UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549









FORM
10-Q




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




For the
quarterly period ended: September 30,
2009




OR




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




For the
transition period from to




Commission
file number:  000-29020




ViewCast.com,
Inc.


(Exact
name of registrant as specified in its charter)




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




(972)
488-7200


(Registrant’s
telephone number including area code)




N/A


(Former
name, former address and former fiscal year, if changed from last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes   x   No    ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such period that the registrant
was required to submit and post such files).


Yes    ̈   No    ̈




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




Large
accelerated filer  ̈      Accelerated
filer  ̈        Non-accelerated
filer  ̈      Smaller
reporting company   x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes  ̈    No
x




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




As
of October 31, 2009, there were 35,864,809 shares of common stock, par value
$0.0001 per share.





TABLE
OF CONTENTS





PART
      I.  FINANCIAL INFORMATIONItem
      1.  Financial StatementsCondensed
      Consolidated Balance Sheets at December 31, 2008 and September 30, 2009
      (Unaudited)
                
                3Condensed
      Consolidated Statements of Operations for the Three and Nine Months ended
      September 30, 2008 and 2009 (Unaudited)
                
                4Condensed
      Consolidated Statement of Stockholders’ Equity for the Nine Months ended
      September 30, 2009  (Unaudited)
                
                5Condensed
      Consolidated Statements of Cash Flows for the Nine Months ended September
      30, 2008 and 2009 (Unaudited)
                
                6Notes
      to Condensed Consolidated Financial Statements
                
                7Item
      2.  Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
                
                18Item
      3.  Quantitative and Qualitative Disclosure About Market
      Risk
                
                24Item
      4T.  Controls and Procedures
                
                25PART
      II.  OTHER INFORMATIONItem
      1.  Legal Proceedings
                
                26Item
      1A. Risk Factors
                
                26Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
                
                26Item
      3.  Defaults Upon Senior Securities
                
                26Item
      4.  Submission of Matters to a Vote of Security
      Holders
                
                26Item
      5.  Other Information
                
                26Item
      6.  Exhibits
                
                26SIGNATURES
                
                27Rule
      13a-14(a)/15d-14(a) CEO CertificationRule
      13a-14(a)/15d-14(a) CFO CertificationSection
      1350 CEO CertificationSection
      1350 CFO Certification


1





SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





Certain
statements in this Quarterly Report on Form 10-Q under “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and
elsewhere in this Report constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of
1995.  Forward-looking statements include statements regarding
ViewCast’s expectations, beliefs, hopes, intentions or strategies regarding the
future.  These statements involve known and unknown risks,
uncertainties, and other factors that may cause ViewCast or our industry’s
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking
statements.  Such factors include, but are not limited to, product
demand and market acceptance risks, the impact of competitive products and
pricing, product development, commercialization and technological difficulties,
capacity and supply constraints or difficulties, general business and economic
conditions, the availability of sufficient working capital, the ability to
service our debt, continued losses, the ability to successfully integrate
acquired operations, the effect of our accounting policies and other risks
detailed in our Annual Report on Form 10-K for the year ended December 31, 2008,
as amended by Amendment No. 1 thereto, and other filings with the Securities and
Exchange Commission.





In some
cases, you can identify forward-looking statements by terminology such as “may,”
“will,” “expects,” “should,” “anticipates,” “believes,” “estimates,” “predicts,”
“plans,” “potential,” “intends” or “continue” or the negative of such terms or
other comparable terminology.





Although
we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot assure you of future results, levels of activity,
performance or achievements.  We are under no duty, nor do we
undertake any obligation, to update any of the forward-looking statements after
the date of this report to conform such statements to actual
results.


2


PART
I.  FINANCIAL INFORMATION





Item
1.  Financial Statements





VIEWCAST.COM,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS





December
      31,
                    
                    
                    September
      30,2008
                    
                    
                    2009ASSETS
                    
                    
                    
                    
                    (Unaudited)Current
      assets:Cash
      and cash equivalents
                    
                    $
                    1,579,683
                    
                    
                    $
                    718,712Accounts
      receivable, less allowance for doubtful accounts of $82,317 and $125,332
      at December 31, 2008 and September 30, 2009, respectively
                    
                    
                    2,654,217
                    
                    
                    
                    1,188,821Inventories,
      net
                    
                    
                    2,824,236
                    
                    
                    
                    2,410,547Prepaid
      expenses
                    
                    
                    352,089
                    
                    
                    
                    245,869Total
      current assets
                    
                    
                    7,410,225
                    
                    
                    
                    4,563,949Property
      and equipment, net
                    
                    
                    772,290
                    
                    
                    
                    670,018Goodwill
                    
                    
                    -
                    
                    
                    
                    620,002Intangible
      assets, net
                    
                    
                    423,028
                    
                    
                    
                    1,515,812Deposits
                    
                    
                    48,177
                    
                    
                    
                    48,436Total
      assets
                    
                    $
                    8,653,720
                    
                    
                    $
                    7,418,217LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
                    
                    $
                    1,106,892
                    
                    
                    $
                    865,491Accrued
      expenses
                    
                    
                    1,143,882
                    
                    
                    
                    1,308,576Stockholder
      accrued interest
                    
                    
                    169,846
                    
                    
                    
                    -Current
      maturities of long-term debt and stockholder notes payable
                    
                    
                    159,032
                    
                    
                    
                    213,155Total
      current liabilities
                    
                    
                    2,579,652
                    
                    
                    
                    2,387,222Long-term
      debt, less current maturities
                    
                    
                    38,172
                    
                    
                    
                    56,747Stockholder
      notes payable, less current maturities
                    
                    
                    5,012,827
                    
                    
                    
                    4,948,560Total
      liabilities
                    
                    
                    7,630,651
                    
                    
                    
                    7,392,529Commitments
      and contingenciesStockholders'
      equity:Preferred
      stock, $0.0001 par value, authorized 5,000,000 shares:Series
      B convertible - issued and outstanding shares - 800,000 - liquidation
      value of $16 per share as of December 31, 2008 and September 30,
      2009
                    
                    
                    80
                    
                    
                    
                    80Series
      C convertible - issued and outstanding shares - 200,000 - liquidation
      value of $31 and $32 per share as of December 31, 2008 and September 30,
      2009, respectively
                    
                    
                    20
                    
                    
                    
                    20Series
      E convertible - issued and outstanding shares - 80,000 - liquidation value
      of $104 per share as of December 31, 2008 and September 30,
      2009
                    
                    
                    8
                    
                    
                    
                    8Common
      stock, $0.0001 par value, authorized 100,000,000 shares:Issued
      shares -  32,419,886 and 36,093,727 at December 31, 2008
      and  September 30, 2009, respectively
                    
                    
                    3,242
                    
                    
                    
                    3,609Additional
      paid-in capital
                    
                    
                    70,153,562
                    
                    
                    
                    71,654,692Accumulated
      deficit
                    
                    
                    (69,121,937
                    )
                    
                    
                    (71,620,815
                    )Treasury
      stock,  261,497 shares at cost
                    
                    
                    (11,906
                    )
                    
                    
                    (11,906
                    )Total
      stockholders' equity
                    
                    
                    1,023,069
                    
                    
                    
                    25,688Total
      liabilities and stockholders' equity
                    
                    $
                    8,653,720
                    
                    
                    $
                    7,418,217





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


3


VIEWCAST.COM,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)





For
      the three months ended
                              
                              
                              For
      the nine months endedSeptember 30,
                              
                              
                              September 30,2008
                              
                              
                              2009
                              
                              
                              2008
                              
                              
                              2009Net
      sales
                              
                              $
                              4,737,996
                              
                              
                              $
                              2,961,865
                              
                              
                              $
                              13,059,547
                              
                              
                              $
                              10,460,494Cost
      of sales
                              
                              
                              1,477,905
                              
                              
                              
                              1,031,559
                              
                              
                              
                              4,095,159
                              
                              
                              
                              3,852,289Gross
      profit
                              
                              
                              3,260,091
                              
                              
                              
                              1,930,306
                              
                              
                              
                              8,964,388
                              
                              
                              
                              6,608,205Operating
      expenses:Selling,
      general and administrative
                              
                              
                              2,083,424
                              
                              
                              
                              1,713,214
                              
                              
                              
                              5,670,497
                              
                              
                              
                              6,088,107Research
      and development
                              
                              
                              753,649
                              
                              
                              
                              752,374
                              
                              
                              
                              2,248,215
                              
                              
                              
                              2,339,009Depreciation
      and amortization
                              
                              
                              123,340
                              
                              
                              
                              207,585
                              
                              
                              
                              350,375
                              
                              
                              
                              569,595Total
      operating expenses
                              
                              
                              2,960,413
                              
                              
                              
                              2,673,173
                              
                              
                              
                              8,269,087
                              
                              
                              
                              8,996,711Operating
      income (loss)
                              
                              
                              299,678
                              
                              
                              
                              (742,867
                              )
                              
                              
                              695,301
                              
                              
                              
                              (2,388,506
                              )Other
      income (expense):Interest
      expense (including $42,792, $43,190, $130,201, and$112,986
      of expense to related parties, respectively)
                              
                              
                              (45,597
                              )
                              
                              
                              (44,782
                              )
                              
                              
                              (138,679
                              )
                              
                              
                              (118,669
                              )Interest
      income
                              
                              
                              6,263
                              
                              
                              
                              1,498
                              
                              
                              
                              27,559
                              
                              
                              
                              4,322Gain
      on disposal of fixed assets
                              
                              
                              -
                              
                              
                              
                              3,975
                              
                              
                              
                              -
                              
                              
                              
                              3,975Total
      other expense
                              
                              
                              (39,334
                              )
                              
                              
                              (39,309
                              )
                              
                              
                              (111,120
                              )
                              
                              
                              (110,372
                              )Income
      tax expense
                              
                              
                              (5,000
                              )
                              
                              
                              -
                              
                              
                              
                              (11,400
                              )
                              
                              
                              -NET
      INCOME (LOSS)
                              
                              $
                              255,344
                              
                              
                              $
                              (782,176
                              )
                              
                              $
                              572,781
                              
                              
                              $
                              (2,498,878
                              )Preferred
      stock dividends
                              
                              
                              (205,000
                              )
                              
                              
                              (205,000
                              )
                              
                              
                              (615,029
                              )
                              
                              
                              (615,000
                              )Net
      income (loss) applicable to common stockholders
                              
                              $
                              50,344
                              
                              
                              $
                              (987,176
                              )
                              
                              $
                              (42,248
                              )
                              
                              $
                              (3,113,878
                              )Net
      income (loss) per shareBasic
                              
                              $
                              0.00
                              
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.00
                              )
                              
                              $
                              (0.09
                              )Diluted
                              
                              $
                              0.00
                              
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.00
                              )
                              
                              $
                              (0.09
                              )Weighted
      average number of common shares outstandingBasic
                              
                              
                              32,107,992
                              
                              
                              
                              35,832,230
                              
                              
                              
                              32,087,810
                              
                              
                              
                              34,937,662Diluted
                              
                              
                              48,035,557
                              
                              
                              
                              35,832,230
                              
                              
                              
                              32,087,810
                              
                              
                              
                              34,937,662





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


4


VIEWCAST.COM,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009


(UNAUDITED)





Series
      B
                  
                  
                  Series
      C
                  
                  
                  Series
      EConvertible
                  
                  
                  Convertible
                  
                  
                  Convertible
                  
                  
                  
                  
                  
                  
                  
                  
                  Additional
                  
                  
                  
                  
                  
                  
                  
                  
                  TotalPreferred
      Stock
                  
                  
                  Preferred
      Stock
                  
                  
                  Preferred
      Stock
                  
                  
                  Common
      Stock
                  
                  
                  Paid-in
                  
                  
                  Accumulated
                  
                  
                  Treasury
                  
                  
                  Stockholders'Shares
                  
                  
                  Par
      Value
                  
                  
                  Shares
                  
                  
                  Par
      Value
                  
                  
                  Shares
                  
                  
                  Par
      Value
                  
                  
                  Shares
                  
                  
                  Par
      Value
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  Stock
                  
                  
                  EquityBalances,
      December 31, 2008
                  
                  
                  800,000
                  
                  
                  $
                  80
                  
                  
                  
                  200,000
                  
                  
                  $
                  20
                  
                  
                  
                  80,000
                  
                  
                  $
                  8
                  
                  
                  
                  32,419,886
                  
                  
                  $
                  3,242
                  
                  
                  $
                  70,153,562
                  
                  
                  $
                  (69,121,937
                  )
                  
                  $
                  (11,906
                  )
                  
                  $
                  1,023,069Stock
      based compensation expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  150,087
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  150,087Employee
      stock purchase plan issuance
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  22,527
                  
                  
                  
                  2
                  
                  
                  
                  8,558
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,560Exercise
      of stock options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000
                  
                  
                  
                  1
                  
                  
                  
                  2,849
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,850Exercise
      of warrants
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,500,000
                  
                  
                  
                  250
                  
                  
                  
                  939,750
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  940,000Stock
      issuance for acquisition
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,141,314
                  
                  
                  
                  114
                  
                  
                  
                  399,886
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  400,000Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,498,878
                  )
                  
                  
                  -
                  
                  
                  
                  (2,498,878
                  )Balances,
      September 30, 2009
                  
                  
                  800,000
                  
                  
                  $
                  80
                  
                  
                  
                  200,000
                  
                  
                  $
                  20
                  
                  
                  
                  80,000
                  
                  
                  $
                  8
                  
                  
                  
                  36,093,727
                  
                  
                  $
                  3,609
                  
                  
                  $
                  71,654,692
                  
                  
                  $
                  (71,620,815
                  )
                  
                  $
                  (11,906
                  )
                  
                  $
                  25,688





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


5


VIEWCAST.COM,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)





For
      the nine months endedSeptember 30,2008
                      
                      
                      2009Operating
      activities:Net
      income (loss)
                      
                      $
                      572,781
                      
                      
                      $
                      (2,498,878
                      )Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in) operating activities:Bad
      debt expense
                      
                      
                      43,759
                      
                      
                      
                      43,015Depreciation
      of property and equipment
                      
                      
                      257,793
                      
                      
                      
                      330,419Amortization
      of intangible assets
                      
                      
                      92,581
                      
                      
                      
                      239,176Stock
      based compensation expense
                      
                      
                      67,788
                      
                      
                      
                      150,087Common
      stock issued to employee for services
                      
                      
                      3,000
                      
                      
                      
                      -Loss
      on disposition of property and equipment
                      
                      
                      -
                      
                      
                      
                      973Changes
      in operating assets and liabilities: (net of effect of
      acquisition)Accounts
      receivable
                      
                      
                      75,416
                      
                      
                      
                      1,583,141Inventories
                      
                      
                      319,853
                      
                      
                      
                      413,689Prepaid
      expenses
                      
                      
                      (30,933
                      )
                      
                      
                      106,635Deposits
                      
                      
                      (1,954
                      )
                      
                      
                      (259
                      )Accounts
      payable
                      
                      
                      232,985
                      
                      
                      
                      (241,402
                      )Accrued
      expenses
                      
                      
                      336,909
                      
                      
                      
                      (134,644
                      )Stockholder
      accrued interest
                      
                      
                      61,776
                      
                      
                      
                      (169,846
                      )Net
      cash provided by (used in) operating activities
                      
                      
                      2,031,754
                      
                      
                      
                      (177,894
                      )Investing
      activities:Capitalized
      software development costs
                      
                      
                      (107,676
                      )
                      
                      
                      (397,960
                      )Purchase
      of property and equipment
                      
                      
                      (218,688
                      )
                      
                      
                      (180,384
                      )Cash
      paid for acquisition
                      
                      
                      -
                      
                      
                      
                      (1,031,422
                      )Net
      cash used in investing activities
                      
                      
                      (326,364
                      )
                      
                      
                      (1,609,766
                      )Financing
      activities:Proceeds
      from sale of common stock
                      
                      
                      3,883
                      
                      
                      
                      8,560Proceeds
      from exercise of employee stock options
                      
                      
                      -
                      
                      
                      
                      2,850Net
      proceeds from exercise of warrants
                      
                      
                      -
                      
                      
                      
                      940,000Repayments
      of long-term debt
                      
                      
                      (21,173
                      )
                      
                      
                      (24,721
                      )Net
      cash provided by (used in) financing activities
                      
                      
                      (17,290
                      )
                      
                      
                      926,689Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      1,688,100
                      
                      
                      
                      (860,971
                      )Cash
      and cash equivalents, beginning of period
                      
                      
                      1,135,416
                      
                      
                      
                      1,579,683Cash
      and cash equivalents, end of period
                      
                      $
                      2,823,516
                      
                      
                      $
                      718,712Supplemental
      cash flow information:Cash
      paid for interest
                      
                      $
                      76,904
                      
                      
                      $
                      288,515Non-cash
      items:Stock
      issued for acquisition
                      
                      $
                      -
                      
                      
                      $
                      400,000Acquisition
      of property and equipment under capital leases
                      
                      $
                      48,362
                      
                      
                      $
                      33,152





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


6


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements





1.
Basis of Presentation and Liquidity





The
accompanying unaudited interim condensed consolidated financial statements
include the accounts of ViewCast.com, Inc. and its wholly-owned subsidiaries,
Osprey Technologies, Inc., VideoWare, Inc., Ancept Corporation, previously known
as ViewCast Online Solutions, Inc., and ViewCast Technology Services Corporation
(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 (“GAAP”) for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by GAAP 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 and nine months ended September 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2009. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2008, as amended by Amendment No. 1
thereto, filed with the Securities and Exchange Commission. Management has
evaluated subsequent events through November 16, 2009, the date this Quarterly
Report on Form 10-Q was filed with the Securities and Exchange
Commission.





ViewCast
utilizes significant capital to design, develop and commercialize its products
and intends to fund its operating activities and sales growth by utilizing
existing cash, cash contributed from operations, and from current or new lines
of credit to the extent available. ViewCast anticipates it may require
additional working capital during 2009 to support the expansion of sales
channels and market distribution, to develop and introduce new products and
services, to enhance existing product offerings, to address unanticipated
competitive threats or technical problems, to transition adverse economic
conditions, to service its debt and for potential acquisition
transactions.





ViewCast
incurred a net loss of $2,498,878 during the first nine months of 2009 and used
cash in operations of $177,894 during that same period. ViewCast plans to obtain
additional working capital by increasing sales, reducing operating expenses,
borrowings under its loan facility and through other initiatives that may
include raising additional equity. This is partially dependent on existing
market conditions. Although ViewCast has no firm arrangements with respect to
additional capital financing, on an ongoing basis, it considers proposals
received from potential investors relating to the issuance of equity securities
in exchange for a cash investment in ViewCast. There can be no assurance that
additional financing will be available to ViewCast on acceptable terms, or at
all. Additional equity financing may involve substantial dilution to our then
existing stockholders. ViewCast intends to actively pursue other strategic
merger and acquisition opportunities to the extent possible. In the event we
need additional working capital and are unable to raise such 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.





2.
Recently issued Accounting Pronouncements





In June
2009, the FASB issued FASB ASC 105, “Generally Accepted Accounting Principles,”
(“FASB ASC 105”) which establishes the FASB Accounting Standards Codification as
the sole source of authoritative generally accepted accounting principles.
Pursuant to the provisions of FASB ASC 105, the Company has updated reference to
GAAP in its financial statements issued for the period ended September 30, 2009.
The adoption of FASB ASC 105 did not impact the Company’s financial position or
results of operations.





In April
2009, the FASB issued a statement concerning, “Interim Disclosures about Fair
Value of Financial Instruments” contained in FASB ASC 270 “Interim Reporting”
(“FASB ASC 270”), which requires public entities to disclose in their interim
financial statements the fair value of all financial instruments, as well as the
method(s) and significant assumptions used to estimate the fair value of those
financial instruments. The Company has adopted the provisions of FASB ASC 270.
The adoption of FASB ASC 270 had no impact on the Company’s financial position
or results of operations.


7


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued





In
December 2007, the FASB issued ASC No. 805, “Business Combinations” (“FASB ASC
805”), previously referred to as  SFAS 141 (revised 2007), “Business
Combinations”.  FASB ASC 805 significantly changed current practices
regarding business combinations. Among the more significant changes, FASB ASC
805 expands the definition of a business and a business combination; requires
the acquirer to recognize the assets acquired, liabilities assumed and non
controlling interests (including goodwill), measured at fair value at the
acquisition date; requires acquisition-related expenses and restructuring costs
to be recognized separately from the business combination; and requires
in-process research and development to be capitalized at fair value as an
indefinite-lived intangible asset. FASB ASC 805 is effective for financial
statements issued for fiscal years beginning after December 15, 2008. The
Company adopted the provisions of FASB ASC 805 on January 1, 2009 and the
adoption did not change the financial accounting and reporting for business
combinations completed prior to the effective date of the new
standard.





On
January 1, 2009, the Company adopted FSP No. FAS 142-3, “Determination
of the Useful Life of Intangible Assets”, (“FSP No. FAS 142-3”), which is
codified primarily in FASB ASC Subtopic 350-30, “General Intangibles Other than
Goodwill”. This pronouncement prospectively amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under FASB ASC Topic 350,
“Intangibles – Goodwill and Other”. Adoption of FSP No. FAS 142-3 did not
have a material effect on the Company’s consolidated financial
statements.





3.
Acquisition





On March
13, 2009, the Company acquired certain assets (the “Ancept Assets”) of Ancept
Media Server, LLC (“Seller”) for $1,431,422. The Company (i) paid to the
Seller’s lender $1,000,000 in cash, (ii) paid to the Seller $31,422 in cash,
which is the difference between $170,000 in cash less a holdback amount of
$138,578 based on the difference in accounts receivables and deferred revenue as
of March 13, 2009, (iii) issued to the Seller Company common stock of $400,000
which resulted in the issuance of 1,141,314 shares based on the weighted average
closing price of the Company’s common stock for the ten trading days immediately
prior to the closing of the transaction, which was $0.35047, and (iv) assumed
deferred revenue liabilities related to the Ancept Assets. The primary purpose
of the acquisition was to enable the Company to expand its global business
presence with a complete portfolio of solutions that encompasses live and
on-demand video encoding, management and delivery. ViewCast’s wholly-owned
subsidiary ViewCast Online Solutions, Inc. was renamed Ancept Corporation
(“Ancept”) and this subsidiary operates the Ancept business.





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





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





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




8




ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued





The
following unaudited pro forma summary approximates the consolidated results of
operations as if the acquisition disclosed above had occurred as of January 1,
2008, after giving effect to certain adjustments, including allocation of
specifically identifiable expenses. The pro forma financial information does not
purport to be indicative of the results of operations that would have occurred
had the transactions taken place at the beginning of the period presented or
indicative of future results of operations.





For
      the three
                        months
      ended
                      
                      
                      For
      the nine months endedSeptember
      30,
                      
                      
                      September
      30,2008
                      
                      
                      2008
                      
                      
                      2009(Unaudited)
                      
                      
                      (Unaudited)
                      
                      
                      (Unaudited)Net
      sales
                      
                      $
                      5,156,599
                      
                      
                      $
                      14,409,779
                      
                      
                      $
                      10,621,121Net
      income (loss) applicable to common stockholders
                      
                      
                      35,282
                      
                      
                      
                      3,063
                      
                      
                      
                      (3,121,192
                      )Basic
      and diluted net income (loss) per common share
                      
                      $
                      0.00
                      
                      
                      $
                      0.00
                      
                      
                      $
                      (0.09
                      )applicable
      to common stockholdersWeighted
      average number of common shares outstanding(basic
      and diluted)
                      
                      
                      49,176,871
                      
                      
                      
                      33,238,437
                      
                      
                      
                      35,238,667





4.
Accounts Receivable





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




Changes
in the Company’s allowance for doubtful accounts for the three and nine months
ended September 30, 2008 and 2009 are as follows:





For
      the three months ended
                  
                  
                  For
      the nine months endedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Beginning
      balance
                  
                  $
                  57,304
                  
                  
                  $
                  116,192
                  
                  
                  $
                  30,390
                  
                  
                  $
                  82,317Bad
      debt expense
                  
                  
                  16,845
                  
                  
                  
                  9,140
                  
                  
                  
                  43,759
                  
                  
                  
                  43,015Uncollectible
      accounts written off
                  
                  
                  (5,986
                  )
                  
                  
                  -
                  
                  
                  
                  (5,986
                  )
                  
                  
                  -Ending
      balance
                  
                  $
                  68,163
                  
                  
                  $
                  125,332
                  
                  
                  $
                  68,163
                  
                  
                  $
                  125,332


9


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued





5.
Inventories





Inventories
consist of the following:





December
      31,
                    
                    
                    September
      30,2008
                    
                    
                    2009(Unaudited)Purchased
      materials
                    
                    $
                    1,670,260
                    
                    
                    $
                    929,944Finished
      goods
                    
                    
                    1,207,518
                    
                    
                    
                    1,525,174Reserve
                    
                    
                    (53,542
                    )
                    
                    
                    (44,571
                    )$
                    2,824,236
                    
                    
                    $
                    2,410,547





6.
Intangible Assets





Intangible
assets consist of the following:





December
      31,
                    
                    
                    September
      30,2008
                    
                    
                    2009(Unaudited)Customer
      lists
                    
                    $
                    -
                    
                    
                    $
                    60,000Non-compete
      agreements
                    
                    
                    -
                    
                    
                    
                    24,000Capitalized
      software
                    
                    
                    1,385,215
                    
                    
                    
                    2,612,950Patents
                    
                    
                    102,594
                    
                    
                    
                    122,819Less
      accumulated amortization
                    
                    
                    (1,064,781
                    )
                    
                    
                    (1,303,957
                    )$
                    423,028
                    
                    
                    $
                    1,515,812





Amortization
expenses consist of the following:





For
      the three months ended
                  
                  
                  For
      the nine months endedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Customer
      lists
                  
                  $
                  -
                  
                  
                  $
                  2,000
                  
                  
                  $
                  -
                  
                  
                  $
                  4,387Non-compete
      agreements
                  
                  
                  -
                  
                  
                  
                  3,000
                  
                  
                  
                  -
                  
                  
                  
                  6,581Capitalized
      software
                  
                  
                  34,605
                  
                  
                  
                  90,334
                  
                  
                  
                  88,293
                  
                  
                  
                  223,410Patents
                  
                  
                  1,445
                  
                  
                  
                  1,716
                  
                  
                  
                  4,288
                  
                  
                  
                  4,798$
                  36,050
                  
                  
                  $
                  97,050
                  
                  
                  $
                  92,581
                  
                  
                  $
                  239,176





10


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued






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


Year
      ended December 31,2009
                    
                    $
                    103,5162010
                    
                    
                    393,8952011
                    
                    
                    329,5272012
                    
                    
                    206,5162013
                    
                    
                    140,654Thereafter
                    
                    
                    341,704$
                    1,515,812





7.
Accrued Expenses





Accrued
expenses consist of the following:





December
      31,
                    
                    
                    September
      30,2008
                    
                    
                    2009(Unaudited)Accrued
      compensation
                    
                    $
                    302,310
                    
                    
                    $
                    228,408Accrued
      warranty
                    
                    
                    199,446
                    
                    
                    
                    208,629Accrued
      inventory purchases
                    
                    
                    39,595
                    
                    
                    
                    39,950Customer
      deposits
                    
                    
                    122,321
                    
                    
                    
                    64,374Deferred
      rent
                    
                    
                    73,484
                    
                    
                    
                    53,064Deferred
      revenue
                    
                    
                    156,611
                    
                    
                    
                    467,907Accrued
      taxes and other
                    
                    
                    250,115
                    
                    
                    
                    246,244$
                    1,143,882
                    
                    
                    $
                    1,308,576





8.
Warranty Reserves




Reserves
are provided for the estimated warranty costs when revenue is recognized. The
costs of warranty obligations are estimated based on warranty policy or
applicable contractual warranty, historical experience of known product failure
rates and use of materials and service delivery charges incurred in correcting
product failures. Specific warranty accruals may be made if unforeseen technical
problems arise. If actual experience, relative to these factors, significantly
differs from these estimates, additional warranty expense may be
required.





The
following table below shows the changes in accrued warranty expense for the
three and nine months ended September 30, 2008 and 2009:





For
      the three months ended
                  
                  
                  For
      the nine months endedSeptember
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009(Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)
                  
                  
                  (Unaudited)Beginning
      balance
                  
                  $
                  168,849
                  
                  
                  $
                  205,528
                  
                  
                  $
                  133,940
                  
                  
                  $
                  199,446Charged
      to expense
                  
                  
                  42,153
                  
                  
                  
                  13,856
                  
                  
                  
                  104,728
                  
                  
                  
                  46,567Usage
                  
                  
                  (7,938
                  )
                  
                  
                  (10,755
                  )
                  
                  
                  (35,604
                  )
                  
                  
                  (37,384
                  )Ending
      balance
                  
                  $
                  203,064
                  
                  
                  $
                  208,629
                  
                  
                  $
                  203,064
                  
                  
                  $
                  208,629







11


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued





9.
Property and Equipment




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





EstimatedUseful
      Life
                        
                        
                        December
      31,
                        
                        
                        September
      30,(Years)
                        
                        
                        2008
                        
                        
                        2009(Unaudited)Service
      equipment
                        
                        
                        3
                        
                        
                        $
                        242,362
                        
                        
                        $
                        242,362Computer
      equipment
                        
                        2
      to 7
                        
                        
                        
                        420,398
                        
                        
                        
                        490,522Software
                        
                        3
      to 5
                        
                        
                        
                        184,038
                        
                        
                        
                        199,511Leasehold
      improvements
                        
                        1
      to 5
                        
                        
                        
                        172,697
                        
                        
                        
                        172,697Office
      furniture and equipment
                        
                        5
      to 7
                        
                        
                        
                        1,136,470
                        
                        
                        
                        1,278,1962,155,965
                        
                        
                        
                        2,383,288Less
      accumulated depreciation and amortization
                        
                        
                        
                        
                        
                        
                        (1,383,675
                        )
                        
                        
                        (1,713,270
                        )$
                        772,290
                        
                        
                        $
                        670,018





10.
Long-Term Debt




Since
October 1998, the Company has maintained a credit facility with an entity
controlled by its largest stockholder, Mr. H.T. Ardinger. On October 31, 2008
and July 31, 2009, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare,
Inc. (jointly and severally, the “Borrower”) amended the terms and conditions of
the loan and security agreement with the Ardinger Family Partnership, Ltd. Under
the amended terms, $1,250,000 of the primary principal and $3,891,361 of the
secondary principal mature December 31, 2012, subject to certain earlier payment
conditions. The interest on the primary principal amount will accrue and be paid
monthly based on an interest rate per annum which is the greater of 5.00% or the
effective prime rate plus 0.75% (4.00% as of December 31, 2008 and September 30,
2009). Interest on the secondary principal shall accrue and be paid monthly
based on an interest rate per annum which is the lesser of 9.50% or the
effective Applicable Federal Rate, as defined in the agreement (2.85% and 2.87%
as of December 31, 2008 and September 30, 2009, respectively). Beginning January
31, 2010, minimum monthly principal payments of $21,422 will be made on the
primary principal, in addition to the monthly interest payments. Any amounts
remaining on December 31, 2012 will become due on that date. The amended note
agreement is secured by all the assets of the Borrower.




12


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements -
Continued









December
      31, 2008
                      
                      
                      September
      30, 2009(Unaudited)Aggregate
      of the Outstanding Principal ("Primary Principal Amount") as amended, with
      interest only due monthly at a rate per annum equal to the greater of
      5.00% or prime plus 0.75%. (4.00% at December 31, 2008 and September 30,
      2009), beginning in January 2010, minimum monthly principal payments of
      $21,422 will be made, matures December 31, 2012
                      
                      $
                      1,250,000
                      
                      
                      $
                      1,250,000Accrued
      and Outstanding Interest ("Secondary Principal Amount"), currently
      interest only due monthly at a rate per annum equal to the lesser of
      Applicable Federal Rate (2.85% and 2.87% at December 31, 2008 and
      September 30, 2009, respectively) or 9.50% fixed rate, matures December
      31, 2012
                      
                      
                      3,891,361
                      
                      
                      
                      3,891,361Other
      debt
                      
                      
                      68,670
                      
                      
                      
                      77,101Total
      long-term debt
                      
                      
                      5,210,031
                      
                      
                      
                      5,218,462Less
      current maturities
                      
                      
                      (159,032
                      )
                      
                      
                      (213,155
                      )Total
      long-term debt less current maturities
                      
                      $
                      5,050,999
                      
                      
                      $
                      5,005,307





11.
Warrants




On
February 27, 2009, the Company entered into an amendment to the warrant to
purchase common stock, dated December 11, 2006, (the “Amendment”) by and between
the Company and the Ardinger Family Partnership, Ltd. The general partner of the
Ardinger Family Partnership, Ltd. is H.T. Ardinger, Jr., the Company’s largest
stockholder. Pursuant to the Amendment, the Company agreed to reduce the
per share warrant exercise price to the average closing price for the five
consecutive trading days ending on February 27, 2009 on the Over-The-Counter
Bulletin Board in exchange for the Ardinger Family Partnership agreeing to
exercise the Warrant on or prior to March 5, 2009 with the proceeds to be used
by the Company for the acquisition of Ancept Assets (see Note 3). On March 5,
2009, the Ardinger Family Partnership, Ltd. exercised the outstanding warrant to
purchase 2,500,000 shares of the Company’s unregistered common stock at the
amended exercise price of $0.376 per share and the Company received proceeds of
$940,000. At September 30, 2009, the Company had no outstanding
warrants.





12.
Earnings Per Share Data




Basic
earnings per share (“EPS”) is calculated by dividing net income or loss
applicable to common stockholders by the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is calculated
by using the weighted-average number of common shares outstanding during the
period increased to include the number of additional shares of common stock that
would have been outstanding if the dilutive potential shares of common stock had
been issued. Dilutive potential shares of common stock include convertible
preferred stock, options and warrants which are exercisable based on the average
market price during the period. The average market price of the common stock was
$0.3177 during the nine months ended September 30, 2009. For periods presented,
the computation of diluted loss per share excludes the portion of convertible
preferred stock, options and warrants that are anti-dilutive.





13


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued






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


Three
      Months Ended September 30,
                            
                            
                            Nine
      Months Ended September 30,2008
                            
                            
                            2009
                            
                            
                            2008
                            
                            
                            2009(Unaudited)
                            
                            
                            (Unaudited)
                            
                            
                            (Unaudited)
                            
                            
                            (Unaudited)Net
      income (loss) applicable to common stockholders-
      numerator for basic and diluted earnings per share
                            
                            $
                            50,344
                            
                            
                            $
                            (987,176
                            )
                            
                            $
                            (42,248
                            )
                            
                            $
                            (3,113,878
                            )Weighted
      average common shares outstanding - denominator forbasic
      earnings per share
                            
                            
                            32,107,992
                            
                            
                            
                            35,832,230
                            
                            
                            
                            32,087,810
                            
                            
                            
                            34,937,662Dilutive
      potential common shares:Stock
      options
                            
                            
                            241,291
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Convertible
      preferred stock - Series E
                            
                            
                            15,686,274
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Weighted
      - average common shares outstanding-
      denominator for basic and dilluted earning per share
                            
                            
                            48,035,557
                            
                            
                            
                            35,832,230
                            
                            
                            
                            32,087,810
                            
                            
                            
                            34,937,662Net
      income (loss) per share:Basic
                            
                            $
                            0.00
                            
                            
                            $
                            (0.03
                            )
                            
                            $
                            (0.00
                            )
                            
                            $
                            (0.09
                            )Diluted
                            
                            $
                            0.00
                            
                            
                            $
                            (0.03
                            )
                            
                            $
                            (0.00
                            )
                            
                            $
                            (0.09
                            )Anti-dilutive
      securities excluded from diluted earnings per share:Stock
      options
                            
                            
                            2,915,850
                            
                            
                            
                            5,286,660
                            
                            
                            
                            3,711,476
                            
                            
                            
                            4,652,985Warrants
                            
                            
                            2,500,000
                            
                            
                            
                            -
                            
                            
                            
                            2,500,000
                            
                            
                            
                            -Convertible
      preferred stock - Series B
                            
                            
                            2,206,896
                            
                            
                            
                            2,206,896
                            
                            
                            
                            2,206,896
                            
                            
                            
                            2,206,896Convertible
      preferred stock - Series C
                            
                            
                            3,333,333
                            
                            
                            
                            3,333,333
                            
                            
                            
                            3,333,333
                            
                            
                            
                            3,333,333Convertible
      preferred stock - Series E
                            
                            
                            -
                            
                            
                            
                            13,333,333
                            
                            
                            
                            15,686,274
                            
                            
                            
                            13,333,333


14


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued





13.
Stock-Based Compensation





The
Company has various stock-based employee compensation plans, which are described
more fully in Note 8 of the Notes to Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2008, as
amended by Amendment No. 1 thereto.




The
Company accounts for Stock-based compensation under FASB ASC 718,
“Compensation-Stock Compensation” previously referred to as Statement of
Financial Accounting Standards No. 123(R), “Share-Based Payment.” Stock-based
compensation expense recognized under FASB ASC 718 was $67,788 and $150,087 for
the nine months ended September 30, 2008 and September 30, 2009, respectively.
There were 1,587,500 new options granted by the Company during the nine months
ended September 30, 2009. Stock-based compensation expense recognized in the
Company's Statement of Operations for the first nine months of 2008 and 2009
includes compensation expense for share-based payment awards granted prior to,
but not yet vested as of, December 31, 2005, based on the grant date fair value
estimated in accordance with the pro forma provisions of FASB ASC 718 and
compensation expense for the share-based payment awards granted subsequent to
December 31, 2005, based on the grant date fair value estimated in accordance
with the provisions of FASB ASC 718. Stock-based compensation expense recognized
in the Company's Statement of Operations for the first nine months of 2008 and
2009 is based on awards ultimately expected to vest and has been reduced for
estimated forfeitures. FASB ASC 718 requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.




The
Company uses the Black-Scholes option-pricing model ("Black-Scholes") as its
method of valuation under FASB ASC 718. The fair value is then amortized on a
straight-line basis over the requisite service periods of the awards, which is
generally the vesting period. The fair value of share-based payment awards on
the date of grant as determined by the Black-Scholes model is affected by our
stock price as well as other assumptions. These assumptions include, but are not
limited to, the expected stock price volatility over the term of the awards and
the actual and projected employee stock option exercise behaviors.




At
September 30, 2009, the balance of unearned stock-based compensation to be
expensed in future periods related to unvested share-based awards, as adjusted
for expected forfeitures, is approximately $351,732. The weighted-average period
over which the unearned stock-based compensation is expected to be recognized is
approximately two years.




Following
is a summary of stock option activity from January 1, 2009 through September 30,
2009:





Stock
      OptionsWeighted-AverageNumber
                          
                          
                          Price
      Per
                          
                          
                          Exercise
      Priceof
      Shares
                          
                          
                          Share
                          
                          
                          Per
      ShareOutstanding
      at December 31, 2008
                          
                          
                          4,065,935
                          
                          
                          $0.20
      - $7.14
                          
                          
                          $
                          1.42Granted
                          
                          
                          1,587,500
                          
                          
                          0.33
                          
                          
                          
                          0.33Exercised
                          
                          
                          (10,000
                          )
                          
                          0.29
                          
                          
                          
                          0.29Canceled/forfeited
                          
                          
                          (648,300
                          )
                          
                          0.30
      - 7.14
                          
                          
                          
                          4.92Outstanding
      at September 30, 2009
                          
                          
                          4,995,135
                          
                          
                          $0.20
      - $5.50
                          
                          
                          $
                          0.62


15


ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued





The
following information applies to options outstanding at September 30,
2009:




Weighted-Average
                          
                          
                          Weighted-
                          
                          
                          
                          
                          
                          Weighted-Range
      of
                          
                          Outstanding
      at
                          
                          
                          Remaining
                          
                          
                          Average
                          
                          
                          Exercisable
      at
                          
                          
                          AverageExercise
                          
                          September
      30,
                          
                          
                          Contractual
                          
                          
                          Exercise
                          
                          
                          September
      30,
                          
                          
                          ExercisePrices
                          
                          2009
                          
                          
                          Life
                          
                          
                          Price
                          
                          
                          2009
                          
                          
                          Price$0.01
      - 1.00
                          
                          
                          4,252,085
                          
                          
                          
                          5.5
                          
                          
                          $
                          0.37
                          
                          
                          
                          1,905,979
                          
                          
                          $
                          0.401.01
      - 2.00
                          
                          
                          532,050
                          
                          
                          
                          1.4
                          
                          
                          
                          1.12
                          
                          
                          
                          532,050
                          
                          
                          
                          1.122.01
      - 3.00
                          
                          
                          80,000
                          
                          
                          
                          0.8
                          
                          
                          
                          2.50
                          
                          
                          
                          80,000
                          
                          
                          
                          2.503.01
      - 4.00
                          
                          
                          2,500
                          
                          
                          
                          0.7
                          
                          
                          
                          3.52
                          
                          
                          
                          2,500
                          
                          
                          
                          3.524.01
      - 5.00
                          
                          
                          12,500
                          
                          
                          
                          0.1
                          
                          
                          
                          4.53
                          
                          
                          
                          12,500
                          
                          
                          
                          4.535.01
      - 6.00
                          
                          
                          116,000
                          
                          
                          
                          0.2
                          
                          
                          
                          5.44
                          
                          
                          
                          116,000
                          
                          
                          
                          5.444,995,135
                          
                          
                          
                          4.9
                          
                          
                          $
                          0.62
                          
                          
                          
                          2,649,029
                          
                          
                          $
                          0.85





14.
Income Taxes





The
Company accounts for uncertainty in income taxes in accordance with FASB ASC
740, “Income Taxes”, previously referred to as Financial Accounting Standard
Board Interpretation No. 48, “Accounting for Uncertainly in Income Taxes – An
Interpretation of FASB Statement No. 109”. FASB ASC 740 requires companies to
determine whether it is “more likely than not” that a tax position will be
sustained upon examination by the appropriate taxing authorities before any part
of the benefit can be recorded in the financial statements. It also provides
guidance on the recognition, measurement and classification of income tax
uncertainties, along with any related interest and penalties. The Company did
not recognize any adjustments to its financial statements as a result of its
implementation of FASB ASC 740.




At
December 31, 2008, the Company has federal income tax net operating loss
carryforwards of approximately $69,000,000. The Company recognized no federal
income tax benefit in the first nine months of 2009 as it has recorded a
valuation allowance to reduce all deferred tax assets to zero based on
management’s assessment of the Company’s ability to utilize the deferred tax
assets.





15.
Related Party Transactions




As
discussed in Note 10, the Company has two outstanding notes payable to its
largest stockholder, Mr. H.T. Ardinger. On July 31, 2009, the terms and
conditions of the loan and security agreement with the Ardinger Family
Partnership, Ltd. were amended to change the commencement date for the monthly
principal payments on the primary principal amount from July 31, 2009 to January
31, 2010.




In
addition, the source of a significant portion of the cash paid to Seller for the
purchase of the Ancept Assets (more fully described in Note 3) was obtained by
the Company pursuant to the warrant exercise on March 5, 2009 by H.T. Ardinger
and the Ardinger Family Partnership, Ltd. for the purchase 2,500,000 shares of
the Company’s unregistered common stock at an amended exercise price of $0.376
per share, pursuant to which the Company received proceeds of $940,000.See Note 11 for
related-party warrant activity.




16.
Accounts Receivable Loan Facility




On June
29, 2007, the Company entered into a Purchase and Sale Agreement/Security
Agreement (the “Agreement”) with Amegy Bank National Association, a national
banking association (“Amegy”). The Agreement provides the Company with an
accounts receivable loan facility of up to $1,000,000 to provide a source of
working capital. As of September 30, 2009, the Company had no borrowings under
this facility.




16




ViewCast.com,
Inc. and Subsidiaries


Notes
to Condensed Consolidated Financial Statements - Continued





17.
Preferred Stock Dividend




There
were no preferred stock dividends declared or paid during the nine months ended
September 30, 2009. The Series B and Series C preferred stock 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. At September 30, 2009, cumulative dividends in arrears on preferred
shares are: Series B-$4,986,667, Series C-$1,422,500. The Series E preferred
stock has no dividend feature.


17




ViewCast.com,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of Financial Condition and Results of
Operations


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





The
following information should be read in conjunction with our consolidated
financial statements and related notes thereto included elsewhere in this
Quarterly Report on Form 10-Q and the audited consolidated financial statements
and notes thereto in the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008, as amended by Amendment No. 1 thereto. The
following discussion may contain forward-looking statements that reflect our
plans, estimates and beliefs. Our actual results could differ materially
from those discussed in these forward-looking statements. Factors that
could cause or contribute to these differences include, but are not limited to,
those discussed above under “Special Note Regarding Forward-Looking
Statements.”





Overview




ViewCast.com,
Inc., doing business as ViewCast Corporation (“ViewCast”), develops
industry-leading hardware and software for the transformation and delivery of
professional-quality video over IP and mobile networks. ViewCast’s award-winning
solutions simplify the complex workflows required for the Web-based streaming of
news, sports, music and other video content to computers and mobile devices,
empowering broadcasters, businesses and governments to reach and expand their
audiences easily and effectively. ViewCast Niagara®
streaming appliances, Osprey® video
capture cards and Niagara SCX® encoding
and management software provide the highly reliable technology required to
deliver the multiplatform experiences driving today’s digital media market.
ViewCast markets and sells its products and professional services worldwide
directly to end-users or through indirect channels including original equipment
manufacturers (“OEMs”), value-added resellers (“VARs”), resellers, distributors
and computer system integrators. ViewCast is focused on growth by leveraging the
digital media market expansion and our product solutions to capitalize on sales
opportunities. ViewCast believes that emphasis on revenue and market share
growth will enable it to realize long-term profitability and stockholder
value.




With the
purchase of assets from Ancept Media Server, LLC (the “Ancept Assets”) in March
2009 pursuant to the terms of an Asset Purchase Agreement dated March 5, 2009,
as amended, by and between ViewCast and Ancept Media Server, LLC (“Seller”),
ViewCast has expanded its software solutions into digital asset management and
workflow software solutions, enabling ViewCast to offer products to its
customers that provide for the management of the life cycle phases of digital
media. ViewCast’s wholly-owned subsidiary, ViewCast Online Solutions, Inc.,
was renamed Ancept Corporation (“Ancept”) and this subsidiary operates the
Ancept business. Ancept develops software solutions to manage and automate
media, from production to scheduling, editing, processing and content
distribution. Ancept leverages the power of IBM® Filenet
® and
IBM Content Manager to deliver scalable digital media management solutions that
automate complex media workflows. These solutions enable our customers to save
operating costs while scaling their media management applications.





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 (“GAAP”). 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 ongoing 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 critical accounting policies used in the preparation of
our consolidated financial statements:


18


ViewCast.com,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of Financial Condition and Results of Operations -


Continued





·
              Revenue Recognition –
      We apply provisions of Securities and Exchange Commission Staff Accounting
      Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements as
      revised by SAB 104, Revenue Recognition, FASB ASC 605, “Revenue
      Recognition” and FASB ASC 985, “Software”.  Under these
      guidelines, we recognize revenue on transactions where persuasive evidence
      of an arrangement exists, title has transferred, product payment is not
      contingent upon performance of installation or service obligations, the
      price is fixed or determinable and payment is reasonably
      assured.  We accrue warranty costs and sales allowances for
      promotional activities at time of shipment based on historical
      experience.  In addition, we defer revenue associated with
      maintenance and support contracts and recognize revenue ratably over the
      contract term.
 
 ·
              Allowance for Doubtful
      Accounts –We maintain allowances for doubtful accounts for
      estimated losses resulting from the inability of our customers to make
      required payments.  If the financial condition of our customers
      or distribution partners were to deteriorate, resulting in an impairment
      of their ability to make payments, additional allowances may be
      required.
 
 ·
              Excess and Obsolete
      Inventories – We write down our inventories for estimated
      obsolescence and unmarketable inventory equal to the difference between
      the cost of the inventory and the estimated market value based upon
      assumptions about future demand and market conditions.  If
      actual market conditions are less than those projected by management,
      additional write-downs may be
required.
 
 ·
              Deferred Taxes – We
      record a valuation allowance to reduce our deferred tax assets to an
      amount that we believe is more likely than not to be
      realized.  In our opinion, realization of our net operating loss
      carryforward is not reasonably assured, and a valuation allowance has been
      provided against deferred tax assets in excess of deferred tax liabilities
      in the accompanying consolidated financial statements.  However,
      should we determine in the future that realization of deferred tax assets
      in excess of recorded amounts is likely, an adjustment to the deferred tax
      assets would increase income in the period such determination was
      made.
 
 ·
              Purchase Accounting, Goodwill
      and Intangible Assets – We use the purchase method of accounting
      for our business acquisitions, accordingly, the statement of operation
      include the results of acquired businesses since the date of
      acquisition.  The assets acquired and liabilities assumed are
      recorded at their estimated fair value as determined by management and
      supported by an independent third-party
  valuation.
 
 ·
              Goodwill Arising from the
      Acquisitions of Business– We record goodwill arising from the
      acquisition of a business as the excess of the purchase price over the
      estimated fair value of the net assets of the business
      acquired.  In accordance with FASB ASC 350, “Intangibles –
      Goodwill and Other,” we are required to test goodwill for impairment
      annually or more frequently if circumstances indicate potential
      impairment.  Consistent with this standard, we will review
      goodwill, as well as other intangible assets and long-term assets, for
      impairment annually or more frequently as warranted, and if circumstances
      indicate that the recorded value of any such other asset is impaired, such
      asset is written down to its new, lower fair value.  If any item
      of goodwill or such other asset is determined to be impaired, an
      impairment loss would be recognized equal to the amount by which the
      recorded value exceeds the estimated fair market
  value.
 19




ViewCast.com,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of Financial Condition and Results of Operations -


Continued





Results
of Operations





Three
and Nine Months Ended September 30, 2009 compared to


Three
and Nine Months Ended September 30, 2008.





Net
Sales.  During the third
quarter ended September 30, 2009, net sales decreased $1,776,131 to $2,961,865
from $4,737,996 in the third quarter 2008, representing a 38%
decrease.  During the nine months ended September 30, 2009, net sales
decreased $2,599,053 to $10,460,494 from $13,059,547 for the same period in
2008, representing a 20% decrease.  The overall decrease during the
first nine months of 2009 was primarily due to decreases in Osprey® capture card
and Niagara® system revenue which was partially offset by an increase in
Ancept-related revenues of $746,660, as noted below.  Excluding
Ancept, net sales decreased during the nine months ended September 30, 2009
compared to the same period in 2008 by 22% in the North America sales region,
40% in the Europe, Middle East and Africa (“EMEA”) and 15% in the Pacific
Rim/South America sales regions.  The decreased revenue primarily was
due to decline in the global economy.  We expect to see poor economic
conditions continue to restrain customer budgets although substantial ongoing
sales activity may indicate potential increased demand once spending restraints
are relaxed later in 2009.





Osprey Product
Sales.  During the third
quarter ended September 30, 2009, Osprey sales decreased $637,129 to $2,077,602
from $2,714,731 in the third quarter 2008, representing a 24% decrease from the
2008 levels and 70% of total third quarter 2009 revenue, compared to 57% in
2008.  During the nine months ended September 30, 2009, Osprey sales
decreased $2,514,951 to $5,683,183 from $8,198,134 for the same period in 2008,
representing a 31% decrease from the 2008 levels and 54% of total revenue,
compared to 63% in 2008.  The decrease in sales for the nine months
ended September 30, 2009 was due to sales declines in all sales
regions.  Due to the global economic recession and, consequently, the
reduction in larger integration projects, sales of these products for the first
nine months of 2009 were negatively affected.





ViewCast Niagara®
Streaming/Encoding System Sales.During the third
quarter ended September 30, 2009, combined system sales decreased $1,414,162 to
$532,832 from $1,946,994 in the third quarter 2008, representing a 73% decrease
from the 2008 levels and 18% of total third quarter 2009 revenue, compared to
41% in 2008.  During the nine months ended September 30, 2009,
combined system sales decreased $822,895 to $3,846,842 from $4,669,737 for the
same period in 2008, representing an 18% decrease from the 2008 levels and 37%
of total revenue, compared to 36% in 2008.  The decrease in sales for
the nine months ended September 30, 2009 was due to sales declines in all sales
regions.  Due to the global economic recession and, consequently, the
reduction in customer budgets and solution integration projects for 2009, sales
of these products for the first nine months of 2009 were negatively
affected.  During the fourth quarter we anticipate the availability of
the Niagara 7500 for shipment and the new version of SCX released for our
Niagara systems will have a positive impact on sales activity within this
product line.





Software Licenses
and Other Revenues.During the third
quarter ended September 30, 2009, other revenues from software licenses, support
and maintenance, professional services and net third-party product revenue
increased $275,160 to $351,431 from $76,271 in the third quarter 2008,
representing a 361% increase from the 2008 levels and 12% of total third quarter
2009 revenue, compared to 2% in 2008.  During the nine months ended
September 30, 2009, other revenues increased $738,793 to $930,469 from $191,676
for the same period in 2008, representing a 385% increase from the 2008 levels
and 9% of total revenue, compared to 2% in 2008.  This increase was
primarily due to ViewCast’s newly-acquired Ancept business, which contributed in
software license, maintenance and support, and professional service revenue of
$309,914 and $746,660, representing 11% and 7% of total revenue, to the three
and nine month periods ended September 30, 2009, respectively.  We
anticipate that Other Revenue will vary quarter to quarter depending on the mix
of software license and professional service revenues in addition to support and
maintenance revenues that are amortized over the contract
period.


20




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


Cost of
Sales/Gross Profit.  During the third
quarter ended September 30, 2009, cost of sales decreased $446,346 to $1,031,559
from $1,477,905 in the third quarter 2008, representing a 30% decrease from the
2008 levels and 35% of total third quarter 2009 revenue, compared to 31% in
2008.  During the third quarter ended September 30, 2009, gross profit
decreased $1,329,785 to $1,930,306 from $3,260,091 in the third quarter 2008,
representing a 41% decrease from the 2008 levels and 65% of total third quarter
2009 revenue, compared to 69% in 2008.  During the nine months ended
September 30, 2009, cost of sales decreased $242,870 to $3,852,289 from
$4,095,159 in the same period 2008, representing a 6% decrease from the 2008
levels and 37% of total revenue, compared to 31% in 2008.  During the
nine months ended September 30, 2009, gross profit decreased $2,356,183 to
$6,608,205 from $8,964,388 in the same period 2008, representing a 26% decrease
from the 2008 levels and 63% of total revenue, compared to 69% in
2008.  The decrease in gross profit margin percentage was primarily
due to lower Osprey sales and a higher percentage of sales derived from the
lower margin OEM system products.  In addition, the increased revenues
from professional services, support and maintenance experience a lower margin
than the hardware and software products.





We expect
future margins for the software and hardware products to remain comparable to
historical margins in the 55%-65% range.  Margins for the Company will
be affected quarter to quarter by promotional activities, price adjustments,
cost of materials, inventory obsolescence, the introduction of new products and
the sales mix between the products, software, services and third-party products
sold in any one reporting period.





Selling, General
and Administrative Expenses.  During the third
quarter ended September 30, 2009, selling, general and administrative expenses
decreased $370,210 to $1,713,214 from $2,083,424 in the third quarter 2008,
representing an 18% decrease from the 2008 levels.  During the nine
months ended September 30, 2009, selling, general and administrative expenses
increased $417,610 to $6,088,107 from $5,670,497 in the same period 2008,
representing a 7% increase from the 2008 levels.  The increase
reflects an overall increase in sales and marketing due to increased headcount,
advertising, public relations and related expenses, partially offset by a
decrease in customer support.  Additionally, there were $167,000 of
non-recurring expenses during 2009 related to the acquisition of the Ancept
Assets.





Research and
Development Expense.During the third quarter ended September 30, 2009,
research and development expense, net of capitalized software development,
decreased $1,275 to $752,374 from $753,649 in the third quarter 2008,
representing a 0.2% decrease from the 2008 levels.  During the nine
months ended September 30, 2009, research and development expense, net of
capitalized software development, increased $90,794 to $2,339,009 from
$2,248,215 in the same period 2008, representing a 4% increase from the 2008
levels.  Research and development expenses vary period to period
depending on the number of product introductions planned and as new product
prototypes, testing and certifications are completed.





Depreciation and
Amortization Expense.During the third quarter ended September 30, 2009,
depreciation and amortization expense increased $84,245 to $207,585 from
$123,340 in the third quarter 2008, representing a 68% increase from the 2008
levels.  During the nine months ended September 30, 2009, depreciation
and amortization expense increased $219,220 to $569,595 from $350,375 in the
same period 2008, representing a 63% increase from the 2008
levels.  The increase was primarily due to the amortization of
acquired intangible assets and capitalized software development plus
expenditures in 2008 for IT infrastructure, test equipment and demo
gear.





Operating
Expense.  Total Operating expenses for the third quarter of
2009 have declined by $510,539 from the second quarter of 2009 and by $287,240
from the third quarter of 2008 due to reductions in expenses and headcount
initiated during the second quarter of 2009.  We anticipate these
second quarter actions along with other recent expense reductions will save the
Company approximately $1,000,000 over the second half of the year compared to
the first half of 2009.





Other Income
(Expense).  During the third quarter ended September 30, 2009,
total other expenses decreased $25 to $39,309 from $39,334 in the third quarter
2008, representing less than a 1% change from the 2008 levels.  During
the nine months ended September 30, 2009, total other expenses decreased $748 to
$110,372 from $111,120 in the same period 2008, representing a 1% decrease from
the 2008 levels.  Interest expense for the third quarter ended
September 30, 2009 decreased $815 to $44,782 from $45,597 in the third quarter
2008, representing a 2% decrease from the 2008 levels.  Interest
expense for the nine months ended September 30, 2009 decreased $20,010 to
$118,669 from $138,679 in the same period 2008, representing a 14% decrease from
the 2008 levels.  The decrease in interest expense is principally due
to the decrease of interest rates from our debt under the credit facility we
have in place with Ardinger Family Partnership, Ltd. (See Note
10).  Interest income for the third quarter ended September 30, 2009
decreased $4,765 to $1,498 from $6,263 in the third quarter
2008.  Interest income for the nine months ended September 30, 2009
decreased $23,237 to $4,322 from $27,559 in the same period 2008.  The
decrease in interest income is primarily due to lower interest rates and average
cash balance during the period.


21




ViewCast.com,
Inc. and Subsidiaries


Management’s
Discussion and Analysis of Financial Condition and Results of Operations -


Continued





Net Income
(Loss).  During the third quarter ended September 30, 2009, net
income decreased $1,037,520 to a net loss of ($782,176) from net income of
$255,344 in the third quarter 2008.  After reducing net loss for
accrued preferred dividends of $205,000, the net loss per share applicable to
the common shareholders for the third quarter of 2009 was ($0.03) per share,
compared to net income of less than a cent per share for the same period in
2008.   During the nine months ended September 30, 2009, net
income decreased $3,071,659 to a net loss of ($2,498,878) from net income of
$572,781 in the same period 2008.  After reducing net loss for accrued
preferred dividends of $615,000, the net loss per share applicable to the common
shareholders for the nine months ended September 30, 2009 was ($0.09) per share,
compared to a net loss of less than a cent per share for the same period in
2008.





Liquidity
and Capital Resources





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





Net cash
used in operating activities for the nine months ended September 30, 2009 was
$177,894 resulting from a net loss of ($2,498,878), plus non-cash operating
expense of $763,670 and net cash provided from operating assets and liabilities
(excluding the acquisition of the Ancept Assets) of $1,557,314.  Cash
provided by changes in operating assets and liabilities was principally due to
decreased accounts receivable, inventory and prepaid expenses, which was
partially offset by cash used for decreased accounts payable, accrued expenses
and stockholder accrued interest.





Cash
utilized for investing activities during the nine months ended September 30,
2009 totaled $1,609,766 of which $1,031,422 was used for the acquisition of the
Ancept Assets.  The remaining $578,344 of cash utilized for investing
activities was for $180,384 of property and equipment purchased and $397,960 of
software development costs capitalized.





During
the nine months ended September 30, 2009, ViewCast’s financing activities,
provided cash of $926,689 of which $940,000 was provided from the exercise of
warrants by H.T. Ardinger and the Ardinger Family Partnership, Ltd. for the purchase of 2,500,000 shares of the Company’s
unregistered common stock at an amended exercise price of $0.376 per share,
which proceeds were used to fund a significant portion of the cash paid to the
Seller for the purchase of the Ancept Assets.The remaining
$13,311 of cash used included $24,721 for repayment of long-term debt offset by
cash provided from the purchase of stock under the Employee Stock Purchase Plan
of $8,560 and exercise of employee stock options of $2,850.





On March
13, 2009, ViewCast acquired the Ancept Assets for $1,431,422.  The
Company (i) paid to the Seller’s lender $1,000,000 in cash, (ii) paid to the
Seller $31,422 in cash which is the difference between $170,000 in cash less a
holdback amount of $138,578 based on the difference in accounts receivables and
deferred revenue as of March 13, 2009, which may be adjusted in the future based
on actual collected accounts receivable, (iii) issued to the Seller Company
common stock of $400,000 which resulted in the issuance of 1,141,314 shares
based on the weighted average closing price of the Company’s common stock for
the ten trading days immediately prior to the closing of the transaction, which
was $0.35047, and (iv) assumed deferred revenue liabilities related to the
Ancept Assets.  The primary purpose of the acquisition was to enable
ViewCast to expand its global business presence with a complete portfolio of
solutions that encompasses live and on-demand video encoding, management and
delivery.


22




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


Since
October 1998, ViewCast has maintained a credit facility with an entity
controlled by its largest stockholder, Mr. H.T. Ardinger.  On October
31, 2008 and July 31, 2009, ViewCast.com, Inc., Osprey Technologies, Inc. and
VideoWare, Inc. (jointly and severally, the “Borrower”) amended the terms and
conditions of the loan and security agreement with the Ardinger Family
Partnership, Ltd.  Under the amended terms, the $1,250,000 of the
primary principal and $3,891,361 of the secondary principal mature December 31,
2012, subject to certain earlier payment conditions.  The interest on
the primary principal amount will accrue and be paid monthly based on an
interest rate per annum which is the greater of 5.00% or the effective prime
rate plus 0.75% (4.00% as of December 31, 2008 and September 30,
2009).  Interest on the secondary principal shall accrue and be paid
monthly based on an interest rate per annum which is the lesser of 9.50% or the
effective Applicable Federal Rate, as defined in the agreement (2.85% and 2.87%
as of December 31, 2008 and September 30, 2009,
respectively).  Beginning January 31, 2010, minimum monthly principal
payments of $21,422 will be made on the primary principal, in addition to the
monthly interest payments.  Any amounts remaining on December 31,
2012, will become due on that date.  The amended note agreement is
secured by all the assets of the Borrower.





In June
2007, ViewCast entered into a Purchase and Sale Agreement/Security Agreement
with Amegy Bank National Association, a national banking
association.  This agreement provides ViewCast with an account up to
$1,000,000 receivable loan facility to provide a source of working
capital.  As of September 30, 2009, we had no borrowings under this
facility.





On March
5, 2009, H.T. Ardinger and the Ardinger Family Partnership, Ltd. exercised the
outstanding warrant to purchase 2,500,000 shares of the Company’s unregistered
common stock at an amended exercise price of $0.376 per share and ViewCast
received proceeds of $940,000, which proceeds were used to fund a significant
portion of the cash required to be paid to Seller for the purchase of the Ancept
Assets.  At September 30, 2009, ViewCast had no outstanding
warrants.





There
were no preferred stock dividends declared or paid during the first quarter of
2009.  The Series B and Series C preferred stock issues carry
cumulative dividends of 8% and 9% per year, respectively, and are generally
payable semi-annually in arrears in cash or in ViewCast common stock, at
ViewCast’s option.  At September 30, 2009, cumulative dividends in
arrears on preferred shares are: Series B-$4,986,667, Series
C-$1,422,500.  Holders of Series B and Series C preferred stock have
no voting rights except as required by law.  The Series E preferred
stock has no dividend feature.





At
September 30, 2009, ViewCast had working capital of $2,176,727 and cash and cash
equivalents of $718,712.  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 existing
cash, cash contributed from operations and from current or new lines of credit
to the extent possible.  ViewCast anticipates it may require
additional working capital during 2009 to support the expansion of sales
channels and market distribution, to develop and introduce new products and
services, to enhance existing product offerings, to address unanticipated
competitive threats or technical problems, to transition adverse economic
conditions, to service its debt and for potential acquisition
transactions.





ViewCast
plans to obtain additional working capital position by increasing sales,
reducing operating expenses, borrowing under its loan facilities and through
other initiatives that may include raising additional
equity.  Although ViewCast has no firm arrangements with respect to
additional capital financing, on an ongoing basis, it considers proposals
received from potential investors relating to the issuance of equity securities
in exchange for a cash investment in ViewCast.  There can be no
assurance that additional financing will be available to ViewCast on acceptable
terms, or at all.  Additional equity financing may involve substantial
dilution to our then existing stockholders.  ViewCast intends to
actively pursue other strategic merger and acquisition opportunities 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
September 30, 2009, ViewCast had no material commitments for capital
expenditures.





Off-Balance
Sheet Arrangements





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


23




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





Item
3.  Quantitative and Qualitative Disclosure About Market
Risk





All of
our sales transactions during the first three quarters of 2009 were denominated
in U.S. dollars and the majority of our operations are based in the U.S. and,
accordingly, our results of operations are also denominated in U.S.
dollars.  We do have a foreign-based sales office in the London area
where transactions are denominated in the foreign currency.  The
impact of fluctuations in the relative value of the currency for the first nine
months of 2009 was not material.





Our
interest income earned on cash and cash equivalents is subject to interest rate
risk from the changes in the general level of U.S. interest rates, particularly
short-term rates.  We believe this risk is immaterial due to the
short-term nature of the investment commitment.





The
interest rates under our stockholder-related loan and security agreement is
subject to change based on the effective prime rate for the primary principal
amount and the effective Applicable Federal Rate for the secondary principal
amount.  At September 30, 2009 a balance of $1,250,000 was outstanding
on the primary principal and $3,891,361 outstanding on the secondary
principal.


24




ViewCast.com,
Inc. and Subsidiaries
 Controls
and Procedures


Item
4T.  Controls and Procedures




Evaluation of Disclosure Controls and
Procedures





Our disclosure controls and procedures (as defined inRule 13a-15(e))under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) are designed to
provide reasonable assurance that information required to be disclosed by
us in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission and that such
information is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required
disclosure.As required by Rule 13a-15(b) under the Exchange Act,
our management carried out an evaluation, with the participation of
ourChief Executive Officer and Chief
Financial Officer,of the effectiveness of
our disclosure controls and procedures as of December 31, 2008.Based upon
that evaluation,ourChief Executive Officer and Chief Financial Officer
concluded that, as ofSeptember 30, 2009,
ourdisclosure controls and procedures were
effectivein providing such reasonable
assurance.





Changes in Internal Control Over Financial
Reporting




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


25





PART
II: OTHER INFORMATION





Item
      1.
                
                Legal
      Proceedings(None)Item 1A.
                
                Risk
      Factors(Not
      Applicable)Item
      2.
                
                Unregistered
      Sales of Equity Securities and Use of Proceeds(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.


26




SIGNATURES


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





ViewCast.com, Inc.(Registrant)BY:Date:
      November 16, 2009
              /s/ David T. StonerDavid
      T. StonerChief
      Executive OfficerPrincipal
      Executive OfficerDate:
      November 16, 2009
              /s/ Laurie L.
  LathamLaurie
      L. LathamChief
      Financial OfficerPrincipal
      Financial and Accounting
Officer


27


EXHIBIT
INDEX


ExhibitNumber31.1
              
              Rule
      13a-14(a)/15d-14(a) CEO Certification31.2
              
              Rule
      13a-14(a)/15d-14(a) CFO Certification32.1
              
              Section
      1350 CEO Certification32.2
              
              Section
      1350 CFO Certification


28