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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-QSB (Mark One)  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004o
    
    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. 
  Delaware
    
    75-2528700(State or other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer Incorporation
Identification No.)
 17300 Dallas Parkway, Suite 2000, Dallas, TX 75248 
  972/488-7200 
  APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes o       No o APPLICABLE ONLY TO CORPORATE ISSUERS As of April 30, 2004, 20,703,158 shares of the Registrants common stock were
outstanding. Transitional Small Business Disclosure Format (check one): Yes o       No þ




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ViewCast.com, Inc. and Subsidiaries
Index to Form 10-QSB PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets at December 31, 2003 and
March 31, 2004 (Unaudited)
    
    
    3Consolidated Statements of Operations for the Three Months
ended March 31, 2003 and 2004 (Unaudited)
    
    
    4Consolidated Statement of Stockholders Deficit for the Three
Months ended March 31, 2004 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the Three Months
ended March 31, 2003 and 2004 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    15Item 3. Controls and Procedures
    
    
    22PART II. OTHER INFORMATION
    
    
    23SIGNATURES
    
    
    24Rule 13a-14(a)/15d-14(a) CertificationsSection 1350 Certifications
  2




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VIEWCAST.COM, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    March 31,2003
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    299,764
    
    
    $
    732,531Accounts receivable, less allowance for doubtful accounts
of $86,000 and $104,000 at December 31, 2003 and
March 31, 2004, respectively
    
    
    3,212,595
    
    
    
    2,593,032Inventories
    
    
    1,554,754
    
    
    
    1,631,518Prepaid expenses
    
    
    185,377
    
    
    
    224,332Deferred charges
    
    
    23,177
    
    
    
    60,794Total current assets
    
    
    5,275,667
    
    
    
    5,242,207Property and equipment, net
    
    
    1,578,709
    
    
    
    1,563,560Goodwill
    
    
    1,041,430
    
    
    
    1,041,430Customer contracts, net
    
    
    396,389
    
    
    
    357,639Software development costs, net
    
    
    
    
    
    
    49,837Deposits
    
    
    113,758
    
    
    
    109,430Total assets
    
    $
    8,405,953
    
    
    $
    8,364,103LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    1,289,730
    
    
    $
    1,153,716Accrued expenses
    
    
    1,362,523
    
    
    
    1,727,386Deferred revenue
    
    
    765,777
    
    
    
    942,132Stockholder line of credit
    
    
    1,300,000
    
    
    
    1,725,000Short-term debt, other
    
    
    635,005
    
    
    
    172,093Current maturities of long-term debt
    
    
    1,128,483
    
    
    
    1,191,332Series D redeemable convertible preferred stock
    
    
    1,419,172
    
    
    
    1,445,431Total current liabilities
    
    
    7,900,690
    
    
    
    8,357,090Long-term debt less current maturities
    
    
    17,224
    
    
    
    31,798Stockholder note payable
    
    
    6,736,843
    
    
    
    6,679,263Stockholder accrued interest
    
    
    1,006,518
    
    
    
    1,013,715Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Convertible preferred stock, $0.0001 par value:Authorized
shares  5,000,000Series B
 issued and outstanding shares  800,000
    
    
    80
    
    
    
    80Series C
 issued and outstanding shares  200,000
    
    
    20
    
    
    
    20Common stock, $.0001 par value:Authorized
shares  100,000,000Issued shares   20,950,118
    
    
    2,095
    
    
    
    2,095Additional paid-in capital
    
    
    55,597,946
    
    
    
    55,571,735Accumulated deficit
    
    
    (62,843,557
    )
    
    
    (63,279,787
    )Treasury stock, 261,497 shares at cost
    
    
    (11,906
    )
    
    
    (11,906
    )Total stockholders deficit
    
    
    (7,255,322
    )
    
    
    (7,717,763
    )Total liabilities and stockholders deficit
    
    $
    8,405,953
    
    
    $
    8,364,103
 The accompanying notes are an integral part of these consolidated statements. 3




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VIEWCAST.COM, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 For the three months endedMarch 31,2003
    
    2004Net sales
    
    $
    4,629,206
    
    
    $
    4,979,020Cost of sales (includes depreciation of $60,496
and $89,342 for the three months ended March 31,
2003 and 2004, respectively)
    
    
    2,620,794
    
    
    
    3,009,360Gross profit
    
    
    2,008,412
    
    
    
    1,969,660Operating expenses:Selling, general and administrative
    
    
    1,686,404
    
    
    
    1,682,910Research and development
    
    
    757,005
    
    
    
    425,133Depreciation and amortization
    
    
    153,961
    
    
    
    102,920Total operating expenses
    
    
    2,597,370
    
    
    
    2,210,963Operating loss
    
    
    (588,958
    )
    
    
    (241,303
    )Other income (expense):Interest expense
    
    
    (232,627
    )
    
    
    (193,661
    )Other
    
    
    391
    
    
    
    (1,266
    )Total other income (expense)
    
    
    (232,236
    )
    
    
    (194,927
    )NET LOSS
    
    $
    (821,194
    )
    
    $
    (436,230
    )Preferred dividends
    
    
    (246,541
    )
    
    
    (230,508
    )Net loss applicable to common stockholders
    
    $
    (1,067,735
    )
    
    $
    (666,738
    )Net loss per share  basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.03
    )Weighted average number of common shares
outstanding
    
    
    20,561,350
    
    
    
    20,688,621
 The accompanying notes are an integral part of these consolidated statements. 4




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VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2004
(UNAUDITED) Series B
    
    Series CConvertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    Preferred Stock
    
    Common Stock
    
    Paid-in
    
    Accumulated
    
    Treasury
    
    StockholdersShares
    
    Par Value
    
    Shares
    
    Par Value
    
    Shares
    
    Par Value
    
    Capital
    
    Deficit
    
    Stock
    
    DeficitBalance, January 1, 2004
    
    
    800,000
    
    
    $
    80
    
    
    
    200,000
    
    
    $
    20
    
    
    
    20,950,118
    
    
    $
    2,095
    
    
    $
    55,597,946
    
    
    $
    (62,843,557
    )
    
    $
    (11,906
    )
    
    $
    (7,255,322
    )Value of options issued for consulting
services
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    47
    
    
    
    -
    
    
    
    -
    
    
    
    47Imputed redeemable convertible
preferred stock dividends  Series D
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (26,258
    )
    
    
    -
    
    
    
    -
    
    
    
    (26,258
    )Net loss
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (436,230
    )
    
    
    -
    
    
    
    (436,230
    )Balance, March 31, 2004
    
    
    800,000
    
    
    $
    80
    
    
    
    200,000
    
    
    $
    20
    
    
    
    20,950,118
    
    
    $
    2,095
    
    
    $
    55,571,735
    
    
    $
    (63,279,787
    )
    
    $
    (11,906
    )
    
    $
    (7,717,763
    )
 The accompanying notes are an integral part of these consolidated statements. 5




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VIEWCAST.COM, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the three months endedMarch 31,2003
    
    2004Operating activities:Net loss
    
    $
    (821,194
    )
    
    $
    (436,230
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation of fixed assets
    
    
    192,909
    
    
    
    153,512Amortization of software development costs
    
    
    21,548
    
    
    
    Amortization of customer contracts
    
    
    
    
    
    
    38,750Non-cash charges to interest expense
    
    
    31,486
    
    
    
    17,383Loss on disposition of property and equipment
    
    
    
    
    
    
    1,329Consulting fees exchanged for options
    
    
    201
    
    
    
    47Changes in operating assets and liabilities:Accounts receivable
    
    
    (132,935
    )
    
    
    619,563Inventories
    
    
    197,959
    
    
    
    (76,764
    )Prepaid expenses
    
    
    (208,797
    )
    
    
    (38,955
    )Deferred charges
    
    
    
    
    
    
    (55,000
    )Deposits
    
    
    1,169
    
    
    
    4,328Accounts payable
    
    
    (420,487
    )
    
    
    (136,014
    )Accrued expenses and stockholder accrued interest
    
    
    377,969
    
    
    
    372,060Deferred revenue
    
    
    516,510
    
    
    
    176,355Net cash provided by (used in) operating activities
    
    
    (243,662
    )
    
    
    640,364Investing activities:Purchase of property and equipment
    
    
    (128,914
    )
    
    
    (119,487
    )Software development costs
    
    
    
    
    
    
    (49,837
    )Proceeds from disposition of property and equipment
    
    
    
    
    
    
    1,074Net cash used in investing activities
    
    
    (128,914
    )
    
    
    (168,250
    )Financing activities:Net proceeds from stockholder line of credit
    
    
    1,298,000
    
    
    
    425,000Repayment of short-term debt, other
    
    
    (713,939
    )
    
    
    (462,912
    )Repayment of long-term debt
    
    
    
    
    
    
    (1,435
    )Net cash provided by (used in) financing activities
    
    
    584,061
    
    
    
    (39,347
    )Net increase in cash and cash equivalents
    
    
    211,485
    
    
    
    432,767Cash and cash equivalents, beginning of period
    
    
    288,519
    
    
    
    299,764Cash and cash equivalents, end of period
    
    $
    500,004
    
    
    $
    732,531Supplemental cash flow information:Cash paid for interest
    
    $
    17,655
    
    
    $
    14,346Purchase of property and equipment with long-term debt
    
    $
    
    
    
    $
    21,279
 The accompanying notes are an integral part of these consolidated statements. 6




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ViewCast.com, Inc. and Subsidiaries 
 Notes to the Consolidated Financial Statements
 1. Basis of Presentation The accompanying unaudited interim consolidated financial statements
include the accounts of ViewCast.com, Inc. and its wholly-owned subsidiaries,
Delta Computec Inc. (DCi), Osprey Technologies, Inc., VideoWare, Inc. and
ViewCast Online Solutions, Inc. (collectively, the Company or ViewCast). All
material inter-company accounts and transactions have been eliminated in
consolidation. The financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2004 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2004. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Companys Annual Report on Form 10-KSB/A
for the year ended December 31, 2003 filed with the Securities and Exchange
Commission. The Company utilizes significant capital to design, develop and
commercialize its products and intends to fund its 2004 operating activities
and sales growth by utilizing cash contributed from operations and its
available working capital lines of credit to the extent possible. The Company
anticipates it will require additional working capital during 2004 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 and for potential acquisition transactions. In
January 2004, the Company retained Rockland Capital Partners, and investment
banking firm, to assist the Company with its strategic initiatives including
addressing capital requirements. Although the Company 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 the Company. 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. The Company intends to actively pursue other such
strategic merger and acquisition activities to the extent possible. In the
event the Company is 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. 2. Accounts Receivable The Companys accounts receivable are primarily due from resellers and
distributors of our video communications products and services and from
customers in the healthcare, pharmaceutical, financial services and educational
industries to whom we provide information technology services and products.
Credit is extended based on evaluation of each customers financial condition
and, generally collateral is not required except for certain international
customers. Accounts receivable are generally due within 30 days and are stated
net of an allowance for doubtful accounts. Accounts 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
months ended March 31, 2003 and 2004 are as follows: 7




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ViewCast.com, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements  Continued Three Months EndedMarch 31,2003
    
    2004(Unaudited)
    
    (Unaudited)Beginning balance
    
    $
    144,000
    
    
    $
    86,000Bad debt expense
    
    
    14,000
    
    
    
    17,000Uncollectible accounts written off,
net of recoveries
    
    
    1,000
    
    
    
    1,000Ending Balance
    
    $
    159,000
    
    
    $
    104,000
 3. Inventories Inventories consists of the following: December 31,
    
    March 31,2003
    
    2004(Unaudited)Purchased materials
    
    $
    468,121
    
    
    $
    480,384Finished goods
    
    
    1,086,633
    
    
    
    1,151,134$
    1,554,754
    
    
    $
    1,631,518
 4. Accrued Expenses Accrued expenses consist of the following: December 31,
    
    March 31,2003
    
    2004(Unaudited)Stockholder accrued interest
    
    $
    356,844
    
    
    $
    494,955Accrued interest other
    
    
    11,083
    
    
    
    27,708Accrued compensation
    
    
    538,894
    
    
    
    772,580Accrued legal & professional
    
    
    75,077
    
    
    
    46,010Accrued warranty
    
    
    60,000
    
    
    
    58,000Accrued rent
    
    
    23,128
    
    
    
    14,128Accrued inventory purchases
    
    
    56,772
    
    
    
    48,044Customer deposits
    
    
    33,872
    
    
    
    109,807Other
    
    
    206,853
    
    
    
    156,154$
    1,362,523
    
    
    $
    1,727,386
 5. 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 roll forward of warranty expense for
the three months ended March 31, 2003 and 2004. 8




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ViewCast.com, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements  Continued For the three months endedMarch 31,2003
    
    2004(Unaudited)
    
    (Unaudited)Beginning balance
    
    $
    39,000
    
    
    $
    60,000Charged to expense
    
    
    16,000
    
    
    
    7,000Usage
    
    
    (53,000
    )
    
    
    (9,000
    )Ending Balance
    
    $
    2,000
    
    
    $
    58,000
 6. Property and Equipment Property and equipment, at cost, consists of the following: EstimatedUseful Life
    
    December 31,
    
    March 31,(Years)
    
    2003
    
    2004(Unaudited)Computer equipment
    
    
    3 to 7
    
    
    $
    1,873,380
    
    
    $
    1,932,077Service assets
    
    
    3
    
    
    
    755,916
    
    
    
    823,750Software
    
    
    3 to 5
    
    
    
    640,997
    
    
    
    640,997Leasehold improvements
    
    
    1 to 5
    
    
    
    88,972
    
    
    
    89,470Office furniture and equipment
    
    
    5 to 7
    
    
    
    660,215
    
    
    
    668,8424,019,480
    
    
    
    4,155,136Less accumulated depreciation
and amortization
    
    
    
    
    
    
    (2,440,771
    )
    
    
    (2,591,576
    )$
    1,578,709
    
    
    $
    1,563,560
 7. Short-term Debt 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. Prior to October 15, 2003, availability of
funds under this facility was subject to certain borrowing base limitations
based principally on qualifying accounts receivable and inventory with interest
payable on demand at 12% and secured by the assets of ViewCast.com, Inc. In
October 2003, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare, Inc.
(jointly and severally, the Borrower) amended the terms and conditions of
this credit note and security agreement with the Ardinger Family Partnership,
LTD. (Lender). As of the date of the agreement, the outstanding principal
balance of the indebtedness under the original loan agreement was $7,509,582
and accrued and unpaid interest thereon was $1,243,665. Additionally, in
October of 2003 the Company had outstanding $500,000 in advances from Lender
for the purchase of DCi in October 2002. Effective October 15, 2003, the terms
and conditions of the note agreement were amended to establish a long-term
payout for $6,909,582 principal amount of the note and accrued interest of
$1,243,665. Additionally, a new $2.0 million short-term line of credit
facility was established with an initial principal amount $1.1 million
consisting $600,000 principal amount of the original note and $500,000 of
stockholder advances. The amended note agreement reduces the per annum
interest rate on stockholder notes from 12% to the lesser of prime plus 3.0% or
9.5%, eliminates the borrowing base requirements based on outstanding accounts
receivable and inventory and is secured by all assets of the Borrower. During the three months ended March 31, 2004, net borrowings under the new
stockholder line of credit increased $425,000 resulting in a note principal
balance of $1,725,000 at March 31, 2004. Total accrued interest on stockholder
notes at March 31, 2004 totaled $1,508,670 of which $1,013,715 has been
classified as long-term. At March 31, 2004, the Company had availability under
the stockholder line of credit of $275,000. 9




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ViewCast.com, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements  Continued The Company also maintains a $1.5 million asset based revolving credit
facility with Keltic Financial Partners, LP (Keltic) for working capital
support of DCi operations. Draws on the revolving credit facility are based on
qualifying DCi accounts receivable. The loan balance is reduced as cash
collections are received directly by Keltic. During the three months ended
March 31, 2004, cash collections in excess of draws reduced the Keltic loan
balance to $172,093 at March 31, 2004. DCi had availability of $492,000 under
the revolving credit facility at March 31, 2004. The Company has entered into
a Guaranty of Payment and a Performance and Subordination Agreement with Keltic
relating to this facility. Short-term debt consists of the following: December 31,
    
    March 31,2003
    
    2004(Unaudited)$2.0 million line of credit note payable to principal
stockholder of the Company, secured by all assets
of Borrower, with interest due on demand at the
lesser of prime plus 3.0% or 9.5% fixed rate, due
December 2004.
    
    $
    1,300,000
    
    
    $
    1,725,000$1.5 million revolving based credit facility payable
to a commercial finance company, collateralized
by all DCi assets and guaranteed by the Company,
with interest payable at the higher of prime plus
2.5% or 6.5% fixed rate, due October 2004.
    
    
    635,005
    
    
    
    172,093$
    1,935,005
    
    
    $
    1,897,093
 8. Long -Term Debt Long-term debt consists of the following: December 31,
    
    March 31,2003
    
    2004(Unaudited)7% Senior Convertible Debentures due April
2004 with interest payable semi-annually
in arrears
    
    $
    950,000
    
    
    $
    950,000Stockholder term note with an entity controlled
by a principal stockholder of the Company,
collateralized by all assets of Borrower, with
interest due at a rate per annum equal to the
lesser of prime plus 3.0% or 9.5% fixed rate,
due April 30, 2006 (See Note 7).
    
    
    6,909,582
    
    
    
    6,909,582Other long-term debt
    
    
    22,968
    
    
    
    42,811Total long-term debt
    
    
    7,882,550
    
    
    
    7,902,393Less current maturities
    
    
    (1,128,483
    )
    
    
    (1,191,332
    )Total long-term debt less current maturities
    
    $
    6,754,067
    
    
    $
    6,711,061
 10




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ViewCast.com, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements  Continued 9. Series D Redeemable Convertible Preferred Stock During October 2002 through June 2003, the Company issued 150,670 shares
of Series D Preferred Stock as partial consideration for the acquisition of DCi
and for related investment banking fees. 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 150,670 shares issued and outstanding at March 31, 2004 reflects a discount
of $61,269 from the stated value of $1,506,700 and will be recorded as imputed
preferred dividends until the initial redemption date of October 11, 2004.
During the three months ended March 31, 2004, the Company has recognized
$26,258 as dividends on the Series D Preferred Stock. 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 as required by law. Series D Preferred
Stock of $1,419,172 and $1,445,431 at December 31, 2003 and March 31, 2004,
respectively is presented as a current liability because the initial redemption
is on October 11, 2004. 10. 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: For the Three Months EndedMarch 31,2003
    
    2004Stock options
    
    
    4,400,259
    
    
    
    3,337,030Public and private warrants
    
    
    4,184,512
    
    
    
    4,184,512Convertible debentures
    
    
    190,000
    
    
    
    190,000Convertible preferred stock  Series B
    
    
    2,206,896
    
    
    
    2,206,896Convertible preferred stock  Series C
    
    
    3,333,333
    
    
    
    3,333,333Redeemable convertible preferred Stock  Series D
    
    
    799,876
    
    
    
    1,004,46615,114,876
    
    
    
    14,256,237
 11. 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.
In general, 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 (typically five years). Options expire after
ten years. 11




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ViewCast.com, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements  Continued 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. For purposes of pro forma disclosures, the estimated fair value of the
options is amortized as expense over the options vesting periods. Pro forma
information for the three months ended March 31, 2003 and 2004 is as follows: Three months endedMarch 31,2003
    
    2004Net loss applicable to common
stockholders:As reported
    
    $
    (1,067,735
    )
    
    $
    (666,738
    )Deduct: total stock-based compensation
under fair value based method for all
awards, net of related tax expense
    
    
    (404,996
    )
    
    
    (312,195
    )Pro forma
    
    $
    (1,472,731
    )
    
    $
    (978,933
    )Net Loss per share:As reported  basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.03
    )Pro forma  basic and diluted
    
    $
    (0.07
    )
    
    $
    (0.05
    )
 12. 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: Video Communications Products and Services This business segment is engaged in designing, developing and marketing
video communications products and services. The operations of the Companys
Osprey® line of video capture and video compression-decompression cards, its
ViewCast IVN and Viewpoint VBX video distribution systems, and its Niagara
line of encoding and streaming products are included in this segment. The
Company Video Distribution and Networking Products 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. 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, shareholder meetings, and other corporate facility expenses. 12




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ViewCast.com, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements  Continued 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 following tables provide financial data by segment for three months
ended March 31, 2003 and 2004: Summary of Sales by Geographic Area for the Three Months Ended: VideoCommunicationsIT Services,
    
    Products &Products
    
    Services
    
    Total
    
    %March 31, 2004United States
    
    $
    2,713,199
    
    
    $
    1,064,318
    
    
    $
    3,777,517
    
    
    
    75.87
    %Europe
    
    
    
    
    
    
    604,723
    
    
    
    604,723
    
    
    
    12.15
    %Pacific Rim
    
    
    
    
    
    
    496,884
    
    
    
    496,884
    
    
    
    9.98
    %Other
    
    
    
    
    
    
    99,896
    
    
    
    99,896
    
    
    
    2.01
    %Total
    
    $
    2,713,199
    
    
    $
    2,265,821
    
    
    $
    4,979,020
    
    
    
    100.00
    %March 31, 2003United States
    
    $
    2,488,457
    
    
    $
    1,222,166
    
    
    $
    3,710,623
    
    
    
    80.16
    %Europe
    
    
    
    
    
    
    325,368
    
    
    
    325,368
    
    
    
    7.03
    %Pacific Rim
    
    
    
    
    
    
    490,777
    
    
    
    490,777
    
    
    
    10.60
    %Other
    
    
    
    
    
    
    102,438
    
    
    
    102,438
    
    
    
    2.21
    %Total
    
    $
    2,488,457
    
    
    $
    2,140,749
    
    
    $
    4,629,206
    
    
    
    100.00
    %
 Summary of Operations by Operating Segment for the Three Months Ended March 31, 2004: VideoCommunicationsIT Services,
    
    Products &
    
    UnallocatedProducts
    
    Services
    
    Corporate
    
    TotalTotal sales
    
    $
    2,714,767
    
    
    $
    2,265,821
    
    
    $
    
    
    
    $
    4,980,588Intersegment sales
    
    
    (1,568
    )
    
    
    
    
    
    
    
    
    
    
    (1,568
    )Revenue from external customers
    
    $
    2,713,199
    
    
    $
    2,265,821
    
    
    $
    
    
    
    $
    4,979,020Gross profit
    
    $
    559,087
    
    
    $
    1,410,573
    
    
    $
    
    
    
    $
    1,969,660Operating income (loss)
    
    $
    (128,866
    )
    
    $
    55,496
    
    
    $
    (167,933
    )
    
    $
    (241,303
    )Total assets
    
    $
    5,226,898
    
    
    $
    2,861,032
    
    
    $
    276,173
    
    
    $
    8,364,103Goodwill
    
    $
    1,041,430
    
    
    $
    
    
    
    $
    
    
    
    $
    1,041,430Customer contracts
    
    $
    357,639
    
    
    $
    
    
    
    $
    
    
    
    $
    357,639Software development costs
    
    $
    
    
    
    $
    49,837
    
    
    $
    
    
    
    $
    49,837Capital additions
    
    $
    106,574
    
    
    $
    19,137
    
    
    $
    15,055
    
    
    $
    140,766
 13




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ViewCast.com, Inc. and Subsidiaries
Notes to the Consolidated Financial Statements  Continued Summary of Operations by Operating Segment for the Three Months Ended March 31, 2003: VideoCommunicationsIT Services,
    
    Products &
    
    UnallocatedProducts
    
    Services
    
    Corporate
    
    TotalTotal sales
    
    $
    2,488,457
    
    
    $
    2,140,749
    
    
    $
    
    
    
    $
    4,629,206Intersegment sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Revenue from external customers
    
    $
    2,488,457
    
    
    $
    2,140,749
    
    
    $
    
    
    
    $
    4,629,206Gross profit
    
    $
    672,061
    
    
    $
    1,336,351
    
    
    $
    
    
    
    $
    2,008,412Operating income (loss)
    
    $
    90,839
    
    
    $
    (273,335
    )
    
    $
    (406,462
    )
    
    $
    (588,958
    )Total assets
    
    $
    4,678,290
    
    
    $
    2,978,419
    
    
    $
    453,494
    
    
    $
    8,110,203Goodwill
    
    $
    1,041,430
    
    
    $
    
    
    
    $
    
    
    
    $
    1,041,430Customer contracts
    
    $
    215,000
    
    
    $
    
    
    
    $
    
    
    
    $
    215,000Capital additions
    
    $
    111,532
    
    
    $
    17,382
    
    
    $
    
    
    
    $
    128,914
 13. Subsequent Events Through May 12, 2004, ViewCast had received Notices of Conversion from the
holders of $870,000 of the $950,000 principal amount of outstanding 7% Senior
Convertible Debentures. The terms of the conversion include a lowered
conversion price of the Debentures from $5.00 to $0.41 per share of ViewCast
common stock or a total of 2,121,947 shares of common stock for the $870,000
converted. Any Debentureholder that converts its Debentures also received in
cash the interest accrued under the terms of the Debenture for the period of
time from November 2, 2003 through April 28, 2004 in the amount of $35.00 per
$1,000 principal amount of Debentures converted, which would otherwise,
pursuant to the terms of the Debentures, be forfeited upon conversion. In
addition, any Debentureholder that is a not a U.S. person as defined in Rule
902 of the Securities Act of 1933, as amended, will receive warrants
exercisable for three (3) years into 731 shares of common stock of the Company
(the Warrant Shares) per $1,000 principal amount of Debentures converted at
the exercise price of $0.45 per Warrant Share, and in connection therewith, be
granted certain piggyback registration rights for the Warrant Shares. The
holders of the remaining $80,000 debentures not converted have until May 14,
2004 to elect to convert under the
same terms or their debentures will be redeemed In conjunction with the
debenture conversions, ViewCast has agreed to pay a consulting fee consisting
of hourly fees not to exceed $7,000, payable in cash or restricted stock at
ViewCasts option, and of warrants exercisable into 15,000 shares of common
stock with the same terms as the warrants issued to the converting
Debentureholders. 14




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation 
 Item 2. Managements Discussion and Analysis or Plan of Operation Some of the statements in this Report on Form 10-QSB under 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
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 successful
integrate acquired operations, the effect of our accounting polices and other
risks detailed in the Annual Report on Form 10-KSB/A for the year ended
December 31, 2003 and 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. 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 are a leading global provider of enterprise-wide,
video communication products for both real-time and on-demand applications. Our
market presence 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: (1) video
communications products and services and (2) IT services and products. 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® line of video capture and video compression-decompression cards,
Viewpoint VBX video distribution systems and Niagara
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 15




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)  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:  
    
    Revenue Recognition We apply provisions of SEC Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements as
revised by SAB 104, Revenue Recognition, 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 and EITF
00-21, Revenue Arrangements with Multiple Deliverables to transactions
involving sales of our hardware and software products. 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 their term.  
    
    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. 16




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)  
    
    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 Three Months Ended March 31, 2004 compared to Three Months Ended March 31, 2003 Net Sales.Total consolidated net sales for the three months ended March
31, 2004 increased 7.6% to $4,979,020 from $4,629,206 reported during the three
months ended March 31, 2003. Total 2004 first quarter sales for our video
communications products and services business segment increased 5.8% and sales
of our IT services and products business segment increased 9.0% over 2003
levels reflecting the beginning of improved economic conditions and slightly
increased technology spending levels by our customers. Osprey Product Sales.During the three months ended March 31, 2004, sales
of Osprey® video component and software products decreased less than one
percent over 2003 levels and represented 82.5% of total 2004 video product
revenues, compared to 88.0% of total revenues in the first quarter of 2003.
European and Pacific Rim sales of Osprey products improved 57.3% and 1.2%,
respectively over 2003 first quarter levels, while sales in United States
decreased 18.5%. The relatively flat Osprey first quarter revenues reflected a
combination of increased shipments of our Osprey-500 series and Osprey-200
series product families offset by reductions primarily from the discontinuation
of the Osprey 2000 product family. In April 2004, ViewCast announced that Osprey capture cards can now be
used to deliver real-time video to Macromedia® Flash Player, opening up a
significant range of applications for ViewCast users. Osprey streaming products
can seamlessly deliver quality video that can be displayed through Flash Player
via the Macromedia Flash Communication Server MX or the Macromedia Flash Video
Streaming Service. Macromedia Flash Communication Server MX includes the
ability to stream live to the Flash Player for cross-platform streaming, and
the ability to synchronize graphics and text with the video stream for superior
presentation and display capabilities. Additionally in April 2004, ViewCast
announced a new Osprey product, the Osprey-300, which combines the quality and
superiority of the standard IEEE 1394b card, creating a quality digital video
capture card with full device control capability. The Osprey-300 is also the
first ViewCast capture card to be certified for Adobe® Premiere® Pro, Adobes
award-winning non-linear editing software. With the introduction of these new
products and product enhancements and as the economy continues to grow, we
expect to increase Osprey product sales during 2004. Video Communications System and Applications Software Products.During
the three months ended March 31, 2004, combined system and software sales
increased 75.9% over 2003 first quarter video product revenues and represented
15.9% of total first quarter 2004 video product revenues. The increase was due
to sales of ViewCasts Niagara systems, which increased 89.0% over 2003 levels,
reflecting continued customer awareness of our streaming and encoding systems
and software. Both the economy and IT spending improvement have increased the number of
bids, demonstrations and orders of our systems products into 2004. We expect
that such activity should result in increased 2004 revenue further enhanced by
new product introductions and features during the year. However, while there
has been some improvement in technology spending and the global economy in
the first quarter of 2004, constraints in technology capital spending still
exist and could have an adverse impact in the future with the recurrence of
adverse economic conditions. 17




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued) IT Services and Products.ViewCasts DCi subsidiary 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. During the first quarter of 2004, IT services and product sales
increased 9.0% to $2,713,199 from the comparable 2003 period, and represented
54.5% of total ViewCast revenues and 28.4% of total gross margin. IT services
and product sales totaled $2,488,457 for the quarter ended March 31, 2003 and
represented 53.8% of total first quarter 2003 ViewCast revenues. During the
first quarter of 2004 contract service fees for customized network support,
Internet and Intranet consulting, networking, maintenance, disaster recovery
services totaled $2,274,003 and IT product sales totaled $439,196. During the
first quarter of 2003, contract service fees for customized network support,
Internet and Intranet consulting, networking, maintenance, disaster recovery
services totaled $2,220,024 and IT product sales totaled $268,433. Other Revenues.Other video communication revenues consisting of software
maintenance, training, engineering consulting fees and professional services
totaled $36,237 the first quarter of 2004, a decrease of $15,163 compared to
$51,400 reported in the first quarter of 2003. Cost of Sales/Gross Margins.Cost of sales totaled $3,009,360 for the
quarter ended March 31, 2004, a 14.8% increase from 2003 levels. This increase
reflected increased cost of sales relative to IT service sales and higher cost
of goods associated with IT product sales. Gross profit margin for the quarter
ended March 31, 2004 was 39.6% compared to 43.4% in the first quarter of 2003.
The video products segments margin during the first quarter of 2004 of 62.3%
remained relatively constant compared to 62.4% in the first quarter of 2003.
Gross profit margin for IT services during the first quarter of 2004 was 20.6%,
a decrease from 27.0% in the first quarter of 2003 reflecting a lower margin in
IT services due to reduced project work at the beginning of 2004 and higher
sales of equipment at lower margins than the first quarter of 2003. The
margins for the IT services segment will vary quarter to quarter depending on
the blend of different services and equipment sales occurring in each quarter. We anticipate gross margins, as a percentage of total revenues, will
remain in excess of 50% for the video products segment and in excess of 20% for
the IT service and products segment during 2004. 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. Selling, General and Administrative Expense.Selling, general and
administrative expenses for the quarter ended March 31, 2004 totaled
$1,682,910, a slight decrease of 0.2% from $1,686,404 reported during the first
quarter last year. Research and Development Expense.Our video communications business
segment incurred research and development expense during the first quarter of
2004 totaling $425,133, a decrease of 43.8% from 2003, reflecting a decrease in
personnel, prototype and related expenses. Although expenses have been
reduced, we have continued to develop new products and features to be released
throughout 2004 targeting current and expanded market opportunities.
ViewCasts emphasis in development has become focused on customer applications
combined with technological innovation. As the digital video communications
market expands and matures, we expect such a balanced approach provides more
efficient and effective development in relation to the market and customer
applications. Other Income (Expense). Total other expense for the quarter end March 31,
2004 totaled $194,927 compared to $232,236 during the quarter ended March 31,
2003. Interest expense during the first quarter of 2004 and 2003 was $193,661
and $232,627, respectively, representing interest primarily from our
stockholder debt, debentures, DCis line-of-credit financing and amortization
of related issue costs.
Interest expense decreased 16.8% over 2003 levels due principally to interest
rate reductions through amendments to our stockholder debt and DCis line of
credit facility with Keltic Financial Partners, LP. 18




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued) Net Loss.Net loss for the quarter ended March 31, 2004 was $436,230, a
46.9% improvement over the $821,194 loss reported in the comparable period in
2003. The decrease in net loss reflects reduced development expenses in the
video communications products business segment and reduced interest expense on
our stockholder and Keltic debt. These expense reductions were offset in part
by increased cost of sales associated with IT services and product sales. 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 operating shortfalls and strategic acquisitions. Net cash generated from operating activities for the three months ended
March 31, 2004 totaled $640,365 due principally to non-cash operating expenses
of $211,021, accounts receivable collections of $619,563, net increases in
accrued expenses, stockholder accrued interest and deferred revenues of
$548,415, and a slight decrease in deposits of $4,328. These sources of funds
were offset during the period by the net loss of $436,230, slight increases in
inventories, prepaid trade show expenses and deferred charges of $170,719 and a
decrease in trade accounts payables of $136,014. Cash utilized for investing activities during the three months ended March
31, 2004 totaled $168,250 and included purchases of services assets of $67,834
to support new and existing IT service contracts, $51,653 for computer
equipment and test equipment to support all product lines, and $49,837 for
capitalized software development associated with ViewCasts IVN product line.
These uses were offset by proceeds from the disposition of assets of $1,074. During the quarter March 31, 2004, ViewCasts financing activities
utilized cash of $39,347 principally from the net repayment of $462,913 of
short-term borrowings to Keltic under the terms of DCis asset based lending
line of credit and $1,435 of other debt. These repayments were offset by net
borrowings under the ViewCasts Stockholder line of credit facility of
$425,000. Since October 1998, ViewCast 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 ViewCast. Prior to October 15, 2003, availability of
funds under this facility was subject to certain borrowing base limitations
based principally on qualifying accounts receivable and inventory with interest
payable on demand at 12% and secured by the assets of ViewCast.com, Inc. In
October 2003, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare, Inc.
(jointly and severally, the Borrower) amended the terms and conditions of
this credit note and security agreement with the Ardinger Family Partnership,
LTD. (Lender). As of the date of the agreement, the outstanding principal
balance of the indebtedness under the original loan agreement was $7,509,582
and accrued and unpaid interest thereon was $1,243,665. Additionally, in
October of 2003 ViewCast had outstanding $500,000 in advances from Lender for
the purchase of DCi in October 2002. Effective October 15, 2003, the terms and
conditions of the note agreement were amended to establish a long-term payout
for $6,909,582 principal amount of the note and accrued interest of
$1,243,665. Additionally, a new $2.0 million short-term line of credit
facility was established with an initial principal amount $1.1 million
consisting $600,000 principal amount of the original note and $500,000 of
stockholder advances. The amended note agreement reduces the per annum interest
rate on stockholder notes from 12% to the lesser of prime plus 3.0% or 9.5%,
eliminates the borrowing base requirements based on outstanding accounts
receivable and inventory and is secured by all assets of the Borrower. During the three months ended March 31, 2004, net borrowings under the new
stockholder line of credit increased $425,000 resulting in a note principal
balance of $1,725,000 at March 31, 2004. Total 19




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued) accrued interest on stockholder
notes at March 31, 2004 totaled $1,508,670 of which $1,013,715 has been
classified as long-term. At March 31, 2004, ViewCast had availability under
the stockholder line of credit of $275,000. ViewCast also maintains a $1.5 million asset based revolving credit
facility with Keltic Financial Partners, LP (Keltic) for working capital
support of DCi operations. Draws on the revolving credit facility are based on
qualifying DCi accounts receivable. The loan balance is reduced as cash
collections are received directly by Keltic. During the three months ended
March 31, 2004, cash collections in excess of draws reduced the Keltic loan
balance to $172,093 at March 31, 2004. DCi had availability of $492,000 under
the revolving credit facility at March 31, 2004. ViewCast has entered into a
Guaranty of Payment and a Performance and Subordination Agreement with Keltic
relating to this facility. At March 31, 2004, ViewCast had 3,799,680 public and public equivalent
warrants and 122,500 representative warrants outstanding and exercisable at
$1.00. The warrants are redeemable by ViewCast under certain conditions. At March 31, 2004, ViewCast had a consolidated stockholders deficit of
$7,717,763, 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 have been declared or paid during
2003. 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. Cumulative dividends in arrears on preferred shares are approximately:
Series B-$1,280,000, Series C-$358,000. Holders of Series B and Series C
preferred stock have no voting rights except as required by law. At March 31, 2004, ViewCast had a working capital deficit of $3,114,883
and cash and cash equivalents of $732,531. During quarter ended March 31,
2004, ViewCast experienced an overall sales increase of 7.6% compared to the
first quarter of 2003 and while wary of current economic conditions,
anticipates that revenues during 2004 will continue to increase over 2003
levels with growth anticipated across all business segments. In December 2003,
ViewCast engaged Rockland Capital Partners, an investment banking firm, to
assist ViewCast with the review, refinement, and implementation of its
strategic initiatives. During 2004 ViewCast plans to improve its working
capital position by increasing sales and through other initiatives that may
include raising additional equity, conversion of debt to equity, further
acquisitions and by exercise of warrants if market conditions allow. In
October 2003, ViewCast improved its working capital position by more than $7.0
million through amendments to its stockholder line of credit and classification
of a major portion of its debt and accrued interest as long-term and has
reduced interest expense associated with this debt approximately 10.3% during
the first quarter of 2004 compared to 2003. ViewCast also anticipates that
losses may occur during 2004, or 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 strives for productivity and
efficiency in workforce and operating expenses. During the first quarter of
2004, ViewCast has decreased operating consolidated operation expenses by
$386,407, or 14.9%, compared to the same period in 2003. Additionally,
consolidated net loss for the three months ended March 31, 2004 was reduced by
46.9%, compared to the same period in 2003. ViewCast utilizes significant capital to design, develop and commercialize
its products and intends to fund its operating activities and sales growth
during the next twelve months 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 the first half of 2004
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 address unanticipated competitive threats or
technical problems, to transition adverse economic conditions and to service
its debt. Although ViewCast has no firm arrangements with respect to additional
financing, it is currently considering proposals relating to the issuance of
equity securities in exchange for a cash investment in ViewCast. There can be
no assurance that additional 20




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued) financing will be available to ViewCast on acceptable terms, or at all.
Additional equity financing may involve substantial dilution to our then
existing stockholders. ViewCast intends to actively pursue other 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
ViewCasts results of operations or financial position. At March 31, 2004, ViewCast had no material commitments for capital
expenditures. Through May 12, 2004, ViewCast had received Notices of Conversion from the
holders of $870,000 of the $950,000 principal amount of outstanding 7% Senior
Convertible Debentures. The terms of the conversion include a lowered
conversion price of the Debentures from $5.00 to $0.41 per share of ViewCast
common stock or a total of 2,121,947 shares of common stock for the $870,000
converted. Any Debentureholder that converts its Debentures also received in
cash the interest accrued under the terms of the Debenture for the period of
time from November 2, 2003 through April 28, 2004 in the amount of $35.00 per
$1,000 principal amount of Debentures converted, which would otherwise,
pursuant to the terms of the Debentures, be forfeited upon conversion. In
addition, any Debentureholder that is a not a U.S. person as defined in Rule
902 of the Securities Act of 1933, as amended, will receive warrants
exercisable for three (3) years into 731 shares of common stock of the Company
(the Warrant Shares) per $1,000 principal amount of Debentures converted at
the exercise price of $0.45 per Warrant Share, and in connection therewith, be
granted certain piggyback registration rights for the Warrant Shares. The
holders of the remaining $80,000 debentures not converted have until May 14,
2004 to elect to convert under the same terms or their debentures will be
redeemed In conjunction with the debenture conversions, ViewCast has agreed
to pay a consulting fee consisting of hourly fees not to exceed $7,000, payable
in cash or restricted stock at ViewCasts option, and of warrants exercisable
into 15,000 shares of common stock with the same terms as the warrants issued
to the converting Debentureholders. In addition to the working capital and
equity improvements gained from the conversions, we believe the elimination of
the Debenture debt will enhance our ability to raise equity capital in the
future. 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. 21




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ViewCast.com, Inc. and Subsidiaries
Controls and Procedures 
 Item 3. Controls and Procedures Management, including the Companys President and Chief Executive Officer
and Chief Financial Officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this report. Based upon
that evaluation, the President and Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures were effective,
in all material respects, to ensure that 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 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. 22




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ViewCast.com, Inc. and Subsidiaries
Other Information 
 PART II: OTHER INFORMATION  Item 1.
    Legal Proceedings
(Not Applicable)  Item 2.
    Changes in Securities and Small Business Issuer Purchases of Equity Securities
(Not Applicable)  Item 3.
    Defaults Upon Senior Securities
(Not Applicable)  Item 4.
    Submission of Matters to a Vote of Security Holders
(Not Applicable)  Item 5.
    Other Information  (a)
    
    (None)(b)
    
    (None)  Item 6.
    Exhibits and Reports on Form 8-K  (a)
    
    Exhibits filed with this report:
(See Exhibit Index)(b)
    
    Reports on Form 8-KOn March 30, 2004, the Company filed a Form 8-K, inclusive of a
press release, announcing its operating results for the quarter
and year ended December 31, 2003. 23




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SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized. ViewCast.com, Inc.(Registrant)

BY:Date: May 14, 2004
    /s/ George C. PlattGeorge C. PlattChief Executive Officer
Principal Executive Officer/s/ Laurie L. LathamLaurie L. LathamChief Financial Officer
Principal Financial Officer 24




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EXHIBIT INDEX ExhibitNumber31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications32.1
    
    Section 1350 Certifications
 25