##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission File Number: 0-29020
 ViewCast.com, Inc.
  Delaware
    
    75-2528700(State or other Jurisdiction of
    
    (I.R.S. Employer IncorporationIncorporation or Organization)
    
    Identification No.)
 3701 W. Plano Parkway, Suite 300, Plano, TX 75075
  972/488-7200
 (Issuers Telephone Number)
  þ o
  o þ
 APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
 o o
 APPLICABLE ONLY TO CORPORATE ISSUERS
  o þ




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##### 



ViewCast.com, Inc. and Subsidiaries
Index to Form 10-QSB
 PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at December 31, 2005 and June 30, 2006 (Unaudited)
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2005 and 2006 (Unaudited)
    
    4Condensed Consolidated Statement of Stockholders Deficit for the Six Months ended June 30, 2006 (Unaudited)
    
    5Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2005 and 2006 (Unaudited)
    
    6Notes to Condensed Consolidated Financial Statements
    
    7Item 2. Managements Discussion and Analysis or Plan of Operation
    
    15Item 3. Controls and Procedures
    
    21PART II. OTHER INFORMATION
    
    22SIGNATURES
    
    23Rule 13a-14(a)/15d-14(a) CertificationsSection 1350 CertificationsRule 13a-14(a)/15d-14(a) CertificationsSection 1350 Certifications
  2




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    June 30,2005
    
    
    2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,447,873
    
    
    $
    386,654Accounts receivable, less allowance for doubtful accounts
of $13,171 and $33,982 at December 31, 2005 and
June 30, 2006, respectively
    
    
    1,304,776
    
    
    
    1,661,247Inventories
    
    
    2,011,491
    
    
    
    1,843,081Prepaid expenses
    
    
    73,074
    
    
    
    132,777Total current assets
    
    
    4,837,214
    
    
    
    4,023,759Property and equipment, net
    
    
    284,828
    
    
    
    467,075Software development costs and patents, net
    
    
    122,931
    
    
    
    225,761Deposits
    
    
    29,326
    
    
    
    44,866Total assets
    
    $
    5,274,299
    
    
    $
    4,761,461LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    582,263
    
    
    $
    791,830Accrued expenses
    
    
    1,243,377
    
    
    
    1,861,652Stockholder line of credit
    
    
    3,350,000
    
    
    
    3,350,000Current maturities of long-term debt
    
    
    142,389
    
    
    
    236,230Total current liabilities
    
    
    5,318,029
    
    
    
    6,239,712Long-term debt less current maturities
    
    
    3,298
    
    
    
    1,650Stockholder note payable
    
    
    6,775,230
    
    
    
    6,679,263Stockholder accrued interest
    
    
    2,213,761
    
    
    
    2,349,945Commitments and contingenciesStockholders deficit:Preferred stock, $0.0001 par value, authorized 5,000,000 shares:Series B convertible  issued and outstanding shares  800,000
    
    
    80
    
    
    
    80Series C convertible  issued and outstanding shares  200,000
    
    
    20
    
    
    
    20Common stock, $.0001 par value, authorized 100,000,000 shares:Issued shares  25,889,456 at December 31, 2005 and June 30, 2006,
respectively
    
    
    2,589
    
    
    
    2,589Additional paid-in capital
    
    
    59,718,393
    
    
    
    59,720,919Accumulated deficit
    
    
    (68,745,195
    )
    
    
    (70,220,811
    )Treasury stock, 261,497 shares at cost
    
    
    (11,906
    )
    
    
    (11,906
    )Total stockholders deficit
    
    
    (9,036,019
    )
    
    
    (10,509,109
    )Total liabilities and stockholders deficit
    
    $
    5,274,299
    
    
    $
    4,761,461
  3




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006Net sales
    
    $
    2,537,098
    
    
    $
    3,562,309
    
    
    $
    5,093,561
    
    
    $
    6,441,433Cost of sales
    
    
    1,051,376
    
    
    
    1,547,438
    
    
    
    2,082,812
    
    
    
    2,888,204Gross profit
    
    
    1,485,722
    
    
    
    2,014,871
    
    
    
    3,010,749
    
    
    
    3,553,229Operating expenses:Selling, general and administrative
    
    
    1,240,687
    
    
    
    1,797,135
    
    
    
    2,640,389
    
    
    
    3,318,626Research and development
    
    
    679,192
    
    
    
    531,302
    
    
    
    1,293,959
    
    
    
    1,105,474Depreciation and amortization
    
    
    63,530
    
    
    
    69,080
    
    
    
    92,207
    
    
    
    124,777Total operating expenses
    
    
    1,983,409
    
    
    
    2,397,517
    
    
    
    4,026,555
    
    
    
    4,548,877Operating loss
    
    
    (497,687
    )
    
    
    (382,646
    )
    
    
    (1,015,806
    )
    
    
    (995,648
    )Other expense:Interest expense
    
    
    227,897
    
    
    
    232,397
    
    
    
    433,939
    
    
    
    471,388Debt conversion expense
    
    
    14,612
    
    
    
    
    
    
    
    485,798
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    (41
    )
    
    
    8,580Total other expense
    
    
    (242,509
    )
    
    
    (232,397
    )
    
    
    (919,696
    )
    
    
    (479,968
    )Loss from continuing operations
    
    
    (740,196
    )
    
    
    (615,043
    )
    
    
    (1,935,502
    )
    
    
    (1,475,616
    )Income from discontinued operations
    
    
    73,170
    
    
    
    
    
    
    
    67,972
    
    
    
    NET LOSS
    
    $
    (667,026
    )
    
    $
    (615,043
    )
    
    $
    (1,867,530
    )
    
    $
    (1,475,616
    )Preferred dividends
    
    
    (204,250
    )
    
    
    (204,250
    )
    
    
    (406,255
    )
    
    
    (406,255
    )Net loss applicable to common stockholders
    
    $
    (871,276
    )
    
    $
    (819,293
    )
    
    $
    (2,273,785
    )
    
    $
    (1,881,871
    )Net loss per share  basic and diluted:Continuing operations
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.09
    )
    
    $
    (0.07
    )Discontinued operations
    
    
    0.00
    
    
    
    0.00
    
    
    $
    0.00
    
    
    
    0.00Net loss per share  basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.09
    )
    
    $
    (0.07
    )Weighted average number of common shares
outstanding  basic and diluted
    
    
    25,575,667
    
    
    
    25,627,959
    
    
    
    24,301,950
    
    
    
    25,627,959
  4




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2006
 (UNAUDITED)
 Series B
    
    
    Series CConvertible
    
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Preferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    DeficitBalances, December 31, 2005
    
    
    800,000
    
    
    $
    80
    
    
    
    200,000
    
    
    $
    20
    
    
    
    25,889,456
    
    
    $
    2,589
    
    
    $
    59,718,393
    
    
    $
    (68,745,195
    )
    
    $
    (11,906
    )
    
    $
    (9,036,019
    )Stock based compensation
expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,526
    
    
    
    
    
    
    
    
    
    
    
    2,526Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,475,616
    )
    
    
    
    
    
    
    (1,475,616
    )Balances, June 30, 2006
    
    
    800,000
    
    
    $
    80
    
    
    
    200,000
    
    
    $
    20
    
    
    
    25,889,456
    
    
    $
    2,589
    
    
    $
    59,720,919
    
    
    $
    (70,220,811
    )
    
    $
    (11,906
    )
    
    $
    (10,509,109
    )
  5




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 For the six months endedJune 30,2005
    
    
    2006Operating activities:Net loss from continuing operations
    
    $
    (1,935,502
    )
    
    $
    (1,475,616
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Income from discontinued operations
    
    
    67,972
    
    
    
    Bad debt expense
    
    
    35,303
    
    
    
    20,811Depreciation of fixed assets
    
    
    61,475
    
    
    
    90,615Amortization of software development costs
    
    
    30,733
    
    
    
    34,162Non-cash debt conversion expense
    
    
    496,037
    
    
    
    Stock based compensation expense
    
    
    
    
    
    
    2,526Loss on disposition of property and equipment
    
    
    
    
    
    
    11,922Changes in operating assets and liabilitiesAccounts receivable
    
    
    71,269
    
    
    
    (377,282
    )Inventories
    
    
    (156,409
    )
    
    
    168,410Prepaid expenses
    
    
    431
    
    
    
    (59,703
    )Deposits
    
    
    4,400
    
    
    
    (15,540
    )Accounts payable
    
    
    295,831
    
    
    
    209,566Accrued expenses and stockholder accrued interest
    
    
    564,666
    
    
    
    754,459Deferred revenue
    
    
    (10,660
    )
    
    
    Net cash used in continuing operations
    
    
    (474,454
    )
    
    
    (635,670
    )Net cash provided by discontinued operations
    
    
    46,785
    
    
    
    Net cash used in operating activities
    
    
    (427,669
    )
    
    
    (635,670
    )Investing activities:Capitalized software development costs and patents
    
    
    
    
    
    
    (120,798
    )Purchase of property and equipment
    
    
    (61,586
    )
    
    
    (300,978
    )Net cash used in continuing operations
    
    
    (61,586
    )
    
    
    (421,776
    )Net cash provided by discontinued operations
    
    
    165,927
    
    
    
    Net cash provided by (used in) investing activities
    
    
    104,341
    
    
    
    (421,776
    )Financing activities:Net proceeds from stockholder line of credit
    
    
    550,000
    
    
    
    Proceeds from sale of common stock and warrant
    
    
    279
    
    
    
    Repayments of long-term debt
    
    
    (2,949
    )
    
    
    (3,773
    )Net cash provided by (used in) continuing operations
    
    
    547,330
    
    
    
    (3,773
    )Net cash used in discontinued operations
    
    
    (316,041
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    231,289
    
    
    
    (3,773
    )Net decrease in cash and cash equivalents
    
    
    (92,039
    )
    
    
    (1,061,219
    )Cash and cash equivalents, beginning of period
    
    
    247,121
    
    
    
    1,447,873Cash and cash equivalents, end of period
    
    $
    155,082
    
    
    $
    386,654Supplemental cash flow information:Cash paid for interest
    
    $
    1,981
    
    
    $
    635Supplemental non-cash flow operating activities:Conversion of Series D redeemable convertible preferred
stock to common stock
    
    $
    1,506,700
    
    
    $
    
  6




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
 
 Notes to the Condensed Consolidated Financial Statements
 1. Basis of Presentation
  Form 10-KSB/A
   New Accounting Pronouncements . Accounting for Uncertainty in Income Taxes: an
interpretation of FASB Statement No. 109
 2. Accounts Receivable
  7




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
   For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Beginning balance
    
    $
    19,453
    
    
    $
    22,470
    
    
    $
    13,382
    
    
    $
    13,171Bad debt expense
    
    
    18,511
    
    
    
    11,512
    
    
    
    35,303
    
    
    
    20,811Uncollectible accounts written off
    
    
    
    
    
    
    
    
    
    
    (10,721
    )
    
    
    Ending balance
    
    $
    37,964
    
    
    $
    33,982
    
    
    $
    37,964
    
    
    $
    33,982
 3. Inventories
  December 31,
    
    
    June 30,2005
    
    
    2006(Unaudited)Purchased materials
    
    $
    775,232
    
    
    $
    879,440Finished goods
    
    
    1,236,259
    
    
    
    963,641$
    2,011,491
    
    
    $
    1,843,081
 4. Discontinued Operations
   Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2005(Unaudited)
    
    
    (Unaudited)Net sales
    
    $
    3,107,312
    
    
    $
    6,008,331Cost of sales
    
    
    2,421,158
    
    
    
    4,681,826Gross profit
    
    
    686,154
    
    
    
    1,326,505Operating expenses
    
    
    602,306
    
    
    
    1,239,774Operating income
    
    
    83,848
    
    
    
    86,731Other expense:
    
    
    (10,678
    )
    
    
    (18,759
    )Net income
    
    $
    73,170
    
    
    $
    67,972
 8




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
 5. Accrued Expenses
  December 31,
    
    
    June 30,2005
    
    
    2006(Unaudited)Stockholder accrued interest (short-term)
    
    $
    758,086
    
    
    $
    1,103,906Accrued compensation
    
    
    126,026
    
    
    
    199,810Accrued warranty
    
    
    57,667
    
    
    
    63,399Accrued inventory purchases
    
    
    71,162
    
    
    
    104,196Accrued taxes and other
    
    
    230,436
    
    
    
    390,341$
    1,243,377
    
    
    $
    1,861,652
 6. Warranty Reserves
   For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,2005
    
    
    2006
    
    
    2005
    
    
    2006(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Beginning balance
    
    $
    59,416
    
    
    $
    62,508
    
    
    $
    57,744
    
    
    $
    57,667Charged to expense
    
    
    8,657
    
    
    
    14,537
    
    
    
    19,008
    
    
    
    29,445Usage
    
    
    (375
    )
    
    
    (13,646
    )
    
    
    (9,054
    )
    
    
    (23,713
    )Ending Balance
    
    $
    67,698
    
    
    $
    63,399
    
    
    $
    67,698
    
    
    $
    63,399
 7. Property and Equipment
  EstimatedUseful Life
    
    
    December 31,
    
    
    June 30,(Years)
    
    
    2005
    
    
    2006(Unaudited)Computer equipment
    
    
    3 to 7
    
    
    $
    1,185,281
    
    
    $
    1,293,760Software
    
    
    3 to 5
    
    
    
    625,835
    
    
    
    627,568Leasehold improvements
    
    
    1 to 5
    
    
    
    23,232
    
    
    
    121,746Furniture and equipment
    
    
    5 to 7
    
    
    
    658,562
    
    
    
    714,4302,492,910
    
    
    
    2,757,504Less accumulated depreciation and
amortization
    
    
    
    
    
    
    (2,208,082
    )
    
    
    (2,290,429
    )$
    284,828
    
    
    $
    467,075
 9




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
 8. Short-term Debt
 Stockholder Line of Credit
    9. Long-Term Debt
 Stockholder Term Note
  10




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
  December 31, 2005
    
    June 30, 2006(Unaudited)Stockholder term note with an entity controlled
by a principal stockholder of the Company,
collateralized by all assets of Borrower, with
interest due at a rate per annum equal to the
lesser of prime plus 3% (7.25% and 8.25% at
December 31, 2005 and June 30, 2006,
respectively) or 9.5% fixed rate, due December
31, 2007.
    
    $
    6,909,582
    
    
    $
    6,909,582Other long-term debt
    
    
    11,335
    
    
    
    7,562Total long-term debt
    
    
    6,920,917
    
    
    
    6,917,144Less current maturities
    
    
    (142,389
    )
    
    
    (236,230
    )Total long-term debt less current maturities
    
    $
    6,778,528
    
    
    $
    6,680,913
 10. Conversion of Convertible Debt to Equity
    Increase inPrincipal
    
    
    
    
    
    
    CommonNumber
    
    
    Amount
    
    
    Debt
    
    
    Stock, ParConversion of Series D Redeemable
    
    of Equity
    
    
    of Debt
    
    
    Conversion
    
    
    and Paid inConvertible Preferred Shares
    
    Securities
    
    
    Reduction
    
    
    Expense
    
    
    CapitalConversion shares under original terms
    
    
    974,254Principal amount converted into equity
    
    
    
    
    
    $
    1,506,700
    
    
    
    
    
    
    $
    (1,506,700
    )Additional conversion shares under
lowered conversion terms
    
    
    1,765,204
    
    
    
    
    
    
    $
    485,798
    
    
    
    (485,798
    )2,739,458
    
    
    $
    1,506,700
    
    
    $
    485,798
    
    
    $
    (1,992,498
    )
 11




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
 11. Net Loss Per Share
   For the Three Months Ended June 30,
    
    For the Six Months Ended June 30,2005
    
    2006
    
    2005
    
    2006(Unaudited)
    
    (Unaudited)
    
    (Unaudited)
    
    (Unaudited)Stock options
    
    
    2,787,449
    
    
    
    2,704,675
    
    
    
    2,787,449
    
    
    
    2,868,933Public and private warrants
    
    
    4,835,482
    
    
    
    4,746,482
    
    
    
    4,835,482
    
    
    
    4,746,482Convertible 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
    
    
    
    3,333,333Redeemable convertible preferred Stock  Series D
    
    
    543,433
    
    
    
    
    
    
    
    543,433
    
    
    
    13,706,593
    
    
    
    12,991,386
    
    
    
    13,706,593
    
    
    
    13,155,644
 12. Stock-Based Compensation
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2005(Unaudited)
    
    
    (Unaudited)Net loss applicable to common stockholders:As reported
    
    $
    (871,276
    )
    
    $
    (2,273,785
    )Deduct total stock-based compensation under
fair value based method for all awards
    
    
    (163,832
    )
    
    
    (277,504
    )Pro forma
    
    $
    (1,035,108
    )
    
    $
    (2,551,289
    )Net loss per share:As reported
    
    $
    (0.03
    )
    
    $
    (0.09
    )Pro forma  basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.10
    )
   12




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
    Six Months EndedJune 30,2006Expected volatility
    
    
    108.78
    %Risk-free interest rate
    
    
    4.78
    %Expected dividends
    
    
    0.0
    %Expected term in years
    
    
    4.21
  13




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements  Continued
  Stock OptionsWeighted-AverageNumber
    
    
    Price Per
    
    Exercise Priceof Shares
    
    
    Share
    
    Per ShareOutstanding at January 1, 2006
    
    
    3,124,642
    
    
    $0.20 - $9.00
    
    $
    2.07Granted
    
    
    130,000
    
    
    0.19 -
  0.20
    
    
    0.20Exercised
    
    
    
    
    
    0.00 -
  0.00
    
    
    0.00Canceled/forfeited
    
    
    (560,192
    )
    
    0.20 -
  5.09
    
    
    0.87Outstanding at June 30, 2006
    
    
    2,694,450
    
    
    $0.20 - $9.00
    
    $
    2.23
   Weighted-Average
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    Outstanding at
    
    Remaining
    
    Average
    
    Exercisable at
    
    AverageExercise
    
    June 30,
    
    Contractual
    
    Exercise
    
    June 30,
    
    ExercisePrices
    
    2006
    
    Life
    
    Price
    
    2006
    
    Price$0.01  1.00
    
    
    1,225,750
    
    
    
    7.8
    
    
    
    $ 0.37
    
    
    
    1,044,498
    
    
    
    $ 0.401.01  2.00
    
    
    578,850
    
    
    
    4.6
    
    
    
    1.15
    
    
    
    578,850
    
    
    
    1.152.01  3.00
    
    
    120,000
    
    
    
    3.6
    
    
    
    2.53
    
    
    
    120,000
    
    
    
    2.533.01  4.00
    
    
    172,500
    
    
    
    1.1
    
    
    
    3.80
    
    
    
    172,500
    
    
    
    3.804.01  5.00
    
    
    52,500
    
    
    
    1.7
    
    
    
    4.32
    
    
    
    52,500
    
    
    
    4.325.01  6.00
    
    
    117,850
    
    
    
    3.4
    
    
    
    5.50
    
    
    
    117,850
    
    
    
    5.506.01  7.00
    
    
    2,000
    
    
    
    2.8
    
    
    
    7.00
    
    
    
    2,000
    
    
    
    7.007.01  8.00
    
    
    410,000
    
    
    
    3.2
    
    
    
    7.10
    
    
    
    260,000
    
    
    
    7.108.01  9.00
    
    
    15,000
    
    
    
    2.8
    
    
    
    9.00
    
    
    
    15,000
    
    
    
    9.002,694,450
    
    
    
    5.5
    
    
    
    $ 2.23
    
    
    
    2,363,198
    
    
    
    $ 2.08
 13. Related Party Transaction
  14




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation
 
 Item 2. Managements Discussion and Analysis or Plan of Operation
    Overview
 ® ® ®
  Discontinued Operations
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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)
  Critical Accounting Policies
  
    
    Revenue Recognition We apply provisions of SEC Staff Accounting Bulletin (SAB) No.
101, Revenue Recognition in Financial Statements as revised by SAB 104, Revenue
Recognition, SOP 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification
of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions and EITF
00-21, Revenue Arrangements with Multiple Deliverables to transactions involving sales of
our hardware and software products. Under these guidelines, we recognize revenue on
transactions where persuasive evidence of an arrangement exists, title has transferred,
product payment is not contingent upon performance of installation or service obligations,
the price is fixed or determinable and payment is reasonably assured. We accrue warranty
costs and sales allowances for promotional activities at time of shipment based on
historical experience. In addition, we defer revenue associated with maintenance and
support 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 in the future determine
that realization of deferred tax assets in excess of recorded amounts is likely, an
adjustment to the deferred tax assets would increase income in the period such
determination was made.
    
    Software Development Costs We account for software development costs in accordance
with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed (SFAS 86). SFAS 86 requires
the capitalization of certain software development costs once technological feasibility is
established. The capitalized costs are then amortized on a straight-line basis over the
estimated product life, or on the ratio of current revenues to total projected product
revenues, whichever provides the greater amortization. Management periodically
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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)
  Results of Operations
 Three and Six Months Ended June 30, 2006 compared to
Three and Six Months Ended June 30, 2005.
 Net Sales .
   Osprey Product Sales .
 Video Communication System and Application Software Products.
 Other Revenues .
 Cost of Sales and Gross Margins .
 17




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)
  Selling, General and Administrative Expense .
 Research and Development Expense.
 Other Expense
   Net Loss .
 Liquidity and Capital Resources
    18




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##### Table of Contents



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




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Managements Discussion and Analysis or
Plan of Operation  (Continued)
     Off-Balance Sheet Arrangements
  20




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##### Table of Contents



ViewCast.com, Inc. and Subsidiaries
Controls and Procedures
 
 Item 3. Controls and Procedures
   21




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ViewCast.com, Inc. and Subsidiaries
Other Information
 
 PART II: OTHER INFORMATION
 Item 1.
    
    Legal Proceedings(Not Applicable)Item 2.
    
    Changes in Securities and Small Business Issuer Purchases of Equity Securities(Not Applicable)Item 3.
    
    Defaults Upon Senior Securities(Not Applicable)Item 4.
    
    Submission of Matters to a Vote of Security Holders(Not Applicable)Item 5.
    
    Other Information(a)
    
    (None)(b)
    
    (None)Item 6.
    
    ExhibitsExhibits filed with this report:(See Exhibit Index)
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##### Table of Contents



SIGNATURES
  ViewCast.com, Inc.(Registrant)BY:Date: August 14, 2006
    
    /s/ George C. PlattGeorge C. PlattChief Executive OfficerPrincipal Executive Officer/s/ Laurie L. LathamLaurie L. LathamChief Financial OfficerPrincipal Financial Officer
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EXHIBIT INDEX
 ExhibitNumber31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications32.1
    
    Section 1350 Certifications
 24