##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission File Number: 0-29020
 ViewCast.com, Inc.
 (Exact Name of Small Business Issuer as Specified in its Charter)
 Delaware
    
    75-2528700(State or other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer Incorporation
Identification No.)
 3701 W. Plano Parkway, Suite 300, Plano, TX 75075
  972/488-7200
  þ o
 o þ
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
 o o
 APPLICABLE ONLY TO CORPORATE ISSUERS
  o þ




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##### 



ViewCast.com, Inc. and Subsidiaries
Index to Form 10-QSB
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at December 31, 2005 and March 31, 2006 (Unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the Three Months
ended March 31, 2005 and 2006 (Unaudited)
    
    
    4Condensed Consolidated Statement of Stockholders Deficit for the Three Months
ended March 31, 2006 (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three Months
ended March 31, 2005 and 2006 (Unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    15Item 3. Controls and Procedures
    
    
    20PART II. OTHER INFORMATION
    
    
    21SIGNATURES
    
    
    22Rule 13a-14(a)/15d-14(a) CertificationsSection 1350 CertificationsRule 13a-14(a)/15d-14(a) CertificationsSection 1350 Certifications
  2




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VIEWCAST.COM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    March 31,2005
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,447,873
    
    
    $
    841,874Accounts receivable, less allowance for doubtful accounts of
$13,171 and $22,470 at December 31, 2005 and March 31, 2006
respectively
    
    
    1,304,776
    
    
    
    1,219,237Inventories
    
    
    2,011,491
    
    
    
    2,028,472Prepaid expenses
    
    
    73,074
    
    
    
    228,425Total current assets
    
    
    4,837,214
    
    
    
    4,318,008Property and equipment, net
    
    
    284,828
    
    
    
    397,375Software development costs and patents, net
    
    
    122,931
    
    
    
    174,587Deposits
    
    
    29,326
    
    
    
    44,866Total assets
    
    $
    5,274,299
    
    
    $
    4,934,836LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    582,263
    
    
    $
    658,662Accrued expenses
    
    
    1,243,377
    
    
    
    1,641,352Stockholder line of credit
    
    
    3,350,000
    
    
    
    3,350,000Current maturities of long-term debt
    
    
    142,389
    
    
    
    199,248Total current liabilities
    
    
    5,318,029
    
    
    
    5,849,262Long-term debt less current maturities
    
    
    3,298
    
    
    
    2,189Stockholder note payable
    
    
    6,775,230
    
    
    
    6,717,650Stockholder accrued interest
    
    
    2,213,761
    
    
    
    2,262,113Commitments and contingenciesStockholders deficit:Preferred stock, $0.0001 par value, authorized 5,000,000
shares:Series B
convertible  issued and outstanding shares  800,000
    
    
    80
    
    
    
    80Series C
convertible  issued and outstanding shares  200,000
    
    
    20
    
    
    
    20Common stock, $.0001 par value, authorized 100,000,000 shares:Issued
shares  25,889,456 at December 31, 2005 and March
31,2006,
respectively
    
    
    2,589
    
    
    
    2,589Additional paid-in capital
    
    
    59,718,393
    
    
    
    59,718,607Accumulated deficit
    
    
    (68,745,195
    )
    
    
    (69,605,768
    )Treasury stock, 261,497 shares at cost
    
    
    (11,906
    )
    
    
    (11,906
    )Total stockholders deficit
    
    
    (9,036,019
    )
    
    
    (9,896,378
    )Total liabilities and stockholders deficit
    
    $
    5,274,299
    
    
    $
    4,934,836
  3




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VIEWCAST.COM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 For the three months endedMarch 31,2005
    
    
    2006Net sales
    
    $
    2,556,463
    
    
    $
    2,879,122Cost of sales
    
    
    1,031,436
    
    
    
    1,340,766Gross profit
    
    
    1,525,027
    
    
    
    1,538,356Operating expenses:Selling, general and administrative
    
    
    1,399,702
    
    
    
    1,521,489Research and development
    
    
    614,767
    
    
    
    574,172Depreciation and amortization
    
    
    28,677
    
    
    
    55,696Total operating expenses
    
    
    2,043,146
    
    
    
    2,151,357Operating loss
    
    
    (518,119
    )
    
    
    (613,001
    )Other expense:Interest expense
    
    
    206,418
    
    
    
    238,992Debt conversion expense
    
    
    471,186
    
    
    
    Other
    
    
    (417
    )
    
    
    8,580Total other expense
    
    
    (677,187
    )
    
    
    (247,572
    )Loss from continuing operations
    
    
    (1,195,306
    )
    
    
    (860,573
    )Loss from discontinued operations
    
    
    (5,198
    )
    
    
    NET LOSS
    
    $
    (1,200,504
    )
    
    $
    (860,573
    )Preferred dividends
    
    
    (202,005
    )
    
    
    (202,005
    )Net loss applicable to common stockholders
    
    $
    (1,402,509
    )
    
    $
    (1,062,578
    )Net loss per share  basic and diluted:Continuing operations
    
    $
    (0.05
    )
    
    $
    (0.04
    )Discontinued operations
    
    
    (0.00
    )
    
    
    0.00Net loss per share  basic and diluted
    
    $
    (0.06
    )
    
    $
    (0.04
    )Weighted average number of common shares
outstanding  basic and diluted
    
    
    22,901,207
    
    
    
    25,627,959
  4




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VIEWCAST.COM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
 FOR THE THREE MONTHS ENDED MARCH 31, 2006
 (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
    
    
    DeficitBalances, December 31, 2005
    
    
    800,000
    
    
    $
    80
    
    
    
    200,000
    
    
    $
    20
    
    
    
    25,889,456
    
    
    $
    2,589
    
    
    $
    59,718,393
    
    
    $
    (68,745,195
    )
    
    $
    (11,906
    )
    
    $
    (9,036,019
    )Employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    214Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (860,573
    )
    
    
    
    
    
    
    (860,573
    )Balances, March 31, 2006
    
    
    800,000
    
    
    $
    80
    
    
    
    200,000
    
    
    $
    20
    
    
    
    25,889,456
    
    
    $
    2,589
    
    
    $
    59,718,607
    
    
    $
    (69,605,768
    )
    
    $
    (11,906
    )
    
    $
    (9,896,378
    )
  5




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VIEWCAST.COM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 For the three months endedMarch 31,2005
    
    
    2006Operating activities:Net loss from continuing operations
    
    $
    (1,195,306
    )
    
    $
    (860,573
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Loss from discontinued operations
    
    
    (5,198
    )
    
    
    Bad debt expense
    
    
    16,792
    
    
    
    9,299Depreciation of fixed assets
    
    
    28,677
    
    
    
    39,747Amortization of software development costs
    
    
    15,366
    
    
    
    15,949Non-cash debt conversion expense
    
    
    471,186
    
    
    
    Non-cash stock option expense
    
    
    
    
    
    
    214Gain (loss) on disposition of property and equipment
    
    
    
    
    
    
    11,922Changes in operating assets and liabilitiesAccounts receivable
    
    
    (245,203
    )
    
    
    76,240Inventories
    
    
    (113,435
    )
    
    
    (16,981
    )Prepaid expenses
    
    
    (23,606
    )
    
    
    (155,351
    )Deposits
    
    
    4,400
    
    
    
    (15,540
    )Accounts payable
    
    
    404,823
    
    
    
    76,399Accrued expenses and stockholder accrued interest
    
    
    373,561
    
    
    
    446,327Deferred revenue
    
    
    (7,386
    )
    
    
    Net cash used in continuing operations
    
    
    (275,329
    )
    
    
    (372,348
    )Net cash provided by discontinued operations
    
    
    285,770
    
    
    
    Net cash provided by (used in) operating
activities
    
    
    10,441
    
    
    
    (372,348
    )Investing activities:Capitalized software development costs and patents
    
    
    
    
    
    
    (51,411
    )Purchase of property and equipment
    
    
    (31,804
    )
    
    
    (180,410
    )Net cash used in continuing operations
    
    
    (31,804
    )
    
    
    (231,821
    )Net cash provided by discontinued operations
    
    
    40,023
    
    
    
    Net cash provided by (used in) investing
activities
    
    
    8,219
    
    
    
    (231,821
    )Financing activities:Net proceeds from stockholder line of credit
    
    
    100,000
    
    
    
    Repayments of long-term debt
    
    
    (1,435
    )
    
    
    (1,830
    )Net cash provided by (used in) continuing
operations
    
    
    98,565
    
    
    
    (1,830
    )Net cash used in discontinued operations
    
    
    (311,622
    )
    
    
    Net cash used in financing activities
    
    
    (213,057
    )
    
    
    (1,830
    )Net decrease in cash and cash equivalents
    
    
    (194,397
    )
    
    
    (605,999
    )Cash and cash equivalents, beginning of period
    
    
    247,121
    
    
    
    1,447,873Cash and cash equivalents, end of period
    
    $
    52,724
    
    
    $
    841,874Supplemental cash flow information:Cash paid for interest
    
    $
    1,029
    
    
    $
    635Supplemental non-cash flow operating activities:Conversion of Series D redeemable convertible preferred
stock to common stock
    
    $
    1,461,380
    
    
    $
    
  6




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ViewCast.com, Inc. and Subsidiaries
 
 Notes to the Condensed Consolidated Financial Statements
 1. Basis of Presentation
     2. Accounts Receivable
  7




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
  For the three months endedMarch 31,2005
    
    
    2006(Unaudited)
    
    
    (Unaudited)Beginning balance
    
    $
    13,382
    
    
    $
    13,171Bad debt expense
    
    
    16,792
    
    
    
    9,299Uncollectible accounts written off
    
    
    (10,721
    )
    
    
    Ending balance
    
    $
    19,453
    
    
    $
    22,470
 3. Inventories
  December 31,
    
    
    March 31,2005
    
    
    2006(Unaudited)Purchased materials
    
    $
    775,232
    
    
    $
    889,700Finished goods
    
    
    1,236,259
    
    
    
    1,138,772$
    2,011,491
    
    
    $
    2,028,472
 4. Discontinued Operations
   Three Months endedMarch 31,2005(Unaudited)Net sales
    
    $
    2,899,713Cost of sales
    
    
    2,259,362Gross profit
    
    
    640,351Operating expenses
    
    
    637,468Operating income (loss)
    
    
    2,883Other expense:
    
    
    (8,081
    )Net loss
    
    $
    (5,198
    )
 8




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ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
 5. Accrued Expenses
  December 31,
    
    
    March 31,2005
    
    
    2006(Unaudited)Stockholder accrued interest (short-term)
    
    $
    758,086
    
    
    $
    949,405Accrued compensation
    
    
    126,026
    
    
    
    151,749Accrued warranty
    
    
    57,667
    
    
    
    62,508Accrued inventory purchases
    
    
    71,162
    
    
    
    124,924Accrued taxes and other
    
    
    230,436
    
    
    
    352,766$
    1,243,377
    
    
    $
    1,641,352
 6. Warranty Reserves
   For the three months endedMarch 31,2005
    
    
    2006(Unaudited)
    
    
    (Unaudited)Beginning balance
    
    $
    57,744
    
    
    $
    57,667Charged to expense
    
    
    10,350
    
    
    
    14,909Usage
    
    
    (8,678
    )
    
    
    (10,068
    )Ending Balance
    
    $
    59,416
    
    
    $
    62,508
 9




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
 7. Property and Equipment
  EstimatedUseful Life
    
    
    December 31,
    
    
    March 31,(Years)
    
    
    2005
    
    
    2006(Unaudited)Computer equipment
    
    
    3 to 7
    
    
    $
    1,185,281
    
    
    $
    1,226,491Software
    
    
    3 to 5
    
    
    
    625,835
    
    
    
    627,568Leasehold improvements
    
    
    1 to 5
    
    
    
    23,232
    
    
    
    121,746Furniture and equipment
    
    
    5 to 7
    
    
    
    658,562
    
    
    
    661,1322,492,910
    
    
    
    2,636,937Less accumulated depreciation and
amortization
    
    
    
    
    
    
    (2,208,082
    )
    
    
    (2,239,562
    )$
    284,828
    
    
    $
    397,375
 8. Short-term Debt
 Stockholder Line of Credit
    10




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ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
 9. Long-Term Debt
 Stockholder Term Note
   December 31, 2005
    
    
    March 31, 2006(Unaudited)Stockholder term note with an entitycontrolled 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% (7.25% and 7.75% at December 31, 2005
and March 31, 2006, respectively) or 9.5% fixed rate, due
December 31, 2007 (See Note 8).
    
    $
    6,909,582
    
    
    $
    6,909,582Other long-term debt
    
    
    11,335
    
    
    
    9,505Total long-term debt
    
    
    6,920,917
    
    
    
    6,919,087Less current maturities
    
    
    (142,389
    )
    
    
    (199,248
    )Total long-term debt less current maturities
    
    $
    6,778,528
    
    
    $
    6,719,839
 10. Series D Redeemable Convertible Preferred Stock
  11. Conversion of Convertible Debt to Equity
   11




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ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
   Increase inPrincipal
    
    
    
    
    
    
    CommonNumber
    
    
    Amount
    
    
    Debt
    
    
    Stock, ParConversion of Series D Redeemable
    
    of Equity
    
    
    of Debt
    
    
    Conversion
    
    
    and Paid inConvertible Preferred Shares
    
    Securities
    
    
    Reduction
    
    
    Expense
    
    
    CapitalConversion shares under original terms
    
    
    974,254Principal amount converted into equity
    
    
    
    
    
    $
    1,461,380
    
    
    
    
    
    
    $
    (1,461,380
    )Additional conversion shares under
lowered conversion terms1,682,804
    
    
    
    
    
    
    $
    471,186
    
    
    
    (471,186
    )2,657,058
    
    
    $
    1,461,380
    
    
    $
    471,186
    
    
    $
    (1,932,566
    )
 12. Net Loss Per Share
   For the Three Months Ended March 31,2005
    
    
    2006(Unaudited)
    
    
    (Unaudited)Stock options
    
    
    2,787,449
    
    
    
    2,956,175Public and private warrants
    
    
    4,835,482
    
    
    
    4,746,482Convertible 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
    
    
    543,433
    
    
    
    13,706,593
    
    
    
    13,242,886
 13. Stock-Based Compensation
  12




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ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
  Three Months EndedMarch 31,2005(Unaudited)Net loss
applicable to common stockholders:
    
    $
    (1,402,509
    )As reportedDeduct total stock-based compensation
under fair value based method for all
awards, net of related tax expense
    
    
    (113,672
    )Pro forma
    
    $
    (1,516,181
    )Net loss per share:As reported
    
    $
    (0.06
    )Pro forma  basic and diluted
    
    $
    (0.07
    )
    13




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ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
   14. Related Party Transaction
  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
    Overview
 ® ® ®
  Discontinued Operations
   15




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)
  Critical Accounting Policies
  
    
    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 contract revenue that is recognized ratably over the contract 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.
    
    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.
 16




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)
 Results of Operations
 Three
Months Ended March 31, 2006 compared to
 Three Months Ended March 31, 2005.
 Net
Sales.
 Osprey Product Sales .
 Video System and Application Software Product Sales.
 Other
Revenues.
 Cost of Sales and Gross Margins .
  Selling, General and Administrative Expenses .
 Research and Development Expense.
 Other
Expense.
 Net
Loss.
 17




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)
  Liquidity and Capital Resources
         18




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ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)
      Off-Balance Sheet Arrangements
  19




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ViewCast.com, Inc. and Subsidiaries
Controls and Procedures
 
 Item 3. Controls and Procedures
   20




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ViewCast.com, Inc. and Subsidiaries
Other Information
 
 PART II: OTHER INFORMATION
 Item 1.
    
    Legal Proceedings(None)Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds(None)Item 3.
    
    Defaults Upon Senior Securities(None)Item 4.
    
    Submission of Matters to a Vote of Security Holders(None)Item 5.
    
    Other Information(a)
    
    (None)(b)
    
    (None)Item 6.
    
    ExhibitsSee Exhibit Index.
 21




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##### Table of Contents



SIGNATURES
  ViewCast.com, Inc.(Registrant)BY:Date: May 15, 2006
    
    
    
    /s/ George C. PlattGeorge C. PlattChief Executive OfficerPrincipal Executive Officer/s/ Laurie L. LathamLaurie L. LathamChief Financial OfficerPrincipal Financial Officer
 22




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EXHIBIT INDEX
 ExhibitNumber31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications32.1
    
    Section 1350 Certifications
 23