertible preferred stock at
$10 per share with H.T. Ardinger, Jr., a principal stockholder and Chairman of
the Board of the Company. The Series C preferred stock is convertible into
common stock of the Company at a fixed price of $0.60 per share, subject to
certain requirements, and carries a dividend of 9% per year payable in cash or
common stock of the Company, at the Company's option.

Effective May 6, 2002, the Company sold all its available-for-sale
securities comprised exclusively of 1,140,310 shares of DYTK common stock for
$2,910,641. All proceeds were used to make a principal reduction in its
stockholder line-of-credit note balance. The price per share of DYTK stock of
$2.553 was determined by negotiations between the parties and represented a
premium to the fair market trading value of DYTK shares on May 6, 2002 of $2.00
per share. During 2002, the Company borrowed $1.7 million under the terms of the
stockholder line of credit financing arrangement and reduced the principal by
$2.9 million, resulting in a net principal note reduction of $1.2 million during
2002.

55

VIEWCAST.COM, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

On October 11, 2002, the Company completed the acquisition of the assets
and operations of Delta Computec Inc. The closing cash payment in the amount of
$500,000 was funded from an advance from one of its principal stockholders and
Chairman of the Board of the Company, H.T. Ardinger, Jr. The advance remained
outstanding at December 31, 2002.

18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

56

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On May 3, 2002, the Company received notice by letter dated May 2, 2002
that Ernst & Young LLP resigned as auditors of the Company.

The reports of Ernst & Young LLP on the Company's financial statements for
each of the fiscal years ended December 31, 2001 and 2000 did not contain an
adverse opinion or disclaimer of opinion and were not qualified or modified as
to audit scope or accounting principles. The report of Ernst & Young LLP for
only the most recent year of the past two fiscal years was modified as to
uncertainty regarding the ability of the Company to continue as a going concern.

In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 2001 and 2000, there were no
disagreements with Ernst & Young LLP on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which if not resolved to the satisfaction of Ernst & Young LLP would have caused
Ernst & Young LLP to make reference to the matter in their report. The Company
requested Ernst & Young LLP to furnish it a letter addressed to the Commission
stating whether it agrees with the above statements. The letter was furnished
and filed as exhibit 16.1 to Form 8-K filed May 10, 2002.

Effective May 17, 2002, the Company engaged Grant Thornton LLP to replace
Ernst & Young as its accounting firm for the fiscal year ending December 31,
2002. There have been no disagreements concerning any matter of accounting
principle or financial statement disclosure between the Company and its
independent auditors, Grant Thornton LLP.

57

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

DIRECTORS

The names of the Directors and certain other information about them are
set forth below:

H.T. ARDINGER has served as a Director and Chairman of the Board since
April 1999. Mr. Ardinger co-founded H.T. Ardinger & Son Co., a specialty import
wholesaler, where he has served as Chairman of the Board and Chief Executive
Officer since 1964. Mr. Ardinger served as a Director and Executive Committee
Member of Home Interiors & Gifts, Dallas, Texas, from 1958 through 1998 and was
a founding Limited Partner of the Dallas Maverick's National Basketball
Association Franchise in 1980. Mr. Ardinger received a B.B.A. degree in Business
Administration from Southern Methodist University.

JOSEPH AUTEM has served as a Director since January 1999 and currently
serves as a Director of coreIntellect.com and Newbridge Information Services. He
was previously a Director of Broadcast.com, Inc. from September 1996 through
August 1999. Mr. Autem has served in various consulting capacities from July
1998 to the present. He is currently general partner of Autem, L.L.C., an
investment company formed in May 1999, and a general partner of Texas Technology
Partners, L.P., formed in May 2000. Mr. Autem served as the Chief Financial
Officer of Luminant from January 1999 until July 1999. Mr. Autem previously
served as Senior Vice President and Chief Financial Officer of CS Wireless,
Inc., a privately held company that provides wireless video and high-speed
Internet access, from June to July 1998. He also served as a partner of Vision
Technology Partners, a private investment company, from March 1997 to June 1998.
From July 1996 to December 1996, Mr. Autem served as Chief Financial Officer of
Broadcast.com, Inc. From 1992 to 1996, Mr. Autem served as Vice President of
Finance, Secretary, Treasurer and Chief Financial Officer of OpenConnect
Systems, Inc., a software company. Mr. Autem holds a B.S. in Accounting from
Pittsburg State University.

DAVID A. DEAN has been a Director since December 1999. He is Chairman and
Chief Executive Officer of Dean International, Inc., an international public
policy consulting agency founded in 1994 and of its subsidiary, Innovative
Transportation Strategies. Mr. Dean has been the principal shareholder since
1994 of David A. Dean & Associates, P.C., and a public policy administrative
regulatory law firm. From 1983 to 1994, Mr. Dean was a shareholder of a
Dallas-based law firm, Winstead, Sechrist & Minick, P.C., and served as a member
of the firm's Board of Directors, head of the Public Law Section, Chairman of
the Business Development Committee, a member of the firm's Advisory Board and
Chairman of the firm's PAC Committee. He was also President of Transportation
Strategies, Inc., and a subsidiary of the firm's consulting group. During 1972
to 1993, Mr. Dean served the State of Texas in several roles. He was General
Counsel to both republican Governor William P. Clements, Jr. and his
predecessor, democratic Governor Dolph Briscoe and served as Texas Secretary of
State under Governor Clements. Mr. Dean was active in the gubernatorial
campaigns for Governor Briscoe and Governor Clements. Mr. Dean received his
B.B.A. degree from Southern Methodist University and his Juris Doctor degree
from University of Texas at Austin.

58

GEORGE C. PLATT has served as a Director, Chief Executive Officer and
President since September 1999. He currently serves as a Director for
Intervoice-Brite, Inc. and UniView Technologies. From 1991 through 1999, Mr.
Platt was employed by Intecom, Inc., a Dallas-based provider of multimedia
telecommunications products and services, holding the positions of CEO and
President. Prior to his employment with Intecom, Inc., Mr. Platt was an
executive with SRX, an entrepreneurial startup company. Before that, he was a
Group Vice President at Rolm Corporation through its acquisition by IBM, and
prior to that, he was employed by Xerox for fifteen years, where he attained the
position of General Manager. Mr. Platt holds an M.B.A. from the University of
Chicago and a B.S. degree from Northwestern University.

EXECUTIVE OFFICERS

The following table contains information as of March 31, 2002 as to the
executive officers of ViewCast.

MR. PLATT'S information can be found with the above information regarding
directors.

LAURIE L. LATHAM has served as Chief Financial Officer and Senior Vice
President of Finance and Administration of ViewCast since December 1999. From
1997 until she joined ViewCast, Ms. Latham served as Senior Vice President and
Chief Financial Officer of Perivox Corporation, an interactive communications
and direct marketing company. From 1994 through 1997, she was the Vice President
of Finance and Administration at Axis Media Corporation. Prior to joining Axis
Media Corporation, Ms. Latham was a practicing Certified Public Accountant for
several accounting firms, including KPMG Peat Marwick, and was the Vice
President of Finance and Administration for Medialink International Corporation.
Ms. Latham received her B.B.A. from the University of Texas with an emphasis in
Accounting and is a Certified Public Accountant.

HARRY E. BRUNER began serving as Senior Vice President of Sales and
Marketing in February 2000. From 1997 until he joined ViewCast, he was the Vice
President of Worldwide Sales for Intecom, Inc., a Dallas-based provider of
multimedia telecommunications products and services. From 1994 through 1997, he
was the President of the Call Center Division of Executone Information Systems,
Inc. From 1991 through 1993, Mr. Bruner was the Vice President of Sales for
Digital Sound Corporation. From 1989 through 1991, he was Vice President of
Sales for North America for Aspect Telecommunications. From 1987 through 1989,
he was Director of Sales for Octel Communications. Prior to 1987, Mr. Bruner
served in a variety of management positions with Rolm Corporation, including
after it was acquired by IBM in 1985. Mr. Bruner earned his B.A. from Loyola
College in Baltimore, Maryland.

DAVID T. STONER joined ViewCast as Vice President of Operations in August
1996 and moved to his current position as Senior Vice President of Operations in
March 2003. From August 1994 to August 1996, Mr. Stoner was Vice President of
Engineering for the Connectworks Division of Connectware, Inc., a wholly owned
subsidiary of AMP Inc. From July 1986 to August 1994, Mr. Stoner was employed by
Visual Information Technologies, Inc. ("VITec"), a manufacturer of video,
imaging, and graphics products, which was purchased by Connectware, Inc. At
VITec, Mr. Stoner was responsible for the development of hardware and software
products, and served in various positions including Vice President of
Engineering. From January 1979 to July 1986, Mr. Stoner served in various
engineering positions at Texas Instruments, Inc. Mr. Stoner received his B.S.
degree in Electrical Engineering from the University of Kansas.

59

JOHN DEVITO joined ViewCast as Corporate Vice President in October 2002
upon the acquisition of the operating assets of Delta Computec Inc. Mr. DeVito's
primary role is President of Delta Computec Inc., a wholly owned subsidiary of
ViewCast. From May 1978 until October 2002, he has held various positions within
the prior operations of Delta Computec Inc. including President, Vice President
of Operations and Vice President/General Manager. Mr. DeVito's twenty-five years
in the Information Technology services industry includes the development of many
innovative service offerings commonly used today.

There are no family relationships among the directors, executive
officers, or other significant employees of ViewCast.

COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Exchange Act requires ViewCast's officers, directors
and persons who beneficially own more than 10% of a registered class of
ViewCast's equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers, directors and
greater than 10% shareholders are required by the regulation to furnish ViewCast
with copies of the Section 16(a) forms which they file.

To ViewCast's knowledge, based solely on review of the copies of such
reports furnished to ViewCast, and written representations that no other reports
were required during the year ended December 31, 2002, all Section 16(a) filing
requirements applicable to ViewCast's officers, directors and greater than ten
percent (10%) beneficial owners were complied with, with the exception of George
C. Platt, Laurie L. Latham, Harry E. Bruner, Neal Page and Dave T. Stoner,
officers of ViewCast, who failed to timely file a Form 5. All such officers are
now current in their Section 16 filings.

ITEM 11. EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

Directors currently receive no cash compensation for serving on the Board
of Directors other than reimbursement of reasonable expenses incurred in
attending meetings. In May 1995, ViewCast adopted a 1995 Director Option Plan
(the "Director Plan") under which only outside directors are eligible to receive
stock options. The Director Plan provides for the grant of nonstatutory stock
options to directors who are not employees of ViewCast. As amended and approved
by shareholder vote during 2002, a total of 500,000 shares of Common Stock have
been authorized for issuance under the Director Plan. As of March 31, 2003,
options to purchase an aggregate of 145,000 shares at exercise prices ranging
from $0.26 to $9.00 per share had been granted and are outstanding under the
Director Plan and options to purchase an aggregate of 48,016 shares have been
previously granted and exercised. Each non-employee director who joins the Board
after May 1, 1995 will automatically be granted a nonstatutory option to
purchase 15,000 shares of Common Stock on the date upon which such person first
becomes a director. In addition, each such non-employee director will
automatically be granted a nonstatutory option to purchase 10,000 shares of
Common Stock upon annual re-election to the Board, provided the director has
been a member of the Board for at least six months upon the date of re-election.
The exercise price of each option granted under the Director Plan is equal to
the fair market value of the Common Stock on the date of grant. Each initial
15,000 share grant vests at the rate of 25% of the option shares upon the first
anniversary of the date of grant and one forty-eighth of the options shares per
month thereafter, and each annual 10,000 share grant vests at the rate of 25% of
the option shares upon the first anniversary of the date of grant and one
forty-eighth of the options shares per month thereafter, in each case unless
terminated sooner upon termination of the optionee's status as a director or
otherwise pursuant to the Director Plan. In the event of a merger of ViewCast
with or into another corporation or a consolidation, acquisition of assets or
other change in control transaction involving ViewCast, each option becomes
exercisable unless assumed or an equivalent option substituted by the successor
corporation. Unless terminated sooner, the Director Plan will terminate in 2005.
The Board of Directors currently administers the Director Plan. The Board has
authority to amend

60

or terminate the Director Plan, provided that no such action may impair the
rights of any optionee without the optionee's consent.

SUMMARY COMPENSATION TABLE

The following table sets forth information concerning compensation paid by
ViewCast to the Chief Executive Officer and to all other executive officers of
ViewCast whose total salary and bonus exceeded $100,000 for the year ended
December 31, 2002.

SUMMARY COMPENSATION TABLE

(1) Mr. Bruner assumed his duties with ViewCast in February 2000.

(2) Mr. DeVito assumed his duties with ViewCast in October 2002.

(3) Mr. Page resigned in March 2003.

61

The following table provides information concerning options granted to the
executive officers of ViewCast in 2002.

OPTION GRANTS IN LAST FISCAL YEAR

- ------------------------
(1) Potential realizable value is the amount that would be realized upon
exercise by the named executive officer of the options immediately prior to
the expiration of their respective terms, assuming the specified compound
annual rates of appreciation on common stock over the respective terms of
the options. These amounts represent assumed rates of appreciation only.
Actual gains, if any, on stock option exercises depend on the future
performance of the Company's common stock and overall market conditions.
These can be no assurances that the potential values reflected in this
table will be achieved.

(2) The option granted during 2002 to the named executive vests over
twenty-four months, of which 1/3rd vests on the grant date, 1/3rd vests
after twelve months and the remainder vests in equal installments over the
remaining twelve months.

(3) The option granted during 2002 to the named executive vests over thirty-six
months, of which 1/3rd vests after twelve months, 1/3rd vests after
twenty-four months and the remainder vests in equal installments over the
remaining twelve months.

YEAR-END OPTION VALUES

The following table sets forth certain information as of December 31,
2002 concerning the value of unexercised options held by the officers named in
the Summary Compensation Table above.

FISCAL YEAR-END OPTION VALUES

- ------------------
(1) Represents the difference between the exercise price of the outstanding
options and the fair market value of the Common Stock on December 31, 2002
of $0.20 per share if the fair market price per share exceeds the exercise
price.

62

EMPLOYMENT AGREEMENTS

We have entered into an employment agreement with Mr. Platt. His employment
agreement was in effect through March 2001 and has been renewed annually through
March 2004 with ongoing automatic one-year renewals unless ViewCast or Mr. Platt
elects in advance not to renew the agreement. The employment agreement provides
(i) for annual base compensation of $240,000; (ii) that he is eligible to
receive bonuses if our Board of Directors so elects; (iii) for stock options to
purchase 400,000 shares of our Common Stock pursuant to the 1995 Option Plan(1);
and (iv) for an eighteen (18) month non-compete period if ViewCast terminates
Mr. Platt. Mr. Platt voluntarily reduced his cash compensation below $240,000
for the 2002 calendar year.

Under the employment agreement, Mr. Platt will be entitled to (i) the
continuation of his salary for the greater of six months or the remaining term
of his employment agreement and (ii) the reimbursement for three months of COBRA
premiums if his employment is terminated by ViewCast without cause. These same
severance benefits are payable in the event Mr. Platt resigns because of a
significant change in the nature and scope of his authority, powers, functions,
benefits or duties. In the event ViewCast terminates Mr. Platt's employment
following a change in control, he will be entitled to the continuation of his
salary for six months

The employment of all other officers with ViewCast is "at will" and may be
terminated by ViewCast or the officer at any time, for any reason or no reason.

- ------------------------

(1) Represents Mr. Platt's options consist of five separate option grants that
become exercisable or vest as follows provided Mr. Platt is employed by
ViewCast as of the applicable vesting date:

(i) an option for 50,000 shares that vests as of September 17, 2000;

(ii) an option for 200,000 shares that vests in equal installments of
4,166 shares per month beginning in October, 2000;

(iii) an option for 50,000 shares that vests immediately on the date
following three consecutive calendar quarters of profitability as
defined under generally accepted accounting principles;

(iv) an option for 50,000 shares, of which 16,666 shares of such option
vest when the average closing price of Common Stock, for a twenty out
of thirty consecutive trading day period, has doubled in price from
the exercise price of the option, and of which 33,334 shares of such
option vest in equal installments of 1,388 share per month
thereafter;

(v) an option for 50,000 shares, of which 16,666 shares of such option
vest when the average closing price of Common Stock, for a twenty out
of thirty consecutive trading day period, has tripled in price from
the exercise price of the option, and of which 33,334 shares of such
option vest in equal installment of 1,388 shares per month
thereafter.

In addition, all of the 400,000 options granted to Mr. Platt immediately
vest upon a change of control in ViewCast.

1995 STOCK OPTION PLAN

The 1995 Employee Stock Option Plan (the "1995 Option Plan") provides for
the grant to employees of ViewCast of incentive stock options within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
for the grant to employees and consultants of ViewCast of nonstatutory stock
options and stock purchase rights. A total of 5,900,000 shares of Common Stock
have been authorized for issuance under the 1995 Option Plan. As of March 31,
2003, options to purchase an aggregate of 3,850,102 shares of Common Stock at
exercise prices ranging from $0.20 to $8.75 had been granted and are outstanding
under the 1995 Option Plan, and options to purchase an aggregate of 989,833
shares of Common Stock have been previously granted and exercised under the 1995
Option Plan.

The Board, or a committee approved by the Board, may administer the 1995
Option Plan in a manner that complies with Rule 16b-3 promulgated under the
Securities Act. Currently, the 1995 Option Plan is administered by the Board of
Directors, which determines the terms of options and rights granted, exercise
price, number of shares subject to the option or right and the exercisability
thereof. Options and rights granted under the 1995 Option Plan are not
transferable other than by will or the laws of descent or distribution, and each
option or right is exercisable during the lifetime of the recipient only by such
person. Options that are outstanding under the 1995 Option Plan will remain
outstanding until they are exercised or they expire in accordance with the terms
of each option. The exercise price of all incentive stock options

63

granted under the 1995 Option Plan must be at least equal to the fair market
value of the shares of Common Stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of the voting power of all
classes of stock of ViewCast, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and
the maximum term of the option must not exceed five years. The term of all other
options granted under the 1995 Option Plan may not exceed ten years. In the
event of certain changes in control of ViewCast, the 1995 Option Plan permits
each outstanding option and right to become exercisable in full or assumed or an
equivalent option to be substituted by the successor corporation.

The Board of Directors may amend the 1995 Option Plan at any time but may
not, without stockholder approval, adopt any amendment that would materially
increase the benefits accruing to participants or materially modify the
eligibility requirements. ViewCast also may not, without stockholder approval,
adopt any amendment that would increase the maximum number of shares that may be
issued under the 1995 Option Plan unless the increase results from a stock
dividend, stock split or other change in the capital stock of ViewCast.

The grant of an option under the 1995 Option Plan will not have any
immediate effect on the federal income tax liability of ViewCast or the
optionee. If a nonqualified stock option ("NQSO") is granted, then the optionee
will recognize ordinary income at the time he or she exercises the NQSO equal to
the difference between the fair market value of the Common Stock and the
exercise price paid by the optionee, and ViewCast will receive a deduction for
the same amount.

If an optionee is granted an incentive stock option ("ISO"), then the
optionee generally will not recognize any taxable income at the time he or she
exercises the ISO but will recognize income only at the time he or she sells the
Common Stock acquired by exercise of the ISO. The optionee will recognize income
equal to the difference between the exercise price paid by the optionee and the
amount received for sale of the Common Stock, and such income generally will be
eligible for capital gain treatment. ViewCast generally is not entitled to an
income tax deduction for the grant of an ISO or as a result of either the
optionee's exercise of an ISO or the optionee's sale of the Common Stock
acquired through exercise of an ISO. However, if the optionee sells the Common
Stock within two years of the date of the grant to him or her of the ISO or
within one year of the date of the transfer to him or her of the Common Stock
following exercise of the ISO, the option is treated for federal income tax
purposes as if it were a NQSO: the income recognized by the optionee will not be
eligible for capital gain treatment and ViewCast may be entitled to a federal
income tax deduction equal to the amount of income recognized by the optionee.

COMPENSATION COMMITTEE REPORT

The following is a report of the Compensation Committee of the Board of
Directors (the "Compensation Committee") describing the compensation policies
applicable to the Company's executive officers during the year ended December
31, 2002. The Compensation Committee recommends to the Board of Directors the
salaries, incentives and other forms of compensation for directors, officers and
other employees of the Company, administers the Company's various incentive
compensation and benefit plans (including stock plans) and recommends policies
relating to such incentive compensation and benefit plans. Executive officers
who are also directors have not participated in deliberations or decisions
involving their own compensation.

The Company's executive officer compensation policies are formulated to
attract, motivate and retain senior management by providing competitive,
performance-based compensation that aligns the financial interests of the
executive with those of the Company's shareholders and is commensurate with the
Company's financial resources. The compensation practices of other comparable
technology companies within and outside the local region are considered in
establishing the overall components and level of the compensation package,
however it has not been policy to set compensation levels based on a
predetermined institutional peer group. Executive officer compensation consists
of a combination of cash compensation, consisting of a base salary and
discretionary bonus payments, stock-based incentives in the form of options to
purchase the Company's Common Stock and participation in the Company's fringe
benefits. The

64

Company currently does not contribute to any retirement plan on behalf of its
employees or executive officers.

The base salaries for 2002 of all executive officers, including the CEO,
were set at levels determined, in the subjective judgment of the Compensation
Committee, to be commensurate with the customary duties and responsibilities of
each executive officer and to correspond approximately with similar job
responsibilities at comparable companies. Discretionary bonus payments, if any,
were utilized to maintain competitive compensation levels and to reflect
performance. Fringe benefit programs are designed to provide for the health and
long-term financial needs of the executives and their families and include life,
disability and group health insurance. The Company's Employee Stock Purchase
Plan provides an additional incentive for executives and employees to purchase
shares of Common Stock in the Company at a discount to market by investing
through an after-tax payroll withholding plan.

The Company's 1995 Employee Stock Option Plan provides stock options to
officers and employees to purchase shares of the Company's Common Stock at an
exercise price equal to the fair market value of such stock on the date of
grant. Generally, the Company's stock options vest over a period of five years
or based on a defined set of performance objectives. Stock options are granted
to the Company's employees and executive officers both as a reward for past
individual and corporate performance and as an incentive for future performance.
The Compensation Committee believes stock-based performance compensation
packages are crucial in bringing the interests of management and the
stockholders into alignment in increasing the value of the Company's equity.

Submitted by the Compensation
Committee of ViewCast.com, Inc.

Joseph Autem
David A. Dean

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee during 2002 was composed of Messrs. Autem and Dean.
None of the members of the Compensation Committee were officers or employees of
ViewCast or its subsidiaries during 2002 or prior years.

None of the executive officers of ViewCast served as a member of the board of
directors or as a member of the compensation committee or similar board
committee of another entity during 2002, which entity had an executive officer
serving on the Board of ViewCast or its Compensation Committee. Consequently,
there are no interlocking relationships that might affect the determination of
the compensation of executive officers of ViewCast.

PERFORMANCE GRAPH

The following graph reflects the cumulative total stockholder return for the
Company's Common Stock, from December 31, 1997 to December 31, 2002, compared to
the cumulative return over such period of (i) the U.S. Index for the Nasdaq
National Market and (ii) the MG Industry Group Index #842 - Telecommunications
Processing Systems and Services, which is a peer group index for publicly traded
institutions on Nasdaq. The graph assumes that $100 was invested on December 31,
1997 in the Common Stock of the Company and in each of the comparative indices.
ViewCast has never paid dividends on its common stock. The stock price
performance on the following graph is not necessarily indicative of future stock
price performance or trends.

65

(GRAPH)

66

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

BENEFICIAL OWNERSHIP OF COMMON STOCK

The following table sets forth information as of March 31, 2003, based on
information obtained from public records and our books and records regarding the
persons named below, with respect to the beneficial ownership of shares of our
Common Stock by (i) each person or a group known by us to be the owner of more
than five percent (5%) of the outstanding shares of our Common Stock, (ii) each
director, (iii) each executive officer and (iv) all officers and directors as a
group.

- --------------------------------------------------------------------------------
* Less than one percent (1%)

(1) A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from March 31, 2003 upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are
held by such person (but not those held by any other person) and which
are exercisable within 60 days from March 31, 2003 have been
exercised.

67

Unless otherwise indicated, we believe that all persons named in the
table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them.

(2) Based on a total of 20,822,847 shares issued and outstanding plus, for
each person listed, any Common Stock that person has the right to
acquire as of March 31, 2003 pursuant to options, warrants, conversion
privileges, etc.

(3) Includes (i) 189,835 shares owned by Mr. Ardinger's wife, (ii)
1,096,000 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants at $1.00 per share, (iii) 1,103,448
shares of Common Stock reserved for issuance upon the conversion of
$4,000,000 of Series B Convertible Preferred Stock to Common Stock at
$3.625 per share, (iv) 3,333,333 shares of Common Stock reserved for
issuance upon the conversion of $2,000,000 of Series C Convertible
Preferred Stock to Common Stock at $0.60 per share, (v) 15,000 shares
issuable at $9.00 per share issued under the 1995 Directors Option
Plan, (vi) 6,874 shares issuable at $2.75 per share issued under the
1995 Directors Option Plan and (vii) 4,791 shares issuable at $0.83
per share issued under the 1995 Directors Option Plan.

(4) Includes (i) 226,666 shares of Common Stock reserved for issuance upon
the exercise of outstanding warrants at $1.00 per share and (ii)
551,724 shares of Common Stock reserved for issuance upon the
conversion of $2,000,000 of Series B Convertible Preferred Stock to
Common Stock at $3.625 per share.

(5) Includes options issued under the 1995 Option Plan (i) 183,333 shares
issuable at $7.09 per share upon the exercise of options, (ii) 27,500
shares issuable at $2.50 per share upon the exercise of options, (iii)
90,001 shares issuable at $1.094 per share upon the exercise of
options and (iv) 23,333 shares issuable at $0.485 per share upon the
exercise of options.

(6) Includes options issued under the 1995 Option Plan (i) 68,334 shares
issuable at $5.50 per share upon the exercise of options, (ii) 5,500
shares issuable at $2.50 per share upon the exercise of options
issued, (iii) 45,000 shares issuable at $1.094 per share upon the
exercise of options issued and (iv) 20,000 shares issuable at $0.485
per share upon the exercise of options.

(7) Includes options issued under the 1995 Option Plan (i) 97,501 shares
issuable at $5.95 per share upon the exercise of options, (ii) 5,500
shares issuable at $2.50 per share upon the exercise of options, (iii)
45,000 shares issuable at $1.094 per share upon the exercise of
options and (iv) 20,000 shares issuable at $0.485 per share upon the
exercise of options.

(8) No options have vested as of March 31, 2003 or will in the 60 days
following March 31, 2003.

(9) Includes options issued under the 1995 Option Plan (i) 100,000 shares
of issuable at $4.00 per share upon exercise of options, (ii) 4,666
shares issuable at $2.0625 upon exercise of options, (iii) 10,250
shares issuable at $5.5005 upon exercise of options, (iv) 5,500 shares
issuable at $2.50 upon exercise of options, (v) 45,000 shares issuable
at $1.094 upon exercise of options and (vi) 20,000 shares issuable at
$0.485 upon exercise of options.

(10) Includes (i) 15,000 shares issuable at $3.1250 per share upon the
exercise of options issued under the 1995 Directors Option Plan, (ii)
9,583 shares issuable at $7.1405 per share upon the exercise of
options issued under the 1995 Directors Option Plan, (iii) 6,874
shares issuable at $2.50 per share upon the exercise of options issued
under the 1995 Directors Option Plan, (iv) 4,791 shares issuable at
$0.755 per share upon the exercise of options issued under the 1995
Directors Option Plan and (v) 40,000 shares issuable at $3.6250 per
share upon the exercise of options issued under the 1995 Option Plan.

(11) Includes (i) 13,124 shares issuable at $4.5315 per share upon the
exercise of options issued under the 1995 Directors Option Plan, (ii)
6,874 shares issuable at $2.50 per share upon the exercise of options
issued under the 1995 Directors Option Plan and (iii) 4,791 shares
issuable at $0.755 per share upon the exercise of options issued under
the 1995 Directors Option Plan.

68

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information as of December 31, 2002
concerning outstanding awards and securities available for future issuance
pursuant to ViewCast's equity compensation plans.

ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS

Since October 1998, the Company has maintained a working capital line of
credit facility with an entity controlled by one of its principal stockholders,
Mr. H.T. Ardinger, who also currently serves as a director, and Chairman of the
Board of Directors of the Company. This one-year, renewable facility bears
interest at 12% per annum and is secured by all ViewCast.com, Inc. assets of the
Company. The availability of funds under this facility is subject to certain
borrowing base limitations based principally on qualifying accounts receivable
and inventory. In February 2001, the Company amended the facility to increase
the credit line commitment from $9.0 million to $12.0 million, extend the
maturity date of the agreement to March 15, 2003, and expand the asset base for
lending to include certain marketable securities owned by the Company. On
February 28, 2003, the Company amended the credit facility to revise and extend
the maturity date to March 31, 2004. On May 6, 2002, the Company sold securities
it owned, comprised exclusively of 1,140,310 shares of DYTK common stock, to
noteholder and applied the proceeds of $2,910,641 to a principal reduction in
the note. The price per share of DYTK stock of $2.553 was determined by
negotiations between the parties and represented a premium to the trading value
of DYTK shares on May 6, 2002 of $2.00 per share. During the year ended December
31, 2002, ViewCast borrowed $2,333,824 under the terms of the line of credit
financing arrangement, and after taking in to account the principal reduction of
$2,910,641, resulted in a net principal note reduction of $1,185,651 during
2002. At December 31, 2002, the Company had exceeded the borrowing base on its
existing line of credit by $3.2 million. The noteholder has agreed to waive
through June 30, 2003 the repayment of any outstanding financing that may be in
excess of the borrowing base from time to time. Effective January 31, 2002
noteholder has also agreed that all accrued and unpaid interest on the note
shall be due and payable on the earlier of (a) sixty (60) days following receipt
of written demand for payment, or (b) the maturity date. During 2000, 2001 and
2002, the Company paid interest of $289,123, $500,850 and $64,690, respectively
to the partnership.

In December 1998 through February 1999, ViewCast received $9.45 million in
gross proceeds from the sale of 945,000 shares of a newly created Series B
convertible preferred stock at $10 per share. Mr. H.T. Ardinger and M. Douglas
Adkins, both principal stockholders of ViewCast, purchased $4,000,000 and
$2,000,000, respectively of the Series B preferred issue. The Series B preferred
stock is convertible into common stock of the Company at a fixed price of $3.625
per share, subject to certain requirements, and carries a dividend of 8% per
year payable in cash or common stock of ViewCast, at ViewCast's option.

During February 2000, ViewCast received $390,000 proceeds from the exercise
of 130,000 private warrants by Mr. Ardinger, Chairman of the Board of ViewCast,
at an exercise price of $3.00 per share.

69

In November 2001, ViewCast received net proceeds of $2,000,000 from the
private placement of 200,000 shares of Series C convertible preferred stock at
$10 per share with H.T. Ardinger, Jr., a principal stockholder and Chairman of
the Board of ViewCast. The Series C preferred stock is convertible into common
stock of ViewCast at a fixed price of $0.60 per share, subject to certain
requirements, and carries a dividend of 9% per year payable in cash or common
stock of ViewCast, at ViewCast's option.

On October 11, 2002, the Company completed the acquisition of the assets
and operations of Delta Computec Inc. The closing cash payment in the amount of
$500,000 was funded from an advance from one of its principal stockholders and
Chairman of the Board of the Company, H.T. Ardinger, Jr. The advance remained
outstanding at December 31, 2002.

ITEM 14. CONTROLS AND PROCEDURES

During the 90-day period prior to the filing date of this report,
management, including the Company's President and Chief Executive Officer and
Senior Vice President and Chief Financial Officer evaluated the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based upon, and as of the date of that evaluation, the President and Chief
Executive Officer and Senior Vice President and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective,
in all material respects, to ensure that the information required to be
disclosed in the reports the Company files and submits under the Exchange Act is
recorded, processed, summarized and reported as and when required.

There have been no significant changes in the Company's internal controls
or in other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation. There were no
significant deficiencies or material weaknesses identified in the evaluation and
therefore, no corrective actions were taken.

70

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) The following consolidated financial statements required by this
item are included in Part II Item 8 of this report:

Report of Independent Certified Public Accountants................... 25

Report of Independent Auditors....................................... 26

Consolidated Balance Sheets as of December 31, 2001 and 2002......... 27

Consolidated Statements of Operations for the years ended
December 31, 2000, 2001 and 2002................................... 28

Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 2000, 2001 and 2002....................... 29

Consolidated Statements of Cash Flows for the years ended December
31, 2000, 2001 and 2002............................................ 32

Notes to Consolidated Financial Statements........................... 34

(2) The following financial statement schedule is filed as a part of
this report under Schedule II on page 75: Valuation and Qualifying
Accounts for the three years ended December 31, 2002. All other
schedules are omitted as the required information is inapplicable
or the information is presented in the consolidated financial
statements and notes thereto in Item 8 above.

(3) Listing of Exhibits:

EXHIBIT INDEX

71

4(b) Form of Warrant Certificate (1)

4(c) Form of Warrant Agreement between ViewCast and Continental Stock Transfer & Trust
Company (1)

4(d) Form of Representative's Warrant Agreement (1)

4(e) Form of Trust Indenture - $5,000,000 8% Senior Convertible Notes Due 2002 (2)

4(f) Form of Lead Managers Warrant Agreement (2)

5(a) Form of Opinion of Thacher Proffit Wood as to the legality of securities being
registered. (6)

9(a) Voting Trust Agreement between Robert M. Sterling, Jr. and Thomas E. Brown (1)

9(b) Voting Trust Agreement between Robert P. Bernardi and Richard Bernardi (1)

9(c) Form of Lock-Up Agreement (1)

9(d) Lock-Up Agreement with Robert Sterling Trust (1)

9(e) Lock-Up Agreement with Robert Bernardi Trust (1)

9(f) Lock-Up Agreement with Michael Nissenbaum (1)

10(a) Modified Employment Agreement between ViewCast and Glenn A. Norem (1)

10(b) Modified Consulting Agreement between ViewCast and Sterling Capital Group Inc. (1)

10(c) Form of Indemnification Agreement between ViewCast and Executive Officers and Directors (1)

10(d) 1995 Stock Option Plan (1)

10(e) 1994 Stock Option Plan (1)

10(f) 1993 Viewpoint Stock Plan (1)

l0(g) 1995 Director Option Plan (1)

10(h) Lease Agreement between ViewCast and Metro Squared, L P (1)

10(i) Employee Stock Purchase Plan (1)

l0(j) Licensing Agreement between ViewCast and Boca Research, Inc. (1)

10(k) Agreement between ViewCast and Unisys(TM)(1)

10(l) Employment Agreement between ViewCast and Philip M. Colquhoun (1)

10(m) Employment Agreement between ViewCast and William S. Leftwich (1)

10(n) Employment Agreement between ViewCast and David T. Stoner (1)

10(o) Employment Agreement between ViewCast and Neal Page (1)

10(p) Employment Agreement between ViewCast and A. David Boomstein (1)

10(r) Lease between ViewCast and Burlingame Home Office, Inc. (1)

72

10(s) Lease between ViewCast and Family Funds Partnership (1)

10(t) Agreement between ViewCast and Catalyst Financial Corporation (1)

10(u) Promissory Note by ViewCast payable to Robert Rubin dated September 5, 1996. (1)

10(v) Promissory Note by ViewCast payable to M. Douglas Adkins dated November 15, 1996. (1)

10(w) Promissory Note by ViewCast payable to H.T. Ardinger dated November 15, 1996. (1)

10(x) Promissory Note by ViewCast payable to H.T. Ardinger dated January 15, 1997. (1)

10(y) Promissory Note by ViewCast payable to Adkins Family Partnership, Ltd. dated January 15,
1997. (1)

10(z) Lease between ViewCast and the Air Force Association. (2)

10(aa) Lease between ViewCast and Airport Boulevard Partners, LLC. (2)

10(bb) Stock Purchase Agreement between ViewCast and Tadeo Holdings, Inc. (5)

10(cc) Working Capital Line of Credit Loan Agreement between ViewCast and the Ardinger Family
Partnership, Ltd. (5)

10(dd) Sublease Agreement between ViewCast and Host Communications, Inc. (7)

10(ee) Letter Agreement dated May 6, 2002 between ViewCast and the Ardinger Family Partnership,
Ltd. to exchange available-for-sale securities for a principal reduction in asset based
lending line-of-credit (8)

10.1 Asset Purchase Agreement among Delta Computec Inc., NQL Inc. and ViewCast.com, Inc.
dated as of May 31, 2002. (9)

10.2 Registration Rights Agreement by and among ViewCast.com, Inc. and Delta Computec Inc.
dated as of October 11, 2002. (9)

10.3 Non-Competition Agreement by and among Delta Computec Inc., NQL Inc. and ViewCast.com,
Inc. dated as of October 11, 2002 (9)

10.4 Escrow Agreement by and among ViewCast.com, Inc., Delta Computec Inc. and The Bank of
New York Trust Company of Florida, N.A. dated as of October 11, 2002. (9)

10.5 Revolving Loan Agreement between MMAC Communications Corp. and Keltic Financial
Partners, LP dated as of October 11, 2002. (9)

10.6 Guaranty of Payment and Performance from ViewCast.com, Inc. to Keltic Financial
Partners, LP dated as of October 11, 2002. (9)

10.7 Subordination Agreement by and among Keltic Financial Partners, LP, MMAC Communication
Corp. and ViewCast.com, Inc. dated as of October 11, 2002. (9)

10.8 General Security Agreement by and between MMAC Communications Corp. and Keltic Financial
Partners, LP dated as of October 11, 2002. (9)

10.9 Revolving Note by MMAC Communications Corp. in favor of Keltic Financial Partners, LP
dated as of October 11, 2002. (9)

10.10 Lease by and between Forsgate Industrial Complex and Delta Computec Inc. dated as of
July 23, 1991. (9)

10.11 Second Amendment to Lease by and between Forsgate Industrial Complex and Delta Computec
Inc. dated as of March 29, 2001. (9)

10.12 Sublease Agreement by and between Delta Computec Inc. and Ameriban Inc. dated as of
December 31, 1997. (9)

10.13 Third Amendment to Sublease Agreement and Renewal of Sublease by and between Delta
Computec Inc. and Ameriban, Inc. dated as of January 3, 2001. (9)

73

10.14 Employment Agreement by and between ViewCast Corporation and John DeVito dated as of
August 6, 2002. (9)

21 List of Subsidiaries of ViewCast. (1)

23.1 Consent of Ernst & Young LLP

23.2 Consent of Grant Thornton LLP

99.1 Statements furnished pursuant to section 906 of the Sarbanes-Oxley act of 2002

- ----------

(1) Incorporated by reference to the Registration Statement on Form SB-2 and
all amendments thereto as declared effective on February 4, 1997.

(2) Incorporated by reference to Form 10-KSB/A filed April 15, 1998.

(3) Incorporated by reference to Form 10-QSB filed November 13, 1998

(4) Incorporated by reference to Form 8-K filed March 15, 1999.

(5) Incorporated by reference to Form 10-KSB filed March 26, 1999.

(6) Incorporated by reference to Form S-3 file May 6, 1999.

(7) Incorporated by reference to Form 10-K filed April 16, 2002.

(8) Incorporated by reference to Form 10-Q filed May 20, 2002

(9) Incorporated by reference to Form 8-K filed October 25, 2002

(b) Reports on Form 8-K

On October 25, 2002, the Company filed a Form 8-K describing the
acquisition of assets, liabilities and operations of Delta Computec,
Inc. Supplemental financial statements of business acquired were
provided by amendment to this Form 8-K on December 20, 2002.

74

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
VIEWCAST.COM, INC. AND SUBSIDIARIES

(1) Beginning reserve balance of business acquired October 2002

(2) Uncollectible accounts written off, net of recoveries.

75

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Date ViewCast.com, Inc.
----

April 14, 2003 By: /s/ Laurie L. Latham
--------------------
Laurie L. Latham
Chief Financial Officer and Senior Vice
President of Finance and Administration

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.

76

CERTIFICATIONS

I, George C. Platt, certify that:

1. I have reviewed this annual report on Form 10-K of ViewCast.com, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the periods
covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: April 14, 2003 /s/ George C. Platt
--------------------------------------------
George C. Platt
President and Chief Executive Officer

77

I, Laurie L. Latham, certify that:

1. I have reviewed this annual report on Form 10-K of ViewCast.com, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the periods
covered by this annual report; and

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report.

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: April 14, 2003 /s/ Laurie L. Latham
-----------------------------
Laurie L. Latham
Chief Financial Officer

78

EXHIBIT INDEX FOR DOCUMENTS FILED WITH THIS REPORT