United States
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended: September 30, 2010

OR

o		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: 000-29020

ViewCast.com, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		75-2528700 (I.R.S. Employer Identification No.)
3701 W. Plano Parkway, Suite 300, Plano, TX (Address of principal executive offices)		75075 (Zip Code)

(972) 488-7200
(Registrant’s telephone number including area code)

N/A

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 of 1934 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of October 31, 2010, there were 36,065,471 outstanding shares of common stock, par value $0.0001 per share.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 2009 and September 30, 2010 (Unaudited)			3
Condensed Consolidated Statements of Operations for the Three and Nine Months ended September 30, 2009 and 2010 (Unaudited)			4
Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months ended September 30, 2010 (Unaudited)			5
Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2009 and 2010 (Unaudited)			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosure About Market Risk			21
Item 4T. Controls and Procedures			22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			23
Item 1A. Risk Factors			23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 3. Defaults Upon Senior Securities			23
Item 4. Reserved			23
Item 5. Other Information			23
Item 6. Exhibits			23
SIGNATURES			24
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 ViewCast or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future 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 losses, the ability to successfully integrate acquired operations, the effect of our accounting policies and other risks detailed in our Annual Report on Form 10-K for the year ended December 31, 2009, as amended by Amendment No. 1 thereto, 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 assure you of future results, levels of activity, performance or achievements. We are under no duty, nor do we undertake any obligation, to update any of the forward-looking statements after the date of this report to conform such statements to actual results.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

VIEWCAST.COM, INC. AND SUBSIDIARIES

		December 31,				September 30,
		2009				2010
						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	368,151			$	872,347
Accounts receivable, less allowance for doubtful accounts of $69,767 and $69,878 at December 31, 2009 and September 30, 2010, respectively			1,208,929				2,041,233
Inventories, net			2,283,348				2,163,203
Prepaid expenses			208,804				239,575
Total current assets			4,069,232				5,316,358
Property and equipment, net			575,032				385,071
Goodwill			620,002				620,002
Intangible assets, net			1,535,135				1,247,365
Deposits			48,433				32,637
Total assets		$	6,847,834			$	7,601,433
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Line of credit		$	92,321			$	875,568
Accounts payable			730,395				947,714
Accrued expenses			679,709				987,952
Deferred revenue			353,458				425,430
Current maturities of long-term debt and stockholder notes payable			157,133				283,689
Total current liabilities			2,013,016				3,520,353
Long-term debt, less current maturities			46,698				33,651
Stockholder notes payable, less current maturities			5,012,827				4,820,026
Total liabilities			7,072,541				8,374,030
Commitments and contingencies
Stockholders’ deficit:
Preferred stock, $0.0001 par value, authorized 5,000,000 shares:
Series B convertible — issued and outstanding shares — 800,000 — liquidation value of $16 and $17 per share as of December 31, 2009 and September 30, 2010, respectively			80				80
Series C convertible — issued and outstanding shares — 200,000 — liquidation value of $32 and $33 per share as of December 31, 2009 and September 30, 2010, respectively			20				20
Series E convertible — issued and outstanding shares — 80,000 — liquidation value of $105 per share as of December 31, 2009 and September 30, 2010			8				8
Common stock, $0.0001 par value, authorized 100,000,000 shares:
Issued shares — 36,126,306 and 36,309,048 at December 31, 2009 and September 30, 2010, respectively			3,613				3,630
Additional paid-in capital			71,705,762				71,850,666
Accumulated deficit			(71,922,284	)			(72,615,095	)
Treasury stock, 261,497 shares at cost			(11,906	)			(11,906	)
Total stockholders’ deficit			(224,707	)			(772,597	)
Total liabilities and stockholders’ deficit		$	6,847,834			$	7,601,433

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

VIEWCAST.COM, INC. AND SUBSIDIARIES

		For the three months ended								For the nine months ended
		September 30,								September 30,
		2009				2010				2009				2010
Net sales		$	2,961,865			$	4,546,551			$	10,460,494			$	12,365,435
Cost of sales			1,031,559				1,813,220				3,852,289				4,793,275
Gross profit			1,930,306				2,733,331				6,608,205				7,572,160
Operating expenses:
Selling, general and administrative			1,713,214				1,494,843				6,088,107				4,695,644
Research and development			752,374				997,469				2,339,009				2,830,564
Depreciation and amortization			207,585				189,902				569,595				618,601
Total operating expenses			2,673,173				2,682,214				8,996,711				8,144,809
Operating income (loss)			(742,867	)			51,117				(2,388,506	)			(572,649	)
Other income (expense):
Interest expense (including $43,190, $20,669, $112,986, and $64,810 of expense to related parties, respectively)			(44,782	)			(49,126	)			(118,669	)			(126,039	)
Interest income			1,498				209				4,322				372
Gain on disposal of fixed assets			3,975				5,505				3,975				5,505
Total other expense, net			(39,309	)			(43,412	)			(110,372	)			(120,162	)
Provision for income taxes			—				—				—				—
NET INCOME (LOSS)		$	(782,176	)		$	7,705			$	(2,498,878	)		$	(692,811	)
Preferred stock dividends			(205,000	)			(205,000	)			(615,000	)			(615,000	)
Net loss applicable to common stockholders		$	(987,176	)		$	(197,295	)		$	(3,113,878	)		$	(1,307,811	)
Net loss per share
Basic and Diluted		$	(0.03	)		$	(0.01	)		$	(0.09	)		$	(0.04	)
Weighted average number of common shares outstanding
Basic and Diluted			35,832,230				36,047,551				34,937,662				36,029,193

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

VIEWCAST.COM, INC. AND SUBSIDIARIES

		Series B								Series C								Series E
		Convertible								Convertible								Convertible																Additional												Total
		Preferred Stock								Preferred Stock								Preferred Stock								Common Stock								Paid-in				Accumulated				Treasury				Stockholders’
		Shares				Par Value				Shares				Par Value				Shares				Par Value				Shares				Par Value				Capital				Deficit				Stock				Deficit
Balances, December 31, 2009			800,000			$	80				200,000			$	20				80,000			$	8				36,126,306			$	3,613			$	71,705,762			$	(71,922,284	)		$	(11,906	)		$	(224,707	)
Stock based compensation expense			—				—				—				—				—				—				—				—				115,005				—				—				115,005
Employee stock purchase plan issuance			—				—				—				—				—				—				35,683				3				4,913				—				—				4,916
Stock issued for services			—				—				—				—				—				—				147,059				14				24,986				—				—				25,000
Net loss			—				—				—				—				—				—				—				—				—				(692,811	)			—				(692,811	)
Balances, September 30, 2010			800,000			$	80				200,000			$	20				80,000			$	8				36,309,048			$	3,630			$	71,850,666			$	(72,615,095	)		$	(11,906	)		$	(772,597	)

The accompanying notes are an integral part of this condensed consolidated statement.

VIEWCAST.COM, INC. AND SUBSIDIARIES

		For the nine months ended
		September 30,
		2009				2010
Operating activities:
Net loss		$	(2,498,878	)		$	(692,811	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense			43,015				111
Depreciation of property and equipment			330,419				283,442
Amortization of intangible assets			239,176				335,159
Stock based compensation expense			150,087				115,005
Loss (gain) on disposition of property and equipment			973				(5,505	)
Stock issued for services			—				25,000
Changes in operating assets and liabilities: (net of effect of acquisition)
Accounts receivable			1,583,141				(832,415	)
Inventories			413,689				120,145
Prepaid expenses			106,635				(30,771	)
Deposits			(259	)			15,796
Accounts payable			(241,402	)			217,319
Accrued expenses			(445,940	)			308,243
Deferred revenue			311,296				71,972
Stockholder accrued interest			(169,846	)			—
Net cash used in operating activities			(177,894	)			(69,310	)
Investing activities:
Capitalized software development and patent costs			(397,960	)			(47,389	)
Purchase of property and equipment			(180,384	)			(83,646	)
Cash paid for acquisition			(1,031,422	)			—
Proceeds from disposition of property and equipment			—				5,895
Net cash used in investing activities			(1,609,766	)			(125,140	)
Financing activities:
Proceeds from sale of common stock			8,560				4,916
Proceeds from exercise of employee stock options			2,850				—
Net proceeds from exercise of warrants			940,000				—
Net proceeds from line of credit			—				783,247
Repayments of long-term debt including $0 and $64,267 (unaudited) to related party			(24,721	)			(89,517	)
Net cash provided by financing activities			926,689				698,646
Net increase (decrease) in cash and cash equivalents			(860,971	)			504,196
Cash and cash equivalents, beginning of period			1,579,683				368,151
Cash and cash equivalents, end of period		$	718,712			$	872,347
Supplemental cash flow information:
Cash paid for interest		$	288,515			$	126,039
Non-cash items:
Stock issued for acquisition		$	400,000			$	—
Acquisition of property and equipment under capital leases		$	33,152			$	10,225

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

Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation and Liquidity

The accompanying consolidated interim unaudited financial statements include the accounts of ViewCast.com, Inc. doing business as ViewCast Corporation and its wholly-owned subsidiaries, VideoWare, Inc., Osprey Technologies, Inc., Ancept Corporation, previously known as ViewCast Online Solutions, Inc., and ViewCast Technology Services Corporation (collectively, “ViewCast” or the “Company”). The Company develops industry-leading hardware and software for the capture, management, transformation and delivery of digital media over IP and mobile networks. ViewCast’s solutions simplify the complex workflows required for these tasks, allowing broadcasters, businesses and governments to reach and expand their use and distribution of their digital media easily and effectively. ViewCast’s Niagara^® streaming appliances, Osprey^® video capture cards, and ViewCast Media Platform (VMp™) software suite provide the highly reliable technology required to deliver the multi-platform experiences driving today’s digital media market. ViewCast markets and sells its products and professional services worldwide directly to end-users or through indirect channels including original equipment manufacturers (“OEMs”), value-added resellers (“VARs”), resellers, distributors and computer system integrators.

These consolidated interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included for the three and nine month periods ended September 30, 2010. The condensed consolidated balance sheet of the Company as of December 31, 2009 has been derived from the audited consolidated balance sheet as of that date. The results for the three and nine month periods ended September 30, 2010 are not necessary indicative of the results that may be expected for the full year. The unaudited financial statements included in this filing should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s annual report on Form 10-K as amended by Amendment No. 1 thereto for the year ended December 31, 2009.

In March 2009, ViewCast purchased certain assets from Ancept Media Server, LLC (the “Ancept Assets”) pursuant to the terms of the Asset Purchase Agreement dated March 5, 2009, as amended, by and between ViewCast and Ancept Media Server, LLC (the “Seller”). ViewCast’s wholly-owned subsidiary, ViewCast Online Solutions, Inc., was renamed Ancept Corporation (“Ancept”) and operates this business. The lead software product, rebranded as VMp Production, is an established digital asset management (“DAM”) solution capable of supporting the needs of large enterprises, while remaining flexible and affordable to serve the needs of small to medium businesses. Fortune 1000 companies, educators, small businesses and public sector organizations have chosen Ancept to help meet their media production, management and distribution needs. The Company has an expanded global business presence and offers a complete set of solutions for the transformation, management and delivery of live and on-demand video content to broadband and mobile networks.

During the nine months of 2010, the Company incurred a net loss of $692,811 and used cash in operations of $69,310. At September 30, 2010, the Company had working capital of $1,796,005 and cash and cash equivalents of $872,347. The Company expects to obtain additional working capital by increasing revenue, maintaining reduced operating expenses which were reduced during late 2009, borrowing on its line of credit and through other initiatives that may include raising additional capital. The Company believes that these items will provide sufficient cash to fund operations for the next 12 months, however, the Company may require additional working capital to support operations and the expansion of sales channels and market distribution, to develop and introduce new products and services, to enhance existing product offerings, to address unanticipated competitive threats or technical problems, to transition adverse economic conditions and for potential acquisition transactions. There can be no assurance that additional financing will be available to the Company on acceptable terms, or at all. Additional equity financing may involve substantial dilution to our then existing stockholders. In the event the Company is unable to raise additional capital or execute other alternatives, it 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 ViewCast’s results of operations or financial position.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

2. Acquisition

On March 13, 2009, the Company acquired the Ancept Assets from Seller for $1,431,422. The Company (i) paid to the Seller’s lender $1,000,000 in cash, (ii) paid to the Seller $31,422 in cash, which is the difference between $170,000 in cash less a holdback amount of $138,578 based on the difference in accounts receivables and deferred revenue as of March 13, 2009, subject to adjustment, if any, in the future based on actual collected accounts receivable, (iii) issued to Seller $400,000 in Company common stock which resulted in the issuance of 1,141,314 shares based on the weighted average closing price of the Company’s common stock for the ten trading days immediately prior to the closing of the transaction, which was $0.35 per share, and (iv) assumed deferred revenue liabilities related to the Ancept Assets. The primary purpose of the acquisition was to enable the Company to expand its global business presence with a complete portfolio of solutions that encompasses live and on-demand video encoding, management and delivery.

The following table summarizes the assets acquired and liabilities assumed as of the closing date:

Accounts receivable		$	160,760
Prepaid expenses			415
Software			850,000
Customer related intangible assets			60,000
Non-compete agreements			24,000
Goodwill			620,002
Property and equipment			15,583
Total assets acquired			1,730,760
Liabilities assumed			(299,338	)
Net assets acquired		$	1,431,422

The acquisition was accounted for using the purchase method of accounting. Intangible assets will be amortized over their estimated useful life of three to seven years. The purchase price allocated to the intangible assets was determined by management’s estimate with the assistance of a professional valuation group. Goodwill represents the excess of purchase consideration over the fair value of assets acquired. In the event that the Company enters into certain key contracts with either one of two specified entities to redistribute or resell in volume certain of Seller’s products by the second anniversary of the Closing, the Company shall issue $100,000 of additional shares of the Company’s common stock to the Seller, with a value per share based on the weighted average closing price of the Company’s common stock for the ten trading days immediately prior to finalizing such agreement. Further, Seller is eligible to receive an earn-out amount equal to 5% of the Company’s net revenue relating solely to certain business related to the Ancept Assets that is in excess of $2,000,000 for each of the two years following the Closing. The goodwill acquired may be amortized for federal income tax purposes.

The following unaudited pro forma summary approximates the consolidated results of operations as if the acquisition disclosed above had occurred as of January 1, 2009, after giving effect to certain adjustments, including allocation of specifically identifiable expenses. The pro forma financial information does not purport to be indicative of the results of operations that would have occurred had the transactions taken place at the beginning of the period presented or indicative of future results of operations.

		For the nine months ended
		September 30, 2009
		(Unaudited)
Net sales		$	10,621,121
Net loss applicable to common stockholders			(3,121,192	)
Basic and diluted net loss per common share applicable to common stockholders		$	(0.09	)
Weighted average number of common shares outstanding (basic and diluted)			35,238,667

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

3. Accounts Receivable

The Company’s accounts receivable are primarily due from resellers and distributors of our video communications products and services. Credit is extended based on evaluation of each customer’s financial condition and, generally, collateral is not required except for certain international customers. Accounts receivable are generally due within 30 days and are stated net of an allowance for doubtful accounts. Accounts that are outstanding longer than contractual payment terms are considered past due. The Company records an allowance on a specific basis by considering a number of factors, including the length of time trade accounts are past due, the Company’s previous loss history, the credit-worthiness of individual customers, economic conditions affecting specific customer industries and economic conditions in general. The Company writes off accounts receivable when they become uncollectible and payments subsequently received on such receivables are credited against write-offs in the period the payment is received.

Changes in the Company’s allowance for doubtful accounts for the three and nine months ended September 30, 2009 and 2010 are as follows:

		For the three months ended								For the nine months ended
		September 30,								September 30,
		2009				2010				2009				2010
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Beginning balance		$	116,192			$	94,440			$	82,317			$	69,767
Bad debt expense			9,140				(24,562	)			43,015				111
Ending balance		$	125,332			$	69,878			$	125,332			$	69,878

4. Inventories

Inventories consist of the following:

		December 31,				September 30,
		2009				2010
						(Unaudited)
Purchased materials		$	1,077,135			$	1,204,626
Finished goods			1,330,783				1,159,337
Reserve			(124,570	)			(200,760	)
		$	2,283,348			$	2,163,203

5. Intangible Assets

Intangible assets consist of the following:

		December 31,				September 30,
		2009				2010
						(Unaudited)
Customer lists		$	60,000			$	60,000
Non-compete agreements			24,000				24,000
Capitalized software			2,733,950				2,762,287
Patents			124,665				143,717
Less accumulated amortization			(1,407,480	)			(1,742,639	)
		$	1,535,135			$	1,247,365

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

Future amortization expense associated with these intangible assets is as follow:

Period ended December 31,
2010				$	105,840
2011					380,535
2012					257,524
2013					145,338
2014					212,218
Thereafter					145,910
				$	1,247,365

6. Accrued Expenses

Accrued expenses consist of the following:

		December 31,				September 30,
		2009				2010
						(Unaudited)
Accrued compensation		$	123,882			$	281,152
Accrued warranty			155,850				173,252
Accrued inventory purchases			50,450				205,114
Customer deposits			28,919				28,557
Deferred rent			46,258				23,187
Accrued taxes and other			274,350				276,690
		$	679,709			$	987,952

7. 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, significantly differs from these estimates, additional warranty expense may be required.

The following table below shows the changes in accrued warranty expense for the three and nine months ended September 30, 2009 and 2010:

		For the three months ended								For the nine months ended
		September 30,								September 30,
		2009				2010				2009				2010
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Beginning balance		$	205,528			$	214,123			$	199,446			$	155,850
Charged to expense			13,856				8,790				46,567				72,358
Usage			(10,755	)			(49,661	)			(37,384	)			(54,956	)
Ending balance		$	208,629			$	173,252			$	208,629			$	173,252

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

8. Property and Equipment

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

		Estimated
		Useful Life				December 31,				September 30,
		(Years)				2009				2010
										(Unaudited)
Service equipment			3			$	242,362			$	242,362
Computer equipment			2 to 7				497,139				554,605
Software			3 to 5				207,531				207,907
Leasehold improvements			1 to 5				172,697				172,697
Office furniture and equipment			5 to 7				1,284,884				1,317,962
							2,404,613				2,495,533
Less accumulated depreciation and amortization							(1,829,581	)			(2,110,462	)
						$	575,032			$	385,071

9. Line of Credit

On June 29, 2007, the Company entered into a Purchase and Sale Agreement/Security Agreement (the “Agreement”) with Amegy Bank National Association (“Amegy”), a national banking association. The Agreement provides the Company with an accounts receivable loan facility to provide a source of working capital with advances generally limited to 85% of submitted accounts receivable. Upon collection of an account receivable, the remaining fifteen percent is rebated to the Company less the Agreement’s fixed and variable discounts. The fixed discount equals 0.2% of the account receivable for the first 15 days the account receivable is outstanding plus an additional 0.2% for each additional 15 day period, up to 1.2% for receivables 76 to 90 days outstanding. The variable discount is calculated for each day that the amount advanced by Amegy is outstanding until repaid by collection of the account receivable and equals the prime rate plus 1.5% divided by 360 multiplied by the advance amount for each account receivable. The borrowing line under this facility is $1,000,000, reviewed as growth of business dictates. To secure the amounts due under the Agreement, the Company granted Amegy a security interest in all of its assets owned as of the date of the Agreement or thereafter acquired. The Company had an outstanding balance of $92,321 and $875,568 as of December 31, 2009 and September 30, 2010, respectively, under this facility.

10. Long-Term Debt

Since October 1998, the Company has maintained a credit facility with an entity controlled by one of its principal stockholders, Mr. H.T. Ardinger. On March 10, 2010, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare, Inc. (jointly and severally, the “Borrower”) amended the terms and conditions of the loan and security agreement with the Ardinger Family Partnership, Ltd., which amendment was effective as of January 31, 2010 (the “Loan Agreement”). Under the amended terms, the $1,250,000 of the primary principal and $3,891,361 of the secondary principal mature December 31, 2012, subject to certain earlier payment conditions. The interest on the primary principal amount will accrue and be paid monthly based on an interest rate per annum of the greater of 5.0% or the effective prime rate plus 0.75% (4.00% as of both December 31, 2009 and September 30, 2010). Interest on the secondary principal shall accrue based on the effective Applicable Federal Rate, as defined in the Loan Agreement (which was 2.64% and 0.46% as of December 31, 2009 and September 30, 2010, respectively). Beginning July 31, 2010, minimum monthly principal payments of $21,422 were made in addition to the monthly interest payments. Any amounts remaining on December 31, 2012 will become due on that date. The amended Loan Agreement is secured by all the assets of the Borrower.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

The Company’s long-term debt consists of:

		December 31, 2009				September 30, 2010
						(Unaudited)
Primary Principal Amount		$	1,250,000			$	1,185,733
Secondary Principal Amount			3,891,361				3,891,361
Other debt			75,297				60,272
Total long-term debt			5,216,658				5,137,366
Less current maturities			(157,133	)			(283,689	)
Total long-term debt less current maturities		$	5,059,525			$	4,853,677

11. Warrants

On February 27, 2009, the Company entered into an amendment (the “Amendment”) to the warrant to purchase common stock, dated December 11, 2006, (the “Warrant”), by and between the Company and the Ardinger Family Partnership, Ltd. The general partner of the Ardinger Family Partnership, Ltd. is H.T. Ardinger, Jr., the Company’s largest stockholder. Pursuant to the Amendment, the Company agreed to reduce the per share Warrant exercise price to the average closing price for the five consecutive trading days ending on February 27, 2009 on the Over-The-Counter Bulletin Board in exchange for the Ardinger Family Partnership agreeing to exercise the Warrant on or prior to March 5, 2009 with the proceeds to be used by the Company for the acquisition of Ancept Assets (see Note 2). On March 5, 2009, the Ardinger Family Partnership, Ltd. exercised the outstanding Warrant to purchase 2,500,000 shares of the Company’s unregistered common stock at the amended exercise price of $0.376 per share and the Company received proceeds of $940,000. At September 30, 2010, the Company had no outstanding warrants.

12. Earnings Per Share Data

Basic earnings per share (“EPS”) is calculated by dividing net income or loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. Dilutive potential shares of common stock include convertible preferred stock, options and warrants which are exercisable based on the average market price during the period. The average market price of the common stock was $0.2385 per share during the nine months ended September 30, 2010. For periods presented, the computation of diluted loss per share excludes the portion of convertible preferred stock, options and warrants that are anti-dilutive.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

The following table sets forth the computation of basic and diluted earnings per share:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2010				2009				2010
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net loss applicable to common stockholders
- numerator for basic and diluted earnings per share		$	(987,176	)		$	(197,295	)		$	(3,113,878	)		$	(1,307,811	)
Weighted — average common shares outstanding
- denominator for basic and dilluted earning per share			35,832,230				36,047,551				34,937,662				36,029,193
Net loss per share:
Basic		$	(0.03	)		$	(0.01	)		$	(0.09	)		$	(0.04	)
Diluted		$	(0.03	)		$	(0.01	)		$	(0.09	)		$	(0.04	)
Anti-dilutive securities excluded from diluted earnings per share:
Stock options			5,286,660				5,194,385				4,652,985				4,641,092
Convertible preferred stock — Series B			2,206,896				2,206,896				2,206,896				2,206,896
Convertible preferred stock — Series C			3,333,333				3,333,333				3,333,333				3,333,333
Convertible preferred stock — Series E			13,333,333				13,333,333				13,333,333				13,333,333

13. Stock-Based Compensation

The Company has various stock-based employee compensation plans, which are described more fully in Note 10 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as amended by Amendment No. 1 thereto.

Stock-based compensation expense was $150,087 and $115,005 for the nine months ended September 30, 2009 and 2010, respectively. There were 1,640,000 new options granted by the Company during the nine months ended September 30, 2010. Stock-based compensation expense is based on awards ultimately expected to vest and has been reduced for estimated forfeitures.

The Company uses the Black-Scholes option-pricing model (“Black-Scholes”) as its method of valuation of stock options granted. This fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair value of share-based payment awards on the date of grant as determined by the Black-Scholes model is affected by our stock price as well as other assumptions. These assumptions include, but are not limited to the expected stock price volatility over the term of the awards and the actual and projected employee stock option exercise behaviors.

At September 30, 2010, the balance of unearned stock-based compensation to be expensed in future periods related to unvested share-based awards, as adjusted for expected forfeitures, is approximately $267,000. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately three years.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

The following is a summary of stock option activity from January 1, 2010 through September 30, 2010:

		Stock Options
										Weighted-
										Average
		Number				Price Per				Exercise Price
		of Shares				Share				Per Share
Outstanding at December 31, 2009			4,162,463			$	0.20 - $3.52			$	0.52
Granted			1,640,000				0.17 - 0.26				0.18
Canceled/forfeited			(548,078	)			0.17 - 3.52				0.71
Outstanding at September 30, 2010			5,254,385			$	0.17 - $1.81			$	0.39

The following information applies to options outstanding at September 30, 2010:

										Weighted-
										Average				Weighted-								Weighted-
Range of						Outstanding at				Remaining				Average				Exercisable at				Average
Exercise						September 30,				Contractual				Exercise				September 30,				Exercise
Prices						2010				Life				Price				2010				Price
$0.01 - 1.00							4,757,335				5.1			$	0.32				2,654,287			$	0.39
1.01 - 2.00							497,050				0.4			$	1.12				497,050			$	1.12
							5,254,385				4.7			$	0.39				3,151,337			$	0.51

14. Income Taxes

At December 31, 2009, the Company had federal income tax net operating loss carryforwards of approximately $73,000,000, which carryfowards expire at various dates beginning in 2010. 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. The Company recognized no federal income tax benefit in the nine months of 2010 as it has recorded a valuation allowance to reduce all deferred tax assets to zero.

15. Related Party Transactions

As discussed in Note 10, the Company has an outstanding note payable to its largest stockholder, Mr. H.T. Ardinger. In addition, the source of a significant portion of the cash paid to Seller for the purchase of the Ancept Assets (more fully described in Note 2) was obtained by the Company pursuant to the Warrant exercise on March 5, 2009 by H.T. Ardinger and the Ardinger Family Partnership, Ltd. for the purchase of 2,500,000 shares of the Company’s unregistered common stock at an amended exercise price of $0.376 per share, pursuant to which the Company received proceeds of $940,000.

16. Preferred Stock Dividend

There were no preferred stock dividends declared or paid during the nine months ended September 30, 2010 and 2009. 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 in ViewCast common stock, at ViewCast’s option. Accumulated dividends at September 30, 2010 on preferred shares are: Series B-$5,626,667 and Series C-$1,602,500. The Series E preferred stock has no dividend feature.

ViewCast.com, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed above under “Special Note Regarding Forward-Looking Statements.”

Overview

ViewCast.com, Inc., doing business as ViewCast Corporation (“ViewCast” or the “Company”), develops industry-leading hardware and software for the capture, management, transformation and delivery of digital media over IP and mobile networks. ViewCast’s solutions simplify the complex workflows required for these tasks, allowing broadcasters, businesses, and governments to reach and expand their use and distribution of their digital media easily and effectively. ViewCast’s Niagara^® streaming appliances, Osprey^® video capture cards, and ViewCast Media Platform (VMp™) software suite provide the highly reliable technology required to deliver the multi-platform experiences driving today’s digital media market. ViewCast markets and sells its products and professional services worldwide directly to end-users or through indirect channels including original equipment manufacturers (“OEMs”), value-added resellers (“VARs”), resellers, distributors and computer system integrators. ViewCast is focused on growth by leveraging the digital media market expansion and our product solutions to capitalize on sales opportunities. We believe that emphasis on revenue and market share growth will enable us to realize long-term profitability and stockholder value.

On March 13, 2009, ViewCast completed the purchase of certain assets (the “Ancept Assets”) from Ancept Media Server, LLC (the “Seller”) related to the development and licensing of software products that provide the management of the life cycle phases of digital media pursuant to the terms of the Asset Purchase Agreement as amended, dated March 5, 2009, by and between ViewCast and the Seller. ViewCast’s wholly-owned subsidiary, ViewCast Online Solutions, Inc., was renamed Ancept Corporation (“Ancept”) and operates this business. The lead software product, rebranded as VMp Production and the core of VMp, has been an established digital asset management (“DAM”) solution capable of supporting the needs of large enterprises, while remaining flexible and affordable to serve the needs of small to medium businesses. Fortune 1000 companies, educators, small businesses and public sector organizations have chosen Ancept to help meet their media production, management and distribution needs. The combined company has an expanded global business presence and offers a complete set of solutions for the transformation, management and delivery of live and on-demand video content to broadband and mobile networks.

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. 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, 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 critical accounting policies used in the preparation of our consolidated financial statements:

•

Revenue Recognition — We apply provisions of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements as revised by SAB 104, Revenue Recognition, FASB ASC 605, “Revenue Recognition” and FASB ASC 985, “Software.” Under these guidelines, we recognize 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. We accrue warranty costs and sales allowances for promotional activities at time of shipment based on historical experience. In addition, we defer revenue associated with maintenance and support contracts and recognize revenue ratably over the contract term.

ViewCast.com, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Continued

•

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.

•

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.

•

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 determine in the future 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.

•

Purchase Accounting, Goodwill and Intangible Assets — We use the purchase method of accounting for our business acquisitions, accordingly, the statement of operation include the results of acquired businesses since the date of acquisition. The assets acquired and liabilities assumed are recorded at their estimated fair value as determined by management and supported by an independent third-party valuation.

•

Goodwill Arising from the Acquisitions of Business — We record goodwill arising from the acquisition of a business as the excess of the purchase price over the estimated fair value of the net assets of the business acquired. In accordance with FASB ASC 350, “Intangibles — Goodwill and Other,” we are required to test goodwill for impairment annually or more frequently if circumstances indicate potential impairment. Consistent with this standard, we will review goodwill, as well as other intangible assets and long-term assets, for impairment annually or more frequently as warranted, and if circumstances indicate that the recorded value of any such other asset is impaired, such asset is written down to its new, lower fair value. If any item of goodwill or such other asset is determined to be impaired, an impairment loss would be recognized equal to the amount by which the recorded value exceeds the estimated fair market value.

ViewCast.com, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Continued

Results of Operations

Three and Nine Months Ended September 30, 2010 compared to
Three and Nine Months Ended September 30, 2009.

Net Sales. During the third quarter ended September 30, 2010, net sales increased $1,584,686 to $4,546,551 from $2,961,865 in the third quarter 2009, representing a 54% increase. During the nine months ended September 30, 2010, net sales increased $1,904,941 to $12,365,435 from $10,460,494 for the same period in 2009, representing an 18% increase. The increase during the first nine months of 2010 was primarily due to an increase in Osprey^® capture card revenue and the addition of Ancept-related revenues of $399,973. The increase in the third quarter was primarily due to increase in Osprey capture card revenue, ViewCast Niagara streaming / encoding system sales and Ancept-related revenue. Osprey and Niagara combined sales increased 26% in the North America sales region and 8% in the Pacific Rim/South America sales region, which was partially offset by a 14% decrease of sales in the Europe, Middle East and Africa (“EMEA”) sales region. ViewCast expects improvement in all regions as new personnel gain traction and as new products are introduced during the last quarter of the year.

Sequential sales began increasing in the fourth quarter of 2009 and continued through the first three quarters of 2010, averaging 12% for these last four quarters, with sequential quarterly sales growth of 16%, 7%, 13% and 10%, respectively.

Osprey Product Sales. During the third quarter ended September 30, 2010, Osprey sales increased $627,230 to $2,704,832 from $2,077,602 in the third quarter 2009, representing a 30% increase from the 2009 levels and 60% of total third quarter 2010 revenue, compared to 70% in 2009. During the nine months ended September 30, 2010, Osprey sales increased $1,456,722 to $7,139,905 from $5,683,183 for the same period in 2009, representing a 26% increase from the 2009 levels and 58% of total revenue, compared to 54% in 2009. The increase in sales for the nine months ended September 30, 2010 was primarily due to increases of volume sales to integrators as their business has recovered during 2010.

ViewCast Niagara^® Streaming/Encoding System Sales. During the third quarter ended September 30, 2010, combined system sales increased $822,925 to $1,355,757 from $532,832 in the third quarter 2009, representing a 154% increase from the 2009 levels and 30% of total third quarter 2010 revenue, compared to 18% in 2009. During the nine months ended September 30, 2010, combined system sales increased $71,328 to $3,918,170 from $3,846,842 for the same period in 2009, representing a 2% increase from the 2009 levels and 32% of total revenue, compared to 37% in 2009. The increase in sales for the nine months ended September 30, 2010 was primarily due to OEM sales levels spread throughout the first three quarters of 2010 and expected to continue during 2010.

Software Licenses and Other Revenues. During the third quarter ended September 30, 2010, other revenues from software licenses, support and maintenance, professional services and net third-party product revenue increased $134,531 to $485,962 from $351,431 in the third quarter 2009, representing a 38% increase from the 2009 levels and 11% of total third quarter 2010 revenue, compared to 12% in 2009. During the nine months ended September 30, 2010, other revenues increased $376,891 to $1,307,360 from $930,469 for the same period in 2009, representing a 41% increase from the 2009 levels and 11% of total revenue, compared to 9% in 2009. This increase was primarily due to ViewCast’s Ancept business acquired in March of 2009, which provided sales increases in software license, maintenance and support, and professional services of $133,590 and $399,973 to the three and nine month periods ended September 2010, respectively. We anticipate that Other Revenue will vary quarter to quarter depending on the mix of software license and professional service revenues in addition to support and maintenance revenues that are amortized over the contract period.

Cost of Sales/Gross Profit. During the third quarter ended September 30, 2010, cost of sales increased $781,661 to $1,813,220 from $1,031,559 in the third quarter 2009, representing a 76% increase from the 2009 levels and 40% of total third quarter 2010 revenue, compared to 35% in 2009. During the third quarter ended September 30, 2010, gross profit increased $803,025 to $2,733,331 from $1,930,306 in the third quarter 2009, representing a 42% increase from the 2009 levels and 60% of total third quarter 2010 revenue, compared to 65% in 2009. During the nine months ended September 30, 2010, cost of sales increased $940,986, to $4,793,275 from $3,852,289 in the same period 2009, representing a 24% increase from the 2009 levels and 39% of total revenue, compared to 37% in 2009. During the nine months ended September 30, 2010, gross profit increased $963,955 to $7,572,160 from $6,608,205 in the same period in 2009, representing a 15% increase from the 2009 levels and 61% of total revenue, compared to 63% in 2009. The decrease in gross profit margin percentage was primarily due to increased volume purchases.

ViewCast.com, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Continued

We expect future margins for the software and hardware products to remain comparable to historical margins in the 55%-65% range. Margins for the Company 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 the products, software, services and third-party products sold in any one reporting period.

Selling, General and Administrative Expenses. During the third quarter ended September 30, 2010, selling, general and administrative expenses decreased $218,371 to $1,494,843 from $1,713,214 in the third quarter 2009, representing a 13% decrease from the 2009 levels. During the nine months ended September 30, 2010, selling, general and administrative expenses decreased $1,392,463 to $4,695,644 from $6,088,107 in the same period 2009, representing a 23% decrease from the 2009 levels. The decrease reflects an overall decrease in finance and administration, sales, marketing, and customer support due to reduced headcount, advertising, public relations, and related expenses. Additionally, there were non-recurring expenses of $167,000 during the same period in 2009 related to the acquisition of the Ancept Assets.

Research and Development Expense. During the third quarter ended September 30, 2010, research and development expense, net of capitalized software development, increased $245,095 to $997,469 from $752,374 in the third quarter 2009, representing a 33% increase from the 2009 levels. During the nine months ended September 30, 2010, research and development expense, net of capitalized software development, increased $491,555 to $2,830,564 from $2,339,009 in the same period in 2009, representing a 21% increase from the 2009 levels. Research and development expenses vary period to period depending on the number of product introductions planned and as new product prototypes, testing and certifications are completed.

Depreciation and Amortization Expense. During the third quarter ended September 30, 2010, depreciation and amortization expense decreased $17,683 to $189,902 from $207,585 in the third quarter 2009, representing a 9% decrease from the 2009 levels. During the nine months ended September 30, 2010, depreciation and amortization expense increased $49,006 to $618,601 from $569,595 in the same period 2009, representing a 9% increase from the 2009 levels. The increase was primarily due to the amortization of acquired intangible assets in March 2009, capitalized software development costs and expenditures in 2009 for IT infrastructure, test equipment and demo gear.

Other Income (Expense). During the third quarter ended September 30, 2010, total other expenses increased $4,103 to $43,412 from $39,309 in the third quarter 2009, representing a 10% increase from the 2009 levels. During the nine months ended September 30, 2010, total other expenses increased $9,790 to $120,162 from $110,372 in the same period 2009, representing a 9% increase from the 2009 levels. Interest expense for the third quarter ended September 30, 2010 increased $4,344 to $49,126 from $44,782 in the third quarter 2009, representing a 10% increase from the 2009 levels. Interest expense for the nine months ended September 30, 2010 increased $7,370 to $126,039 from $118,669 in the same period 2009, representing a 6% increase from the 2009 levels. The increase in interest expense is principally due to the increase in the outstanding balance on the Amegy Bank Credit Facility (see Note 9), partially offset by a decrease of interest rates from our debt under the credit facility we have in place with Ardinger Family Partnership, Ltd. (see Note 10). Interest income was nominal for the three and nine months ended September 30, 2010 and 2009 primarily due to lower interest rates and average cash balance during these periods.

Net Income / Loss. During the third quarter ended September 30, 2010, net income increased $789,881 to net income of $7,705 from a net loss of $782,176 in the third quarter 2009. After decreasing the net income for stated preferred dividends of $205,000, the net loss per share applicable to the common shareholders for the third quarter of 2010 was ($0.01) per share, compared to a net loss of ($0.03) per share, for the same period in 2009. During the nine months ended September 30, 2010, net loss decreased $1,806,067 to a net loss of $692,811 from a net loss of $2,498,878 in the same period 2009. After increasing the net loss for stated preferred dividends of $615,000, the net loss per share applicable to the common shareholders for the nine months ended September 30, 2010 was ($0.04) per share, compared to a net loss of ($0.09) per share, for the same period in 2009.

ViewCast.com, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Continued

Liquidity and Capital Resources

ViewCast’s primary sources of funds for conducting its business activities are derived from sales of its products and services, from its credit facilities and from the placement of its equity securities with investors. ViewCast requires working capital primarily to increase inventories and accounts receivable during sales growth, develop products, service debt, purchase capital assets, fund operations and strategic acquisitions.

Net cash used by operating activities for the nine months ended September 30, 2010 was $69,310 resulting from a net loss of $692,811, offset by non-cash operating expense of $753,212 and reduced by net cash used in operating assets and liabilities of $129,711. Cash used in operating assets and liabilities was principally due to increased accounts receivable and prepaid expenses supplemented by decreased deferred revenue, which was partially offset by cash provided from increased accounts payable, accrued expenses and decreased inventory and deposits.

Cash utilized for investing activities during the nine months ended September 30, 2010 totaled $125,140 of which $83,646 was used for property and equipment purchased and $47,389 was due to capitalization of software development costs.

During the nine months ended September 30, 2010, ViewCast’s financing activities provided cash of $698,646 of which $783,247 was provided from an increase in the line of credit and $4,916 was provided from the proceeds from the sale of stock under the Employee Stock Purchase Plan, partially offset by $89,517 used for repayment of the related-party credit facility noted below and capital leases.

Since October 1998, ViewCast has maintained a credit facility with an entity controlled by one of its principal stockholders, Mr. H.T. Ardinger. On March 10, 2010, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare, Inc. (jointly and severally, the “Borrower”) amended the terms and conditions of the loan and security agreement with the Ardinger Family Partnership, Ltd., which amendment was effective as of January 31, 2010 (the “Loan Agreement”). Under the amended terms, the $1,250,000 of the primary principal and $3,891,361 of the secondary principal mature December 31, 2012, subject to certain earlier payment conditions. The interest on the primary principal amount will accrue and be paid monthly based on an interest rate per annum of the greater of 5.0% or the effective prime rate plus 0.75% (4.00% as of both December 31, 2009 and September 30, 2010). Interest on the secondary principal shall accrue based on the effective Applicable Federal Rate, as defined in the Loan Agreement (which was 2.64% and 0.46% as of December 31, 2009 and September 30, 2010, respectively). Beginning July 31, 2010, minimum monthly principal payments of $21,422 were made in addition to the monthly interest payments. Any amounts remaining on December 31, 2012 will become due on that date. The amended Loan Agreement is secured by all the assets of the Borrower.

In June 2007, ViewCast entered into a Purchase and Sale Agreement/Security Agreement with Amegy Bank National Association, a national banking association. This agreement provides ViewCast with an account up to $1,000,000 receivable loan facility to provide a source of working capital. As of September 30, 2010, we have an outstanding balance of $875,568 under this facility.

There were no preferred stock dividends declared, accrued or paid during the nine months of 2010. The Series B and Series C preferred stock issues carry stated cumulative dividends of 8% and 9% per year, respectively, and are generally payable semi-annually in arrears in cash or in ViewCast common stock, at ViewCast’s option. Cumulative dividends in arrears on preferred shares are: Series B-$5,626,667 and Series C-$1,602,500.

During the nine months of 2010, ViewCast incurred a net loss of $692,811 and used cash in operations of $69,310. At September 30, 2010, ViewCast had working capital of $1,796,005 and cash and cash equivalents of $872,347. ViewCast expects to obtain additional working capital by increasing sales, maintaining reduced operating expenses, borrowing under its loan facilities and through other initiatives that may include raising additional equity. Our sales volume began to recover during the fourth quarter of 2009 and expect that trend to continue for the rest of 2010 year. We can now see evidence of increases in sales of all product lines taking hold as sequential sales growth has averaged 12% for the last four quarters, with sales growths of 16%, 7%, 13% and 10%, respectively from the fourth quarter 2009 through the third quarter 2010. ViewCast utilizes significant capital to design, develop and

ViewCast.com, Inc. and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations —
Continued

commercialize its products and intends to fund its operating activities and sales growth during the next twelve months by utilizing existing cash, cash contributed from operations and its available working capital lines of credit. ViewCast anticipates it may require additional working capital during 2010 to support the expansion of sales channels and market distribution, to develop and introduce new products and services, to enhance existing product offerings, to address unanticipated competitive threats or technical problems, to transition adverse economic conditions, to service its debt and for potential acquisition transactions.

ViewCast utilizes significant capital to design, develop and commercialize its products and intends to fund its 2010 operating activities and sales growth by utilizing existing cash, cash provided from operations and working capital lines of credit to the extent possible. ViewCast believes that these items will provide sufficient cash to fund operations for the next 12 months. However, ViewCast may require additional working capital during the next year to support operations and the expansion of sales channels and market distribution, to develop and introduce new products and services, to enhance existing product offerings, to address unanticipated competitive threats or technical problems, to transition adverse economic conditions and for potential acquisition transactions. 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 the event ViewCast is unable to raise additional capital or execute other alternatives, it 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 ViewCast’s results of operations or financial position.

At September 30, 2010, ViewCast had no material commitments for capital expenditures.

Off Balance Sheet Arrangements

ViewCast does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on ViewCast’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ViewCast.com, Inc. and Subsidiaries
Quantitative and Qualitative Disclosure About Market Risk

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Not required.

ViewCast.com, Inc. and Subsidiaries
Controls and Procedures

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As required by Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period for which this Quarterly Report on Form 10-Q is filed. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2010, our disclosure controls and procedures were effective in providing such reasonable assurance.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation that occurred during the Company’s last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1. Legal Proceedings

(None)

Item 1A. Risk Factors

(Not Applicable)

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 11, 2010, we entered into an agreement with National Securities Corporation pursuant to which National Securities Corporation would provide financial advisory services to us. As partial payment for such services, on March 10, 2010, we issued 147,059 shares of our common stock, valued at $25,000 as of January 11, 2010, to National Securities Corporation and one of its principals pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities

(None)

Item 4. Reserved

Item 5. Other Information

(a)     (None)

(b)     (None)

Item 6. Exhibits

See Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EXHIBIT INDEX

Exhibit
Number
	10.49			Employment Agreement by and between ViewCast.com, Inc. and Adrian Giuhat, as of September 7, 2010, filed as Exhibit 10.49 to the Company’s Current Report on Form 8-K filed on September 9, 2010, is incorporated herein by reference as Exhibit 10.49.
	31.1			Principal Executive Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached to this Form 10-Q as Exhibit 31.1.
	31.2			Principal Financial Officer’s Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 is attached to this Form 10-Q as Exhibit 31.2.
	32.1			Principal Executive Officer’s Certification furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached to this Form 10-Q as Exhibit 32.1.
	32.2			Principal Financial Officer’s Certification furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is attached to this Form 10-Q as Exhibit 32.2.