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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 Form 10-KSB/A þ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 
 Commission File Number: 0-29020 ViewCast.com, Inc. 
  Delaware
    
    75-2528700(State or Other Jurisdiction of Incorporation or
    
    (I.R.S. EmployerOrganization)
    
    Identification No.)17300 Dallas Parkway, Suite 2000, Dallas, TX
    
    75248(Address of Principal Executive Offices)
    
    (Zip Code)
 Issuers Telephone Number, Including Area Code: 972-488-7200 
 Securities registered under Section 12(b) of the Exchange Act: Securities registered under Section 12(g) of the Exchange Act: Title of ClassCommon Stock, $.0001 par valueRedeemable Common Stock Purchase Warrants
 Check whether issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes þ or No o . Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is
not contained in this form, and no disclosure will be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB o. State issuers revenues for its most recent fiscal year.
    
    $
    20,526,922
 The aggregate market value of the voting and non-voting common stock held by non-affiliates
computed by reference to the price at which the common equity was sold, or the average bid and
asked prices of such common equity, as of April 15, 2005 was $6,370,598. As of April 15, 2005,
there were 25,500,503shares of the Companys common stock (par value $0.0001) outstanding. Documents incorporated by reference: Proxy Statement, Part III.




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TABLE OF CONTENTS Item No.
    
    
    
    Page No.Part I1.
    
    Description of Business
    
    
    32.
    
    Description of Property
    
    
    113.
    
    Legal Proceedings
    
    
    114.
    
    Submission of Matters to a Vote of Security Holders
    
    
    11Part II5.
    
    Market For Common Equity and Related Stockholder Matters
    
    
    126.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    137.
    
    Financial Statements
    
    
    218.
    
    Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
    
    
    488A.
    
    Controls and Procedures
    
    
    488B.
    
    Other information
    
    
    48Part III9.
    
    Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
    
    
    4910.
    
    Executive Compensation
    
    
    5211.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    5712.
    
    Certain Relationships and Related Transactions
    
    
    5913.
    
    Exhibits
    
    
    6014.
    
    Principal Accountant Fees and Services
    
    
    63Consent of Grant Thornton LLPRule 13a-14(a)/15d-14(a) CertificationsSection 1350 Certificiations




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PART I 
 Item 1. Description of Business Overview ViewCast.com, Inc., doing business as ViewCast Corporation (ViewCast), develops video and
audio communications products for delivering content dynamically via a variety of network types and
protocols. These products include Osprey® Video capture cards, Niagara® video
encoders/servers, and ViewCast IVN enterprise software and systems. ViewCast products address the
video capture, processing, and delivery requirements for a broad range of applications and markets.
ViewCast also provides professional IT services focused on merged data and video networks through
its wholly owned subsidiary Delta Computec Inc. (DCi). ViewCast is focused on growth by leveraging the video market expansion and our well-known
products to capitalize on sales opportunities. We believe that emphasis on revenue and market
share growth will enable us to realize long-term profitability and shareholder value. Prior to October 2002, ViewCasts organizational structure was based on one business segment
engaged in the design, development and marketing of video products, systems and services. Since the
acquisition of Delta Computec Inc. in October 2002, ViewCast now operates in two distinct business
segments as follows: Video Communications Products and Services This business segment is engaged in designing,
developing and marketing video communications products and services. The products enable
sophisticated video processing and communications and include the Ospreyâ line of video
capture cards, the ViewCast IVN (Interactive Video Network) systems, the NiagaraÔ line of
video encoding systems and servers, and related application software such as SimulStream and SCX.
These products are installed in computers, appliances, or within a communications network and are
used for a variety of video communication applications, including corporate communications,
information gathering, security, training, distance learning, conferencing, Internet video and
broadcast applications. Corporations, media organizations, financial institutions,
educational networks, healthcare facilities, and government agencies utilize our products and
services, as do their customers, vendors and others with whom they may communicate. ViewCast
markets its video products and services directly to end-users, through original equipment
manufacturers (OEMs), value-added resellers (VARs) and computer system integrators, worldwide. IT Services and Products This business segment includes the operations of DCi, which
provides customized network support, Internet and Intranet consulting, networking, maintenance and
disaster recovery services as well as computer and networking product sales to Fortune 500 and 1000
companies. Customers include financial institutions, accounting firms, healthcare providers,
pharmaceutical companies and educational institutions primarily in the northeastern United States. ViewCasts senior executives are: President and Chief Executive Officer George C. Platt, Chief
Financial Officer and Senior Vice President Laurie L. Latham, Senior Vice President of Operations
David T. Stoner, and Vice President of Marketing and Business Development Horace S. Irwin. John
DeVito serves as President of Delta Computec Inc. Our business was established in 1994 and became
a public company in 1997. Our common stock and public warrants currently trade on the OTC Bulletin
Board (OTC BB) under the symbol VCST-OB and VCSTW-OB. We are headquartered in Dallas, Texas with
DCis operations located in Teterboro, New Jersey. 3




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Key Elements Regarding Video Communications To efficiently transmit video images over communications networks, video data must be
digitized and compressed to fit the capacity of the communication networks. As video is
compressed, redundant data is eliminated and other data is blended with similar data to preserve
the essence of the original image. Greater compression is required as the network capacity
decreases. Once transmitted, the video image is reconstructed for display at the receiving end. The quality of the reconstructed video image is a function of the following three key elements:  
    the sophistication of the video and audio compression algorithms;
    the capacity of a network to transmit data (bandwidth); and
    the speed and power of PCs and workstations. We believe cost-effective video communication applications and services are now attainable
because the performance, capabilities and cost of these three key elements have improved
significantly. Video no longer requires special equipment and networks, but can now utilize existing network
capabilities and equipment. Networks have improved through the deployment of additional bandwidth
by carriers and Internet Service Providers (ISPs), new network technologies (such as multicast and
wireless), faster capabilities to connect to networks (xDSL and cable modem) and lower bandwidth
costs. We believe that the unparalleled reach of the video-capable audience to receive video using
an increasing variety of endpoint devices, such as distributed monitors, desk-top and laptop
computers, PDAs, and mobile phones, has created increased demand and opportunity. Industry Background and Market Drivers The market for video communications products is highly fragmented but is based on well
established applications that can be delivered live or on demand including:  
    receiving entertainment content (sports, music videos),
    monitoring processes (manufacturing),
    holding two-way meetings (conferencing),
    distributing timely news and other third-party information (financial and world events),
    delivering messages to an audience (CEOcasts, financial reporting, sales motivation),
    providing education and training,
    delivering marketing and advertising messages, and
    maintaining and gathering security information. The number of individuals and their desire and ability to participate in these applications
has increased dramatically due to the new and varied communications networks (dialup and broadband
Internet, dedicated ISDN, wireless, T-1, optical fiber, etc.), the ever increasing number of
devices to receive and view video, plus the technological innovations in hardware and software to
process and distribute video locally or worldwide. In general, current and potential users demand
a cost effective solution for their video applications that can be efficiently managed, enhance
productivity and deliver high quality over a variety of local and global networks. These
requirements can now be addressed and achieved creating expansion in the number and type of video
applications and markets. Supplemental applications and markets include products addressing the
variety of new video processing and distribution requirements and the sophisticated use of dynamic
media, which has increased in new and varied venues such as corporate websites and e-commerce
sites. Other opportunities are developing in the digital home environment as the number of
broadband connections to the home increase. With low cost and highly versatile networks propagating throughout the media, business,
government, and 4




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education arenas, these organizations increasingly expect video to be an integral part of
their communications and information repertoire in parallel with data, text and voice. Video can
utilize existing network capabilities and equipment but is enhanced with the appropriate matching
of hardware, software and networks for the specific application. We believe organizations seek
video products and services from network integrators and suppliers to implement and support
workable solutions for their applications. We believe there will be increased usage of products
and services that enable video communication within the desired quality, scalability and
affordability parameters. How ViewCast Addresses the Industry ViewCast is addressing video applications with its products, technology, expertise and
services. The chart below shows some of the leading video applications and the ViewCast video
communications core products that are combined with codecs, gateways and endpoint technologies from
other leading manufacturers to address these applications. ViewCast
    
    
    
    NiagaraIVN
    
    
    
    Encoders,Osprey Video
    
    
    
    Switches,
    
    
    
    Servers andCapture
    
    
    
    Servers, and
    
    
    
    SCXCards
    
    
    
    Gateway
    
    
    
    SoftwareVideo Content Capture
    
    
    
    x
    
    
    
    
    
    
    
    
    
    xVideo Conversion/Editing
    
    
    
    x
    
    
    
    
    
    
    
    
    
    xDesktop Video Conferencing
    
    
    
    
    
    
    
    
    xGroup Video Conferencing
    
    
    
    
    
    
    
    
    xDistance Learning and Training
    
    
    
    x
    
    
    
    
    x
    
    
    
    
    xPremise Distribution of TV/Video
    
    
    
    x
    
    
    
    
    x
    
    
    
    
    xSecurity and Surveillance
    
    
    
    x
    
    
    
    
    x
    
    
    
    
    xVideo Analysis
    
    
    
    x
    
    
    
    
    x
    
    
    
    
    xMarketing and Promotional
    
    
    
    x
    
    
    
    
    x
    
    
    
    
    xMedia and Entertainment
    
    
    
    x
    
    
    
    
    
    
    
    
    
    x
 ViewCasts IT Services business segment, DCi, increases our ability to successfully implement
and support our products by providing installation, training, customer service, integration,
customization, and contract development. ViewCast provides directly, and through its IT Services
operation, comprehensive technology, network and video expertise enabling us to assist customers
and channel partners in identifying their communication and network needs and determine appropriate
solutions to meet their requirements. IT Services and Products includes applications consulting
and implementation, traditional network services, remote help desk and technology support,
technology integration, maintenance, and product sales. 5




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The ViewCast Strategy Our objective is market growth and financial performance growth. Our skills are applied to
the processing, distribution and use of high-quality video within the networked environment. Our
initiatives are directed to increase top line revenue, produce profitable results, increase balance
sheet strength and expand market share through the following:  
    Focus Our Products on Vertical Market Applications Leveraging our current expertise
and successful products and services, we are emphasizing features and functions that
provide an application solution for our customers. Thus, we believe we are positioned to
grow with the market and the economy to build market share and add revenues.
    Expand Sales, Marketing and DistributionWe believe investment in additional marketing
and sales initiatives will be appropriate with the market more conducive to technology
purchases including the system and application software areas. Our strategy is to utilize
a combination of increased marketing exposure with our direct sales force, resellers,
system integrators, OEMs and custom application developers to distribute and expand our
product and service solutions.
    Maintain Efficient Operations We have reduced operating costs associated with our
video communications segment significantly in 2004 and in prior years and will continue to
monitor expenses during 2005.
    Implement Growth and Strategic Alternatives/Increase Financial Strength We intend to
continue our progress on plans and initiatives to increase the revenue growth rate and
financial resources of ViewCast, including potential new capital resources and product,
technology or channel related acquisitions.
    Continue to Increase and Enhance Our Strategic Partnerships We have established
significant industry partnerships with leaders in the technology and video industry. We
intend to strengthen these partnerships and continue to establish new partnerships to
enhance endorsements, referrals, technology, product development, channel distribution, and
sales. We seek companies who can add valuable services, technology or bundling
opportunities to our product offerings with the potential of future co-development, merger
or acquisition by ViewCast. ViewCast Products and Services Video Communications Products and Services ViewCast offers an array of video communication products that can be used for multiple
applications in the private and public sectors. Our standards-based and multi-standards based
products complement each other and can be used in a variety of ways to best serve our customers
needs. Our products also work within the framework of legacy systems, and are flexible enough to
meet present and future needs. The ViewCast product family includes the Osprey® line of video
capture cards, the NiagaraÔ line of video encoding systems and servers, the ViewCast IVN
(Interactive Video Network) distribution and switching system and several other complementary
products and technologies from leading suppliers. Osprey Video Capture Cards, Codecs and Video Peripheral Products.Under the well-known
Osprey® brand, we design, develop, manufacture and market standards-based video and audio capture
cards and peripheral products for multimedia applications. Osprey® cards are sold worldwide
through OEMs, integrators, and a worldwide network of VARs and distributors and are recommended by
Real Networks, Microsoft and other market leaders. We believe our Osprey® capture cards offer unique advantages to application developers,
integrators and OEMs including extensive Software Developments Kits (SDKs). These cards comply
with most popular industry video standards, and we provide expert support and development staff to
enable custom development of required applications. 6




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Niagara Streaming Systems.We believe the growth in popularity of our Niagara Streaming
Systems series of rack mount and portable systems is due to the growing sector of professional
media creators, broadcasters and production professionals seeking state-of-the-art solutions that
provide a powerful, low-cost, turnkey option. The Niagara product line consists of a series of
capture/encoding systems and streaming servers plus optional accessories and software from ViewCast
and selected partners. Our Niagara Streaming Systems are designed to simplify the capture, encoding, editing and/or
streaming of video. This product family offers capabilities that remove deployment barriers.
Niagara Streaming Systems are fully integrated and optimized for media systems with Osprey® video
devices and software, encoding management and control software, media capture software, and video
encoding and streaming software. Niagara Streaming Systems, and derivative appliances thereof, are distributed directly or
through channels to video professionals in media and entertainment enterprises, corporations, ISPs,
broadband networks, CDNs, educational institutions and governmental agencies. ViewCast IVN Systems.Our ViewCast IVN enterprise-wide video communication system
collectively integrates previously separate video technologies into a single video switching and
delivery environment. This suite of hardware and software technologies is known as the ViewCast
Interactive Video Network. Video management software developed by ViewCast provides appropriate
controls to each class of video user while removing the user from awareness of the technologies
that source and deliver the video. ViewCast IVN integrates technologies that source, switch,
distribute and manage live and stored video assets in a variety of applications including video
conferencing, premise video distribution, distance learning, video resource sharing and personal
video communication. ViewCast IVN provides switching, distribution, conferencing and gateway capabilities between
broadband and narrowband networks and between desktops, conference rooms, and a variety of video
communication resources. This product line has been applied to manage and deliver multiple
simultaneous TV quality video connections to desktops, conference rooms, boardrooms, classrooms,
lobbies, visitor centers, medical centers, trading floors, securities trading centers, industrial
process control centers, courtrooms, correctional facilities, banks, and airports. Benefits of the ViewCast IVN include:  
    User-controlled Environment.
    Application-controlled Environment.
    Video Transport Transparency.
    Video Standards Bridging / Integrated Video Network.
    Flexible Application Options.
    Scalability. IT Services and Products Beginning in October 2002, ViewCast provides IT Services and Products through its subsidiary
Delta Computec Inc. or DCi. DCi specializes in onsite professional services solutions, including
Internet and Intranet consulting and networking, network support, maintenance and disaster
recovery. With a 25-year operating history, DCi provides a wide array of computer systems, data
communications and LAN/WAN information technology services and products in the northeastern United
States. As a full service systems integrator, DCi analyzes customers business needs and makes
recommendations for current improvements and for the future. DCi services include: IT Consulting
    
    Network Services
    
    Staff Augmentation
    
    PrinterCare ProgramHelp Desk Services
    
    PC Reserve/Rapid Restore
    
    Microsoft Rollouts
    
    Cabling ServicesVideo
communications and
    
    Field & On-site Maintenance
    
    Depot Repair Services
    
    Network Query Languageconferencing
 7




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Marketing and Sales We market our products and services directly or via third-party distribution channels
including, but not limited to, OEMs, VARs, distributors, and system integrators. These
relationships are non-exclusive and typically require that these resellers participate in the
marketing, installation and technical support of our products. DCi is also reseller of our video
communications products. Our video communication products and services are globally marketed to media and
entertainment, Internet, corporate, financial, educational, security/telejustice, healthcare,
governmental and network enterprises. In addition, our products are sold or licensed to
integrators and VARs to integrate with their products or services. During 2004, there were no
significant concentrations of customers in the video product segment that were in excess of 10% of
ViewCasts annual consolidated sales revenues. We plan to build upon our established customer base
by expanding distribution and sales and expanding our product market awareness and reach. Our reseller marketing program enhances our ability to cover domestic and international
geographical territories and market segments in an efficient and cost-effective manner. This
multi-tiered program provides benefits and rewards to our reseller partners for aggressively
marketing ViewCast video products and services. Under the terms of the reseller program, an
authorized reseller of ViewCast products must meet certain qualifications regarding its business,
personnel, product and market knowledge, and support and service capabilities. Through this
authorized reseller program, we support and enhance our channels of distribution to encourage
placement of ViewCast video products into the marketplace. IT Services and Products are marketed directly by DCi sales representatives and technical
sales managers to new and current customers mainly in the northeastern United States. DCi
maintains offices in New Jersey and Delaware. Customers include financial institutions, accounting
firms, healthcare providers, pharmaceutical companies and educational institutions. Some customer
accounts make purchasing decisions on a decentralized basis by business unit and therefore
represent several accounts. In 2004, Morgan Stanley and Saint Barnabas Health Care Systems were IT
customers that, together with their affiliates, have generated more than 10% of the annual
consolidated sales for ViewCast. Production and Supply We build our current video products using contract manufacturers in the United States and
Asia. Our operations personnel in Dallas, Texas are responsible for parts planning, procurement,
final testing and inspection to quality standards. We plan for most high-volume production to be
handled through large OEMs or contract manufacturers. We have been and will continue to be dependent on third parties for the supply and
manufacturing of our components and electronic parts, including standard and custom-designed
components. We generally do not maintain supply agreements with such third parties but instead
purchase components and electronic parts pursuant to purchase orders in the ordinary course of
business. We are dependent on the ability of our third-party manufacturers and suppliers to meet
our design, performance and quality specifications. Installation, Service and Maintenance Most of our Osprey video card products and Niagara system products are customer installable.
For those customers who need assistance with Niagara products and for the majority of our ViewCast
IVN products, we utilize our resellers to install and provide service. Further, we maintain an
in-house technical support group to assist our resellers and customers as required. We offer limited warranties covering workmanship and materials, during which period our
resellers or ViewCast will replace parts or make repairs. We maintain an in-house staff of
engineering personnel and offer telephone support to assist resellers and end-users during normal
business hours. In addition, we enter into annual contracts with end-users to provide software and
hardware maintenance on our products. 8




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Research and Development We continue to focus on research and development activities on video communications
applications, video management and new features for expanded market opportunities. We will
continue to make investments in core video technology and processing techniques, focusing on how to
best apply the latest advancements in the industry into commercially viable products. In some
cases, strategic partnerships will be utilized to enhance our research and development and
potentially reduce costs. New products are scheduled for launch in 2005 in the Osprey, Niagara and ViewCast IVN product
families that will provide new capabilities and features for video applications. We believe these
products and services will be competitive and feature unique capabilities. We will maintain
integration efforts with third party application software and hardware for our products and
services. Competition The market for video communication systems and services is highly competitive and
characterized by the frequent introduction of new products and features based upon innovative
technologies. We compete with numerous well-established manufacturers and suppliers of video
streaming technologies, videoconferencing, networking, telecommunications and multimedia products,
certain of which dominate the existing video communications market for such products. In addition,
we are aware of others that are developing, and in some cases have introduced, new video
communications systems. We are not aware of any direct competitors that compete in all of our video communication
product families and applications. However, among our direct competitors competing with one or
more of our products or applications are: Winnov, LP, Optibase Ltd., Digital Rapids, Avistar
Communications Corp., AJA Video Systems, Inc., Blackmagic Design, Tandberg Inc., and Polycom, Inc.
Electronics manufacturers such as Cisco Systems, Inc. may be sales channels for our products but
also actively compete for business in this market. The market for IT Service and Products is highly competitive and characterized by a large
number of participants and is subject to rapid change and intense competition. Competitors in this
area include consulting companies, information technology vendors, value added resellers, system
integrators, local and regional IT services firms, telecommunications providers and equipment
vendors. We compete with numerous well-established IT service companies, and product suppliers.
Certain of our competitors have significantly greater name recognition and financial and marketing
dominance than does DCi. The competitors for IT Services and Products include consulting and service firms such as
Siemens, EDS, IBM Global Services and hardware firms such as Dell Computers. Patents, Copyrights, Trademarks and Proprietary Information We hold a U.S. patent covering certain aspects of compressed video and have a patent pending
covering certain aspects of a process to create, manage, distribute and view streaming video.
Although we do not believe these patents or any other patent is essential to our business
operations, we may apply for additional patents relating to other aspects of our products. We also
rely on copyright laws to protect our software applications, which we consider proprietary. We believe that product recognition is an important competitive factor and, accordingly, we
promote the ViewCast®, Osprey®, Niagara, SimulStream, Niagara SCX, PC Reserve(SM) and
ViewCast IVN names, among others, in connection with our marketing activities, and have applied
for or received trademark or service mark registration for such names. Our use of these marks and
our trade names may be subject to challenge by others, which, if successful, could have a material
adverse effect on our operations. We also rely on confidentiality agreements with our directors, employees, consultants and
manufacturers and employ various methods to protect the source codes, concepts, ideas, proprietary
know-how and documentation of our proprietary technology. However, such methods may not afford us
complete protection, and there can be no assurance that others will not independently develop
similar know-how or obtain access to our know-how or 9




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software codes, concepts, ideas and documentation. Furthermore, although we have and expect to
continue to have confidentiality agreements with our directors, employees, consultants,
manufacturers, and appropriate vendors, there can be no assurance that such arrangements will
adequately protect our trade secrets. We purchase certain components that are incorporated into our products from third-party
suppliers and rely on their assurances that such components do not infringe on the patents of
others. A successful claim against any components used in our products could affect our ability to
manufacture, supply and support our products. We use commercially reasonable efforts to ensure
third-party supplied components are non-infringing, but there can be no assurances against future
claims. Government Regulation We are subject to Federal Communications Commission regulations relating to electromagnetic
radiation from our products, which impose compliance burdens on us. In the event we redesign or
otherwise modify our products or complete the development of new products, we will be required to
comply with Federal Communications Commission regulations with respect to such products. Our
foreign markets require us to comply with additional regulatory requirements. Employees As of March 15, 2005, we had one hundred fifty-one (151) employees, five (5) of whom are in
executive positions, thirteen (13) of whom are engaged in engineering, research and development,
twenty (20) of whom are engaged in marketing and sales activities, ninety-seven (97) of whom are
engaged in operations and sixteen (16) of whom are in finance and administration. None of our
employees are represented by a labor union. We consider our employee relations to be satisfactory. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements in this Report on Form 10-K under Description of Business,
Managements Discussion and Analysis or Plan of Operation, and elsewhere in the Report constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements include statements regarding ViewCasts expectations, beliefs, hopes, intentions or
strategies regarding the future. These statements involve known and unknown risks, uncertainties,
and other factors that may cause our or our industrys actual results, levels of activity,
performance, or achievements expressed or implied by such forward-looking statements. Such factors
include, but are not limited to, product demand and market acceptance risks, the impact of
competitive products and pricing, product development, commercialization and technological
difficulties, capacity and supply constraints or difficulties, general business and economic
conditions, the availability of sufficient working capital, the ability to service our debt,
continued losses, the ability to successful integrate acquired operations, the effect of our
accounting polices and other risks detailed in the Annual Report on Form 10-KSB/A for the year
ended December 31, 2003, as amended, the Registration Statements on Form S-3 filed on April 26,
2000 and June 30, 2000 and other filings with the Securities and Exchange Commission. In some cases, you can identify forward-looking statements by terminology such as may,
will, expects, should, anticipates, believes, estimates, predicts, plans,
potential, intends or continue or the negative of such terms or other comparable terminology. Although we believe the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.
Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness
of such statements. We are under no duty to update any of the forward-looking statements after the
date of this report to conform such statements to actual results. 10




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Item 2. Description of Property Our executive offices and some of our sales, design and development activities are located in
approximately 10,881 square feet within a total of 14,731 square feet of leased space in Dallas,
Texas. A sublease tenant occupies the remaining 3,850 square feet of leased space. The lease
expires in December 2005 and provides for a base annual rent of $227,547. The sublease also expires
in December 2005 and provides annual base rental income of $46,200 to offset rental expense. Our
assembly operations are located in approximately 7,760 square feet of leased space in Dallas,
Texas. The lease expires in January 2007 and provides for a base annual rent of $61,623. Portions of Osprey product research and development activities are located in Morrisville,
North Carolina. These activities have increasingly been performed in Dallas, Texas. ViewCast is
actively seeking a new tenant for the space and has given the landlord of the approximately 10,000
square feet of leased space notice for an early termination date of April 30, 2005. The base rent
remaining for 2005 is $34,929. The DCi office and warehouse operations are located in approximately 19,000 square feet within
a total of 39,000 square feet of leased space in Teterboro, New Jersey. A sublease tenant occupies
the remainder of the building. The lease for approximately 38,000 square feet expires in July 2007
and provides for a base annual rent of $336,657. A sublease for approximately 20,000 square feet
of leased space in the Teterboro facility expires in January of 2005. A temporary subtenant
occupied the sublease space starting in March of 2005. DCi is actively seeking a new long-term
subtenant. A DCi field service/sales office is located in Claymont, Delaware on a month-to-month
lease and provides for a base annual rental of $13,500. We believe that our facilities are adequate for our current and reasonable foreseeable future
needs and our current facilities can accommodate expansion, as required. 
 Item 3. Legal Proceedings We are not currently a party to any litigation that we believe could have a material adverse
effect on our business or us. 
 Item 4. Submission of Matters to a Vote of Security Holders The company held its annual meeting on October 1, 2004. The proposals submitted to
shareholders and the tabulation of votes for each proposal were as follows: 1. Election of directors for one-year terms. Number of Votes
    
    
    
    Number of VotesNominees
    
    
    For
    
    
    
    WithheldH.T. Ardinger
    
    
    
    19,772,260
    
    
    
    
    101,069Joseph Autem
    
    
    
    19,828,710
    
    
    
    
    44,619David A. Dean
    
    
    
    19,828,610
    
    
    
    
    44,719George C. Platt
    
    
    
    19,775,860
    
    
    
    
    97,469
  2.
    Ratification of Grant Thornton LLP as the Companys independent auditors for the
fiscal year 2004. Number of Votes For
    
    
    Number of Votes Against
    
    
    
    Number of Votes Abstaining19,646,689
    
    
    
    11,958
    
    
    
    
    214,682
 11




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##### Table of Contents



PART II 
 Item 5. Market For Common Equity and Related Stockholder Matters Common Stock Price Range As of March 31, 2005, there were 25,367,901 shares of Common Stock and 2,616,348 Public
Warrants outstanding. The following table sets forth, for the periods indicated, the high and low
sales prices for the Common Stock and the Public Warrants on the OTC-BB. Our Common Stock and
Public Warrants are traded on the OTC-BB under the symbol VCST.OB and VCSTW.OB respectively.
These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and may not represent actual transactions. The trading market in our
securities may at times be relatively illiquid due to low trading volume. Common Stock
    
    
    Public WarrantsFiscal 2003
    
    High
    
    
    Low
    
    
    High
    
    
    Low1st Quarter
    
    $
    0.30
    
    
    $
    0.17
    
    
    $
    0.25
    
    
    $
    0.202nd Quarter
    
    
    0.23
    
    
    
    0.10
    
    
    
    0.40
    
    
    
    0.153rd Quarter
    
    
    0.65
    
    
    
    0.16
    
    
    
    0.20
    
    
    
    0.064th Quarter
    
    
    0.60
    
    
    
    0.30
    
    
    
    0.34
    
    
    
    0.16
 Common Stock
    
    
    Public WarrantsFiscal 2004
    
    High
    
    
    Low
    
    
    High
    
    
    Low1st Quarter
    
    $
    0.48
    
    
    $
    0.32
    
    
    $
    0.35
    
    
    $
    0.162nd Quarter
    
    
    0.80
    
    
    
    0.33
    
    
    
    0.35
    
    
    
    0.163rd Quarter
    
    
    0.43
    
    
    
    0.26
    
    
    
    0.25
    
    
    
    0.154th Quarter
    
    
    0.41
    
    
    
    0.24
    
    
    
    0.15
    
    
    
    0.10
 On March 31, 2005, the last reported sales prices for the Common Stock and the Public Warrants
as reported on the OTC-BB were $0.28 and $0.08, respectively. As of March 31, 2005, there were
approximately 218 holders of record for the Common Stock and 41 holders of record for the Public
Warrants. Dividend Policy We have never paid cash dividends on our Common Stock. The Board of Directors does not
anticipate paying cash dividends in the foreseeable future as it intends to retain future earnings
to finance the expansion of our business and for general corporate purposes. The payment of future
cash dividends will depend on such factors as our earnings levels, anticipated capital
requirements, operating and financial condition, consent from our lenders and other factors deemed
relevant by our Board of Directors. 12




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##### Table of Contents



Item 6. Managements Discussion and Analysis or Plan of Operation Overview ViewCast.com, Inc., doing business as ViewCast Corporation (ViewCast), develops video and
audio communications products for delivering content dynamically via a variety of network types and
protocols. These products include Osprey® Video capture cards, Niagara® video
encoders/servers, and ViewCast IVN enterprise software and systems. ViewCast products address the
video capture, processing, and delivery requirements for a broad range of applications and markets.
ViewCast also provides professional IT services focused on merged data and video networks through
its wholly owned subsidiary Delta Computec Inc. (DCi). ViewCast is focused on growth by leveraging the video market expansion and our well-known
products to capitalize on sales opportunities. We believe that emphasis on revenue and market
share growth will enable us to realize long-term profitability and shareholder value. Prior to October 2002, ViewCasts organizational structure was based on one business segment
engaged in the design, development and marketing of video products, systems and services. Since the
acquisition of Delta Computec Inc. in October 2002, ViewCast now operates in two distinct business
segments as follows: Video Communications Products and Services This business segment is engaged in designing,
developing and marketing video communications products and services. The products enable
sophisticated video processing and communications and include the Ospreyâ line of video
capture cards, the ViewCast IVN (Interactive Video Network) systems, the NiagaraÔ line of
video encoding systems and servers, and related application software such as SimulStream and SCX.
These products are installed in computers, appliances, or within a communications network and are
used for a variety of video communication applications, including corporate communications,
information gathering, security, training, distance learning, conferencing, Internet video and
broadcast applications. Corporations, media organizations, financial institutions,
educational networks, healthcare facilities, and government agencies utilize our products and
services, as do their customers, vendors and others with whom they may communicate. ViewCast
markets its video products and services directly to end-users, through original equipment
manufacturers (OEMs), value-added resellers (VARs) and computer system integrators, worldwide. IT Services and Products This business segment includes the operations of DCi which provides
customized network support, Internet and Intranet consulting, networking, maintenance and disaster
recovery services as well as computer and networking product sales to Fortune 500 and 1000
companies. Customers include financial institutions, accounting firms, healthcare providers,
pharmaceutical companies and educational institutions primarily in the northeastern United States. Financial Highlights of 2004 Total revenues for the fiscal year ended December 31, 2004 were $20,526,922, down slightly
from revenues of $20,912,179 reported for the same period in 2003. The video products segment was
up 7.8% for the year, while DCi revenues were lower by 8.8%. Total operating expenses of
$9,104,745 for the fiscal year of 2004 were down 8.1% when compared to the $9,903,003 for the
fiscal year of 2003. Operating loss for fiscal year 2004 was $839,207, a 39.5% improvement as
compared to the $1,387,714 operating loss reported in 2003. Net loss for the twelve months of 2004 was $2,845,372, or ($0.17) per share, compared to a net
loss for 2003 of $2,354,505, or ($0.16) per share. The increase in the net loss was primarily due
to a non-operating debt conversion expense of $1,233,723 related to the conversion of debentures in
the second quarter of 2004. Excluding the non-operating debt conversion expense of $1,233,723, net
loss for the 2004 year would have been $1,611,649, representing a 31.6% improvement compared to the
loss reported for the prior year. 13




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##### Table of Contents



Summary of Operations by Operating Segment: VideoDistributionIT Services,
    
    
    & Networking
    
    
    Unallocated2004
    
    Products
    
    
    Products
    
    
    Corporate
    
    
    TotalTotal sales
    
    $
    11,093,985
    
    
    $
    9,454,237
    
    
    $
    
    
    
    $
    20,548,222Intersegment sales
    
    
    
    
    
    
    (21,300
    )
    
    
    
    
    
    
    (21,300
    )Revenue from external customers
    
    $
    11,093,985
    
    
    $
    9,432,937
    
    
    $
    
    
    
    $
    20,526,922Gross profit
    
    $
    2,505,401
    
    
    $
    5,760,137
    
    
    $
    
    
    
    $
    8,265,538Operating income (loss)
    
    $
    (37,736
    )
    
    $
    130,521
    
    
    $
    (931,992
    )
    
    $
    (839,207
    )
 VideoDistributionIT Services,
    
    
    & Networking
    
    
    Unallocated2003
    
    Products
    
    
    Products
    
    
    Corporate
    
    
    TotalTotal sales
    
    $
    12,159,250
    
    
    $
    8,773,985
    
    
    $
    
    
    
    $
    20,933,235Intersegment sales
    
    
    
    
    
    
    (21,056
    )
    
    
    
    
    
    
    (21,056
    )Revenue from external customers
    
    $
    12,159,250
    
    
    $
    8,752,929
    
    
    $
    
    
    
    $
    20,912,179Gross profit
    
    $
    3,290,758
    
    
    $
    5,224,531
    
    
    $
    
    
    
    $
    8,515,289Operating income (loss)
    
    $
    579,598
    
    
    $
    (904,344
    )
    
    $
    (1,062,968
    )
    
    $
    (1,387,714
    )
 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 (USGAAP). We review the
accounting policies we use in reporting our financial results on a regular basis. The preparation
of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets
and liabilities. On an on-going basis we evaluate our estimates, including those related to
accounts receivable, inventories, investments, warranty obligations, income taxes, restructuring
and contingencies and litigation. Our estimates are based on historical experience and other
assumptions that are believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. In addition to the items listed above which are affected by
estimates, we believe that the following are critical accounting policies used in the preparation
of our consolidated financial statements:  §
    Revenue Recognition We apply provisions of SEC Staff Accounting Bulletin (SAB) No.
101, Revenue Recognition in Financial Statements as revised by SAB 104, Revenue
Recognition, SOP 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification
of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions and EITF
00-21, Revenue Arrangements with Multiple Deliverables to transactions involving sales of
our hardware and software products. Under these guidelines, we recognize revenue on
transactions where persuasive evidence of an arrangement exists, title has transferred,
product payment is not contingent upon performance of installation or service obligations,
the price is fixed or determinable and payment is reasonably assured. We accrue warranty
costs and sales allowances for promotional activities at time of shipment based on
historical experience. In addition, we defer revenue associated with maintenance and
support contracts and recognize revenue ratably over the contract term. 14




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##### Table of Contents



§
    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. Results of Operations Year Ended December 31, 2004 compared to Year Ended December 31, 2003. Net Sales.Net sales for the year ended December 31, 2004 declined slightly by 1.8% to
$20,526,922 from $20,912,179 reported in 2003. The overall decrease was due principally to reduced
revenues from DCis operations during 2004 offset by an increase in both Osprey and system sales
from the prior year. Total 2004 sales of $9,439,042 for the video communications products segment
increased by 7.6%, compared to 2003, reflecting an increase of 34.7% in international sales during
2004. Osprey Product Sales.During the year ended December 31, 2004, sales of Osprey® video
products increased 8.2% over 2003 levels and represented 81.4% of total 2004 video product
revenues, compared to 81.1% in 2003. The 2004 Pacific Rim and European sales of Osprey products
improved 10.7% and 53.5%, respectively over 2003 levels, while domestic sales decreased by 7.4%.
On a product basis, 2004 average per unit sales price across all Osprey product families increased
by 10.6%, compared to last year. ViewCast IVN Video Distribution Systems and Niagara® Streaming/Encoding Systems.During the
year ended December 31, 2004, combined systems sales totaled $1,597,794 and represented 17.0% of
total 2004 video product revenues, an increase of 9.3% over 2003 video product revenues. The
increase was due to sales of ViewCasts Niagara systems during 2004, increasing by 7.4%, over 2003
levels and Viewpoint VBX systems sales experienced a 25.6% increase over the same period. The
increases are mainly due to increased usage of streaming and distributed video for broadcasting,
business and governmental applications. IT Services and Products.During the year ended December 31, 2004, IT services and product
sales totaled $11,087,880 and declined from the 2003 IT services and product sales of $12,159,250,
reflecting fewer special projects and product purchases during 2004 from among DCis larger
customers. During 2004, contract service fees for customized network support, Internet and
Intranet consulting, networking, maintenance, disaster recovery services totaled $9,471,203 and IT
product sales totaled $1,616,677. During 2003 contract service fees for customized network
support, Internet and Intranet consulting, networking, maintenance, disaster recovery services
totaled $9,777,537 and IT product sales totaled $2,381,713. Other Revenues.Other video product revenues consisting of software maintenance, training,
engineering consulting fees and professional services totaled $149,217 during 2004, a decrease of
$35,969 compared to $185,184 reported in 2003. Cost of Goods Sold/Gross Margins.Cost of goods sold totaled $12,261,384 for the year ended
December 31, 2004, a 1.1% decrease from 2003 reflecting the lower level of DCi product sales. Gross
profit margin for the year ended December 31, 2004 was 40.3% compared to 40.7% in 2003, although
the video products segments margin improved to 61.0% for 2004 compared to 59.5% in 2003. DCis
operations experienced a 22.6% gross margin during 2004, down from the 27.1% gross margin during
2003 reflecting the higher level of special project and 15




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##### Table of Contents



product sales during 2003. DCis margins
are consistent with this industry segment, which traditionally experiences lower margins in the 20%
range depending on the mix of service and product sales. We anticipate gross margins, as a percentage of total revenues, will remain in excess of 50%
for the video products segment and in excess of 20% for the IT service and products segment in
future periods. Margins will be affected quarter to quarter by promotional activities, price
adjustments, cost of materials, inventory obsolescence, the introduction of new products and the
sales mix between products and services in any one reporting period. Selling, General and Administrative Expense.Selling, general and administrative expenses for
year ended December 31, 2004 totaled $6,876,291, a slight decrease of 1.6% from $6,987,249 reported
last year. The decrease reflects the reduction in expense of slightly over $269,000 from DCis
operations offset by an overall 3.6% increase principally in sales and marketing related expenses
within the corporate and video product segment. Research and Development Expense.Only the video communications segment incurred research and
development expense during 2004 and 2003. DCi currently has no significant research and development
activities. During 2004, research and development expense totaled $1,831,776, a decrease of 21.9%
over 2003 levels reflecting a reduction in personnel, prototype and related expenses. Although
expenses have been reduced, we have continued to develop new products and features in particular
focusing on software initiatives. ViewCasts emphasis in development continues its focus on
customer applications combined with technological innovation. Other Expense. Total other expense for 2004 was $2,006,165 compared to $919,791 in 2003.
Interest expense for 2004 and 2003 was $857,286 and $965,975, respectively, representing interest
primarily from our stockholder debt, debentures, DCis line-of-credit financing and amortization of
related issuance costs. Interest expense decreased 11.3% over 2003 levels principally due to
interest rate reductions through amendments to our stockholder debt and DCis line of credit
facility with Keltic Financial Partners, LP. Other expense had a significant increase due to the charge for debt conversion expense.
During the quarter ended June 30, 2004, ViewCast recognized a non-cash debt conversion expense of
$1,233,723 related to the conversion of $870,000 of outstanding 7% convertible debentures into
common stock and warrants of ViewCast. The non-cash charge was recorded in accordance with SFAS No.
84, Induced Conversions of Convertible Debt. In other expense, the Company has recognized an
imputed amount for debt conversion expense equal to the fair value of all securities and other
consideration transferred in the transaction in excess of the fair value of securities issuable
pursuant to the original conversion terms. This conversion transaction results in a net reduction
in convertible debt and an increase in net equity of $870,000. The debt conversion expense is a
non-cash charge and is a reconciling adjustment in calculating net cash used in operating
activities. See Note 7 to the Consolidated Financial Statements for further details regarding this
transaction. Net Loss.Net loss for the year ended December 31, 2004 was $2,845,372, an increase of 20.8%
over the $2,354,505 loss reported in the comparable period in 2003. Net loss was substantially
affected by an increase in expenses due to the charge for the debt conversion expense. Excluding
the non-cash debt conversion expense of $1,233,723 described above, net loss for the 2004 year
would have been $1,611,649, representing a 31.6% improvement compared to the loss reported for the
prior year of 2003. Liquidity and Capital Resources ViewCasts primary sources of funds for conducting its business activities are derived from
sales of its products and services, from its credit facilities and from the placement of its equity
securities with investors. ViewCast requires working capital primarily to increase inventories and
accounts receivable during sales growth, develop products, service debt, purchase capital assets,
fund operating losses and acquire the operations of others. The Companys independent registered
public accounting firm has modified their report to include a going concern modification. Net cash used in operating activities for the year ended December 31, 2004 totaled $618,328, a
substantial decline from the $1,709,088 net cash used in operating activities during 2003 mainly
due to lower operating expenses during 2004. Net cash used in operating activities for the year
ended December 31, 2004 was utilized by the reported net loss of $2,845,372 and changes in
operating assets and liabilities of $98,537 substantially offset by non-cash operating expenses of
$2,128,507. Cash utilized from changes in operating assets and liabilities was 16




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##### Table of Contents



principally due to
increases in trade accounts receivable from both video product sales and IT service billings, and
to decreases in trade payables and deferred revenues. These uses were offset by an increase in
stockholder accrued interest and prepaid expenses. Cash utilized for investing activities during the year ended December 31, 2004 totaled
$529,689. Cash utilized for investing activities included purchases of $346,793 for computer
equipment, demo equipment, and service assets to support video product operations and IT services,
and expenditures of $184,396 for capitalized software development associated with ViewCasts IVN
product line. During the year ended December 31, 2004, ViewCasts financing activities generated cash of
$1,220,428 principally due to short-term borrowings under the terms of our stockholder line of
credit facility in the amount of $1,600,000 and proceeds from the sale of common stock and exercise
of stock options of $10,402. These proceeds were offset by principal repayments on our 7%
Debentures, Keltic revolving credit facility and other short-term and long-term debt totaling
$389,972. In October, 2003, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare, Inc. (jointly
and severally, the Borrower) amended the terms and conditions of its line of credit note and
security agreement with the Ardinger Family Partnership, LTD. (Lender), an entity controlled by
one of Viewcasts principal stockholders, Mr. H.T. Ardinger, who currently serves as Chairman of
the Board of Directors of ViewCast. As of the date of the amended agreements, the outstanding
principal balance of the indebtedness under the original loan agreement was $7,509,582 and accrued
and unpaid interest thereon totaled $1,243,665. Additionally, in October of 2003 ViewCast had
$500,000 outstanding in advances from Lender for the purchase of DCi in October 2002. Effective
October 15, 2003 and as amended through March 22, 2005, the terms and conditions of the note
agreement were amended to establish a long-term payout for a majority of the note and significantly
reduce the per annum interest rate from the original 12% fixed rate as follows:  1)
    $1,100,000 ($600,000 principal amount from the original note and $500,000 of
stockholder advances) was converted to a revolving credit note with a maximum credit line
of $3,500,000. The revolving credit note accrues interest at a per annum rate equal to the
lesser of prime plus 3.0% or 9.5%. Interest is payable on demand or together with principal
on December 31, 2005. The note provides for automatic one-year renewals through December
31, 2006 and for certain mandatory prepayments from third party loans and equity offerings
by Borrower.2)
    $6,909,582 principal amount from the original note was converted to a term note with
principal and interest payable as follows:  a)
    Consecutive monthly principal payments of $19,193, which is equal to a thirty
(30) year amortization (monthly) of the total principal outstanding as of the date of
the note, payable and due commencing on July 31, 2005 and continuing on the last day of
each calendar month thereafter; andb)
    One final installment of all outstanding principal and all accrued and unpaid
interest hereunder shall be due and payable on December 31, 2006.  The term note accrues interest at a per annum rate equal to the lesser of prime plus 3.0% or
9.5% and requires certain semi-annual mandatory prepayments based on 25% of calculated
excess cash flow.3)
    Accrued interest on the original loan in the amount of $1,243,665 is payable in equal
consecutive monthly installments commencing on July 31, 2005 and continuing on the last
business day of each calendar month thereafter with the final payment being made on
December 31, 2006. The amended note agreement eliminates the borrowing base requirements based on outstanding
accounts receivable and inventory and is secured by all assets of the Borrower. At December 31, 2004, ViewCast had availability of $600,000 under the stockholder line of
credit, as amended through March 22, 2005. At December 31, 2004 the Company had $2,026,793 outstanding in stockholder accrued interest of
which $1,626,754 has been classified as long-term. 17




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##### Table of Contents



ViewCast also maintains a $1,500,000 asset based revolving credit facility with Keltic
Financial Partners, LP (Keltic) for working capital support of DCi operations. Draws on the
revolving credit facility are based on qualifying DCi accounts receivable. The loan balance is
reduced as cash collections on DCis accounts receivable are received directly by Keltic. Cash
collections in excess of draws reduced the Keltic loan balance by $321,835 to $313,170 at December
31, 2004. DCi had asset-based availability of $510,615 under the Keltic revolving credit facility
at December 31, 2004 and will continue to utilize the facility for working capital support of DCi
operations. In addition, ViewCast has entered into a Guaranty of Payment and a Performance and
Subordination Agreement with Keltic relating to this facility. From October 11, 2004 through
February 15, 2005, the Keltic credit facility was amended on three occasions to extend the maturity
date of the note to April 15, 2005 and to extend the date related to penalties for early prepayment
or termination of the loan from October 11, 2004 to April 15, 2005. We anticipate that the Keltic
credit facility will be extended beyond April 15, 2005. The credit facility continues to be
secured by all DCi assets and is guaranteed by ViewCast. In April 2004, ViewCast received Notices of Conversion from the holders of $870,000 of the
outstanding 7% Senior Convertible Debentures. The terms of the conversion include a lowered
conversion price of the Debentures from $5.00 to $0.41 per share of ViewCast common stock or a
total of 2,121,947 shares of common stock for the $870,000 converted. Each Debenture holder that
converted its Debentures also received in cash the interest accrued under the terms of the
Debenture for the period of time from November 2, 2003 through April 28, 2004 in the amount of
$35.00 per $1,000 principal amount of Debentures converted, which would otherwise, pursuant to the
terms of the Debentures, be forfeited upon conversion. In addition, the converting Debenture
holders received 635,970 warrants exercisable for three years into shares of common stock of
ViewCast (the Warrant Shares) at an exercise price of $0.45 per Warrant Share, and in connection
therewith, were granted certain piggyback registration rights for the Warrant Shares. In
conjunction with the debenture conversions, ViewCast has agreed to pay a consulting fee consisting
of hourly fees of $7,000, payable in cash or restricted stock at ViewCasts option, and of warrants
exercisable into 15,000 shares of common stock with the same terms as the warrants issued to the
converting Debenture holders. This conversion transaction results in a net reduction in
convertible debt and an increase in net equity of $870,000. During the year ended December 31,
2004, ViewCast recognized a non-cash debt conversion charge of $1,233,723 related to this
transaction that is more fully described in Note 7 to the Consolidated Financial Statements. ViewCasts Series D Preferred Stock provides redemption rights for the holders, and other
rights as described in the Certificate of Designation of the Series D Preferred Stock. The Series
D Preferred Stock is redeemable at its stated value at the holders option upon written notice at
any time after October 11, 2004, to the extent permitted by applicable law. At December 31, 2004,
ViewCast had a consolidated stockholders deficit of $7,982,771 and in accordance with Delaware
law, is precluded from redeeming its outstanding Series D convertible preferred stock. As a
result, no redemption may be paid for Holder Redemption Notices received by ViewCast while it has a
consolidated stockholders deficit. ViewCasts Series D Preferred Stock provides conversion rights for the holders and other
rights as described in the Certificate of Designation of the Series D Preferred Stock. Effective
March 21, 2005 the Company temporarily lowered the conversion price of each of its outstanding
Series D Redeemable Convertible Preferred Shares from $1.50 to $0.55 per share. As a result, each
Preferred Share will be convertible into 18.18 shares of ViewCast common stock based on a stated
value of $10.00 per Preferred Share so long as the stockholder converts by 5:00 p.m. Central Time
on or before April 15, 2005. There will be 2,739,500 reserved but unissued shares of common stock
available for issuance upon conversion of the Preferred Stock. On March 24, 2005, John DeVito
converted 3,355 shares of Series D Redeemable Convertible Preferred Stock into 61,000 shares of
common stock of the Company, and NQL Sub-Surviving Corporation converted 138,845 shares of Series D
Redeemable Convertible Preferred Stock into 2,524,456 shares of common stock of the Company. The
conversions were made pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. We
anticipate the entire $1,506,700 of the Series D Redeemable Convertible Preferred Stock to convert
to shares of our common stock by April 15, 2005. At December 31, 2004, the Company had 3,799,680 public and public equivalent warrants and
122,500 representative warrants outstanding and exercisable at $1.00. On January 19, 2005, the
Company extended the expiration date of its outstanding public and public equivalent warrants to
February 3, 2006 from February 3, 2005. The warrants are redeemable by ViewCast under certain
conditions. 18




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##### Table of Contents



At December 31, 2004, ViewCast had a consolidated stockholders deficit of $7,982,771, and in
accordance with Delaware law, was precluded from paying dividends on its outstanding Series B and
Series C convertible
preferred stock or redeeming its outstanding Series D redeemable convertible preferred stock.
As a result, no preferred stock dividends have been declared or paid during 2004. The Series B and
Series C preferred stock issues carry cumulative dividends of 8% and 9% per year, respectively, and
are generally payable semi-annually in arrears in cash or in ViewCast common stock, at ViewCasts
option. Cumulative dividends in arrears on preferred shares are approximately $1,920,000 and
$539,000 for Series B and Series C respectively. Holders of Series B and Series C preferred stock
have no voting rights except as required by law. At December 31, 2004, ViewCast had a working capital deficit of $2,414,147 and cash and cash
equivalents of $372,175. During the twelve months ended December 31, 2004, ViewCast experienced a
sales increase of 7.8% in its video products business segment compared to the same period of 2003,
and while wary of current economic conditions, anticipates that revenues during 2005 will continue
to increase over 2004 levels with improvement anticipated across all business segments. From an
operational perspective, ViewCast has reduced the amount of cash utilized in operating activities
compared to the prior year. During the twelve months of 2004, ViewCast has decreased consolidated
operating expenses by $798,258, or 8.1%, compared to the same period in 2003. ViewCast strives for
productivity and efficiency in our workforce and operating expenses but expects some increase in
product sales, marketing and development related expenses in 2005. Consolidated net operating loss
for the year ended December 31, 2004 was reduced by 39.5%, compared to the same period in 2003.
ViewCast also anticipates that losses may occur during 2005, or until such time as total profit
margins from the sales of its products and services exceeds its total development, selling,
administrative and financing costs. ViewCast utilizes significant capital to design, develop and commercialize its products and
intends to fund its operating activities and sales growth during the next twelve months by
utilizing cash contributed from operations and its available working capital lines of credit to the
extent possible. ViewCast anticipates it will require additional capital during 2005 for working
capital to support the expansion of sales channels and market distribution, to develop and
introduce new products and services, to enhance existing product offerings, to address
unanticipated competitive threats or technical problems, to transition adverse economic conditions
and to service its debt. During 2005, ViewCast plans to improve its working capital position by
increasing sales and through other initiatives that may include raising additional equity,
conversion of debt to equity, further acquisitions and by exercise of warrants if market conditions
allow. In October 2003, ViewCast improved its working capital position by more than $7.0 million
through amendments to its stockholder line of credit and classification of a major portion of its
debt and accrued interest as long-term. In April 2004, $870,000 of debentures converted into
equity. ViewCast intends to continue these initiatives and discussions related to current and
potentially new debt and equity relationships. Although ViewCast has no firm arrangements with
respect to additional financing, it is currently considering proposals relating to the issuance of
equity securities in exchange for a cash investment in ViewCast. There can be no assurance that
additional financing will be available to ViewCast on acceptable terms, or at all. Additional
equity financing or debt conversion may involve substantial dilution to our then existing
stockholders. Other alternatives may include selling segments of the business. In the event we
are unable to raise additional capital or execute other alternatives, we may be required to
substantially reduce or curtail our activities. Such actions and alternatives could result in
charges that could be material to ViewCasts results of operations or financial position. At December 31, 2004, ViewCast had no material commitments for capital expenditures. Operating Leases The following table summarizes ViewCasts operating leases with definitive payment terms that
will require cash outlays in the future. These amounts are as of December 31, 2004: (in thousands)Operating Leases
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    TotalOperating leases
    
    $
    589
    
    
    $
    252
    
    
    $
    19
    
    
    $
    8
    
    
    $
    
    
    
    $
    868
 ViewCast is obligated under various operating lease agreements, primarily for office
facilities that expire at various dates through 2008. Monthly payments for facilities range from
$5,375 to $18,962 and are presented net of $174,000 of facility sublease rental income. 19




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##### Table of Contents



New Accounting Standards In December 2004, the Financial Accounting Standards Board (FASB) enacted Statement of
Financial Accounting Standards 123  revised 2004 (SFAS 123R), Share-Based Payment,which
replaces Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for
Stock-Based Compensationand supersedes APB Opinion No. 25 (APB 25), Accounting for Stock Issued
to Employees.SFAS 123R requires the measurement of all employee share-based payments to employees,
including grants of employee stock options, using a fair-value-based method and the recording of
such expense in the Companys consolidated statement of earnings. The accounting provisions of SFAS
123R are effective for reporting periods beginning after December 15, 2005. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. See Note 2 in the financial statements for the pro forma net
loss and loss per share amounts for 2003 and 2004 as if the Company had used a fair-value-based
method required under SFAS 123 to measure compensation expense for employee stock incentive awards.
Although the Company has not yet determined whether the adoption of SFAS 123R will result in
amounts that are different from the current pro forma disclosures under SFAS 123, the Company is
evaluating the requirements under SFAS 123R and expect the adoption to have a significant impact on
the Companys consolidated statement of operations and loss per share, but no impact on its
financial condition or cash flows. In January 2003, and December 2003, the FASB issued and then revised Interpretation No. 46
(FIN 46), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51. FIN 46
requires a company to consolidate a variable interest entity if the company is subject to the
majority of the risk of loss from the entitys activities, is entitled to a majority of the
entitys residual returns, or both. Certain provisions of this Interpretation were effective for
the third quarter of 2003 and others were effective January 1, 2004. FIN 46 did not have an impact
on our financial position or results of operations. In January 2003, the Company adopted SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 requires that the fair value of an asset retirement obligation be
recognized as a liability in the period in which a legal obligation associated with the retirement
of tangible long-lived assets that result from the acquisition, construction, development, and/or
normal use of the assets is incurred. The Company also would record a corresponding asset that is
depreciated over the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation is adjusted at the end of each period to reflect the passage
of time and changes in the estimated future cash flows underlying the obligation. The adoption of
Statement 143 did not have a material effect on the Companys financial statements. 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. 20




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##### Table of Contents



Item 7. Financial Statements and Supplementary Data ViewCast.com, Inc. and Subsidiaries
Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm
    
    
    22Consolidated Balance Sheets at December 31, 2003 and 2004
    
    
    23Consolidated Statements of Operations for the years ended December 31, 2003 and 2004
    
    
    24Consolidated Statements of Stockholders Deficit for the years ended December 31, 2003 and 2004
    
    
    25Consolidated Statements of Cash Flows for the years ended December 31, 2003 and 2004
    
    
    26Notes to Consolidated Financial Statements
    
    
    28
 21




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##### Table of Contents



Report of Independent Registered Public Accounting Firm The Board of Directors
ViewCast.com, Inc. We have audited the accompanying consolidated balance sheets of ViewCast.com, Inc. and subsidiaries
as of December 31, 2003 and 2004, and the related consolidated statements of operations,
stockholders deficit and cash flows for each of the two years in the period ended December 31,
2004. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements,assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material
respects, the consolidated financial position of ViewCast.com, Inc. and subsidiaries as of December
31, 2003 and 2004, and the consolidated results of their operations and their cash flows for the
two years ended December 31, 2004, in conformity with accounting principles generally accepted in
the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1, the Company incurred significant losses
and had significant negative cash flows from operations during 2004 and has a working capital
deficit as of December 31, 2004. The Company is dependent upon the proceeds from additional sales
of its equity securities or other alternative financing. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. Managements plans in regard to
these matters are also described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty. /s/ GRANT THORNTON LLP
 Dallas, Texas
March 25, 2005 22




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
 December 31,2003
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    299,764
    
    
    $
    372,175Accounts receivable, less allowance for doubtful accounts
of $86,247 and $28,751 at December 31, 2003 and 2004 respectively
    
    
    3,212,595
    
    
    
    3,520,620Inventories
    
    
    1,554,754
    
    
    
    1,620,278Prepaid expenses
    
    
    185,377
    
    
    
    134,261Deferred charges
    
    
    23,177
    
    
    
    Total current assets
    
    
    5,275,667
    
    
    
    5,647,334Property and equipment, net
    
    
    1,578,709
    
    
    
    1,298,715Goodwill
    
    
    1,041,430
    
    
    
    1,041,430Customer contracts, net
    
    
    396,389
    
    
    
    241,389Software development costs, net
    
    
    
    
    
    
    184,396Deposits
    
    
    113,758
    
    
    
    109,430Total assets
    
    $
    8,405,953
    
    
    $
    8,522,694LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    1,289,730
    
    
    $
    1,153,150Accrued expenses
    
    
    1,362,523
    
    
    
    1,389,159Deferred revenue
    
    
    765,777
    
    
    
    672,127Stockholder line of credit
    
    
    1,300,000
    
    
    
    2,900,000Short-term debt, other
    
    
    635,005
    
    
    
    313,170Current maturities of long-term debt
    
    
    1,128,483
    
    
    
    127,175Series D redeemable convertible preferred stock
    
    
    1,419,172
    
    
    
    1,506,700Total current liabilities
    
    
    7,900,690
    
    
    
    8,061,481Long-term debt less current maturities
    
    
    17,224
    
    
    
    22,808Stockholder note payable
    
    
    6,736,843
    
    
    
    6,794,422Stockholder accrued interest
    
    
    1,006,518
    
    
    
    1,626,754Commitments and contingenciesStockholders deficit:Convertible preferred stock, $0.0001 par value:Authorized shares - 5,000,000Series B  issued and outstanding shares - 800,000
    
    
    80
    
    
    
    80Series C  issued and outstanding shares - 200,000
    
    
    20
    
    
    
    20Common stock, $.0001 par value:Authorized shares - 100,000,000Issued shares - 20,950,118 and 23,104,942 at December 31, 2003
and 2004, respectively
    
    
    2,095
    
    
    
    2,310Additional paid-in capital
    
    
    55,597,946
    
    
    
    57,715,654Accumulated deficit
    
    
    (62,843,557
    )
    
    
    (65,688,929
    )Treasury stock, 261,497 shares at cost
    
    
    (11,906
    )
    
    
    (11,906
    )Total stockholders deficit
    
    
    (7,255,322
    )
    
    
    (7,982,771
    )Total liabilities and stockholders deficit
    
    $
    8,405,953
    
    
    $
    8,522,694
 The accompanying notes are an integral part of these consolidated statements. 23




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended December 31,2003
    
    
    2004Net sales
    
    $
    20,912,179
    
    
    $
    20,526,922Cost of sales (includes depreciation of $282,591
and $382,126 for the years ended December 31,
2003 and 2004, respectively)
    
    
    12,396,890
    
    
    
    12,261,384Gross profit
    
    
    8,515,289
    
    
    
    8,265,538Operating expenses:Selling, general and administrative
    
    
    6,987,249
    
    
    
    6,876,291Research and development
    
    
    2,346,187
    
    
    
    1,831,776Depreciation and amortization
    
    
    569,567
    
    
    
    396,678Total operating expenses
    
    
    9,903,003
    
    
    
    9,104,745Operating loss
    
    
    (1,387,714
    )
    
    
    (839,207
    )Other income (expense):Interest income
    
    
    1,293
    
    
    
    981Interest expense
    
    
    (965,975
    )
    
    
    (857,286
    )Debt conversion expense
    
    
    
    
    
    
    (1,233,723
    )Other
    
    
    44,891
    
    
    
    83,863Total other income (expense)
    
    
    (919,791
    )
    
    
    (2,006,165
    )Net Loss before income taxes
    
    
    (2,307,505
    )
    
    
    (2,845,372
    )Income tax expense
    
    
    47,000
    
    
    
    NET LOSS
    
    $
    (2,354,505
    )
    
    $
    (2,845,372
    )Preferred dividends
    
    
    (940,963
    )
    
    
    (909,015
    )Net loss applicable to common stockholders
    
    $
    (3,295,468
    )
    
    $
    (3,754,387
    )Net loss per share  basic and diluted
    
    $
    (0.16
    )
    
    $
    (0.17
    )Weighted average number of common shares
outstanding  basic and diluted
    
    
    20,622,427
    
    
    
    21,954,576
 The accompanying notes are an integral part of these consolidated statements. 24




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT 
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2004
 Series B
    
    
    Series CConvertible
    
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Preferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Shares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    DeficitBalance, January 1, 2003
    
    
    800,000
    
    
    $
    80
    
    
    
    200,000
    
    
    $
    20
    
    
    
    20,822,847
    
    
    $
    2,083
    
    
    $
    55,685,444
    
    
    $
    (60,489,052
    )
    
    $
    (11,906
    )
    
    $
    (4,813,331
    )Value of options issued for consulting
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    848
    
    
    
    
    
    
    
    
    
    
    
    848Imputed redeemable convertible
preferred stock dividends  Series D
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113,072
    )
    
    
    
    
    
    
    
    
    
    
    (113,072
    )Sale of common stock, employee
stock purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,605
    
    
    
    11
    
    
    
    16,645
    
    
    
    
    
    
    
    
    
    
    
    16,656Exercise of employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,666
    
    
    
    1
    
    
    
    8,081
    
    
    
    
    
    
    
    
    
    
    
    8,082Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,354,505
    )
    
    
    
    
    
    
    (2,354,505
    )Balance, December 31, 2003
    
    
    800,000
    
    
    
    80
    
    
    
    200,000
    
    
    
    20
    
    
    
    20,950,118
    
    
    
    2,095
    
    
    
    55,597,946
    
    
    
    (62,843,557
    )
    
    
    (11,906
    )
    
    
    (7,255,322
    )Conversion of 7% senior convertible
debentures to common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,121,947
    
    
    
    212
    
    
    
    1,944,518
    
    
    
    
    
    
    
    
    
    
    
    1,944,730Sale of common stock, employee
stock purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,545
    
    
    
    2
    
    
    
    9,334
    
    
    
    
    
    
    
    
    
    
    
    9,336Exercise of employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,332
    
    
    
    1
    
    
    
    1,065
    
    
    
    
    
    
    
    
    
    
    
    1,066Value of options and warrants issued
for consulting services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,798
    
    
    
    
    
    
    
    
    
    
    
    3,798Warrants issued to converting
debenture holders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    158,993
    
    
    
    
    
    
    
    
    
    
    
    158,993Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,845,372
    )
    
    
    
    
    
    
    (2,845,372
    )Balance, December 31, 2004
    
    
    800,000
    
    
    $
    80
    
    
    
    200,000
    
    
    $
    20
    
    
    
    23,104,942
    
    
    $
    2,310
    
    
    $
    57,715,654
    
    
    $
    (65,688,929
    )
    
    $
    (11,906
    )
    
    $
    (7,982,771
    )
 The accompanying notes are an integral part of these consolidated statements. 25




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended December 31,2003
    
    
    2004Operating activities:Net loss
    
    $
    (2,354,505
    )
    
    $
    (2,845,372
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation of fixed assets
    
    
    714,834
    
    
    
    623,800Amortization of software development costs
    
    
    68,713
    
    
    
    Amortization of customer contracts
    
    
    68,611
    
    
    
    155,000Non-cash charges to interest expense
    
    
    112,925
    
    
    
    110,705Non-cash debt conversion expense
    
    
    
    
    
    
    1,233,723(Gain) loss on disposition of property and equipment
    
    
    (11,291
    )
    
    
    1,481Non-cash consulting fees exchanged for options, warrants
and common stock
    
    
    848
    
    
    
    3,798Changes in operating assets and liabilitiesAccounts receivable
    
    
    (697,431
    )
    
    
    (308,025
    )Inventories
    
    
    43,265
    
    
    
    (65,524
    )Prepaid expenses
    
    
    (98,471
    )
    
    
    51,116Deposits
    
    
    13,723
    
    
    
    4,328Accounts payable
    
    
    (369,051
    )
    
    
    (136,580
    )Accrued expenses and stockholder accrued interest
    
    
    938,597
    
    
    
    646,872Deferred revenue
    
    
    (139,855
    )
    
    
    (93,650
    )Net cash used in operating activities
    
    
    (1,709,088
    )
    
    
    (618,328
    )Investing activities:Acquisition of customer contracts
    
    
    (306,230
    )
    
    
    Capitalized software development costs
    
    
    
    
    
    
    (184,396
    )Purchase of property and equipment
    
    
    (499,443
    )
    
    
    (346,793
    )Proceeds from disposition of property and equipment
    
    
    13,000
    
    
    
    1,500Net cash (used in) investing activities
    
    
    (792,673
    )
    
    
    (529,689
    )Financing activities:Net proceeds from stockholder line of credit
and advances
    
    
    2,548,000
    
    
    
    1,600,000Net repayments short-term debt, other
    
    
    (82,700
    )
    
    
    (309,974
    )Proceeds from exercise of options and warrants
    
    
    8,082
    
    
    
    1,066Net proceeds from the issuance of long-term debt
    
    
    22,968
    
    
    
    Cash repayment of 7% Debentures
    
    
    
    
    
    
    (80,000
    )Net proceeds from sale of common stock and warrants
    
    
    16,656
    
    
    
    9,336Net cash provided by financing activities
    
    
    2,513,006
    
    
    
    1,220,428Net increase in cash and cash equivalents
    
    
    11,245
    
    
    
    72,411Cash and cash equivalents, beginning of period
    
    
    288,519
    
    
    
    299,764Cash and cash equivalents, end of period
    
    $
    299,764
    
    
    $
    372,175
 The accompanying notes are an integral part of these consolidated statements. 26




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED Year ended December 31,2003
    
    
    2004Supplemental cash flow information:Cash paid for interest
    
    $
    116,502
    
    
    $
    81,083Cash paid for state taxes
    
    $
    2,152
    
    
    $
    56,800Supplemental non-cash flow operting activities:Issuance of Series D convertible preferred stock for
acquision of customer contracts and payment of services
    
    $
    160,210
    
    
    $
    Purchase of property and equipment with long-term debt
    
    $
    
    
    
    $
    21,747Conversion of 7% convertible debentures to common stock
    
    $
    
    
    
    $
    870,000
 The accompanying notes are an integral part of these consolidated statements. 27




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##### Table of Contents



ViewCast.com, Inc. 
 Notes to the Consolidated Financial Statements
 1. The Company and Description of Business The accompanying consolidated financial statements include the accounts of ViewCast.com, Inc.
dba ViewCast Corporation and its wholly-owned subsidiaries, Delta Computec Inc., VideoWare, Inc.,
Osprey Technologies, Inc. and ViewCast Online Solutions, Inc. (collectively, ViewCast or the
Company). In October 2002, the Company acquired certain assets and liabilities and the operations
of Delta Computec Inc., a provider of professional information technology services and products.
Delta Computec Inc.s customers include financial institutions, accounting firms, healthcare
providers, pharmaceutical companies and educational institutions primarily in the northeastern
United States. The Company is also engaged in developing and marketing video and audio
communications products for delivering content dynamically via a variety of network types and
protocols. These products include Osprey® Video capture cards, Niagara® video
encoders/servers, and ViewCast IVN enterprise software and systems. ViewCast products address the
video capture, processing, and delivery requirements for a broad range of applications and markets.
The Company markets its video products and services directly to end-users, through original
equipment manufacturers, value-added resellers and computer system integrators, worldwide. The Company utilizes significant capital to design, develop and commercialize its products and
intends to fund its 2005 operating activities and sales growth by utilizing cash contributed from
operations and its available working capital lines of credit to the extent possible. As there is a
net working deficit as of December 31, 2004, the Company anticipates it will require additional
working capital during 2005 to support operations and the expansion of sales channels and market
distribution, to develop and introduce new products and services, to enhance existing product
offerings, to address unanticipated competitive threats or technical problems, to transition
adverse economic conditions and for potential acquisition transactions. Although the Company has
no firm arrangements with respect to additional financing, it is currently considering proposals
relating to the issuance of equity securities in exchange for a cash investment in the Company.
There can be no assurance that additional financing will be available to the Company on acceptable
terms, or at all. Additional equity financing may involve substantial dilution to our then
existing stockholders. The Company intends to actively pursue other such strategic merger and
acquisition activities to the extent possible. In the event the Company is unable to raise
additional capital or execute other alternatives, we may be required to sell segments of the
business, or substantially reduce or curtail our activities. Such actions could result in charges
that could be material to the ViewCasts results of operations or financial position. The accompanying consolidated financial statements have been prepared assuming the Company
will continue as a going concern. As reflected in the accompanying consolidated financial
statements, the Company incurred significant net losses of $2,354,505, and $2,845,372 for the years
ended December 31, 2003 and 2004, respectively. These losses, in conjunction with the matters
discussed above, raise substantial doubt about the Companys ability to continue as a going
concern. The consolidated financial statements do not include any adjustments that might result
from this uncertainty. 2. Summary of Significant Accounting Policies Principals of Consolidation The consolidated financial statements include the accounts of the Company and all of its
subsidiaries, all of which are wholly owned. All material inter-company accounts and transactions
have been eliminated in consolidation. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an initial maturity of
three months or less to be cash equivalents. Accounts Receivable The Companys accounts receivable are primarily due from resellers and distributors of its
video distribution and networking products and from customers in the healthcare, pharmaceutical,
financial services and educational industries to whom we provide information technology services
and products. Credit is extended based on evaluation of each customers financial condition and,
generally collateral is not required except for certain The accompanying notes are an integral part of these consolidated statements. 28




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued international customers. Accounts receivable are generally due within 30 days and are stated
net of an allowance for doubtful accounts. Accounts are considered past due if outstanding longer
than contractual payment terms. The Company records an allowance on a specific basis by considering
a number of factors, including the length of time trade accounts are past due, the Companys
previous loss history, the credit-worthiness of individual customers, economic conditions affecting
specific customer industries and economic conditions in general. The Company writes-off accounts
receivable when they become uncollectible and payments subsequently received on such receivables
are credited against write-offs in the period the payment is received. Changes in the Companys allowance for doubtful accounts for the years ended December 31, 2003
and 2004 are as follows: Year Ended December 31,2003
    
    
    2004Beginning balance
    
    $
    144,000
    
    
    $
    86,247Bad debt expense (reversal)
    
    
    (18,753
    )
    
    
    (47,631
    )Uncollectible accounts written off,
net of recoveries
    
    
    (39,000
    )
    
    
    (9,865
    )Ending Balance
    
    $
    86,247
    
    
    $
    28,751
 Inventories Inventories consist primarily of purchased electronic components and computer system products,
along with the related documentation manuals and packaging materials. Inventories are carried at
the lower of cost or market, cost being determined at average cost. In order to assess the ultimate realization of inventories, the Company is required to make
judgments as to the future demand requirements compared to current or committed inventory levels.
Write downs are made to lower of cost or market when projected demand requirements decrease due to
market conditions, technological and product life cycle changes. Property and Equipment Property and equipment is recorded at cost. Depreciation is determined using the
straight-line method over the estimated useful lives, generally three to seven years, of the
related assets. Leasehold improvements are amortized over the shorter of the useful life or the
length of the related leases. Service assets include equipment located at customer sites. Service
assets are depreciated over the expected life of three years, or if the equipment is utilized in
service operations, it is immediately expensed if the replacement part, which is recovered, is not
repairable. Expenditures for repairs and maintenance are charged to operations as incurred;
renewals and betterments are capitalized. Gains and losses on the disposition of property and
equipment are recorded in the period incurred. Software Development Costs Costs of developing new software products and substantial enhancements to existing software
products are expensed as incurred until technological feasibility has been established, after which
time additional costs incurred are capitalized in accordance with Statement of Financial Accounting
Standards No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed. Amortization of capitalized software development costs begins when products are
available for general release to customers, and is computed using the greater of the revenue method
or the straight-line method over a period not to exceed three years. Intangible Assets and Amortization Customer contracts are amortized on a straight-line basis over 36 months. All goodwill and
intangible assets have been assigned to reporting units for purposes of impairment testing and
segment reporting. Goodwill is calculated as the amount that purchase price exceeds the value of
the net assets acquired. The Company conducts its annual impairment test of goodwill on October
1st of each year. There was no impairment on December 31, 2003 and 2004. The accompanying notes are an integral part of these consolidated statements. 29




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Intangible Assets consist of the following: December 31, 2003
    
    
    
    December 31, 2004Average
    
    
    
    Gross
    
    
    
    
    
    
    
    
    Grosslife
    
    
    
    carrying
    
    
    
    Accumulated
    
    
    
    carrying
    
    
    
    Accumulated(years)
    
    
    
    amount
    
    
    
    amortization
    
    
    
    amount
    
    
    
    amortizationCustomer Contracts
    
    
    
    3
    
    
    
    $
    465,000
    
    
    
    $
    68,612
    
    
    
    $
    465,000
    
    
    
    $
    223,611Capitalized Software
    
    
    
    3
    
    
    
    
    667,239
    
    
    
    
    667,239
    
    
    
    
    851,635
    
    
    
    
    667,239
 The estimated aggregate amortization expense for each of the three succeeding years are as
follows: 2005
    
    
    $
    216,4652006
    
    
    
    147,8532007
    
    
    
    61,467
 Impairment of Long-Lived Assets The Company evaluates long-lived assets according to the terms of Statement of Financial
Accounting Standards No. 144 (SFAS 144), Accounting for Impairment or Disposal of Long-Lived
Assets. Assets that are held and used are analyzed for impairment whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable. Impairment is recognized
when the estimated undiscounted cash flow generated by those assets is less than the carrying
amounts of such assets. The amount of impairment is the excess of the carrying amount over the fair
value of such assets. Assets held for sale are carried at the lower of carrying amount or fair
value less selling costs. No impairment charges were recognized for years ended 2003 and 2004. Revenue Recognition The Company applies provisions of SEC Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statementsas 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 Transactionsand EITF 00-21, Revenue Arrangements with
Multiple Deliverablesto transactions involving sales of its hardware and software products. Under
these guidelines, the Company recognizes 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. The Company accrues warranty costs and sales allowances for promotional activities at time
of shipment based on historical experience. Following is a description of our revenue recognition
policies:  
    Product Sales Revenue from Product sales is recognized upon shipment provided
title and risk of loss has passed to the customer, there is evidence of an arrangement,
fees are fixed or determinable and collectibility is reasonably assured.
    System Implementations System transactions in which the Company has the
responsibility for installation, product revenues are deferred until completion of the
installation process and system acceptance by the customer.
    Services The Company recognizes revenues from information technology service and
maintenance contracts on a straight-line basis over the contract period, provided no
significant obligations remain and the collection of any related receivable is
probable. Deferred revenues represent amounts billed and collected in advance for these
contracts.
    Other Revenues Other revenues are related to product sales and include
maintenance, training and installation as well as engineering contract services,
professional services, and content hosting and distribution services that are
recognized as services are provided. Other revenues have historically represented less
than 10% of total revenues and are presented combined with product sales in the
consolidated statements of operations. The accompanying notes are an integral part of these consolidated statements. 30




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Transactions that do not meet these requirements are deferred until the point at which these
requirements are satisfied. Net Loss Per Share Basic loss per share is calculated by dividing net loss by the number of weighted average
common shares outstanding for the period. Since the Company has reported net losses for all periods
presented, the computation of diluted loss per share excludes the effects of convertible preferred
stock, convertible debt, options, and warrants since their effect is anti-dilutive. Following is a summary of excluded securities: For the Year Ended December 31,2003
    
    
    2004Stock options
    
    
    4,081,349
    
    
    
    3,117,095Public and private warrants
    
    
    4,184,512
    
    
    
    4,575,094Convertible debentures
    
    
    190,000
    
    
    
    76,000Convertible preferred stock  Series B
    
    
    2,206,896
    
    
    
    2,206,896Convertible preferred stock  Series C
    
    
    3,333,333
    
    
    
    3,333,333Redeemable convertible preferred Stock  Series D
    
    
    922,630
    
    
    
    1,004,46614,918,720
    
    
    
    14,312,884
 Deferred Charges Short-term deferred charges at December 31, 2003 consist of legal, accounting and lead manager
fees and expenses associated with the issuance in April 2000 of $4.45 million principal amount 7%
senior convertible debentures. During September and October of 2000, holders of $3.5 million
principal amount of 7% senior convertible debentures converted their notes to common stock of the
Company and accordingly, a proportionate share of issue costs in the amount $914,872 was charged
against additional paid in capital. The remaining amount was expensed in 2004. Total deferred charges amortized to interest expense for the years ended December 31, 2003 and
2004 were $112,925 and $23,177, respectively. Warranty Reserves Reserves are provided for the estimated warranty costs when revenue is recognized. The costs
of warranty obligations are estimated based on warranty policy or applicable contractual warranty,
historical experience of known product failure rates and use of materials and service delivery
charges incurred in correcting product failures. Specific warranty accruals may be made if
unforeseen technical problems arise. If actual experience, relative to these factors, adversely
differs from these estimates, additional warranty expense may be required. The following table below shows the roll forward of the warranty reserve for the years ended
December 31, 2003 and 2004: 2003
    
    
    2004Beginning balance
    
    $
    39,257
    
    
    $
    60,260Charged to expense
    
    
    86,189
    
    
    
    48,931Usage
    
    
    (65,186
    )
    
    
    (51,447
    )Ending Balance
    
    $
    60,260
    
    
    $
    57,744
 Risks and Uncertainties Financial instruments that potentially subject the Company to credit risk consist principally
of cash, cash equivalents and trade accounts receivable. The Company invests its cash and cash
equivalents with commercial banks in Texas and New Jersey. The Company sells its products and
services primarily to end users, distributors and The accompanying notes are an integral part of these consolidated statements. 31




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued resellers without requiring collateral; however,
the Company routinely assesses the financial condition of its customers and maintains allowances
for anticipated losses. The following table outlines the number of customers that accounted for
more than 10% of annual sales and receivable balances: Customers exceeding 10% ofCustomers Exceeding 10%
    
    
    Year-End Accounts Receivableof Net Sales
    
    
    BalanceNumber of
    
    
    Combined
    
    
    Number of
    
    
    CombinedYear
    
    Customers
    
    
    Percent
    
    
    Customers
    
    
    Percent2003
    
    
    2
    
    
    
    29
    %
    
    
    1
    
    
    
    28
    %2004
    
    
    2
    
    
    
    27
    %
    
    
    2
    
    

    
    33
    %
 The Company believes it has no significant credit risk in excess of provided reserves. The Company is substantially dependent on its third-party suppliers and manufacturers to
supply its components and electronic parts, including standard and custom-designed components. Use of Estimates The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Significant
estimates used in preparing these financial statements are related primarily to accounts receivable
allowances, inventory valuation allowances, warranty reserves, deferred tax asset valuation
allowances and the recoverability of goodwill and other intangibles related to acquisitions.
Management believes the estimates used in preparing the financial statements are reasonable;
however, actual results could differ from those estimates. Income Taxes The Company utilizes the liability method of accounting for income taxes wherein deferred tax
assets and liabilities are determined based upon the differences between the financial statement
and tax bases of assets and liabilities, as measured by enacted tax rates expected to be in effect
when these differences reverse. Deferred tax assets are recognized when it becomes more likely than
not that the assets will be realized. Advertising Costs Advertising costs are expensed as incurred. Advertising expense for the years ended December
31, 2003 and 2004 was $90,342 and $198,888 respectively. Fair Value of Financial Instruments The Company believes that the carrying amount of certain of its financial instruments, which
include cash equivalents, accounts receivable, accounts payable, short-term debt and accrued
expenses, approximate fair value due to the short-term maturities of these instruments. The
Company also believes the carrying value of its long-term debt approximates fair value at December
31, 2004 because actual interest rates were consistent with rates estimated to be available for
obligations with similar terms and conditions. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, in its primary financial statements and has provided supplemental
disclosures required by Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting
for Stock-Based Compensation and by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure an amendment of FASB Statement No. 123. The accompanying notes are an integral part of these consolidated statements. 32




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Option exercise prices are equal to the market price on the date of grant. A portion of the
shares under grant become exercisable after one year and remaining shares vest monthly thereafter
on a straight line basis over the vesting term of the option (generally five years). Options expire
after ten years. SFAS 123 requires the disclosure of pro forma net income and earnings per share information
computed as if the Company had accounted for its employee stock options granted under the fair
value method set forth in SFAS 123. The fair value for these options was estimated at the date of
grant using the Black-Scholes option pricing model with the following weighted-average assumptions: 2003
    
    
    2004Risk-free interest rate
    
    
    3.52
    %
    
    
    3.87
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Volatility factor of the
market price of the
Companys common stock
    
    
    110
    %
    
    
    111
    %Expected life of the options
(years)
    
    
    5.1
    
    
    
    4.8
 For purposes of pro forma disclosures, the estimated fair value of the options is amortized to
expense over the options vesting periods. Pro forma information for the years ended December 31,
2003 and 2004 is as follows: 2003
    
    
    2004Net loss applicable to common
stockholders:As reported
    
    $
    (3,295,468
    )
    
    $
    (3,754,387
    )Deduct: total stock-based compensation
under fair value based method for all
awards
    
    
    (1,621,170
    )
    
    
    (1,255,882
    )Pro forma
    
    $
    (4,916,638
    )
    
    $
    (5,010,269
    )Net Loss per share:As reported  basic and diluted
    
    $
    (0.16
    )
    
    $
    (0.17
    )Pro forma  basic and diluted
    
    $
    (0.24
    )
    
    $
    (0.23
    )
 In December 2004, the Financial Accounting Standards Board (FASB) enacted Statement of
Financial Accounting Standards 123  revised 2004 (SFAS 123R), Share-Based Payment,which
replaces Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for
Stock-Based Compensationand supersedes APB Opinion No. 25 (APB 25), Accounting for Stock Issued
to Employees.SFAS 123R requires the measurement of all employee share-based payments to employees,
including grants of employee stock options, using a fair-value-based method and the recording of
such expense in the Companys consolidated statement of operations. The accounting provisions of
SFAS 123R are effective for reporting periods beginning after December 15, 2005. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative
to financial statement recognition. See the Stock-Based Compensationsection shown earlier in this
note for the pro forma net loss and loss per share amounts for 2003 and 2004 as if the Company had
used a fair-value-based method required under SFAS 123 to measure compensation expense for employee
stock incentive awards. Although the Company has not yet determined whether the adoption of SFAS
123R will result in amounts that are different from the current pro forma disclosures under SFAS
123, the Company is evaluating the requirements under SFAS 123R and expect the adoption to have a
significant impact on the Companys consolidated statement of operations and loss per share, but no
impact on its financial condition or cash flows. Reclassifications of Prior Year Amounts Certain prior year amounts have been reclassified to conform to 2004 presentation. The accompanying notes are an integral part of these consolidated statements. 33




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 3. Inventories Inventories consist of the following: December 31,2003
    
    
    2004Purchased materials
    
    $
    468,121
    
    

    $
    491,922Finished goods
    
    
    1,086,633
    
    
    
    1,128,356Total inventories
    
    $
    1,554,754
    
    
    $
    1,620,278
 4. Property and Equipment Property and equipment, at cost, consists of the following: EstimatedUseful Lives
    
    
    December 31,(Years)
    
    
    2003
    
    
    2004Computer equipment
    
    
    3 to 7
    
    
    $
    1,873,380
    
    
    $
    2,025,628Service assets
    
    
    3
    
    
    
    755,916
    
    
    
    901,299Software
    
    
    3 to 5
    
    
    
    640,997
    
    
    
    650,012Leasehold improvements
    
    
    1 to 5
    
    
    
    88,972
    
    
    
    91,295Office furniture and equipment
    
    
    5 to 7
    
    
    
    660,215
    
    
    
    691,2474,019,480
    
    
    
    4,359,481Less accumulated depreciation
and amortization
    
    
    
    
    
    
    (2,440,771
    )
    
    
    (3,060,766
    )$
    1,578,709
    
    
    $
    1,298,715
 5. Accrued Expenses Accrued expenses consist of the following: December 31,2003
    
    
    2004Stockholder accrued interest
    
    $
    356,844
    
    
    $
    400,040Accrued interest other
    
    
    11,083
    
    
    
    Accrued compensation
    
    
    538,894
    
    
    
    524,561Accrued legal & professional
    
    
    75,077
    
    
    
    47,024Accrued warranty
    
    
    60,260
    
    
    
    57,744Accrued rent
    
    
    23,128
    
    
    
    20,833Accrued inventory purchases
    
    
    56,772
    
    
    
    45,960Customer deposits
    
    
    33,872
    
    
    
    32,376Other
    
    
    206,593
    
    
    
    260,621$
    1,362,523
    
    
    $
    1,389,159
 6. Stockholder Line of Credit and Other Short-term Debt Stockholder Line of Credit Since October 1998, the Company has maintained a working capital line of credit facility with
an entity controlled by one of its principal stockholders, Mr. H.T. Ardinger, who also currently
serves as Chairman of the The accompanying notes are an integral part of these consolidated statements. 34




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Board of Directors of the Company. Prior to October 15, 2003,
availability of funds under this facility was subject to certain borrowing base limitations based
principally on qualifying accounts receivable and inventory with interest payable on demand at 12%
and secured by the assets of ViewCast.com, Inc. In October 2003, ViewCast.com, Inc., Osprey
Technologies, Inc. and VideoWare, Inc. (jointly and severally, the Borrower) amended the terms
and conditions of this credit note and security agreement with the Ardinger Family Partnership,
LTD. (Lender). As of the date of the agreement, the outstanding principal balance of the
indebtedness under the original loan agreement was $7,509,582 and accrued and unpaid interest
thereon was $1,243,665. Additionally, in October 2003 the Company had outstanding $500,000 in
advances from Lender for the purchase of DCi in October 2002. Effective October 15, 2003, the
terms and conditions of the note agreement were amended to establish a long-term payout for
$6,909,582 principal amount of the note and accrued interest of $1,243,665. Additionally, a new
$2.0 million short-term line of credit facility was established with an initial principal amount
$1.1 million consisting of $600,000 principal amount of the original note and $500,000 of
stockholder advances. The amended note agreement reduces the per annum interest rate on
stockholder notes from 12% to the lesser of prime plus 3.0% or 9.5%, eliminates the borrowing base
requirements based on outstanding accounts receivable and inventory and is secured by all assets of
the Borrower. Effective April 30, 2004, the Company amended the terms and conditions of the credit
facility to increase the credit line of the revolving credit note to $2.25 million and extended the
commencement date for the scheduled payments of the term note and accrued interest from April 30,
2004 to August 31, 2004. Effective August 13, 2004, the Company amended the terms and conditions
of the credit facility to increase the credit line of the revolving credit note to $3.0 million and
extended the commencement date for the scheduled payments of the term note and accrued interest
from August 31, 2004 to December 31, 2004. Effective March 22, 2005, the Company amended the terms
and conditions of the credit facility to increase the credit line of the revolving credit note to
$3.5 million and extended the commencement date of scheduled payments of the term note and accrued
interest from December 31, 2004 to July 31, 2005. During the year ended December 31, 2004, net borrowings under the new stockholder line of
credit note were $1,600,000 resulting in a note principal balance of $2,900,000. At December 31,
2004, the Company had availability under the stockholder line of credit of $100,000 and
subsequently increased availability to $600,000 based on the amendment effective March 22, 2005 as
described in the above paragraph. At December 31, 2004 the Company had outstanding $173,918 in
stockholder accrued interest attributable to the stockholder line of credit. Keltic Asset Based Revolving Credit Facility The Company also maintains a $1.5 million asset based revolving credit facility with Keltic
Financial Partners, LP (Keltic) for working capital support of DCi operations. Draws on the
revolving credit facility are based on qualifying DCi accounts receivable. The loan balance is
reduced as cash collections are received directly by Keltic. The Company has entered into a
Guaranty of Payment and a Performance and Subordination Agreement with Keltic relating to this
facility. On October 11, 2004, the Keltic credit facility was amended to extend the maturity date
of the note to December 31, 2004 and to extend the date related to penalties for early prepayment
or termination of the loan from October 10, 2004 to December 10, 2004. On December 10, 2004, the
Keltic credit facility was amended to extend the maturity date of the note to January 10, 2005 and
to extend the date related to penalties for early prepayment or termination of the loan from
December 11, 2004 to January 10, 2005. On January 10, 2005, the Keltic credit facility was amended
to extend the maturity date of the note to February 15, 2005 and to extend the date related to
penalties for early prepayment or termination of the loan from January 11, 2005 to February 15,
2005. On February 15, 2005, the Keltic credit facility was amended to extend the maturity date of
the note to April 15, 2005 and to extend the date related to penalties for early prepayment or
termination of the loan from February 15, 2005 to April 15, 2005. The company expects the Keltic
credit facility to be extended beyond April 15, 2005. The credit facility continues to be secured
by all DCi assets and is guaranteed by the Company. In October 2004 and December 2004, Keltic was
paid $5,000 in modification fees pertaining to the note amendments that occurred in those months. During 2004, the Company reduced the Keltic note principal balance by $327,104 to a balance of
$313,170 and had availability of $510,615 under the revolving credit facility at December 31, 2004. The accompanying notes are an integral part of these consolidated statements. 35




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Following is a summary of short-term debt with terms and conditions as described in the
preceding paragraphs: December 31,2003
    
    
    2004$3.5 million line of credit note payable to
principal stockholder of the Company,
secured by all assets of Borrower, with
interest due on demand at the lesser of prime
(5.25% as of December 31, 2004) plus 3.0% or
9.5% fixed rate, due December 2005.
    
    $
    1,300,000
    
    
    $
    2,900,000$1.5 million revolving based credit facility
payable to a commercial finance company,
collateralized by all DCi assets and
guaranteed by the Company, with interest
payable at the higher of prime (5.25% as of
December 31, 2004) plus 2.5% or 6.5% fixed
rate, due April 15, 2005.
    
    
    635,005
    
    
    
    313,170$
    1,935,005
    
    
    $
    3,213,170
 7. Long-term Notes Payable 7% Senior Debentures Due 2004 On April 28, 2000, the Company sold $4,450,000 aggregate principal amount of 7% Senior
Convertible Debentures Due 2004 (the Debentures) pursuant to a private placement agreement dated
March 28, 2000, and amended on April 28, 2000, by and among the Company and RP&C International Inc.
and RP&C International Limited (the Lead Managers) at an initial offering price of 100% of the
principal amount thereof, less 8% gross commission. In addition, the Company issued the Lead
Managers a warrant (the Warrant) on April 28, 2000, in the name of RP&C International (Guernsey)
Limited, pursuant to Regulation S, to purchase an aggregate of 89,000 shares of Common Stock, at an
exercise price of $5.00 per share, subject to adjustment in the event of adjustment of the
Conversion Price of the Debentures. The Warrant has a term of five (5) years and may be exercised
as to all or any lesser number of shares of Common Stock covered thereby, commencing twelve (12)
months after the date of issuance. The maturity date of the Debentures was on April 28, 2004 and
interest was payable semi-annually in arrears on May 1 and November 1, each year. Unless previously redeemed, the Debentures were convertible into shares of Common Stock of the
Company at the option of the holder at any time at a fixed conversion price of $5.00 per share of
Common Stock, subject to adjustment in certain circumstances (the Conversion Price). Debentures
that converted prior to the first interest payment date of November 1, 2000 converted at a ten
percent (10%) discount from the then effective Conversion Price. During September through October
2000, holders of $3,500,000 principal amount of the Debentures exchanged their notes for 777,777
shares of common stock of the Company at a conversion price of $4.50 per share. In April 2004, the Company received Notices of Conversion from the holders of $870,000 of the
outstanding 7% Senior Convertible Debentures. The terms of the conversion include a lowered
conversion price of the Debentures from $5.00 per share to $0.41 per share of ViewCast common stock
or a total of 2,121,947 shares of common stock for the $870,000 converted. Each Debenture holder
that converted its Debentures also received in cash the interest accrued under the terms of the
Debenture for the period of time from November 2, 2003 through April 28, 2004 in the amount of
$35.00 per $1,000 principal amount of Debentures converted, which would otherwise, pursuant to the
terms of the Debentures, be forfeited upon conversion. In addition, the converting Debenture
holders received 635,970 warrants exercisable for three (3) years into shares of common stock of
the Company (the Warrant Shares) at an exercise price of $0.45 per Warrant Share, and in
connection therewith, were granted certain piggyback registration rights for the Warrant Shares.
In conjunction with the debenture conversions, the Company has agreed to pay a consulting fee
consisting of hourly fees of $7,000, payable in cash or restricted
stock at ViewCasts option, and of warrants exercisable into 15,000 shares of common stock
with the same terms as the warrants issued to the converting Debenture holders. The accompanying notes are an integral part of these consolidated statements. 36




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued The Company accounts for the conversion of convertible debt to equity securities in accordance
with SFAS No. 84, Induced Conversions of Convertible Debt. In other income (expense), the
Company has recognized an imputed amount for debt conversion expense equal to the fair value of all
securities and other consideration transferred in the transaction in excess of the fair value of
securities issuable pursuant to the original conversion terms. Shares were valued at the fair
market value of the stock price at the date of conversion. Number
    
    
    Principal
    
    
    
    
    
    
    Increase inof Equity
    
    
    Amount
    
    
    
    
    
    
    CommonSecurities
    
    
    Converted
    
    
    Debt
    
    
    Stock, ParConversion of 7% Senior Convertible
    
    and
    
    
    into
    
    
    Conversion
    
    
    and Paid inDebentures
    
    Warrants
    
    
    Equity
    
    
    Expense
    
    
    CapitalConversion shares under original terms
    
    
    174,000Additional conversion shares under lowered
conversion terms
    
    
    1,947,947
    
    
    
    
    
    
    $
    1,074,730Warrant issues under lowered conversion terms
    
    
    635,970
    
    
    
    
    
    
    
    158,993$
    870,000
    
    
    $
    1,233,723
    
    
    $
    (2,103,723
    )
 This conversion transaction results in a net reduction in convertible debt and an increase in
net equity of $870,000. The debt conversion expense is a non-cash charge and is a reconciling
adjustment in calculating net cash used in operating activities. Stockholder Term Note In October 2003, the Company amended the terms and conditions of its then outstanding
stockholder line of credit to establish a long-term payout for $6,909,582 principal amount of the
note and the amended note agreement significantly reduced the per annum interest rate from the
original 12% fixed rate and accrued interest of $1,243,665. Term note accrues interest at a per
annum rate equal to the lesser of prime (5.25% as of December 31, 2004) plus 3.0% or 9.5% and
requires monthly principal repayments of $19,193 commencing on July 31, 2005 and continuing on the
last day of each calendar month with a balloon payment for the remaining principal amount due
December 31, 2006 (See Note 6). There are no covenants in connection with these notes. Summary of Long Term Notes Payable Following is a summary of long-term notes payable with terms and conditions as described
above: December 31,2003
    
    
    20047% Senior Convertible Debentures due
April 2004 with interest payable
semi-annually in arrears
    
    $
    950,000
    
    
    $
    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 (5.25% as of December 31, 2004)
plus 3.0% or 9.5% fixed rate, due April
30, 2006 (See Note 6).
    
    
    6,909,582
    
    
    
    6,909,582Other
    
    
    22,968
    
    
    
    34,823Total long-term debt
    
    
    7,882,550
    
    
    
    6,944,405Less current maturities
    
    
    (1,128,483
    )
    
    
    (127,175
    )Total long-term notes payable
    
    $
    6,754,067
    
    
    $
    6,817,230
 The accompanying notes are an integral part of these consolidated statements. 37




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Following are the scheduled maturities of long-term notes payable and stockholder accrued
interest at December 31, 2004: StockholderLong-Term
    
    
    AccruedYear ended December 31:
    
    Notes Payable
    
    
    Interest2005
    
    $
    127,175
    
    
    $
    226,1212006
    
    
    6,808,191
    
    
    
    1,626,7542007
    
    
    8,548
    
    
    
    2008
    
    
    491
    
    
    
    Total
    
    $
    6,944,405
    
    
    $
    1,852,875
 8. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 requires a valuation allowance
to be recorded when it is more likely than not that some portion or all of the deferred tax assets
will not be realized. In the opinion of management, realization of the Companys net operating
loss carryforward is not reasonably assured, and a valuation allowance of $24,044,000 and
$24,971,000 has been provided against deferred tax assets in excess of deferred tax liabilities in
the accompanying consolidated financial statements at December 31, 2003 and 2004, respectively. The components of the Companys net deferred taxes are as follows: December 31,2003
    
    
    2004Deferred tax assets:Net operating loss carryforwards
    
    $
    22,665,000
    
    
    $
    23,052,000Revenue deferred for financial statements,
recognized for tax
    
    
    30,000
    
    
    
    672,000Excess of tax over financial statement basis of
patent
    
    
    15,000
    
    
    
    11,000Accruals deductible for tax purposes when paid
    
    
    363,000
    
    
    
    386,000Excess of tax over financial statement basis of
of property and equipment
    
    
    192,000
    
    
    
    219,000Excess of tax over financial statement basis of
software development costs
    
    
    798,000
    
    
    
    688,000Total deferred tax assets
    
    
    24,063,000
    
    
    
    25,028,000Deferred tax liabilities:Excess of financial statement over tax basis
of goodwill and customer contracts
    
    
    (19,000
    )
    
    
    (57,000
    )Net deferred tax assets
    
    
    24,044,000
    
    
    
    24,971,000Less: valuation allowance
    
    
    (24,044,000
    )
    
    
    (24,971,000
    )Net deferred taxes
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these consolidated statements. 38




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued A reconciliation between the federal income tax benefit calculated by applying U.S. federal
statutory rates to net loss and the absence of a tax benefit reported in the accompanying
consolidated financial statements is as follows: 2003
    
    
    2004U.S. federal statutory rate applied to pretax loss
    
    $
    (785,000
    )
    
    $
    (967,000
    )State tax net of federal benefit
    
    
    (69,000
    )
    
    
    Change in valuation allowance
    
    
    634,000
    
    
    
    927,000Other
    
    
    220,000
    
    
    
    40,000$
    
    
    
    $
    
 At December 31, 2004 the Company has federal income tax net operating loss carryforwards of
approximately $65,000,000, which expire as follows: YearEnded
    
    Amount2009
    
    $
    2,700,0002010
    
    
    4,700,0002011
    
    
    4,000,0002012
    
    
    5,400,0002018
    
    
    7,700,0002019
    
    
    13,200,0002020
    
    
    8,100,0002021
    
    
    8,500,0002022
    
    
    4,400,0002023
    
    
    2,700,0002024
    
    
    3,600,000
 The Company is subject to limitations existing under Internal Revenue Code Section 382 (Change
of Control) relating to the availability of the operating loss carryforward. No Federal income or foreign taxes were paid during the years ended December 31, 2003 and
2004. State taxes of $2,152 and $56,800 were paid for the years 2003 and 2004, respectively. 9. Series D Redeemable Convertible Preferred Stock During October 2002 through June 2003, the Company issued 150,670 shares of Series D Preferred
Stock as partial consideration for the acquisition of DCi and for related investment banking fees.
Each share of Series D Preferred Stock has a stated value of $10.00 with an option to convert into
the Companys common stock at $1.50 per share. The Series D Preferred Stock provides redemption
rights for the holders and the Company, and other rights as described in the Certificate of
Designation of the Series D Preferred Stock. The Series D Preferred Stock is redeemable at its
stated value at the holders option upon written notice at any time after October 11, 2004, to the
extent permitted by applicable law. At December 31, 2004, the Company had a consolidated
stockholders deficit of $7,982,771 and in accordance with Delaware law, is precluded from
redeeming its outstanding Series D convertible preferred stock. As a result, no redemption may be
paid for Holder Redemption Notices received by the Company while it has a consolidated
stockholders deficit. Effective March 21, 2005, the Company temporarily lowered the conversion price of each of its
outstanding Series D Redeemable Convertible Preferred Shares from $1.50 to $0.55 per share. As a
result, each Preferred Share will be convertible into 18.18 shares of ViewCast common stock based
on a stated value of $10.00 per Preferred Share so long as the stockholder converts by 5:00 p.m.
Central Time on or before April 15, 2005. There will be 2,739,500 reserved but unissued shares of
common stock available for issuance upon conversion of the Preferred Stock. ViewCast originally
issued the Series D Redeemable Convertible Preferred Shares in conjunction with the acquisition of
the operations of Delta Computec Inc. in October 2002. On March 24, 2005, John DeVito converted
3,355 shares of Series D Redeemable Convertible Preferred Stock into 61,000 shares of common stock
of the Company. The accompanying notes are an integral part of these consolidated statements. 39




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued On March 24, 2005, NQL Sub-Surviving Corporation converted 138,845 shares of Series D
Redeemable Convertible Preferred Stock into 2,524,456 shares of common stock of the Company. The
conversions were made pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended. The value of the 150,670 shares issued and outstanding at December 31, 2003 reflects a
discount of $87,528 from the stated value of $1,506,700 that has been recorded as imputed interest
expense during 2004 until the initial redemption date of October 11, 2004. Through December 31,
2004, the Company has recognized $87,528 of interest expense on the Series D Preferred Stock. The
Series D Preferred Stock is redeemable at its stated value at the Companys option upon written
notice at any time after October 11, 2005 or prior to that date if the Companys common stock has a
market value of $3.75 per share for ten consecutive trading days. Holders of Series D redeemable
convertible preferred stock have no voting rights except as required by law. All Series D Preferred
Stock of $1,419,172 and $1,506,700 outstanding at December 31, 2003 and December 31, 2004,
respectively is presented as a current liability because of the October 11, 2004 initial redemption
date. 10. Stockholders Deficit Preferred Stock In December 1998 through February 1999, the Company received net proceeds of $8,834,346 from
the private placement of 945,000 shares of Series B convertible preferred stock at $10 per share.
Two principal stockholders of the Company purchased $4,000,000 and $2,000,000 of the offering,
respectively and other existing stockholders purchased the balance of $3.45 million. The Series B
preferred stock is convertible into common stock of the Company at a fixed price of $3.625 per
share, subject to certain requirements, and carries a dividend of 8% per year payable in cash or
common stock of the Company, at the Companys option. In November 2001, the Company received net proceeds of $2,000,000 from the private placement
of 200,000 shares of Series C convertible preferred stock at $10 per share with H.T. Ardinger, Jr.,
a principal shareholder and Chairman of the Board of the Company. The Series C preferred stock is
convertible into common stock of the Company at a fixed price of $0.60 per share, subject to
certain requirements, and carries a dividend of 9% per year payable in cash or common stock of the
Company, at the Companys option. Holders of Series B and Series C preferred stock have no voting rights except on amendments to
the Companys Articles of Incorporation to change the authorized shares, or par value, or to alter
or change the powers or preferences of their respective preferred stock issues. At December 31, 2003 and 2004, the Company had a consolidated stockholders deficit of
$7,255,322 $7,982,771 respectively, and in accordance with Delaware law, was precluded from paying
dividends on its outstanding Series B and Series C convertible preferred stock. As a result, no
preferred stock dividends were declared or paid during 2003 and 2004. 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 common stock of the Company, at the Companys
option. Cumulative dividends on preferred shares in arrears at December 31, 2003 are Series B, and
Series C $1,280,000 and $357,534, respectively; and at December 31, 2004 are Series B and Series C
$1,920,077 and $538,856, respectively. Common Stock During 2003, the Company received $16,656 in proceeds from the sale of 110,605 shares of
common stock to employees under the terms of the Companys Employee Stock Purchase Plan. The
employee purchase price for the offering periods ended March 31, 2003 and September 30, 2003 was
$0.14 and $0.16 per share, respectively. During 2003, the Company received $8,082 from the exercise of stock options to purchase 16,666
common shares of the Company at an exercise price of $0.49 per share. During 2004, the Company received $9,336 in proceeds from the sale of 28,545 shares of common
stock to employees under the terms of the Companys Employee Stock Purchase Plan. The employee
purchase price for the offering periods ended March 31, 2004 and September 30, 2004 was $0.40 and
$0.29 per share, respectively. The accompanying notes are an integral part of these consolidated statements. 40




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued During 2004, the Company received $1,066 from the exercise of stock options to purchase 4,332
common shares of the Company at an average exercise price of $0.25 per share. Stock Option Plans In April 1995, the Company adopted its 1995 Stock Plan (the 1995 Stock Option Plan) under
which 2,000,000 shares of the Companys common stock was reserved for issuance to officers, key
employees and consultants of the Company. The objectives of the stock plan are to attract and
retain qualified personnel for positions of substantial responsibility and to provide additional
incentives to employees and consultants to promote the success of the Companys business. Options
granted under the plan may be incentive stock options or non-qualified stock options. The plan is
administered by the Board of Directors. The options are granted at the discretion of the Board of
Directors at an option price per share not less than fair market value at the date of grant. In
July 1999 and August 2000, stockholders of the Company approved proposals to increase the number of
shares available for issuance under the 1995 Stock Plan to 4,900,000 and 5,900,000, respectively. In April 1995, the Company also adopted the 1995 Director Option Plan under which 250,000
shares of the Companys common stock are reserved for issuance to outside directors of the Company.
The objective of the director plan is to attract and retain qualified personnel for service as
outside directors of the Company and to encourage their continued service to the Board. Only
non-qualified stock options may be granted. Grants under the plan are automatic and
nondiscretionary and are issued at an option price per share not less than fair market value at the
date of grant. In September 2002, stockholders of the Company approved a proposal to increase the
number of shares available for issuance under the 1995 Director Option Plan from 250,000 shares to
500,000 shares. The Company has issued non-qualified stock options to non-employees and consultants of the
Company and accounts for these issuances by estimating their fair value at date of grant using the
Black-Scholes optionpricing model. An expense is recognized ratably over the vesting period of the
option provided all material terms of the agreement are defined. In instances where the terms are
not defined, the option is accounted for as a variable plan and an expense is recognized over the
expected period of benefit of the option. Expenses related to these options are recorded based on
an estimate of the options value computed at the end of each reporting period. The final expense
for the variable plan is recorded when all material terms, i.e.  the number and exercise price of
the options, are known and the options have been earned. Expense of $848 and $3,798 has been
recognized for the years ended December 31, 2003 and 2004, respectively. These amounts have been
aggregated with the valuation of warrants and disclosed as a component of Consolidated Statements
of Stockholders Equity. Following is a summary of stock option activity from January 1, 2003 through December 31,
2004: Stock OptionsWeighted-AverageNumber
    
    
    Price Per
    
    
    Exercise Priceof Shares
    
    
    Share
    
    
    Per ShareOutstanding at January 1, 2003
    
    
    4,498,416
    
    
    $
    0.26-9.00
    
    
    $
    2.39Granted
    
    
    75,250
    
    
    
    0.20  -   0.68
    
    
    
    0.46Exercised
    
    
    16,666
    
    
    
    0.49
    
    
    
    0.49Canceled/forfeited
    
    
    1,140,439
    
    
    
    0.26  -   5.50
    
    
    
    1.80Outstanding at December 31, 2003
    
    
    3,416,561
    
    
    $
    0.20-$9.00
    
    
    $
    2.55Granted
    
    
    103,250
    
    
    
    0.39  -   0.49
    
    
    
    0.41Exercised
    
    
    4,332
    
    
    
    0.20  -   0.28
    
    
    
    0.25Canceled/forfeited
    
    
    696,313
    
    
    
    0.20  -   5.95
    
    
    
    2.66Outstanding at December 31, 2004
    
    
    2,819,166
    
    
    $
    0.20-$9.00
    
    
    $
    2.45
 The weighted-average grant-date fair value of options granted was $0.36 and $0.33 for the
years ended December 31, 2003 and 2004, respectively. The accompanying notes are an integral part of these consolidated statements. 41




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued The following information applies to options outstanding at December 31, 2004: Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Range of
    
    Outstanding at
    
    
    Remaining
    
    
    Average
    
    
    Exercisable at
    
    
    AverageExercise
    
    December 31,
    
    
    Contractual
    
    
    Exercise
    
    
    December 31,
    
    
    ExercisePrices
    
    2004
    
    
    Life
    
    
    Price
    
    
    2004
    
    
    Price$0.011.00
    
    
    1,077,750
    
    
    
    7.8
    
    
    $
    0.42
    
    
    
    794,557
    
    
    $
    0.431.01  2.00
    
    
    640,700
    
    
    
    6.1
    
    
    
    1.16
    
    
    
    495,087
    
    
    
    1.162.01  3.00
    
    
    226,200
    
    
    
    3.7
    
    
    
    2.67
    
    
    
    215,303
    
    
    
    2.683.01  4.00
    
    
    177,000
    
    
    
    2.6
    
    
    
    3.80
    
    
    
    176,750
    
    
    
    3.804.01  5.00
    
    
    108,666
    
    
    
    3.2
    
    
    
    4.41
    
    
    
    108,666
    
    
    
    4.415.01  6.00
    
    
    146,850
    
    
    
    4.8
    
    
    
    5.44
    
    
    
    146,850
    
    
    
    5.446.01  7.00
    
    
    17,000
    
    
    
    5.1
    
    
    
    6.64
    
    
    
    16,250
    
    
    
    6.647.01  8.00
    
    
    410,000
    
    
    
    4.7
    
    
    
    7.10
    
    
    
    260,000
    
    
    
    7.108.01  9.00
    
    
    15,000
    
    
    
    4.3
    
    
    
    9.00
    
    
    
    15,000
    
    
    
    9.002,819,166
    
    
    
    5.9
    
    
    $
    2.45
    
    
    
    2,228,463
    
    
    $
    2.48
 Employee Stock Purchase Plan In May 1995, the Company established an Employee Stock Purchase Plan (ESPP) to provide
employees of the Company with an opportunity to purchase common stock through payroll deductions.
Under the ESPP, 250,000 shares of common stock were initially reserved for issuance, subject to
certain antidilution adjustments. The ESPP is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code. In August 2000, stockholders
of the Company approved a proposal to increase the number of shares available for issuance under
the ESPP from 250,000 to 500,000 shares and in June 2001, stockholders approved a proposal to
increase the number of shares available for issuance under the ESPP from 500,000 to 1,000,000
shares. Each ESPP offering is for a period of six months with commencement dates of the offering
periods beginning April 1 and October 1 of each year. Eligible employees may participate in the
ESPP by authorizing payroll deductions during an offering period within a percentage range
determined by the Board of Directors. Initially, the amount of authorized payroll deductions is
not more than ten percent of an employees cash compensation during an offering period not to
exceed $25,000 per year. Amounts withheld from payroll are applied at the end of each offering
period to purchase shares of common stock. Participants may withdraw their contributions at any
time before stock is purchased, and in the event of withdrawal such contributions will be returned
to participants. The purchase price of the common stock is equal to eighty-five percent (85%) of
the lower of (i) the market price of common stock immediately before the beginning of the
applicable offering period or (ii) the market price of common stock at the end of each offering
period. The Company pays all expenses incurred in connection with the implementation and
administration of the ESPP. The ESPP terminates in April 2005. Warrants The Company has issued private warrants to purchase common stock of the Company in connection
with the issuance and repayment of certain notes payable, as inducement for early exercise of
private warrants and as compensation for services rendered by various consultants. Additionally,
the Company has issued public warrants to purchase common stock of the Company in connection with

its initial public offering and concurrent debt retirement and debt for equity exchange. The accompanying notes are an integral part of these consolidated statements. 42




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Following is a summary of warrant activity from January 1, 2003 through December 31, 2004: WarrantsWeighted-Number of
    
    
    Exercise
    
    
    AverageWarrants
    
    
    Price
    
    
    Exercise PriceOutstanding and exercisable
at January 1, 2003
    
    
    3,922,012
    
    
    $
    1.00-5.00
    
    
    $
    1.09Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    Outstanding and exercisable
at December 31, 2003
    
    
    3,922,012
    
    
    
    1.00  - 5.00
    
    
    
    1.09Granted
    
    
    650,970
    
    
    
    .45
    
    
    
    .45Exercised
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    
    
    
    
    Outstanding and exercisable
at December 31, 2004
    
    
    4,572,982
    
    
    $
    0.45-5.00
    
    
    $
    1.00
 In addition, at December 31, 2004 the Companys lead underwriter for the initial public
offering and assignees held representative warrants to purchase 122,500 full units at $6.44 per
unit and 17,500 partial units at $6.30 per share, each full unit consisting of one share of common
stock at $6.30 and one public warrant at $0.14. Each Public Warrant, when exercised, entitles the
holder to purchase one share of common stock at $1.00. At December 31, 2004, the Company had outstanding 2,616,348 redeemable common stock public
warrants that were issued in connection with the Companys initial public offering, as well as
1,183,332 redeemable private warrants, with terms similar to the public warrants, that were issued
in connection with the early exercise of private warrants during 1998. When initially issued, each
redeemable warrant entitled the holder to purchase 1.0 share of common stock at $4.50, subject to
adjustment under certain circumstances. In October 1998, the Company reduced the effective exercise
price of its then redeemable warrants from $4.50 to $4.19 per share of common stock in accordance
with the provisions of its warrant agreements, whereby each redeemable warrant entitled the holder
to purchase 1.074 shares for $4.50. In January 2002, the Company extended the expiration date of
its outstanding public and public equivalent warrants to February 3, 2005 from February 3, 2002.
Additionally, effective March 1, 2002, the Company decreased the effective exercise price per share
of common stock from $4.19 to $1.00, which was above the market price at that date. In January
2005, the Company extended the expiration date of its outstanding public and public equivalent
warrants to February 3, 2006 from February 3, 2005. Both the public and private redeemable
warrants are redeemable by the Company, upon notice of not less than thirty days, at a price of
$.10 per warrant, provided that the closing price or bid price of the common stock for any twenty
trading days within a period of thirty consecutive trading days ending on the fifth day prior to
the day on which the Company gives notice of redemption has been at least $6.75 (subject to
adjustment under certain circumstances). At December 31, 2004, the Company also had outstanding 773,302 non-redeemable private warrants
with exercise prices ranging from $0.45 to $5.00 per share and with varying expiration dates
through April 2007. These non-redeemable private warrants include 650,970 warrants issued to
holders that converted their 7% Senior Convertible Debentures (See Note 7). 11. Employee Benefit Plan Effective March 1, 1997, the Company adopted a profit sharing plan pursuant to Section 401(k)
of the Internal Revenue Code whereby participants may elect to contribute up to sixty percent (60%)
of their compensation subject to statutory limitations. The plan provides for discretionary
matching and profit sharing contributions by the Company. All employees are eligible to
participate in the plan provided they meet minimum age requirement of The accompanying notes are an integral part of these consolidated statements. 43




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued eighteen. For the years ended December 31, 2003 and 2004, the Company made no matching or
profit sharing contributions. 12. Commitments and Contingencies The Company leases various office and manufacturing space at various locations under
non-cancelable operating leases extending through 2008. The Company also leases certain office and
computer equipment under non-cancelable operating leases. Future minimum operating lease payments,
net of sublease receipts of $72,000 in 2005 only, with initial or remaining terms of one year or
more are as follows: OperatingLeasesYear ended December 31:2005
    
    $
    588,5462006
    
    
    252,2902007
    
    
    18,6922008
    
    
    8,185Total minimum lease payments
    
    $
    867,713
 Rent expense was $613,114 and $588,074 for the years ended December 31, 2003 and 2004,
respectively. 13. Segment Information The Company operates in two distinct business segments as follows: IT Services and Products This business segment includes the operations of Delta Computec Inc. which is headquartered in
Teterboro, New Jersey and provides customized network support, Internet and Intranet consulting,
networking, maintenance, disaster recovery services as well as computer and networking product
sales to Fortune 500 and 1000 companies. Customers include financial institutions, accounting
firms, healthcare providers, pharmaceutical companies and educational institutions primarily in the
northeastern United States. Video Distribution and Networking Products This business segment is engaged in designing, developing and marketing video communications
products and services. It includes operations of the Companys Ospreyâ line of video capture
and video compression-decompression cards, its ViewCast IVN video distribution systems, and its
NiagaraÔ line of encoding and streaming video servers. The Company markets its video products
and services directly to end-users, through original equipment manufacturers, value-added resellers
and computer system integrators, worldwide. Corporate The corporate functions of human resources, legal, financial reporting, accounting, risk
management are located in Dallas, TX. Operating expenses not distributed to business segments
include certain officers salaries, investor relations, shareholder meetings, and other corporate
facility expenses. The Companys underlying accounting records are maintained on a legal entity basis for
government and public reporting requirements. Segment disclosures are on a performance basis
consistent with internal management reporting. The Company evaluates performance based on sales,
gross margins and operating income and expense. Not all corporate operating expenses are
distributed to the business segments. The accounting policies of the segments are the same as those
described in Note 2  Summary of Significant Policies. The following tables provide financial data by segment for 2003 and 2004: 44




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued The following tables provide financial data by segment for 2003 and 2004: Summary of Sales by Geographic Area: VideoDistrubitonIT Services,
    
    
    & Networking2004
    
    Products
    
    
    Products
    
    
    Total
    
    
    %United States
    
    $
    11,093,985
    
    
    $
    4,771,434
    
    
    $
    15,865,419
    
    
    
    77.29
    %Europe
    
    
    
    
    
    
    2,231,473
    
    
    
    2,231,473
    
    
    
    10.87
    %Pacific Rim
    
    
    
    
    
    
    1,874,072
    
    
    
    1,874,072
    
    
    
    9.13
    %Other
    
    
    
    
    
    
    555,958
    
    
    
    555,958
    
    
    
    2.71
    %Total
    
    $
    11,093,985
    
    
    $
    9,432,937
    
    
    $
    20,526,922
    
    
    
    100.00
    %
 Summary of Sales by Geographic Area (Continued): VideoDistrubitonIT Services,
    
    
    & Networking2003
    
    Products
    
    
    Products
    
    
    Total
    
    
    %United States
    
    $
    12,159,250
    
    
    $
    5,292,079
    
    
    $
    17,451,329
    
    
    
    83.45
    %Europe
    
    
    
    
    
    
    1,345,602
    
    
    
    1,345,602
    
    
    
    6.43
    %Pacific Rim
    
    
    
    
    
    
    1,694,481
    
    
    
    1,694,481
    
    
    
    8.10
    %Other
    
    
    
    
    
    
    420,767
    
    
    
    420,767
    
    
    
    2.01
    %Total
    
    $
    12,159,250
    
    
    $
    8,752,929
    
    
    $
    20,912,179
    

    
    
    100.00
    %
 The accompanying notes are an integral part of these consolidated statements. 45




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Summary of Operations by Operating Segment: VideoDistributionIT Services,
    
    
    & Networking
    
    
    Unallocated2004
    
    Products
    
    
    Products
    
    
    Corporate
    
    
    TotalTotal sales
    
    $
    11,093,985
    
    
    $
    9,454,237
    
    
    $
    
    
    
    $
    20,548,222Intersegment sales
    
    
    
    
    
    
    (21,300
    )
    
    
    
    
    
    
    (21,300
    )Revenue from external customers
    
    $
    11,093,985
    
    
    $
    9,432,937
    
    
    $
    
    
    
    $
    20,526,922Gross profit
    
    $
    2,505,401
    
    
    $
    5,760,137
    
    
    $
    
    
    
    $
    8,265,538Operating income (loss)
    
    $
    (37,736
    )
    
    $
    130,521
    
    
    $
    (931,992
    )
    
    $
    (839,207
    )Total assets
    
    $
    5,113,777
    
    
    $
    3,132,129
    
    
    $
    276,788
    
    
    $
    8,522,694Goodwill
    
    $
    1,041,430
    
    
    $
    
    
    
    $
    
    
    
    $
    1,041,430Customer contracts, net
    
    $
    241,389
    
    
    $
    
    
    
    $
    
    
    
    $
    241,389Capital additions
    
    $
    178,888
    
    
    $
    102,126
    
    
    $
    65,779
    
    
    $
    346,793
 VideoDistributionIT Services,
    
    
    & Networking
    
    
    Unallocated2003
    
    Products
    
    
    Products
    
    
    Corporate
    
    
    TotalTotal sales
    
    $
    12,159,250
    
    
    $
    8,773,985
    
    
    $
    
    
    
    $
    20,933,235Intersegment sales
    
    
    
    
    
    
    (21,056
    )
    
    
    
    
    
    
    (21,056
    )Revenue from external customers
    
    $
    12,159,250
    
    
    $
    8,752,929
    
    
    $
    
    
    
    $
    20,912,179Gross profit
    
    $
    3,290,758
    
    
    $
    5,224,531
    
    
    $
    
    
    
    $
    8,515,289Operating income (loss)
    
    $
    579,598
    
    
    $
    (904,344
    )
    
    $
    (1,062,968
    )
    
    $
    (1,387,714
    )Total assets
    
    $
    5,485,041
    
    
    $
    2,696,980
    
    
    $
    223,932
    
    
    $
    8,405,953Goodwill
    
    $
    1,041,430
    
    
    $
    
    
    
    $
    
    
    
    $
    1,041,430Customer contracts, net
    
    $
    396,389
    
    
    $
    
    
    
    $
    
    
    
    $
    396,389Capital additions
    
    $
    408,390
    
    
    $
    66,676
    
    
    $
    24,377
    
    
    $
    499,443
 14. Related Party Transactions Since October 1998, the Company has maintained a working capital line of credit facility with
a partnership controlled by one of its principal stockholders and Chairman of the Board of the
Company, H. T. Ardinger, Jr. Prior to October 15, 2003, availability of funds under the facility
was subject to certain borrowing base limitations based principally on qualifying accounts
receivable and inventory. Effective October 15, 2003, terms and conditions of this note were
amended to eliminate the borrowing base restrictions, establish a long-term payout for a majority
of the note principal and accrued interest, and significantly reduce the per annum interest rate to
the lesser of prime plus 3.0% or 9.5% from 12% (See Notes 6 and 7). No interest was paid to the
partnership during 2003 and 2004. On April 30, 2004, the Company amended the terms and conditions of the credit facility to
increase the credit line of the revolving credit note to $2.25 million and extended the
commencement date for the scheduled payments of the term note and accrued interest from April 30,
2004 to August 31, 2004. On August 13, 2004, the Company amended the terms and conditions of the
credit facility to increase the credit line of the revolving credit note to $3.0 The accompanying notes are an integral part of these consolidated statements. 46




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued million and
extended the commencement date for the scheduled payments of the term note and accrued interest
from August 31, 2004 to December 31, 2004. On March 22, 2005, the Company amended the terms and conditions of the credit facility to
increase the credit line of the revolving credit note to $3.5 million and extended the commencement
date of scheduled payments of the term note and accrued interest from December 31, 2004 to July 31,
2005. 15. Subsequent Events On January 10, 2005, the Keltic credit facility was amended to extend the maturity date of the
note to February 15, 2005 and to extend the date related to penalties for early prepayment or
termination of the loan from January 11, 2005 to February 15, 2005. On February 15, 2005, the
Keltic credit facility was amended to extend the maturity date of the note to April 15, 2005 and to
extend the date related to penalties for early prepayment or termination of the loan from February
15, 2005 to April 15, 2005. The credit facility continues to be secured by all DCi assets and is
guaranteed by the Company. In February 2005, Keltic was paid $2,500 in modification fees pertaining
to the note amendments in February 2005. On January 19, 2005, the Company extended the expiration date of its outstanding public and
public equivalent warrants to February 3, 2006 from February 3, 2005. The Companys Series D Preferred Stock provides conversion rights for the holders and other
rights as described in the Certificate of Designation of the Series D Preferred Stock. Effective
March 21, 2005 the Company temporarily lowered the conversion price of each of its outstanding
Series D Redeemable Convertible Preferred Shares from $1.50 to $0.55 per share. As a result, each
Preferred Share will be convertible into 18.18 shares of ViewCast common stock based on a stated
value of $10.00 per Preferred Share so long as the stockholder converts by 5:00 p.m. Central Time
on or before April 15, 2005. There will be 2,739,500 reserved but unissued shares of common stock
available for issuance upon conversion of the Preferred Stock. ViewCast originally issued the
Series D Redeemable Convertible Preferred Shares in conjunction with the acquisition of the
operations of Delta Computec Inc. in October 2002. On March 24, 2005, John DeVito converted 3,355 shares of Series D Redeemable Convertible
Preferred Stock into 61,000 shares of common stock of the Company. On March 24, 2005, NQL
Sub-Surviving Corporation converted 138,845 shares of Series D Redeemable Convertible Preferred
Stock into 2,524,456 shares of common stock of the Company. The conversions were made pursuant to
Section 3(a)(9) of the Securities Act of 1933, as amended. The accompanying notes are an integral part of these consolidated statements. 47




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##### Table of Contents



Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no disagreements concerning any matter of accounting principle or financial
statement disclosure between the Company and its independent auditors, Grant Thornton LLP. 
 Item 8A. Controls and Procedures Management, including the Companys President and Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
report. Based upon that evaluation, the President and Chief Executive Officer and Chief Financial
Officer concluded that the disclosure controls and procedures were effective to ensure that
information required to be disclosed in the reports the Company files and submits under the
Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii)
accumulated and communicated to the Companys management, including its principal executive officer
and principal financial officer, as appropriate to allow timely decisions regarding disclosure. 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. 
 Item 8B. Other Information None. 48




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PART III 
 Item 9. Directors, Executive Officers, Promoters, and Control Persons; Compliance with Section
16(a)of the Exchange Act Directors The names of the Directors and certain other information about them as of March 31, 2005 are
set forth below: Name
    
    Age
    
    Director Since
    
    Office Held with CompanyH. T. Ardinger
    
    
    80
    
    
    
    1999
    
    
    Chairman of the BoardJoseph Autem
    
    
    47
    
    
    
    1999
    
    
    DirectorGeorge C. Platt
    
    
    64
    
    
    
    1999
    
    
    Director, President and Chief
Executive OfficerDavid A. Dean
    
    
    57
    
    
    
    1999
    
    
    Director
 H.T. Ardingerhas served as a Director and Chairman of the Board since April 1999. Mr.
Ardinger co-founded H.T. Ardinger & Son Co., a specialty import wholesaler, where he has served as
Chairman of the Board and Chief Executive Officer since 1964. Mr. Ardinger served as a Director
and Executive Committee Member of Home Interiors & Gifts, Dallas, Texas, from 1958 through 1998 and
was a founding Limited Partner of the Dallas Mavericks National Basketball Association Franchise
in 1980. Mr. Ardinger received a B.B.A. degree in Business Administration from Southern Methodist
University. Joseph Autemhas served as a Director since January 1999 and currently serves as a Director of
Promere Software and Newbridge Information Services. He was previously a Director of
Broadcast.com, Inc. from September 1996 through August 1999. Mr. Autem has served in various
consulting capacities from July 1998 to the present. He is currently general partner of Autem,
L.L.C., an investment company formed in May 1999. Mr. Autem served as the Chief Financial Officer
of Luminant from January 1999 until July 1999. Mr. Autem previously served as Senior Vice
President and Chief Financial Officer of CS Wireless, Inc., a privately held company that provides
wireless video and high-speed Internet access, from June to July 1998. He also served as a partner
of Vision Technology Partners, a private investment company, from March 1997 to June 1998. From
July 1996 to December 1996, Mr. Autem served as Chief Financial Officer of Broadcast.com, Inc.
From 1992 to 1996, Mr. Autem served as Vice President of Finance, Secretary, Treasurer and Chief
Financial Officer of OpenConnect Systems, Inc., a software company. Mr. Autem holds a B.S. in
Accounting from Pittsburg State University. David A. Deanhas been a Director since December 1999. He is Chairman and Chief Executive
Officer of Dean International, Inc., an international public policy consulting agency founded in
1994 and of its subsidiary, Innovative Transportation Strategies. Mr. Dean has been the principal
shareholder since 1994 of David A. Dean & Associates, P.C., a public policy administrative
regulatory law firm. From 1983 to 1994, Mr. Dean was a shareholder of a Dallas-based law firm,
Winstead, Sechrist & Minick, P.C., and served as a member of the firms Board of Directors, head of
the Public Law Section, Chairman of the Business Development Committee, a member of the firms
Advisory Board and Chairman of the firms PAC Committee. He was also President of Transportation
Strategies, Inc., and a subsidiary of the firms consulting group. During 1972 to 1993, Mr. Dean
served the State of Texas in several roles. He was General Counsel to both republican Governor
William P. Clements, Jr. and his predecessor, democratic Governor Dolph Briscoe and served as Texas
Secretary of State under Governor Clements. Mr. Dean was active in the gubernatorial campaigns for
Governor Briscoe and Governor Clements. Mr. Dean received his B.B.A. degree from Southern
Methodist University and his Juris Doctor degree from University of Texas at Austin. 49




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George C. Platthas served as Chief Executive Officer and President since September 1999. He
currently serves as a Director for Intervoice, Inc. From 1991 through 1999, Mr. Platt was employed
by Intecom, Inc., a Dallas-based provider of multimedia telecommunications products and services,
holding the positions of CEO and President. Prior to his employment with Intecom, Inc., Mr. Platt
was an executive with SRX, an entrepreneurial startup company. Before that, he was a Group Vice
President at Rolm Corporation through its acquisition by IBM, and prior to that, he was employed by
Xerox for fifteen years, where he attained the position of General Manager. Mr. Platt holds an
M.B.A. from the University of Chicago and a B.S. degree from Northwestern University. Executive Officers The following table contains information as of March 31, 2005 as to the executive officers of
ViewCast. Each holds the offices to serve until the next regular meeting of the Board of Directors
to be held immediately following the Annual Meeting or until their successors are chosen and
qualified by the Board of Directors Name
    
    Age
    
    Office Held with CompanyGeorge C. Platt
    
    
    64
    
    
    Chief Executive Officer and PresidentLaurie L. Latham
    
    
    48
    
    
    Chief Financial Officer and Senior Vice President of Finance and
AdministrationDavid T. Stoner
    
    
    48
    
    
    Chief Technical Officer and Senior Vice President of OperationsHorace S. Irwin
    
    
    63
    
    
    Vice President of Marketing and Business DevelopmentJohn DeVito
    
    
    48
    
    
    President of Delta Computec Inc. (subsidiary)
 George C. Plattsinformation can be found with the above information regarding directors. Laurie L. Lathamhas served as Chief Financial Officer and Senior Vice President of Finance
and Administration of ViewCast since December 1999. From 1997 until she joined ViewCast, Ms.
Latham served as Senior Vice President and Chief Financial Officer of Perivox Corporation, an
interactive communications and direct marketing company. From 1994 through 1997, she was the Vice
President of Finance and Administration at Axis Media Corporation. Prior to joining Axis Media
Corporation, Ms. Latham was a practicing Certified Public Accountant for national and regional
accounting firms, including KPMG Peat Marwick, and was the Vice President of Finance and
Administration for Medialink International Corporation. Ms. Latham received her B.B.A. from the
University of Texas with an emphasis in Accounting and is a Certified Public Accountant. David T. Stonerjoined ViewCast as Vice President of Operations in August 1996 and moved to
his current position as Senior Vice President of Operations in March 2003. From August 1994 to
August 1996, Mr. Stoner was Vice President of Engineering for the Connectworks Division of
Connectware, Inc., a wholly owned subsidiary of AMP Inc. From July 1986 to August 1994, Mr. Stoner
was employed by Visual Information Technologies, Inc. (VITec), a manufacturer of video, imaging,
and graphics products, which was purchased by Connectware, Inc. At VITec, Mr. Stoner was
responsible for the development of hardware and software products, and served in various positions
including Vice President of Engineering. From January 1979 to July 1986, Mr. Stoner served in
various engineering positions at Texas Instruments, Inc. Mr. Stoner received his B.S. degree in
Electrical Engineering from the University of Kansas. Horace S. Irwinjoined ViewCast as Vice President, Marketing and Business Development in June
2004. Prior to joining ViewCast, Mr. Irwin was Vice President Sales and Marketing for Qnet
Information Services, a full service computer solutions provider and value added reseller, from
November 2001 to May 2004. During 1999 to 2001, Mr. Irwin served as General Manager for the
Consumer Broadband Division of Panja, Inc. (now AMX Corporation) 50




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where he directed the marketing activities related to their audio and video streaming
products. Early in his career, Mr. Irwin was National Director of Marketing for Adolph Coors
Company. Mr. Irwin received a Bachelor of Science Degree from Grambling College with further
studies at Northeast State University. John DeVitojoined ViewCast in October 2002 as the President of Delta Computec Inc. (DCi)
when ViewCast acquired DCis operating assets and it became a wholly owned subsidiary. From May
1978 until October 2002, he has held various positions within the prior operations of DCi including
President, Vice President of Operations and Vice President/General Manager. Mr. DeVitos
twenty-five years in the Information Technology services industry includes the development of many
innovative service offerings commonly used today. Meetings of the Board of Directors and Committees The Board of Directors held a total of three meetings during ViewCasts fiscal year ended
December 31, 2004. Each Director attended in person or telephonically at least 75% of the meetings
held by the Board of Directors and all committees thereof for which he served. The Board of Directors has established two standing committees: the Audit and Compensation
Committees. Compensation Committee.The Compensation Committee reviews and approves salaries and bonuses
for all officers, administers ViewCasts existing stock option plans, provides advice and
recommendations to the Board in directors compensation and carries out the responsibilities
required by the rules of the U.S. Securities and Exchange Commission. Directors Autem and Dean serve as members of the Compensation Committee. All members of the
Compensation Committee are independent directors as defined under the Nasdaq Stock Market listing
standards. The Compensation Committee met one time in the 2004 fiscal year. Audit Committee.The Audit Committee oversees and monitors ViewCasts financial reporting
process and internal control system, reviews and evaluates the audit performed by ViewCasts
outside auditors and reports any substantive issues found during the audit to the Board and reviews
and evaluates the internal audit program. The Audit Committee is directly responsible for the
appointment, compensation and oversight of the work of our independent auditors. The Audit
Committee will also review and approve all transactions with affiliated parties. The Board of
Directors has adopted a written charter for the Audit Committee. Directors Autem and Dean serve as members of the committee. All members of the committee are
independent directors as defined under the Nasdaq Stock Market listing standards. The Audit
Committee met four times in the 2004 fiscal year. The Audit Committee believes that Mr. Autem qualifies as an Audit Committee Financial Expert
as that term is defined by applicable SEC rules, and the Board of Directors has designated him as
such. Nomination of Directors. The Board of Directors currently does not have a standing nominating
committee and consequently has no nominating committee charter. The Board of Directors believes
that it is appropriate under existing circumstances for the Company not to have a nominating
committee because the Board is comprised of only four members, two of whom are independent as
defined under the Nasdaq Stock Market listing standards. In the near future, however, the Company
intends to establish a nominating committee and adopt a nominating committee charter. Currently,
each member of the Board of Directors participates in the consideration of director nominees. The Board of Directors does not have a formal policy with regard to the consideration of any
director candidates recommended by shareholders because the Board believes it can adequately
evaluate any such recommendation on a case-by-case basis. However, the Board of Directors would
consider for possible nomination qualified nominees recommended by shareholders. Shareholders who
wish to propose a qualified candidate for consideration should submit complete information as to
the identity and qualifications of that person to the Secretary 51




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of the Company at 17300 Dallas Parkway, Suite 2000, Dallas, Texas, 75248 sufficiently in
advance of an annual meeting. Absent special circumstances, the Board of Directors will continue to nominate qualified
incumbent directors whom the Board believes will continue to make important contributions to the
Board and the Company. The Board generally requires that nominees be persons of sound ethical

character, be able to represent all shareholders fairly, have demonstrated professional
achievement, have meaningful experience and have a general appreciation of the major business
issues facing ViewCast. The Board of Directors does not have a formal process for identifying and
evaluating nominees for director. However, the Board will evaluate all candidates, whether
recommended by shareholders or otherwise, in accordance with the above criteria. Code of Ethics The Company has adopted a Corporate Compliance Program Guidelines and Ethics Policy that
applies to all employees and officers of the Company and its subsidiaries, including the principal
executive officer, principal financial officer, principal accounting officer or controller or
person performing similar functions for the Company and its subsidiaries. This policy meets the
requirements of a code of ethics as defined by Item 406 of Regulation S-B and was filed as
Exhibit 14.1 to the Companys report on Form 10-KSB for the fiscal year ended December 31, 2003,
filed with the SEC on March 30, 2004. Shareholder Communications with the Board of Directors.Shareholders may contact our Board of
Directors by contacting Kevin McGlinch, Secretary, at Viewcast.com, Inc., 17300 Dallas Parkway,
Suite 2000, Dallas, Texas, 75248 or (972) 488-7200. All comments will be forwarded directly to the
Board of Directors. Compliance withSection 16(a)of the Securities Exchange Act of 1934 Section 16(a) of the Exchange Act requires ViewCasts officers, directors and persons who
beneficially own more than 10% of a registered class of ViewCasts equity securities to file
reports of ownership and change in ownership with the U.S. Securities and Exchange Commission.
Officers, directors and greater than 10% shareholders are required to furnish ViewCast with copies
of Section 16(a) forms which they file. To ViewCasts knowledge, based solely on review of the copies of such reports furnished to
ViewCast, and written representations that no other reports were required during the year ended
December 31, 2004, all Section 16(a) filing requirements applicable to ViewCasts officers,
directors and greater than 10% beneficial owners were complied with,
except that (1) Horace Irwin failed to file his Initial Statement of
Beneficial Ownership of Securities on Form 3 and a Statement of
Changes in Beneficial Ownership of Securities on Form 4
reporting a grant of options to purchase 45,000 shares of the
Companys common stock in a timely manner; and (2) John DeVito
failed to file a Statement of Changes in Beneficial Ownership of
Securities on Form 4 reporting the acquisition of
3,355 shares of Series D Convertible Preferred Stock in a
timely manner. Mr. Irwin and Mr. DeVito are now current in
their Section 16 filings. 
 Item 10. Executive Compensation Director Compensation Directors currently receive no cash compensation for serving on the Board of Directors other
than reimbursement of reasonable expenses incurred in attending meetings. In May 1995, ViewCast
adopted a 1995 Director Option Plan (the Director Plan) under which only outside directors are
eligible to receive stock options. The Director Plan provides for the grant of nonstatutory stock
options to directors who are not employees of ViewCast. As amended and approved by shareholder
vote during 2002, a total of 500,000 shares of Common Stock have been authorized for issuance under
the Director Plan. As of March 31, 2005, options to purchase an aggregate of 205,000 shares at
exercise prices ranging from $0.26 to $9.00 per share had been granted and are outstanding under
the Director Plan and options to purchase an aggregate of 48,016 shares have been previously
granted and exercised. The exercise price of each option granted under the Director Plan is equal to the fair market value
of the Common Stock on the date of grant. Each share grant vests at the rate of 25% of the option
shares upon the first anniversary 52




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of the date of grant and one forty-eighth of the options shares
per month thereafter, unless terminated sooner upon termination of the optionees status as a
director or otherwise pursuant to the Director Plan. In the event of a merger of ViewCast with or
into another corporation or a consolidation, acquisition of assets or other change in control
transaction involving ViewCast, each option becomes exercisable unless assumed or an equivalent
option substituted by the successor corporation. The Director Plan terminated on April 21, 2005. The
Compensation Committee of the Board of Directors currently administers the Director Plan. Summary Executive Officer Compensation Table The following table sets forth information concerning compensation paid by ViewCast to the
Chief Executive Officer and to all other executive officers of ViewCast whose total salary and
bonus exceeded $100,000 for the year ended December 31, 2004 (the Named Executive Officers). Summary Compensation Table Long TermCompensation -SecuritiesAnnual
    
    
    Annual
    
    
    UnderlyingCompensation
    
    
    Compensation
    
    
    OptionsPrincipal Position
    
    Fiscal Year
    
    
    Salary ($)
    
    
    Bonus ($)
    
    
    (in shares)George C. Platt
    
    
    2004
    
    
    
    204,000
    
    
    
    
    
    
    
    Chief Executive Officer
    
    
    2003
    
    
    
    216,000
    
    
    
    
    
    
    
    and President
    
    
    2002
    
    
    
    225,000
    
    
    
    
    
    
    
    70,000Laurie L. Latham
    
    
    2004
    
    
    
    140,000
    
    
    
    
    
    
    
    Chief Financial Officer
    
    
    2003
    
    
    
    143,750
    
    
    
    
    
    
    
    and Sr. Vice-President
    
    
    2002
    
    
    
    143,750
    
    
    
    
    
    
    
    60,000Harry E. Bruner
    
    
    2004
    (1)
    
    
    58,410
    
    
    
    
    
    
    
    Sr. Vice-President of Sales
    
    
    2003
    
    
    
    161,300
    
    
    
    
    
    
    
    and Marketing
    
    
    2002
    
    
    
    161,000
    
    
    
    9,000
    
    
    
    60,000David T. Stoner
    
    
    2004
    
    
    
    140,000
    
    
    
    
    
    
    
    Sr. Vice President of
    
    
    2003
    
    
    
    139,100
    
    
    
    
    
    
    
    Operations
    
    
    2002
    
    
    
    126,119
    
    
    
    
    
    
    
    60,000John DeVito
    
    
    2004
    
    
    
    172,092
    
    
    
    34,815
    
    
    
    President of DCi
    
    
    2003
    
    
    
    172,092
    
    
    
    
    
    
    
    2002
    (2)
    
    
    39,714
    
    
    
    
    
    
    
    100,000
   (1)
    
    Mr. Bruner resigned in April 2004.(2)
    
    Mr. DeVito assumed his duties with ViewCast in October 2002. 53




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##### Table of Contents



Option Grants in Last Fiscal Year There were no options granted to the Named Executive Officers of ViewCast in 2004. Year-End Option Values The following table sets forth certain information as of December 31, 2004 concerning the
value of unexercised options held by the Named Executive Officers. Fiscal Year-End Option Values Number of Shares
    
    
    Value of UnexercisedUnderlying Unexercised
    
    
    In-the Money OptionsOptions at December 31, 2004
    
    

at
December 31, 2004 (1)Name
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableGeorge C. Platt
    
    
    516,669
    
    
    
    203,331
    
    
    $
    
    
    
    $
    Laurie L. Latham
    
    
    245,333
    
    
    
    24,667
    
    
    
    
    
    
    
    David T. Stoner
    
    
    265,333
    
    
    
    24,667
    
    
    
    
    
    
    
    John DeVito
    
    
    72,222
    
    
    
    27,778
    
    
    $
    6,139
    
    
    $
    2,361
   (1)
    
    Represents the difference between the exercise price of the outstanding options and the
fair market value of the Common Stock on December 31, 2004 of $0.36 per share if the fair
market price per share exceeds the exercise price. Employment Agreements We have entered into an employment agreement with Mr. Platt. His employment agreement was in
effect through March 2001 and has been renewed annually through March 2006 with ongoing automatic
one-year renewals unless ViewCast or Mr. Platt elects in advance not to renew the agreement. The
employment agreement provides (i) for annual base compensation of $240,000; (ii) that he is
eligible to receive bonuses if our Board of Directors so elects; (iii) for stock options to
purchase 400,000 shares of our Common Stock pursuant to the 1995 Option Plan(1); and
(iv) for an eighteen (18) month non-compete period if ViewCast terminates Mr. Platt. Mr. Platt
voluntarily reduced his cash compensation below $240,000 for the 2002, 2003 and 2004 calendar
years. Under the employment agreement, Mr. Platt will be entitled to (i) the continuation of his
salary for the greater of six months or the remaining term of his employment agreement and (ii) the
reimbursement for three months of COBRA premiums if his employment is terminated by ViewCast
without cause. These same severance benefits are payable in the event Mr. Platt resigns because of
a significant change in the nature and scope of his authority, powers, functions, benefits or
duties. In the event ViewCast terminates Mr. Platts employment following a change in control, he
will be entitled to the continuation of his salary for six months. We have entered into an employment agreement with Mr. DeVito. His employment agreement was in
effect through April 2004 and has been renewed annually through April 2005 with ongoing automatic
one-year renewals unless ViewCast or Mr. DeVito elects in advance not to renew the agreement. The
employment agreement provides (i) for annual base compensation of $170,000; (ii) that he is
eligible to receive bonuses through fiscal year 2003 of five percent of DCi net income and in the
future periods if our Board of Directors so elects; (iii) for stock options to purchase 100,000
shares of our Common Stock pursuant to the 1995 Option Plan(2); and (iv) for a six (6)
month non-compete and non-solicitation period if ViewCast terminates Mr. DeVito. Under the employment agreement, Mr. DeVito will be entitled to (i) the continuation of his
salary for the greater of six months or the remaining term of his employment agreement and (ii) the
reimbursement for three months of COBRA premiums if his employment is terminated by ViewCast
without cause. These same severance benefits are payable in the event Mr. DeVito resigns because
of significant change in the nature and scope of his authority, powers, functions, benefits or
duties. In the event ViewCast terminates Mr. DeVitos employment following a change in control, he
will be entitled to the continuation of his salary for six months. 54




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##### Table of Contents



The employment of all other officers with ViewCast is at will and may be terminated by
ViewCast or the officer at any time, for any reason or no reason.   (1)
    
    Represents Mr. Platts options consist of five separate option grants that become exercisable
or vest as follows provided Mr. Platt is employed by ViewCast as of the applicable vesting
date:  (i)
    an option for 50,000 shares that vests as of September 17, 2000;(ii)
    an option for 200,000 shares that vests in equal installments of 4,166 shares per month
beginning in October, 2000;(iii)
    an option for 50,000 shares that vests immediately on the date following three
consecutive calendar quarters of            profitability as defined under generally accepted
accounting principles;(iv)
    an option for 50,000 shares, of which 16,666 shares of such option vest when the
average closing price of Common Stock, for a twenty out of thirty consecutive trading day
period, has doubled in price from the exercise price of the option, and of which 33,334
shares of such option vest in equal installments of 1,388 share per month thereafter;(v)
    an option for 50,000 shares, of which 16,666 shares of such option vest when the
average closing price of Common Stock, for a twenty out of thirty consecutive trading day
period, has tripled in price from the exercise price of the option, and of which 33,334
shares of such option vest in equal installment of 1,388 shares per month thereafter. In addition, all of the 400,000 options granted to Mr. Platt immediately vest upon a change of
control in ViewCast.  (2)
    Mr. DeVitos options consist of an option grant of 100,000 shares that vests as follows:  (i)
    One third of the shares vest as of October 24, 2003;(ii)
    One third of the shares vest as of October 24, 2004;(iii)
    The remaining vest in equal installments of 2,778 shares per month beginning
November 24, 2004. In addition, all of the 100,000 options granted to Mr. Devito will immediately vest upon a
change of control in ViewCast. 1995 Stock Option Plan The 1995 Employee Stock Option Plan (the 1995 Option Plan) provides for the grant to
employees of ViewCast of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the Code) and for the grant to employees and consultants of
ViewCast of nonstatutory stock options and stock purchase rights. A total of 5,900,000 shares of
Common Stock have been authorized for issuance under the 1995 Option Plan. As of March 31, 2005,
options to purchase an aggregate of 2,550,731 shares of Common Stock at exercise prices ranging
from $0.20 to $7.09 had been granted and are outstanding under the 1995 Option Plan, and options to
purchase an aggregate of 1,010,831 shares of Common Stock have been previously granted and
exercised under the 1995 Option Plan. The Board, or a committee approved by the Board, may administer the 1995 Option Plan in a
manner that complies with Rule 16b-3 promulgated under the Securities Act. Currently, the 1995
Option Plan is administered by the Board of Directors, which determines the terms of options and
rights granted, exercise price, number of shares subject to the option or right and the
exercisability thereof. Options and rights granted under the 1995 Option Plan are not transferable
other than by will or the laws of descent or distribution, and each option or right is exercisable
during the lifetime of the recipient only by such person. Options that are outstanding under the
1995 Option Plan will remain outstanding until they are exercised or they expire in accordance with
the terms of each option. The exercise price of all incentive stock options granted under the 1995
Option Plan must be at least equal to the fair market value of the shares of Common Stock on the
date of grant. With respect to any participant who owns stock possessing more than 10% of the
voting power of all classes of stock of ViewCast, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and the maximum term of
the option must not exceed five years. The term of all other options granted under the 1995 Option
Plan may not exceed ten years. In the event of certain changes in control of ViewCast, the 1995
Option Plan permits each outstanding option and right to become exercisable in full or assumed or
an equivalent option to be substituted by the successor corporation. The 1995 Option Plan
terminated on April 21, 2005. The grant of an option under the 1995 Option Plan does not have any immediate effect on the
federal income tax liability of ViewCast or the optionee. If a nonqualified stock option (NQSO)
has been granted, then the optionee will recognize ordinary income at the time he or she exercises
the NQSO equal to the difference between the fair market value of the Common Stock and the exercise
price paid by the optionee, and ViewCast will receive a deduction for the same amount. If an
optionee was granted an incentive stock option (ISO), then the optionee generally will not
recognize any taxable income at the time he or she exercises the ISO but will recognize income only
at the time he or she sells the Common Stock acquired by exercise of the ISO. The optionee will
recognize income equal to the difference between the exercise price paid by the optionee and the
amount received for sale of
the Common Stock, and such income generally will be eligible for capital gain treatment.
ViewCast generally is not 55




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##### Table of Contents



entitled to an income tax deduction for the grant of an ISO or as a
result of either the optionees exercise of an ISO or the optionees sale of the Common Stock
acquired through exercise of an ISO. However, if the optionee sells the Common Stock within two
years of the date of the grant to him or her of the ISO or within one year of the date of the
transfer to him or her of the Common Stock following exercise of the ISO, the option is treated for
federal income tax purposes as if it were a NQSO: the income recognized by the optionee will not be
eligible for capital gain treatment and ViewCast may be entitled to a federal income tax deduction
equal to the amount of income recognized by the optionee. 56




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##### Table of Contents



Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information as of March 31, 2005, based on information obtained
from public records and our books and records regarding the persons named below, with respect to
the beneficial ownership of shares of our Common Stock by (i) each person or a group known by us to
be the owner of more than five percent (5%) of the outstanding shares of our Common Stock, (ii)
each director, (iii) each executive officer and (iv) all officers and directors as a group. Amount and Nature
    
    
    
    
    
    Percentage ofName and Address
    
    of
    
    
    
    
    
    Outstanding Sharesof Beneficial Owner
    
    Beneficial Ownership
    
    
    
    
    
    Owned (1),(2)H.T. ARDINGER, JR
1990 Lakepointe Dr.
Lewisville, TX 75057
    
    
    8,023,346
    
    
    
    (3
    )
    
    
    24.3NQL SUB-SURVIVING CORP
c/o Rosenfarb Winters LLC
1350 Avenue of the Americas
New York, NY 10019
    
    
    2,524,456
    
    
    
    (4
    )
    
    
    7.6M. DOUGLAS ADKINS
1601 Elm Street
Dallas, TX 75021
    
    
    1,496,486
    
    
    
    (5
    )
    
    
    4.5GEORGE C. PLATT
17300 N. Dallas Pkwy, Suite 2000
Dallas, TX 75248
    
    
    667,030
    
    
    
    (6
    )
    
    
    2.0LAURIE L. LATHAM
17300 N. Dallas Pkwy, Suite 2000
Dallas, TX 75248
    
    
    276,604
    
    
    
    (7
    )
    
    
    *HORACE S. IRWIN
17300 N. Dallas Pkwy, Suite 2000
Dallas, TX 75248
    
    
    
    
    
    
    
    
    
    
    *JOHN DEVITO
900 Huyler Street
Teterboro, NJ 07608
    
    
    147,111
    
    
    
    (8
    )
    
    
    *DAVID T. STONER
17300 N. Dallas Pkwy, Suite 2000
Dallas, TX 75248
    
    
    285,495
    
    
    
    (9
    )
    
    
    *JOSEPH AUTEM
17300 N. Dallas Pkwy, Suite 2000
Dallas, TX 75248
    
    
    103,823
    
    
    
    (10
    )
    
    
    *DAVID DEAN
8080 Park Lane, Suite 600
Dallas, TX 75231
    
    
    45,623
    
    
    
    (11
    )
    
    
    *All executive officers and
directors as a group
(eight (8) persons)
    
    
    9,549,032
    
    
    
    
    
    
    
    28.9
 *
    Less than one percent (1%)  (1)
    A person is deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from March 31, 2005 upon the exercise of warrants or options.
Each beneficial owners percentage ownership is determined by assuming that options or
warrants that are held by such person (but not those held by any other person) and which
are exercisable within 60 days from March 31, 2005 have been exercised. Unless otherwise
indicated, we believe that all persons named in the table have sole voting and investment
power with respect to all shares of Common Stock beneficially owned by them.(2)
    Based on a total of 25,367,901 shares issued and outstanding excluding treasury stock
plus, for each person listed, any 57




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##### Table of Contents



Common Stock that person has the right to acquire within 60 days from March 31, 2005
pursuant to options, warrants, conversion privileges, etc.(3)
    Includes (i) 189,835 shares owned by Mr. Ardingers wife, (ii) 1,096,000 shares of
Common Stock reserved for issuance upon the exercise of outstanding warrants at $1.00 per
share, (iii) 1,103,448 shares of Common Stock reserved for issuance upon the conversion of
$4,000,000 of Series B Convertible Preferred Stock to Common Stock at $3.625 per share,
(iv) 3,333,333 shares of Common Stock reserved for issuance upon the conversion of
$2,000,000 of Series C Convertible Preferred Stock to Common Stock at $0.60 per share, and
(v) the following shares that are exercisable under the 1995 Directors Option Plan upon the
exercise of options: 15,000 shares exercisable at $9.00 per share, 10,000 shares
exercisable at $2.75 per share, 9,791 shares exercisable at $0.8305 per share, 6,666 shares
exercisable at $0.29 per share and 4,166 shares exercisable at $0.6765 per share.(4)
    Based solely on NQL Sub-Surviving Corporations Schedule 13G, filed with the SEC on
April 15, 2005.(5)
    Includes (i) 226,666 shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants at $1.00 per share and (ii) 551,724 shares of Common Stock reserved
for issuance upon the conversion of $2,000,000 of Series B Convertible Preferred Stock to
Common Stock at $3.625 per share.(6)
    Includes the following shares issuable under the 1995 Option Plan upon exercise of
options (i) 250,000 shares exercisable at $7.09 per share, (ii) 47,500 shares exercisable
at $2.50 per share, (iii) 170,002 shares exercisable at $1.094 per share and (iv) 70,000
shares exercisable at $0.485 per share.(7)
    Includes the following shares issuable under the 1995 Option Plan upon exercise of
options (i) 100,000 shares exercisable at $5.50 per share, (ii) 9,500 shares exercisable at
$2.50 per share, (iii) 85,001 shares exercisable at $1.094 per share and (iv) 60,000 shares
exercisable at $0.485 per share.(8)
    Includes (i) 61,000 shares of Common Stock reserved for issuance upon the conversion of
$33,550 of Series D Redeemable Convertible Preferred Stock at $0.55 per share and (ii) the
following shares issuable under the 1995 Option Plan upon exercise of options: 86,111
shares exercisable at $0.275 per share.(9)
    Includes the following shares issuable under the 1995 Option Plan upon exercise of
options (i) 100,000 shares of exercisable at $4.00 per share, (ii) 5,000 shares exercisable
at $2.0625, (iii) 15,000 exercisable at $5.5005, (iv) 9,500 shares exercisable at $2.50,
(v) 85,001 shares exercisable at $1.094 and (vi) 60,000 shares exercisable at $0.485.(10)
    Includes the following shares issuable under the 1995 Directors Option Plan upon
exercise of options (i) 15,000 shares exercisable at $3.1250 per share, (ii) 10,000 shares
exercisable at $7.1405 per share, (iii) 10,000 shares exercisable at $2.50 per share, (iv)
9,791 shares exercisable at $0.755 per share, (v) 6,666 shares exercisable at $0.26 per
share, (vi) 4,166 shares exercisable at $0.615 per share; and includes 40,000 shares
issuable under the 1995 Option Plan upon exercise of options at $3.6250 per share.(11)
    Includes the following shares issuable under the 1995 Directors Option Plan upon
exercise of options (i) 15,000 shares exercisable at $4.5315 per share, (ii) 10,000 shares
exercisable at $2.50 per share, (iii) 9,791 shares exercisable at $0.755 per share, (iv)
6,666 shares exercisable at $0.26 per share and (v) 4,166 shares exercisable at $0.615 per
share. 58




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##### Table of Contents



Equity Compensation Plan Information The following table sets forth certain information as of December 31, 2004 concerning
outstanding awards and securities available for future issuance pursuant to ViewCasts equity
compensation plans. Number of securities to be
    
    
    
    
    
    
    
    
    Number of securities remainingissued upon exercise of
    
    
    
    Weighted-average exercise
    
    
    
    available for future issuance underoutstanding options,
    
    
    
    price of outstanding options,
    
    
    
    equity compensation plans (excludingwarrants and rights
    
    
    
    warrants and rights
    
    
    
    securities reflected in column (a))Plan category
    
    
    (a)
    
    
    
    (b)
    
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    
    3,416,561
    
    
    
    $
    2.55
    
    
    
    
    2,070,924Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    
    3, 416,561
    
    
    
    $
    2.55
    
    
    
    
    2,070,924
 
 Item 12. Certain Relationship and Related Transactions Since October 1998, the Company has maintained a working capital line of credit facility with
a partnership controlled by one of its principal stockholders and Chairman of the Board of the
Company, H. T. Ardinger, Jr. Prior to October 15, 2003, availability of funds under the facility
was subject to certain borrowing base limitations based principally on qualifying accounts
receivable and inventory. Effective October 15, 2003, terms and conditions of this note were
amended to eliminate the borrowing base restrictions, establish a long-term payout for a majority
of the note principal and accrued interest, and significantly reduce the per annum interest rate to
the lesser of prime plus 3.0% or 9.5% from 12% (See Notes 6 and 7 of the financial statements). No
interest was paid to the partnership during 2003 and 2004. On April 30, 2004, the Company amended the terms and conditions of the credit facility to
increase the credit line of the revolving credit note to $2.25 million and extended the
commencement date for the scheduled payments of the term note and accrued interest from April 30,
2004 to August 31, 2004. On August 13, 2004, the Company amended the terms and conditions of the
credit facility to increase the credit line of the revolving credit note to $3.0 million and
extended the commencement date for the scheduled payments of the term note and accrued interest
from August 31, 2004 to December 31, 2004. On March 22, 2005, the Company amended the terms and conditions of the credit facility to
increase the credit line of the revolving credit note to $3.5 million and extended the commencement
date of scheduled payments of the term note and accrued interest from December 31, 2004 to July 31,
2005. 59




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##### Table of Contents



Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K  (a)
    The following consolidated financial statements required by this item are included
in Part II Item 8 of this report: Report of Independent Registered Public Accounting Firm
    
    
    22Consolidated Balance Sheets as of December 31, 2003 and
2004
    
    
    23Consolidated Statements of Operations for the years ended
December 31, 2003 and 2004
    
    
    24Consolidated Statements of Stockholders Deficit for the
years December 31, 2003 and 2004
    
    
    25Consolidated Statements of Cash Flows for the years ended
December 31, 2003 and 2004
    
    
    26Notes to Consolidated Financial Statements
    
    
    28
 (b) Listing of Exhibits: 
 EXHIBIT INDEX ExhibitPageNo.
    
    Description of Exhibit2
    
    Agreement and Plan of Merger and Reorganization (1)3(a)
    
    Certificate of Incorporation (1)3(b)
    
    Amendment to Certificate of Incorporation (1)3(c)
    
    Restated By-Laws (3)3(d)
    
    Certificate of Designations of Series B Convertible Preferred Stock (4)3(e)
    
    Certificate of Designations of Series C Convertible Preferred Stock (7)3.1
    
    Certificate of Designation of Series D Redeemable Convertible Preferred Stock of
ViewCast.com, Inc. dated as of October 10, 2002. (9)4(a)
    
    Form of Common Stock Certificate (1)4(b)
    
    Form of Warrant Certificate (1)4(c)
    
    Form of Warrant Agreement between ViewCast and Continental Stock Transfer & Trust
Company (1)4(d)
    
    Form of Representatives Warrant Agreement (1)4(e)
    
    Form of Trust Indenture  $5,000,000 8% Senior Convertible Notes Due 2002 (2)4(f)
    
    Form of Lead Managers Warrant Agreement (2)5(a)
    
    Form of Opinion of Thacher Proffit Wood as to the legality of securities being
registered. (6)9(a)
    
    Voting Trust Agreement between Robert M. Sterling, Jr. and Thomas E. Brown (1)
 60




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##### Table of Contents



ExhibitPageNo.
    
    Description of Exhibit9(b)
    
    Voting Trust Agreement between Robert P. Bernardi and Richard Bernardi (1)9(c)
    
    Form of Lock-Up Agreement (1)9(d)
    
    Lock-Up Agreement with Robert Sterling Trust (1)9(e)
    
    Lock-Up Agreement with Robert Bernardi Trust (1)9(f)
    
    Lock-Up Agreement with Michael Nissenbaum (1)10(a)
    
    Modified Employment Agreement between ViewCast and Glenn A. Norem (1)10(b)
    
    Modified Consulting Agreement between ViewCast and Sterling Capital Group Inc. (1)10(c)
    
    Form of Indemnification Agreement between ViewCast and Executive Officers and
Directors (1)10(d)
    
    1995 Stock Option Plan (1)10(e)
    
    1994 Stock Option Plan (1)10(f)
    
    1993 Viewpoint Stock Plan (1)l0(g)
    
    1995 Director Option Plan (1)10(h)
    
    Lease Agreement between ViewCast and Metro Squared, L P(1)10(i)
    
    Employee Stock Purchase Plan (1)l0(j)
    
    Licensing Agreement between ViewCast and Boca Research, Inc. (1)10(k)
    
    Agreement between ViewCast and UnisysÔ (1)10(l)
    
    Employment Agreement between ViewCast and Philip M. Colquhoun (1)10(m)
    
    Employment Agreement between ViewCast and William S. Leftwich (1)10(n)
    
    Employment Agreement between ViewCast and David T. Stoner (1)10(o)
    
    Employment Agreement between ViewCast and Neal Page (1)10(p)
    
    Employment Agreement between ViewCast and A. David Boomstein (1)10(r)
    
    Lease between ViewCast and Burlingame Home Office, Inc. (1)10(s)
    
    Lease between ViewCast and Family Funds Partnership (1)10(t)
    
    Agreement between ViewCast and Catalyst Financial Corporation (1)10(u)
    
    Promissory Note by ViewCast payable to Robert Rubin dated September 5, 1996. (1)10(v)
    
    Promissory Note by ViewCast payable to M. Douglas Adkins dated November 15, 1996.
(1)10(w)
    
    Promissory Note by ViewCast payable to H.T. Ardinger dated November 15, 1996. (1)10(x)
    
    Promissory Note by ViewCast payable to H.T. Ardinger dated January 15, 1997. (1)10(y)
    
    Promissory Note by ViewCast payable to Adkins Family Partnership, Ltd. dated
January 15, 1997. (1)10(z)
    
    Lease between ViewCast and the Air Force Association. (2)10(aa)
    
    Lease between ViewCast and Airport Boulevard Partners, LLC. (2)
 61




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##### Table of Contents



ExhibitPageNo.
    
    Description of Exhibit10(bb)
    
    Stock Purchase Agreement between ViewCast and Tadeo Holdings, Inc. (5)10(cc)
    
    Working Capital Line of Credit Loan Agreement between ViewCast and the Ardinger
Family Partnership, Ltd. (5)10(dd)
    
    Sublease Agreement between ViewCast and Host Communications, Inc. (7)10(ee)
    
    Letter Agreement dated May 6, 2002 between ViewCast and the Ardinger Family
Partnership, Ltd. to exchange available-for-sale securities for a principal
reduction in asset based lending line-of-credit (8)10.1
    
    Asset Purchase Agreement among Delta Computec Inc., NQL Inc. and ViewCast.com,
Inc. dated as of May 31, 2002. (9)10.2
    
    Registration Rights Agreement by and among ViewCast.com, Inc. and Delta Computec
Inc. dated as of October 11, 2002. (9)10.3
    
    Non-Competition Agreement by and among Delta Computec Inc., NQL Inc. and
ViewCast.com, Inc. dated as of October 11, 2002 (9)10.4
    
    Escrow Agreement by and among ViewCast.com, Inc., Delta Computec Inc. and The
Bank of New York Trust Company of Florida, N.A. dated as of October 11, 2002. (9)10.5
    
    Revolving Loan Agreement between MMAC Communications Corp. and Keltic Financial
Partners, LP dated as of October 11, 2002. (9)10.6
    
    Guaranty of Payment and Performance from ViewCast.com, Inc. to Keltic Financial
Partners, LP dated as of October 11, 2002. (9)10.7
    
    Subordination Agreement by and among Keltic Financial Partners, LP, MMAC
Communication Corp. and ViewCast.com, Inc. dated as of October 11, 2002. (9)10.8
    
    General Security Agreement by and between MMAC Communications Corp. and Keltic
Financial Partners, LP dated as of October 11, 2002. (9)10.9
    
    Revolving Note by MMAC Communications Corp. in favor of Keltic Financial
Partners, LP dated as of October 11, 2002. (9)10.10
    
    Lease by and between Forsgate Industrial Complex and Delta Computec Inc. dated as
of July 23, 1991. (9)10.11
    
    Second Amendment to Lease by and between Forsgate Industrial Complex and Delta
Computec Inc. dated as of March 29, 2001. (9)10.12
    
    Sublease Agreement by and between Delta Computec Inc. and Ameriban Inc. dated as
of December 31, 1997. (9)10.13
    
    Third Amendment to Sublease Agreement and Renewal of Sublease by and between
Delta Computec Inc. and Ameriban, Inc. dated as of January 3, 2001. (9)10.14
    
    Employment Agreement by and between ViewCast Corporation and John DeVito dated as
of August 6, 2002. (9)10.15
    
    Form of Amended and Restated Security Agreement dated October 15, 2003 between
ViewCast.com, Inc. and the Ardinger Family Partnership, LTD. (10)10.16
    
    Form of Amended and Restated Pledge Agreement dated October 15, 2003 between
ViewCast.com, Inc. and the Ardinger Family Partnership, LTD. (10)10.17
    
    Form of First Amendment to the Revolving Loan Agreement dated October 11, 2003
between Delta Computec Inc. and Keltic Financial Partners, LP. (10)10.18
    
    Second Amendment dated as of October 10, 2004 to Revolving Loan Agreement between
MMAC Communications Corp. and Keltic Financial Partners, LP dated as of October
11, 2002. (12)10.19
    
    Third Amendment dated as of December 10, 2004 to Revolving Loan Agreement between
MMAC Communications Corp. and Keltic Financial Partners, LP dated as of October
11, 2002. (12)10.20
    
    Fourth Amendment dated as of January 10, 2005 to Revolving Loan Agreement between
MMAC Communications Corp. and Keltic Financial Partners, LP dated as of October
11, 2002. (12)10.21
    
    Fifth Amendment dated as of February 15, 2005 to Revolving Loan Agreement between
MMAC Communications Corp. and Keltic Financial Partners, LP dated as of October
11,
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##### Table of Contents



ExhibitPageNo.
    
    Description of Exhibit2002. (12)10.22
    
    Notice of Lower Temporary Conversion Price dated March 21, 2005. (13)10.23
    
    Letter Agreement Amending Revolving and Term Credit Facility dated March 22,
2005. (13)10.24
    
    Sixth Amendment dated as of April 15, 2005 to Revolving Loan Agreement between
MMAC Communications Corp. and Keltic Financial Partners, LP dated as of October
11, 2002. (12)14.1
    
    Code of Ethics (11)21
    
    List of Subsidiaries of ViewCast. (1)23.1
    
    Consent of Grant Thornton LLP*31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications32.1
    
    Statement 1350 Certifications
   *
    
    Filed herewith.(1)
    
    Incorporated by reference to the Registration Statement on Form SB-2 and all amendments
thereto as declared effective on February 4, 1997.(2)
    
    Incorporated by reference to Form 10-KSB/A filed April 15, 1998.(3)
    
    Incorporated by reference to Form 10-QSB filed November 13, 1998(4)
    
    Incorporated by reference to Form 8-K filed March 15, 1999.(5)
    
    Incorporated by reference to Form 10-KSB filed March 26, 1999.(6)
    
    Incorporated by reference to Form S-3 file May 6, 1999.(7)
    
    Incorporated by reference to Form 10-K filed April 16, 2002.(8)
    
    Incorporated by reference to Form 10-Q filed May 20, 2002(9)
    
    Incorporated by reference to Form 8-K filed October 25, 2002(10)
    
    Incorporated by reference to Form 10-Q filed November 14, 2003(11)
    
    Incorporated by reference to Form 10-KSB filed on March 30,2004(12)
    
    Incorporated by reference to Form 8-K filed March 25, 2005(13)
    
    Incorporated by reference to Form 8-K filed March 25, 2005(14)
    
    Incorporated by reference to Form 8-K filed April 21, 2005 
 Item 14. Principal Accountant Fees and Services Subject to ratification by the shareholders, the Board of Directors has appointed Grant
Thornton LLP as independent auditors to audit the financial statements of the Company for the 2005
fiscal year. During the fiscal years ended December 31, 2003 and December 31, 2004, the Company
retained and paid Grant Thornton LLP to provide audit and other services as follows: 2003
    
    
    2004Audit (1)
    
    $
    88,601
    
    
    $
    98,210Audit Related Fees (2)
    
    
    450
    
    
    
    9,135Tax Fees (3)
    
    
    19,423
    
    
    
    24,175TOTAL
    
    $
    86,861
    
    
    $
    108,474
   (1)
    
    Consists primarily of quarterly review and annual audit services(2)
    
    Consists primarily of 401K audit and Form S-8 review services(3)
    
    Consists primarily of Federal and State tax services The Audit Committee does not have a policy for the pre-approval of non-audit services to
be provided by the Companys independent auditor. Any such services would be considered on a
case-by-case basis. The Audit Committee approved non-audit services provided by the independent
auditors in fiscal years 2003 and 2004. There have been no disagreements concerning any matter of
accounting principle or financial statement disclosure between the Company and its independent
auditors, Grant Thornton LLP. 63




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SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized. Date
    
    
    
    ViewCast.com, Inc.May 2, 2005
    
    
    
    
    
    By:
    
    /s/ Laurie L. LathamLaurie L. LathamChief Financial Officer and Senior Vice President of Finance
and Administration
 In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated. Date
    
    
    
    ViewCast.Com, Inc.May 2, 2005
    
    
    
    By:
    
    /s/ H.T. Ardinger, Jr.H.T. Ardinger, Jr.Director and Chairman of the BoardMay 2, 2005
    
    
    
    By:
    
    /s/ George C. PlattGeorge C. PlattDirector, President and Chief Executive OfficerPrincipal Executive OfficerMay 2, 2005
    
    
    
    By:
    
    /s/ Laurie L. LathamLaurie L. LathamChief Financial Officer and Senior Vice President of Finance
and AdministrationPrincipal Accounting OfficerMay 2, 2005
    
    
    
    By:
    
    /s/ Joseph W. AutemJoseph W. AutemDirectorMay 2, 2005
    
    
    
    By:
    
    /s/ David A. DeanDavid A. DeanDirector
 64




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EXHIBIT INDEX FOR DOCUMENTS FILED WITH THIS REPORT ExhibitNo.
    
    Description of Exhibit23.1
    
    Consent Of Grant Thornton LLP31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications32.1
    
    Section 1350 Certifications
 65