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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 Form 10-KSB 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 Organization)
    
    (I.R.S. Employer
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 Each Class
    
    Name of Each Exchange on Which Registered:Common Stock, $.0001 par value
    
    OTC-BBRedeemable Common Stock Purchase Warrants
    
    OTC-BB
 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.                 $20,912,179 State 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
March 15, 2004 was $7,285,000. As of March 15, 2004, there were 20,688,621
shares of the Companys common stock (par value $0.0001) outstanding.




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Documents incorporated by reference: Proxy Statement, Part III. 2




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TABLE OF CONTENTS  
 ItemNo.
    
    
    
    
    Page No.Part I1.
    
    Description of Business
    
    
    42.
    
    Description of Property
    
    
    133.
    
    Legal Proceedings
    
    
    144.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14Part II5.
    
    Market For Registrants Common Equity and Related Stockholder
Matters and Small Business Issuer Purchases of Equity Securities
    
    
    156.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    167.
    
    Financial Statements
    
    
    258.
    
    Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
    
    
    558A.
    
    Controls and Procedures.
    
    
    55Part III9.
    
    Directors and Executive Officers of the Registrant
    
    
    5610.
    
    Executive Compensation
    
    
    5611.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    5612.
    
    Certain Relationships and Related Transactions
    
    
    5713.
    
    Exhibits and Reports on Form 8-K
    
    
    5714.
    
    Principal Accountant Fees and Services
    
    
    60Code of EthicsConsent Of Grant Thornton LLPRule 13a-14(a)/15d-14(a) CertificationsSection 1350 Certifications




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PART I 
 Item 1. Description of Business The statements contained in this Report onForm 10-Kand in the Annual
Report that are not purely historical statements are forward-looking statements
within the meaning of Section 21E of the Securities and Exchange Act of 1934,
including statements regarding the Companys expectations, beliefs, hopes,
intentions or strategies regarding the future. These forward-looking statements
involve risks and uncertainties. Our actual results may differ materially form
those indicated in the forward-looking statements. Please see Special Note
Regarding Forward-Looking Statements and the factors and risks discussed in
other reports filed from time to time with the Securities and Exchange
Commission. Overview ViewCast.com, Inc., doing business as ViewCast Corporation, (ViewCast)
develops and markets a variety of products and services that enable networked
audio and video communications and, through its wholly owned subsidiary, Delta
Computec Inc. (DCi), provides professional information technology and
customized network support services. We are a leading global provider of
enterprise-wide, video communication products for both real-time and on-demand
applications. ViewCast
is focused on the dual goals of achieving profitability and growing
revenues by both leveraging the economic recovery and expanding upon
our well-known products to capitalize on sales opportunities. We
believe that an increased focus 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 Osprey® line of video
capture and video compression-decompression cards, the ViewCast IVN
(Interactive Video Network) and Viewpoint VBX® video distribution systems, the
Niagara 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 Sales and Marketing Harry E. Bruner and Senior
Vice President of Operations David T. Stoner. 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. 4




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Key Elements Regarding Video Communications Video must move over some type of communications network to be received,
whether the purpose is for video content creation, video streaming or video
conferencing. To transmit video images over communications networks, video
data must be digitized and compressed to fit the capacity of these 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 four key elements:  
    
    the sophistication of the video and audio compression algorithms;
    
    the capacity of a network has to transmit data (bandwidth);
    
    the power of the video and audio encoding and decoding hardware (codecs); 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 four
key elements have improved significantly. Video no longer requires special equipment and networks, and can utilize
existing network capabilities and equipment. Networks have improved through
the deployment of additional bandwidth by carriers and Internal 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 from an increasing variety of endpoints, such as
distributed monitors and cameras, 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 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, provide productivity and allow 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- 5




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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 have propagated throughout the
media, business, government, and education arenas, these organizations
increasingly expect video to be an integral part of their communications and
information source 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 IVNandViewpointVBX
    
    NiagaraOsprey Video
    
    Switches,
    
    Encoders,Capture Cards
    
    Servers, and
    
    Servers andand Codecs
    
    Gateway
    
    SCX SoftwareVideo Content Capture
    
    
    x
    
    
    
    
    
    
    
    xVideo Conversion/Editing
    
    
    x
    
    
    
    
    
    
    
    xDesktop Video Conferencing
    
    
    
    
    
    
    x
    
    
    
    xGroup Video Conferencing
    
    
    
    
    
    
    x
    
    
    
    xDistance Learning and Training
    
    
    
    
    
    
    x
    
    
    
    xPremise Distribution of TV/Video
    
    
    
    
    
    
    x
    
    
    
    xSecurity and Surveillance
    
    
    x
    
    
    
    x
    
    
    
    xVideo Analysis
    
    
    x
    
    
    
    x
    
    
    
    xMarketing and Promotional
    
    
    
    
    
    
    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 other channel partners in identifying their communication
and network needs and determine appropriate mechanisms for 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. The ViewCast Strategy Our objective is to further establish ViewCast as a leading provider of
video communications products and services and to enhance the provision of IT
services to organizations and global enterprises. Our skills are applied to
the processing, distribution and use of high-quality video along with networked
data, text and voice. Our initiatives are directed to increase top line
revenue, produce profitable results and increase balance sheet strength through
the following: 6




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
    
    Focus Our Products on Applications and Leverage Our Expertise-
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.
    
    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 offerings with the
potential of future co-development, merger or acquisition by ViewCast.
    
    Expand Sales, Marketing and Distribution- During 2004, we believe
investment in additional marketing and sales initiatives will be
appropriate with the economy improving and 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 during
2003 and shall continue to monitor expenses during 2004.
    
    Implement Growth and Strategic Alternatives/ Increase Financial
Strength- We intend to continue to progress on plans and initiatives
to increase the revenue growth rate and financial resources of the
ViewCast, including seeking additional product, technology or channel
related acquisitions. 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 and codecs, the Niagara line of video
encoding systems and servers, the ViewCast IVN (Interactive Video Network) and
Viewpoint VBX video 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, codecs, and peripheral products
for multimedia applications. Osprey® cards and codecs are sold worldwide
through OEMs, integrators, and a worldwide network of VARs and distributors and
are recommended by both Real Networks and Microsoft. We believe our Osprey® capture cards offer unique advantages to
application developers, integrators and OEMs including a cross-platform API
(application programming interface). These cards comply with most popular
industry video standards, and we provide an expert support and development
staff to enable custom development of required applications. The codecs
capture, digitize, compress, transmit, receive, decompress and display
full-motion video. The codecs are compatible with multiple video and audio
compression standards and operating environments. 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 which provide a 7




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powerful, low-cost, turnkey option. The Niagara product line consists of
a series of capture/encoding systems and streaming servers plus accessories and
optional software and professional video equipment. 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, inclusive of ViewCast IVN 3.0, which will be newly introduced
for 2004, plus the Viewpoint VBX, Niagara and other products from leading
suppliers. 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 Computed 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
conferencing
    
    Field & On-site
Maintenance
    
    Depot Repair Services
    
    Network Query Language
 8




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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, resellers 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, ViewCasts wholly owned IT Services subsidiary,
is also reseller of our video communications products. Our
video communication products and services are globally marketed primarily 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 value added
resellers to integrate with their products or services. During 2003
there were no significant concentrations of customers in excess of
10% of ViewCasts total sales revenues. We plan to build upon
our established 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 to new and current
customers mainly in the northeastern United States from DCis offices in New
Jersey and Delaware by its sales representatives and by its technical services
managers. 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 2003, Morgan Stanley and Saint Barnabas Health Care
systems are customers that, together with their affiliates, have
generated more than 10% of the annual sales for ViewCast. Production and Supply We build our current video products using contract manufacturers in the
U.S. 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 manufacture 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 depend on our
resellers to install and provide service. Further, we maintain an in-house
technical support group to assist our resellers and customers as required. The
addition of DCi provides to our customers comprehensive installation, technical
services, customer support and maintenance on a contract or project basis in
the northeastern United States. 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. 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 9




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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 2004 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 continue 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.,
Pinnacle Systems, Inc., 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 Seimens, EDS, IBM Global Services; hardware firms such as
Dell Computers; and telecommunications firms such as AT&T Corporation. 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, Viewpoint VBX,
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 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. 10




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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, 2004, we had one hundred forty-seven (147) employees, five
(5) of whom are in executive positions, eleven (11) of whom are engaged in
engineering, research and development, fifteen (15) of whom are engaged in
marketing and sales activities, eighty-five (85) of whom are engaged in
operations and thirty-one (31) 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. Executive Officers Our senior executive officers and their ages as of December 31, 2003 were
as follows: Name
    
    Age
    
    Office Held with CompanyGeorge C. Platt
    
    
    63
    
    
    Chief Executive Officer and PresidentLaurie L. Latham
    
    
    47
    
    
    Chief Financial Officer and Senior Vice
President of Finance and AdministrationHarry E. Bruner
    
    
    57
    
    
    Senior Vice President of Sales and MarketingDavid T. Stoner
    
    
    47
    
    
    Senior Vice President of Operations and Chief
Technical Officer
 George C. Platthas served as Chief Executive Officer and President since
September 1999. He currently serves as a Director for Intervoice-Brite, Inc.
and UniView Technologies. 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. 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. Harry E. Brunerbegan serving as Senior Vice President of Sales and
Marketing in February 2000. From 1997 until he joined ViewCast, he was the Vice
President of Worldwide Sales for Intecom, Inc., a Dallas-based provider of
multimedia telecommunications products and services. From 1994 through 1997, 11




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he was the President of the Call Center Division of Executone Information
Systems, Inc. From 1991 through 1993, Mr. Bruner was the Vice President of
Sales for Digital Sound Corporation. From 1989 through 1991, he was Vice
President of Sales for North America for Aspect Telecommunications. From 1987
through 1989, he was Director of Sales for Octel Communications. Prior to 1987,
Mr. Bruner served in a variety of management positions with Rolm Corporation,
including after it was acquired by IBM in 1985. Mr. Bruner earned his B.A. from
Loyola College in Baltimore, Maryland. 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. 12




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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 significant 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-K
for the year ended December 31, 2002, 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. 
 Item 2. Description of Property Our executive offices and some of our sales, design and development
activities are located in approximately 9,000 square feet within a total of
14,731 square feet of leased space in Dallas, Texas. A sublease tenant occupies
the remaining 5,731 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 $72,000 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. A portion of Osprey product research and development activities are
located in approximately 10,000 square feet of leased space in Morrisville,
North Carolina. This lease expires in April 2006, unless notice is provided by
ViewCast for an early termination date in April 2005, and provides for a base
annual rent of $101,574. The Delta Computec Inc. office and warehouse operations are located in
approximately 18,300 square feet within a total of 38,000 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
19,700 square feet of leased space in the Teterboro facility expires in January
of 2003 and provides annual base rental income of $148,248 to offset rental
expense. A field service/sales office is located in Claymont, DE is 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. 13




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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 (None) 14




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PART II 
 Item 5. Market For Registrants Common Equity and Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities Common Stock Price Range As of March 15, 2004, there were 20,688,621 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 Nasdaq prior to April 4, 2002 and the OTC-BB beginning
on April 4, 2002. Our Common Stock prior to April 4, 2002 was traded on the
Nasdaq under the symbol VCST. Our Public Warrants prior to April 4, 2002 were
traded on the Nasdaq under the symbol VCSTW. As of April 4, 2002 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 2002
    
    High
    
    Low
    
    High
    
    Low1st Quarter
    
    $
    0.75
    
    
    $
    0.45
    
    
    $
    0.39
    
    
    $
    0.172nd Quarter
    
    
    0.66
    
    
    
    0.30
    
    
    
    0.40
    
    
    
    0.253rd Quarter
    
    
    0.52
    
    
    
    0.24
    
    
    
    0.30
    
    
    
    0.174th Quarter
    
    
    0.40
    
    
    
    0.14
    
    
    
    0.25
    
    
    
    0.15
 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
 In February 2002, ViewCast received a Nasdaq Staff Determination
indicating that it failed to comply with the minimum net tangible assets or
minimum stockholders equity requirements for continued listing, set forth in
Marketplace Rule 4310(c)(2)(B) and that its common stock is therefore subject
to delisting from The Nasdaq SmallCap Market. Marketplace Rule 4310(c)(2)(B)
states that For continued inclusion, the issuer shall maintain: (i)
stockholders equity of $2.5 million; (ii) market capitalization of $35
million; or (iii) net income of $500,000 in the most recently completed fiscal
year or two of the last three most recently completed fiscal years. ViewCast
requested a hearing before a Nasdaq Listing Qualifications Panel to review the
Staff Determination, but was unable to meet Nasdaqs timetable for compliance
and was delisted from Nasdaq after trading closed on April 3, 2002. ViewCast
began trading on the Over-the-Counter-Bulletin Board (OTC-BB) effective with
the opening of business on April 4, 2002. On March 15, 2004, the last reported sales prices for the Common Stock and
the Public Warrants as reported on the OTC-BB were $0.40 and $0.25,
respectively. 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. 15




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Item 6. Managements Discussion and Analysis or Plan of Operation This Report onForm 10-Kcontains forward-looking statements that involve
risks and uncertainties. Actual results may differ materially form those
indicated in the forward-looking statements. Please see the Special Note
Regarding Forward-Looking Statements elsewhere in the Report onForm 10-K. Overview ViewCast.com, Inc., doing business as ViewCast Corporation, (ViewCast)
develops and markets a variety of products and services that enable networked
audio and video communications and, through its wholly owned subsidiary, Delta
Computec Inc. (DCi), provides professional information technology and
customized network support services. We are a leading global provider of
enterprise-wide, video communication products for both real-time and on-demand
applications. ViewCast
is focused on the dual goals of achieving profitability and growing
revenues by both leveraging the economic recovery and expanding upon
our well-known products to capitalize on sales opportunities. We
believe that an increased focus 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 Osprey® line of video
capture and video compression-decompression cards, the ViewCast IVN
(Interactive Video Network) and Viewpoint VBX® video distribution systems, the
Niagara 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, value-added resellers 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 2003 In
2003, ViewCast doubled revenues and reduced the net loss by 42% over
the prior year. ViewCast experienced in 2003 an overall increase in total sales to
$20,912,179 and a significant decline in net loss to $2,354,505 compared to the
prior year sales of $10,427,540 and net loss of $4,104,795. The year 2003 was
the first to include a full year of operational results for the IT services and
products segment whereas the prior year included operations for the fourth
quarter only after the acquisition of DCi in October 2002.
Growth in sales from the video communications segment contributed to
higher sales in 2003 including increase from Osprey sales of 11% and
from system sales of 18% compared the prior year. 16




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##### Table of Contents



Summary of Operations by Operating Segment:

VideoDistributionIT Services,
    
    & Networking
    
    UnallocatedProducts
    
    Products
    
    Corporate
    
    Total2003Total 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
    )


VideoDistributionIT Services,
    
    & Networking
    
    UnallocatedProducts
    
    Products
    
    Corporate
    
    Total2002Total sales
    
    $
    2,547,109
    
    
    $
    7,885,431
    
    
    $
    
    
    
    $
    10,432,540Intersegment sales
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )Revenue from external customers
    
    $
    2,547,109
    
    
    $
    7,880,431
    
    
    $
    
    
    
    $
    10,427,540Gross profit
    
    $
    590,013
    
    
    $
    4,310,883
    
    
    $
    
    
    
    $
    4,900,896Operating loss
    
    $
    (4,841
    )
    
    $
    (2,667,592
    )
    
    $
    (1,730,000
    )
    
    $
    (4,402,433
    )


Critical Accounting Policies Managements discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. We review the accounting policies we
use in reporting our financial results on a regular basis. The preparation of
these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosure of contingent assets and liabilities. On an on-going basis
we evaluate our estimates, including those related to accounts receivable,
inventories, investments, warranty obligations, income taxes, restructuring and
contingencies and litigation. Our estimates are based on historical experience
and other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. In addition to the items listed above which are affected by
estimates, we believe that the following are among critical accounting policies
used in the preparation of our consolidated financial statements:  
    
    Revenue Recognition We apply provisions of SEC Staff Accounting
Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements as
revised by SAB 104, Revenue Recognition, SOP 97-2, Software Revenue
Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, with Respect to Certain Transactions and EITF
00-21, Revenue Arrangements with Multiple Deliverables to transactions
involving sales of our hardware and software products. Under these
guidelines, we recognize revenue on transactions where persuasive
evidence of an arrangement exists, title has transferred, product
payment is not contingent upon performance of installation or service
obligations, the price is fixed or determinable and payment is
reasonably assured. We accrue warranty costs and sales allowances for
promotional activities at 17




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time of shipment based on historical experience. In addition, we defer
revenue associated with maintenance and support contracts and recognize
revenue ratably over their term.
    
    Allowance for Doubtful Accounts We maintain allowances for
doubtful accounts for estimated losses resulting from the inability of
our customers to make required payments. If the financial condition of
our customers or distribution partners were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances
may be required.
    
    Excess and Obsolete Inventories We write down our inventories for
estimated obsolescence and unmarketable inventory equal to the
difference between the cost of the inventory and the estimated market
value based upon assumptions about future demand and market conditions.
If actual market conditions are less than those projected by management,
additional write-downs may be required.
    
    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, 2003 compared to Year Ended December 31, 2002. Net Sales.Net sales for the year ended December 31, 2003 increased 100.5%
to $20,912,179 from $10,427,540 reported in 2002. The overall increase was due
principally to inclusion of DCis operations for a full year during 2003 versus
the last quarter of 2002 (an increase to $12,159,250 in 2003 from $2,547,109 in
2002), and an increase in both Osprey and system sales from the prior year.
Total 2003 sales of $8,773,985 for the video communications products segment
increased by 11.3%, compared to 2002, reflecting some firming in economic
conditions and increased technology spending levels beginning in 2003. Osprey Product Sales.During the year ended December 31, 2003, sales of
Osprey® video products increased 11.2% over 2002 levels and represented 81.1%
of total 2003 video product revenues, compared to 81.1% of total revenues in
2002. The 2003 domestic and European sales of Osprey products improved 17.0%
and 13.1%, respectively over 2002 levels, while sales in the Pacific Rim
decreased slightly by 1.4%. On a product basis, 2003 unit sales of all Osprey
product families increased, compared to last year, with the exception of the
Osprey-2000 series of products, which decreased 32.9% over 2002 levels. In January 2002, ViewCast opened its new e-commerce site featuring the
Osprey streaming/capture cards as well as, Osprey SimulStream and Niagara SCX
software products. In addition to the new e-commerce offerings, the site offers
a full range of online order processing and tracking services, technical
support content and easy access to product drivers and upgrades. During 2003,
e-commerce sales totaled $392,415 and represented 5.5% of total Osprey 2003
product sales. During 2002, e-commerce sales totaled $408,978 and represented
6.3% of total Osprey 2002 product sales. In 2003, ViewCast introduced its new Osprey-230 and Osprey-560
professional capture cards designed to address newer PC and server
configurations, and through December 31, 2003 they have represented
approximately 18.2% of Osprey product sales. With new products and product
enhancements and as the economy continues to recover, we expect to increase
Osprey product sales during 2004. Viewpoint VBX Video Distribution System and Niagara® Streaming/Encoding
Systems.During the twelve months ended December 31, 2003, combined systems
sales totaled $1,475,315 and represented 16.8% of total 2003 video product
revenues, an increase of 17.8% over 2002 video product revenues. The increase
was due to sales of ViewCasts Niagara systems during 2003, increasing by
118.9%, over 2002 levels, reflecting continued customer awareness of our
streaming and encoding servers. Viewpoint VBX systems sales experienced a
71.9% decline over the same period mainly due to its major customers 18




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continued postponement of information technology spending or delaying
further expansion in anticipation of upgrading to ViewCast IVN during 2004. Both the economy and IT spending improvement have increased the number of
bids, demonstrations and orders of our systems products as we moved into 2004.
We expect that such activity should result in increased 2004 revenue further
enhanced by new product introductions and features during the year. IT Services and Products.In October 2002, ViewCast acquired the assets
and operations of DCi, a provider of professional information technology and
customized network support services to Fortune 500 and Fortune 1000
corporations, mid-sized companies, hospitals, health care facilities and
financial institutions primarily in the northeastern United States. For the
first full year of operation as part of ViewCast, the 2003 IT services and
product sales totaled $12,159,250 and represented 58.1% of total ViewCast
revenues and 38.6% of total gross margin. IT services and product sales
totaled $2,542,109 for the three months ended December 31, 2002 and represented
24.4 % of total 2002 ViewCast revenues. 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. During 2002 contract service fees for customized network
support, Internet and Intranet consulting, networking, maintenance, disaster
recovery services totaled $2,268,959 and IT product sales totaled $278,150 Other Revenues.Other video product revenues consisting of software
maintenance, training, engineering consulting fees and professional services
totaled $185,184 during 2003, a decrease of $49,390 compared to $234,574
reported in 2002. Cost of Goods Sold/Gross Margins.Cost of goods sold totaled $12,396,890
for the year ended December 31, 2003, a 124.3% increase from 2002 reflecting
the increased cost of goods associated with a full year of DCi IT service and
product sales. Gross profit margin for the year ended December 31, 2003 was
40.7% compared to 47.0% in 2002, although the video products segments margin
improved to 59.5% for 2003 compared to 54.7% in 2002. The lower gross margins
during 2003 reflect the first full year of DCis operations which experienced a
27.1% gross margin, 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 compared to 2003.
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, 2003 totaled $6,987,249, an
increase of 33.1% from $5,248,892 reported last year. The increase reflects the
additional expense of slightly over $2.5 million from DCis operations offset
by a 5% reduction in operating expenses for the corporate and video product
segment. Research and Development Expense.Only the video communications segment
incurred research and development expense during 2003 and 2002. DCi currently
has no significant research and development activities. Research and
development expense during 2003 totaled $2,346,187, a decrease of 20.1% over
2002 levels, reflecting a decrease in personnel, prototype and related
expenses. Although expenses have been reduced, we have continued to develop
new products and features to be released in 2004 targeting current and expanded
market opportunities. ViewCasts emphasis in development has become more
customer application focused that is combined with technological innovation.
As the digital video communications market expands and matures, we expect such
a balanced approach provides more efficient and effective development in
relation to the market and customer applications. Restructuring.During 2003 ViewCast had no restructuring costs compared to
$270,000 in 2002. In accordance with a Board of Directors approved plan of
restructuring, charges during 2002 included costs for employee severance and
benefits for personnel reductions made in sales, marketing, development and 19




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manufacturing departments and for impairment of related fixed assets and
capitalized software. At December 31, 2003, ViewCast had no accrued
restructuring charges. Other (Income) Expense. Total other income (expense) for 2003 totaled
$(919,791) compared to $297,638 in 2002. The other income for 2002 includes a
$1,071,891 gain on exchange of available-sale-securities for principal
reduction in line of credit financing arrangement, which occurred on May 6,
2002 (See Part 2. Item 8. Financial Statements, Note 6 and Note 9). Interest
expense for 2003 and 2002 was $965,975 and $790,081, respectively, representing
interest on ViewCasts stockholder line-of-credit financing as well as interest
on ViewCasts long-term debt, interest on DCis line-of-credit financing and
amortization of related issue costs. Interest expense increased 22.3% over
2002 levels due to the increased average balance of its line-of-credit during
2003 and the addition of DCis line of credit facility with Keltic Financial
Partners, LP. Additionally, 2003 interest income declined over 2002 levels
reflecting reduced earnings on lower cash and cash equivalents balances
compared to 2002. Net Loss.Net loss for the year ended December 31, 2003 was $2,354,505, a
42.6% improvement over the $4,104,795 loss reported in the comparable period in
2002. The decrease in net loss reflects significantly reduced operating
expenses in the video products business segment resulting from ViewCasts
restructuring efforts during 2002 and improved sales and gross margin
contributed by both business segments. These changes were offset in part by
increased interest expense and a full year of operating expenses from DCi
compared to one quarter during 2002. 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. Net cash used in operating activities for the year ended December 31, 2003
totaled $1,709,088 due principally to the reported net loss of $2,354,505 and
changes in operating assets and liabilities of $309,223 offset in part by
non-cash operating expenses of $954,640. Cash utilized from changes in
operating assets and liabilities was due principally to increases in trade
accounts receivable from DCi service billings and prepaid insurance premiums,
and to decreases in trade payables and deferred revenues. These uses were
offset by an increase in stockholder accrued interest and
from utilization of inventories. Cash utilized for investing activities during the year ended December 31,
2003 totaled $792,673 and included purchases of computer equipment, demo
equipment, HVAC equipment for the DCi office facility and service assets to
support existing IT service contracts. In April 2003, ViewCast paid $56,230 in
cash and issued 19,377 shares of Series D Preferred Stock to satisfy the
requirements of the first contingent payment in conjunction with the DCI
acquisition and in October 2003, remitted the second and final contingent cash
payment of $250,000. During the year ended December 31, 2003, ViewCasts financing activities
generated cash of $2,513,006 principally due to short-term borrowings under the
terms of our stockholder line of credit facility in the amount of $2,548,000
and proceeds of $47,706 generated from the exercise of stock options,
automobile loans and sale of common stock pursuant to ViewCasts employee stock
purchase plan. These proceeds were offset by repayments of $77,548 to Keltic,
under the terms of DCis asset based lending line of credit and for repayment
of a service vehicle loan in the amount of $5,152. 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 its
principal stockholders, Mr. H.T. Ardinger, who currently serves as Chairman of
the Board of Directors of the ViewCast. As of the date of the amendment
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 outstanding
$500,000 in advances from Lender for the purchase of DCi in October 2002.
Effective October 15, 2003, terms and conditions of the 20




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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 $2,000,000. 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, 2004. 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)
    
    Thirty-three (33) 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 April 30, 2004 and continuing on the
last day of each calendar month thereafter; andb)
    
    One (1) 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 (33) equal consecutive monthly installments commencing on
April 30, 2004 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, 2003, ViewCast had availability under the amended
stockholder line of credit of $700,000. At December 31, 2003 the Company had outstanding $1,363,362 in stockholder
accrued interest of which $1,006,518 has been classified as long-term. In October 2002, part of the DCi acquisition transaction included the
payoff of the Sellers asset based revolving credit facility with Keltic
Financial Partners, LP (Keltic) and establishment of a new $1.5 million asset
based revolving credit facility for a period of one year with Keltic. In
October 2003, ViewCast amended the credit facility to extend the maturity date
of the note to October 11, 2004 and to modify the interest rate to the greater
of, at the option of Keltic,: (a) the prime rate plus two hundred fifty (250)
basis points per annum, or (b) six and one-half percent (6.50%). Amendments
were also made to lower certain DCi EBITDA requirements of the loan
agreement. DCi utilizes the $1.5 million Keltic credit facility for general
working capital support. Draws on the revolving credit facility are based on
qualifying DCi accounts receivable. The loan balance is reduced as cash
collections are received directly by Keltic. During the year ended December 31,
2003, cash collections in excess of draws reduced the Keltic loan balance by
$77,547 to $635,005 at December 31, 2003. DCi had asset-based availability of
$345,000 under the Keltic revolving credit facility at December 31, 2003 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. At December 31, 2003, the Company had 3,799,680 public and public
equivalent warrants and 122,500 representative warrants outstanding and
exercisable at $1.00. The warrants are redeemable by ViewCast under certain
conditions. 21




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##### Table of Contents



At December 31, 2003, ViewCast had a consolidated stockholders deficit of
$7,255,322, and in accordance with Delaware law, was precluded from paying
dividends on its outstanding Series B and Series C convertible preferred stock.
As a result, no preferred stock dividends have been declared or paid during
2003. The Series B and Series C preferred stock issues carry cumulative
dividends of 8% and 9% per year, respectively, and are generally payable
semi-annually in arrears in cash or in ViewCast common stock, at ViewCasts
option. Cumulative dividends in arrears on preferred shares are approximately:
Series B-$1,280,000, Series C-$358,000. Holders of Series B and Series C
preferred stock have no voting rights except as required by law. At December 31, 2003, ViewCast had a working capital deficit of $2,625,023
and cash and cash equivalents of $299,764. During the year ended December 31,
2003, ViewCast experienced an overall sales increase of 100.5% compared to 2002
because of a full year of sales from DCis operation and improving video
product sales. While wary of current economic conditions, ViewCast anticipates
that revenues during 2004 will continue to increase over 2003 levels with
growth anticipated across all business segments. In December 2003, ViewCast
engaged Rockland Capital Partners, an investment banking firm, to assist
ViewCast with the review, refinement, and implementation of its strategic
initiatives. During 2004 ViewCast plans to improve its working capital position
by increasing sales and through other initiatives that may include raising
additional equity, conversion of debt to equity, further acquisitions and by
exercise of warrants if market conditions allow. In October 2003, ViewCast
improved its working capital position by more than $7.0 million through
amendments to its stockholder line of credit and classification of a major
portion of its debt and accrued interest as long-term. ViewCast also
anticipates that losses may occur during 2004, or until such time as total
profit margins from the sales of its products and services exceeds its total
development, selling, administrative and financing costs. ViewCast strives for
productivity and efficiency in workforce and operating expenses. During 2003,
ViewCast (excluding DCi) has decreased operating expenses by $1,516,633, or
17.4%, compared to the same period in 2002. Additionally, consolidated net
loss for the year ended December 31, 2003 was reduced by 54.5%, compared to
2002 after excluding a one-time gain on the sale of securities of $1,071,891
that occurred in May of 2002. ViewCast utilizes significant capital to design, develop and commercialize
its products and intends to fund its operating activities and sales growth
during the next twelve months by utilizing cash contributed from operations and
its available working capital lines of credit to the extent possible. ViewCast
anticipates it will require additional capital during the first half of 2004
for working capital to support the expansion of sales channels and market
distribution, to develop and introduce new products and services, to enhance
existing product offerings, to address unanticipated competitive threats or
technical problems, to transition adverse economic conditions and to service
its debt. Although ViewCast has no firm arrangements with respect to additional
financing, it is currently considering proposals relating to the issuance of
equity securities in exchange for a cash investment in ViewCast. There can be
no assurance that additional financing will be available to ViewCast on
acceptable terms, or at all. Additional equity financing may involve
substantial dilution to our then existing stockholders. ViewCast intends to
actively pursue other strategic merger and acquisition activities to the extent
possible. In the event we are unable to raise additional capital or execute
other alternatives, we may be required to sell segments of the business, or
substantially reduce or curtail our activities. Such actions could result in
charges that could be material to ViewCasts results of operations or financial
position. At December 31, 2003, 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, 2003: 22




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##### Table of Contents



(In thousands)Operating Leases
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    TotalOperating leases
    
    $
    530
    
    
    $
    666
    
    
    $
    327
    
    
    $
    33
    
    
    $
    8
    
    
    $
    
    
    
    $
    1,564
 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 $28,000 and are presented net of
$304,602 of facility sublease rental income. New Accounting Standards In January 2003, the FASB issued FASB Interpretations (FIN) No. 46
Consolidation of Variable Interest Entities, an interpretation of ARB 51. FIN
No. 46 provides guidance on the identification of entities for which control is
achieved through means other than through voting rights called variable
interest entities or VIEs and how to determine when and which business
enterprise should consolidate the VIE (the primary beneficiary). This new
model for consolidation applies to an entity in which either (1) the equity
investors (if any) do not have a controlling financial interest or (2) the
equity investment at risk is insufficient to finance that entitys activities
without receiving additional subordinated financial support from other parties.
In addition, FIN No. 46 requires that both the primary beneficiary and all
other enterprises with a significant variable interest in a VIE make additional
disclosures. The adoption of FIN No. 46 did not have a material impact on our
results of operations, financial condition or cash flows. In February 2003, the FASB issued Emerging Issues Task Force 00-21 (EITF
00-21), Revenue Arrangements with Multiple Deliverables. EITF 00-21 requires
revenue arrangements with multiple deliverables to be divided into separate
units of accounting. If the deliverables in the arrangement meet certain
criteria, arrangement consideration should be allocated among the separate
units based on their relative fair values. Applicable revenue recognition
criteria should be considered separately for each unit. The guidance in EITF
00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of EITF 00-21 did not have a
material impact on our results of operations, financial condition or cash
flows. In May 2003, the FASB issued FAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This Statement establishes standards for an issuer to classify and measure
certain financial instruments with characteristics of both liabilities and
equity. It requires an 23




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##### Table of Contents



issuer to classify a financial instrument that meets certain
characteristics as a liability (or an asset in some circumstances). This
Statement is effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. ViewCast adopted this standard the third
quarter of 2003 and has classified $987,120 and $1,419,172 of Series D
redeemable convertible preferred stock outstanding at December 31, 2002 and
2003, respectively to long-term liabilities from mezzanine liabilities. The
adoption of SFAS No.150 did not have a material impact on our results of
operations, financial condition or cash flows. In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition, which supersedes SAB No. 101, Revenue Recognition in
Financial Statements. SAB No. 104 rescinds accounting guidance in SAB No. 101
related to multiple-element arrangements. The adoption of SAB No. 104 did not
have a material impact on our results of operations, financial condition or
cash flows. 24




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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 Certified Public Accountants
    
    
    26Consolidated Balance Sheets at December 31, 2002 and 2003
    
    
    27Consolidated Statements of Operations for the years ended
December 31, 2002 and 2003
    
    
    28Consolidated Statements of Stockholders Deficit for the
years ended December 31, 2002 and 2003
    
    
    29Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2003
    
    
    30Notes to Consolidated Financial Statements
    
    
    32
 25




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##### Table of Contents



Report of Independent Certified Public Accountants 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, 2002 and 2003, and the related
consolidated statements of operations, stockholders deficit and cash
flows for each of the two years in the period ended December 31, 2003. 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 auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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, 2002 and 2003, and the consolidated
results of their operations and their cash flows for the two years ended
December 31, 2003, 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 2003 and has a working capital deficit as of December
31, 2003. 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. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. GRANT THORNTON LLP Dallas, Texas
March 26, 2004 26




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS December 31,2002
    
    2003ASSETSCurrent assets:Cash and cash equivalents
    
    $
    288,519
    
    
    $
    299,764Accounts receivable, less allowance for doubtful accounts of
$144,000 and $86,000 at December 31, 2002 and 2003, respectively
    
    
    2,515,164
    
    
    
    3,212,595Inventories
    
    
    1,598,019
    
    
    
    1,554,754Prepaid expenses
    
    
    86,906
    
    
    
    185,377Deferred charges
    
    
    43,395
    
    
    
    23,177Total current assets
    
    
    4,532,003
    
    
    
    5,275,667Property and equipment, net
    
    
    1,795,809
    
    
    
    1,578,709Goodwill
    
    
    1,041,430
    
    
    
    1,041,430Customer contracts, net
    
    
    
    
    
    
    396,389Software development costs, net
    
    
    68,713
    
    
    
    Deferred charges
    
    
    92,707
    
    
    
    Deposits
    
    
    127,481
    
    
    
    113,758Total assets
    
    $
    7,658,143
    
    
    $
    8,405,953LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    1,818,991
    
    
    $
    1,289,730Accrued expenses
    
    
    1,430,444
    
    
    
    1,362,523Deferred revenue
    
    
    905,632
    
    
    
    765,777Advance from stockholder
    
    
    500,000
    
    
    
    Stockholder line of credit
    
    
    5,161,582
    
    
    
    1,300,000Short-term debt, other
    
    
    717,705
    
    
    
    635,005Current maturities of long-term debt
    
    
    
    
    
    
    1,128,483Series D redeemable convertible preferred stock
    
    
    
    
    
    
    1,419,172Total current liabilities
    
    
    10,534,354
    
    
    
    7,900,690Long-term debt less current maturities
    
    
    950,000
    
    
    
    17,224Stockholder note payable
    
    
    
    
    
    
    6,736,843Stockholder accrued interest
    
    
    
    
    
    
    1,006,518Series D redeemable convertible preferred stock
    
    
    987,120
    
    
    
    Commitments and contingencies
    
    
    
    
    
    
    Stockholders deficit:Convertible preferred stock, $0.0001 par value:Authorized
shares - 5,000,000Series B
 issued and outstanding shares - 800,000
    
    
    80
    
    
    
    80Series C
 issued and outstanding shares - 200,000
    
    
    20
    
    
    
    20Common stock, $.0001 par value:Authorized
shares - 100,000,000Issued shares   20,822,847 and 20,950,118 at December 31, 2002
and 2003, respectively
    
    
    2,083
    
    
    
    2,095Additional paid-in capital
    
    
    55,685,444
    
    
    
    55,597,946Accumulated deficit
    
    
    (60,489,052
    )
    
    
    (62,843,557
    )Treasury stock, 261,497 shares at cost
    
    
    (11,906
    )
    
    
    (11,906
    )Total stockholders deficit
    
    
    (4,813,331
    )
    
    
    (7,255,322
    )Total liabilities and stockholders deficit
    
    $
    7,658,143
    
    
    $
    8,405,953
 The accompanying notes are an integral part of these consolidated statements. 27




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS Year ended December 31,2002
    
    2003Net sales
    
    $
    10,427,540
    
    
    $
    20,912,179Cost of sales (includes depreciation of $54,940
and $282,591 for the years ended December 31,
2002 and 2003, respectively)
    
    
    5,526,644
    
    
    
    12,396,890Gross profit
    
    
    4,900,896
    
    
    
    8,515,289Operating expenses:Selling, general and administrative
    
    
    5,248,892
    
    
    
    6,987,249Research and development
    
    
    2,936,778
    
    
    
    2,346,187Restructuring charge
    
    
    270,000
    
    
    
    Depreciation and amortization
    
    
    847,659
    
    
    
    569,567Total operating expenses
    
    
    9,303,329
    
    
    
    9,903,003Operating loss
    
    
    (4,402,433
    )
    
    
    (1,387,714
    )Other income (expense):Dividend and interest income
    
    
    1,737
    
    
    
    1,293Interest expense
    
    
    (790,081
    )
    
    
    (965,975
    )Gain on sale of available-for sale securities
    
    
    1,071,891
    
    
    
    Other
    
    
    14,091
    
    
    
    44,891Total other income (expense)
    
    
    297,638
    
    
    
    (919,791
    )Net loss before income taxes
    
    
    (4,104,795
    )
    
    
    (2,307,505
    )Income tax expense
    
    
    
    
    
    
    47,000NET LOSS
    
    $
    (4,104,795
    )
    
    $
    (2,354,505
    )Preferred dividends
    
    
    (799,628
    )
    
    
    (940,963
    )Net loss applicable to common stockholders
    
    $
    (4,904,423
    )
    
    $
    (3,295,468
    )Net loss per share  basic and diluted
    
    $
    (0.24
    )
    
    $
    (0.16
    )Weighted average number of common shares
    
    
    20,133,436
    
    
    
    20,622,427
 The accompanying notes are an integral part of these consolidated statements. 28




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2003 Series B
    
    Series CConvertible
    
    Convertible
    
    
    
    
    
    
    
    
    
    Additional
    
    Other
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    Preferred Stock
    
    Common Stock
    
    Paid-in
    
    Comprehensive
    
    Accumulated
    
    Treasury
    
    Stockholders'Shares
    
    Par Value
    
    Shares
    
    Par Value
    
    Shares
    
    Par Value
    
    Capital
    
    Income (Loss)
    
    Deficit
    
    Stock
    
    DeficitBalance, January 1, 2002
    
    
    945,000
    
    
    $
    95
    
    
    
    200,000
    
    
    $
    20
    
    
    
    18,347,869
    
    
    $
    1,835
    
    
    $
    55,667,260
    
    
    $
    524,812
    
    
    $
    (56,384,257
    )
    
    $
    (11,906
    )
    
    $
    (202,141
    )Conversion of Series B convertible
preferred stock to common stock
    
    
    (145,000
    )
    
    $
    (15
    )
    
    
    
    
    
    $
    
    
    
    
    2,416,666
    
    
    $
    242
    
    
    $
    (227
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Sale of common stock, employee
stock purchase plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,312
    
    
    
    6
    
    
    
    17,461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,467Value of options issued for consulting
services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    950Unrealized loss on securities
reported at fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136,837
    )
    
    
    
    
    
    
    
    
    
    
    (136,837
    )Reclassification of unrealized gain on
securities reported at fair value to
realized gain upon disposition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (441,870
    )
    
    
    
    
    
    
    
    
    
    
    (441,870
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,895
    
    
    
    
    
    
    
    
    
    
    
    53,895Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,104,795
    )
    
    
    
    
    
    
    (4,104,795
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,629,607
    )Balance, December 31, 2002
    
    
    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
    )
 The accompanying notes are an integral part of these consolidated statements. 29




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##### Table of Contents



VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31,2002
    
    2003Operating activities:Net loss
    
    $
    (4,104,795
    )
    
    $
    (2,354,505
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation of fixed assets
    
    
    715,234
    
    
    
    714,834Amortization of software development costs
    
    
    187,365
    
    
    
    68,713Amortization of customer contracts
    
    
    
    
    
    
    68,611Non-cash charges to interest expense
    
    
    81,375
    
    
    
    112,925Non-cash (gain) loss on disposition of property and equipment
    
    
    (5,966
    )
    
    
    (11,291
    )Non-cash gain on sale of available-for-sale securities
    
    
    (1,071,891
    )
    
    
    Non-cash restructuring charges
    
    
    150,657
    
    
    
    Foreign currency translation adjustment
    
    
    53,895
    
    
    
    Non-cash consulting fees exchanged for options, warrants
and common stock
    
    
    950
    
    
    
    848Changes in operating assets and liabilities net of
the effects of acquisition:Accounts receivable
    
    
    290,127
    
    
    
    (697,431
    )Inventories
    
    
    1,167,046
    
    
    
    43,265Prepaid expenses
    
    
    124,733
    
    
    
    (98,471
    )Deposits
    
    
    (14,392
    )
    
    
    13,723Accounts payable
    
    
    669,907
    
    
    
    (369,051
    )Accrued expenses and stockholder accrued interest
    
    
    (109,813
    )
    
    
    938,597Deferred revenue
    
    
    (258,850
    )
    
    
    (139,855
    )Deferred charges
    
    
    (55,240
    )
    
    
    Net cash used in operating activities
    
    
    (2,179,658
    )
    
    
    (1,709,088
    )Investing activities:Proceeds from sale of available-for-sale securities
    
    
    2,910,641
    
    
    
    Acquisition of business in 2002 (no cash acquired)
    
    
    (721,694
    )
    
    
    Acquisition of customer contracts
    
    
    
    
    
    
    (306,230
    )Purchase of property and equipment
    
    
    (107,487
    )
    
    
    (499,443
    )Proceeds from disposition of property and equipment
    
    
    23,853
    
    
    
    13,000Net cash provided by (used in) investing activities
    
    
    2,105,313
    
    
    
    (792,673
    )Financing activities:Net proceeds (repayments) from stockholder line of credit
and advances
    
    
    (685,641
    )
    
    
    2,548,000Net proceeds (repayments) short-term debt, other
    
    
    179,574
    
    
    
    (82,700
    )Proceeds from exercise of options and warrants
    
    
    
    
    
    
    8,082Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    22,968Net proceeds from sale of common stock and warrants
    
    
    17,467
    
    
    
    16,656Net cash provided by (used in ) financing activities
    
    
    (488,600
    )
    
    
    2,513,006Net increase (decrease) in cash and cash equivalents
    
    
    (562,945
    )
    
    
    11,245Cash and cash equivalents, beginning of period
    
    
    851,464
    
    
    
    288,519Cash and cash equivalents, end of period
    
    $
    288,519
    
    
    $
    299,764
 The accompanying notes are an integral part of these consolidated statements. 30




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VIEWCAST.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED Year ended December 31,2002
    
    2003Supplemental disclosure of financing activities:Acquisition of business:Assets acquired
    
    $
    3,282,886
    
    
    $
    Excess of purchase price over fair market value of assets
acquired
    
    
    1,201,430
    
    
    
    Consideration  Series D redeemable convertible preferred
stock
    
    
    (1,147,120
    )
    
    
    Due to Seller at 12-31-02 (Issued 10,539 shares of Series
D convertible preferred stock 1-10-2003)
    
    
    (105,379
    )
    
    
    Net cash paid including expenses
    
    
    (721,694
    )
    
    
    Liabilities assumed
    
    $
    2,510,123
    
    
    $
    Supplemental cash flow information:Cash paid for interest
    
    $
    145,340
    
    
    $
    116,502Supplemental non-cash flow operating activities:Issuance of Series D convertible preferred stock for
acquisition of customer contracts and payment of services
    
    
    
    
    
    $
    160,210
 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 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 designing, developing and marketing advanced,
standards-based video products and services that enable real-time and on-demand
video communication over the Internet and corporate networks. The Companys
Osprey® line of video capture and video compression-decompression cards, its
ViewCast IVN and Viewpoint VBX video distribution systems, and its Niagara
line of Internet encoding and streaming video servers deliver business
applications to encode and archive video content, broadcast video over computer
networks (streaming video), deliver video from web sites (on-demand streaming
video), provide interactive video communication (video conferencing), and
distribute video within a network. 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 2004 operating activities
and sales growth by utilizing cash contributed from operations and its
available working capital lines of credit to the extent possible. The Company
anticipates it will require additional working capital during 2004 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 for potential acquisition transactions. In
January 2004, the Company retained Rockland Capital Partners, and investment
banking firm, to assist the Company with its strategic initiatives including
addressing capital requirements. Although the Company has no firm arrangements
with respect to additional financing, it is currently considering proposals by
potential investors relating to the issuance of equity securities in exchange
for a cash investment in the Company. There can be no assurance that
additional financing will be available to the Company on acceptable terms, or
at all. Additional equity financing may involve substantial dilution to our
then existing stockholders. The Company intends to actively pursue other such
strategic merger and acquisition activities to the extent possible. In the
event the Company is unable to raise additional capital or execute other
alternatives, we may be required to sell segments of the business, or
substantially reduce or curtail our activities. Such actions could result in
charges that could be material to the ViewCasts results of operations or
financial position. 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 $4,104,795, and $2,354,505 for the years ended
December 31, 2002 and 2003, 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 be necessary should the Company be unable to
continue as a going concern. 32




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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 our 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 international
customers. Accounts receivable are generally due within 30 days and are stated
net of an allowance for doubtful accounts. Accounts outstanding longer than
contractual payment terms are considered past due. The Company records an
allowance on a specific basis by considering a number of factors, including the
length of time trade accounts are past due, the Companys previous loss
history, the credit-worthiness of individual customers, economic conditions
affecting specific customer industries and economic conditions in general. The
Company writes-off accounts receivable when they become uncollectible and
payments subsequently received on such receivables are credited against
write-offs in the period the payment is received. Changes in the Companys allowance for doubtful accounts for the years
ended December 31, 2002 and 2003 are as follows: Year Ended December 31,2002
    
    2003Beginning balance
    
    $
    137,000
    
    
    $
    144,000Beginning reserve balance of business
acquired, October 2002
    
    
    32,000
    
    
    
    Bad debt expense (reversal)
    
    
    (24,000
    )
    
    
    (19,000
    )Uncollectible accounts written off,
net of recoveries
    
    
    (1,000
    )
    
    
    (39,000
    )Ending Balance
    
    $
    144,000
    
    
    $
    86,000
 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. 33




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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. 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 straight-line method over a period not to exceed three
years. Intangible Assets and Amortization The Company adopted Statement of Financial Accounting Standards No. 142
(SFAS 142), Goodwill and Intangible Assets on January 1, 2002. The Company
conducts its annual impairment test of goodwill on October 1st of each year.
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. 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, which the Company adopted on
January 1, 2002. 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. During 2002, the
Company recognized total asset impairment charges of $150,657 in conjunction
with its restructuring efforts (See Note 4). No impairment charges were
recognized during 2003. 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 34




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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. 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 31,2002
    
    2003Stock options
    
    
    4,058,169
    
    
    
    4,081,349Public and private warrants
    
    
    4,293,998
    
    
    
    4,184,512Convertible debentures
    
    
    190,000
    
    
    
    190,000Convertible preferred stock  Series B
    
    
    2,286,896
    
    
    
    2,206,896Convertible preferred stock  Series C
    
    
    3,333,333
    
    
    
    3,333,333Redeemable convertible preferred Stock  Series D
    
    
    152,949
    
    
    
    922,63014,315,345
    
    
    
    14,918,720
 Deferred Charges Short-term deferred charges at December 31, 2002 consist of loan
origination fees for establishing an asset based revolving credit facility with
Keltic Financial Partners, LP in conjunction with the acquisition of the Delta
Computec Inc. in October 2002 (See Note 3). Long-term deferred charges at December 31, 2002 and short-term deferred
charges at December 31, 2003 consist of legal, accounting and lead manager fees
and expenses associated with the issuance in April 35




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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. Total deferred charges amortized to interest expense for the years ended
December 31, 2002 and 2003 were $81,375 and $112,925, 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 rollforward of warranty expense for
the years ended December 31, 2002 and 2003: 2002
    
    2003Beginning balance
    
    $
    70,000
    
    
    $
    39,000Charged to expense
    
    
    26,000
    
    
    
    87,000Usage
    
    
    (57,000
    )
    
    
    (66,000
    )Ending Balance
    
    $
    39,000
    
    
    $
    60,000
 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 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
    
    Percent2002
    
    
    
    
    
    
    0
    
    
    
    0
    %
    
    
    
    
    
    
    2
    
    
    
    31
    %2003
    
    
    
    
    
    
    2
    
    
    
    29
    %
    
    
    
    
    
    
    1
    
    
    
    28
    %
 
 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. 36




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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. 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, 2002 and 2003 was $102,412 and $90,342 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,
2003 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. 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: 37




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 2002
    
    2003Risk-free interest rate
    
    
    4.30
    %
    
    
    3.52
    %Dividend yield
    
    
    0
    %
    
    
    0
    %Volatility factor of the
market price of the
Companys common stock
    
    
    106
    %
    
    
    110
    %Expected life of the options
(years)
    
    
    5.9
    
    
    
    5.1
 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, 2002 and 2003 is as follows: 2002
    
    2003Net loss applicable to common
stockholders:As reported
    
    $
    (4,904,423
    )
    
    $
    (3,295,468
    )Deduct: total stock-based compensation
under fair value based method for all
awards
    
    
    (1,905,061
    )
    
    
    (1,621,170
    )Pro forma
    
    $
    (6,809,484
    )
    
    $
    (4,916,638
    )Net Loss per share:As reported  basic and diluted
    
    $
    (0.24
    )
    
    $
    (0.16
    )Pro forma  basic and diluted
    
    $
    (0.34
    )
    
    $
    (0.24
    )
 Comprehensive Income The Company translates assets and liabilities of its foreign operations,
whose functional currency is the local currency, at year-end exchange rates.
Revenues and expenses are translated at the average rates of exchange
prevailing during the year. Adjustments resulting from translating the
financial statements of foreign operations are accumulated in other
comprehensive income, which is reflected as a separate component of
stockholders equity. Additionally, the Company classifies equity securities it
owns that are free of trading restrictions or to become free of trading
restrictions within one year as available-for-sale. Available-for-sale
securities are carried at fair value based on quoted market prices, and
unrealized gains and losses are accumulated in other comprehensive income,
which is a separate component of stockholders equity. If a market value
adjustment results in a loss of value due to an other-than-temporary
impairment, a loss will be transferred from accumulated other comprehensive
income and charged to other income in the consolidated statement of operations
(See Note 6). There were no material comprehensive income transactions during
the year ended December 31, 2003. New Accounting Standards In January 2003, the FASB issued FASB Interpretations (FIN) No. 46
Consolidation of Variable Interest Entities, an interpretation of ARB 51. FIN
No. 46 provides guidance on the identification of entities for which control is
achieved through means other than through voting rights called variable
interest entities or VIEs and how to determine when and which business
enterprise should consolidate the VIE (the primary beneficiary). This new
model for consolidation applies to an entity in which either 38




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued (1) the equity investors (if any) do not have a controlling financial
interest or (2) the equity investment at risk is insufficient to finance that
entitys activities without receiving additional subordinated financial support
from other parties. In addition, FIN No. 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. The adoption of FIN No. 46 during the first
quarter of 2003 did not have a material impact on our results of operations,
financial condition or cash flows. In February 2003, the FASB issued Emerging Issues Task Force 00-21 (EITF
00-21), Revenue Arrangements with Multiple Deliverables. EITF 00-21 requires
revenue arrangements with multiple deliverables to be divided into separate
units of accounting. If the deliverables in the arrangement meet certain
criteria, arrangement consideration should be allocated among the separate
units based on their relative fair values. Applicable revenue recognition
criteria should be considered separately for each unit. The guidance in EITF
00-21 is effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The adoption of EITF 00-21 during the third
quarter of 2003 did not have a material impact on our results of operations,
financial condition or cash flows. In May 2003, the FASB issued FAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
This Statement establishes standards for an issuer to classify and measure
certain financial instruments with characteristics of both liabilities and
equity. It requires an issuer to classify a financial instrument that meets
certain characteristics as a liability (or an asset in some circumstances).
This Statement is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The Company adopted this standard
the third quarter of 2003 and has classified $987,120 and $1,419,172 of Series
D redeemable convertible preferred stock outstanding at December 31, 2002 and
2003, respectively to liabilities from mezzanine liabilities. The adoption of
SFAS No.150 did not have a material impact on our results of operations,
financial condition or cash flows. In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition, which supersedes SAB No. 101, Revenue Recognition
in Financial Statements. SAB No. 104 rescinds accounting guidance in SAB No.
101 related to multiple-element arrangements. The adoption of SAB No. 104
during the fourth quarter of 2003 did not have a material impact on our results
of operations, financial condition or cash flows. Reclassifications of Prior Year Amounts Certain prior year amounts have been reclassified to conform to 2003
presentation. 3. Acquisition On October 11, 2002, the Company completed the acquisition of the assets
and operations of Delta Computec Inc. pursuant to an Asset Purchase Agreement
dated as of May 31, 2002 (the APA) between Delta Computec Inc. (the
Seller), a New York corporation, and its parent and sole shareholder, NQL
Inc., a Delaware corporation. The acquisition assets and operations were
assigned to the Companys wholly owned subsidiary named Delta Computec Inc., a
Delaware company (DCi). The operations of DCi have been included with those
of the Company since the agreed upon business valuation date of October 1,
2002. DCi is a provider of professional information technology and customized
network support services to Fortune 500 and Fortune 1000 corporations,
mid-sized companies, hospitals, health care facilities and financial
institutions primarily in the northeastern United States. The Company purchased all of the Sellers assets, including all of its
operating assets, property, contracts and customer lists for a combination of
up to $1 million in cash, issuance of up to 150,000 shares of Series D
Redeemable Convertible Preferred Stock (the Series D Preferred Stock) further
described in 39




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Note 9, and the assumption of certain liabilities as outlined in the terms
of the APA established based on arms-length negotiations. At the closing date, the Company paid $500,000 in cash and issued 95,500
shares of Series D Preferred Stock. The closing cash payment was funded from an
advance from one of its principal stockholders and Chairman of the Board of the
Company, H.T. Ardinger, Jr. During January 2003, the Company issued 10,539
additional shares of Series D Preferred Stock for closing adjustments required
by the APA. The APA provided for two additional contingent payments of up to
$250,000 each to be paid to Seller approximately 6 months and 12 months after
closing, subject to contract revenue levels achieved by DCi over six months and
twelve months subsequent to the acquisition date and including a provision
providing for a portion of the payments to be made with shares of Series D
Preferred Stock. In April 2003, the Company paid $56,230 in cash and issued
19,377 shares of Series D Preferred Stock to satisfy the requirements of the
first contingent payment and recognized an asset for customer contracts in the
amount of $215,000. In October 2003, the Company remitted the second and final
contingent cash payment of $250,000 and recognized a like amount for additional
customer contracts. At December 31, 2003, customer contracts totaled $465,000
and are presented net of accumulated amortization of $68,611. Customer
contracts are being amortized on a straight-line basis over 36 months.
Amortization of customer contracts charged to operations during 2003 totaled
$68,611. In June 2003, the Company issued 6,042 shares of Series D Preferred Stock
to its investment banker for $60,420 of services performed at the time of the
DCi acquisition. A liability for the services was accrued in 2002. The following table summarizes the fair value of assets acquired and
liabilities assumed as of the business combination date of October 1, 2002: Assets acquired:Current assets
    
    $
    1,855,397Fixed assets
    
    
    1,360,986Deposits
    
    
    66,503Goodwill
    
    
    1,201,430Total Assets Acquired
    
    
    4,484,316Liabilities assumed:Accounts payable and accrued expenses
    
    
    1,108,536Short-term loans payable
    
    
    538,131Deferred revenues
    
    
    863,455Total liabilities assumed
    
    
    2,510,122Net assets acquired
    
    $
    1,974,194
 The following pro forma information combines the results of operations as
if the acquisition of DCi had been consummated on January 1, 2002. For the Year EndedDecember 31,2002Revenues
    
    $
    18,248,146Net loss allocated to common
stockholders
    
    $
    (5,593,872
    )Basic loss per common share
Pro forma
    
    $
    (0.27
    )
 40




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 4. Business Restructuring Results of operations during 2002 include charges of $270,000 for resizing
and restructuring the Companys operations and workforce. Charges were recorded
throughout 2001 and 2002 in accordance with a plan of restructuring approved by
the Companys Board of Directors and included severance costs and asset
impairment charges for work force reductions of 43 employees and closure of
sales offices over the two-year period. Reductions were made in the Companys
sales, development, customer support, marketing, manufacturing and finance and
administration departments in an effort to reduce operating expenses. Details
of the restructuring charges charged to operations during 2002 are as follows: For the Year EndedDecember31,2002Employee severance
    
    $
    119,343Impairment of property and equipment
    
    
    9,508Impairment of software development
costs
    
    
    141,149$
    270,000
 No restructuring charges were recognized during 2003. 5. Inventories Inventories consist of the following: December 31,2002
    
    2003Purchased materials
    
    $
    438,631
    
    
    $
    468,121Finished goods
    
    
    1,159,388
    
    
    
    1,086,633Total inventories
    
    $
    1,598,019
    
    
    $
    1,554,754
 6. Investment in Equity Securities During September 1998 to May 2002, the Company held available-for-sale
securities comprised exclusively of shares of DynTek, Inc. (DYTK), formerly
TekInsight.com, Inc., common stock acquired through a strategic business
alliance in September of 1998. Effective May 6, 2002, the Company sold its remaining available-for-sale
securities (1,140,310 DYTK common shares) to an entity controlled by a
principal stockholder and the Chairman of the Board of the Company, H.T.
Ardinger, Jr. The proceeds of $2,910,641 were used to reduce a line of credit
note balance with the same entity. The selling price per share of DYTK stock of
$2.553 was determined by negotiations between the parties and represented a
premium to the fair market trading value of DYTK shares on May 6, 2002 of $2.00
per share. Other income during 2002 includes a realized gain on the exchange
transaction of $1,071,891. 41




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 7. Property and Equipment Property and equipment, at cost, consists of the following: EstimatedUseful Lives
    
    December 31,(Years)
    
    2002
    
    2003Computer equipment
    
    
    3 to 7
    
    
    $
    2,492,165
    
    
    $
    1,873,380Service assets
    
    
    3
    
    
    
    476,666
    
    
    
    755,916Software
    
    
    3 to 5
    
    
    
    630,355
    
    
    
    640,997Leasehold improvements
    
    
    1 to 5
    
    
    
    103,886
    
    
    
    88,972Office furniture and equipment
    
    
    5 to 7
    
    
    
    598,571
    
    
    
    660,2154,301,643
    
    
    
    4,019,480Less accumulated depreciation
and amortization
    
    
    
    
    
    
    (2,505,834
    )
    
    
    (2,440,771
    )$
    1,795,809
    
    
    $
    1,578,709
 8. Accrued Expenses Accrued expenses consist of the following: December 31,2002
    
    2003Stockholder accrued interest
    
    $
    628,564
    
    
    $
    356,844Accrued interest other
    
    
    11,083
    
    
    
    11,083Accrued compensation
    
    
    415,757
    
    
    
    538,894Accrued legal & professional
    
    
    80,763
    
    
    
    75,077Accrued warranty
    
    
    39,000
    
    
    
    60,000Accrued rent
    
    
    37,725
    
    
    
    23,128Accrued inventory purchases
    
    
    28,197
    
    
    
    56,772Customer deposits
    
    
    57,965
    
    
    
    33,872Other
    
    
    131,390
    
    
    
    206,853$
    1,430,444
    
    
    $
    1,362,523
 9. 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 a director, and Chairman of the
Board of Directors of the Company. Prior to October 15, 2003, availability of
funds under this facility was subject to certain borrowing base limitations
based principally on qualifying accounts receivable and inventory with interest
payable on demand at 12% and secured by the assets of ViewCast.com, Inc. In
October 2003, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare, Inc.
(jointly and severally, the Borrower) amended the terms and conditions of
this credit note and security agreement with the Ardinger Family Partnership,
LTD. (Lender). As of the date of the agreement, the outstanding principal
balance of the indebtedness under the original loan agreement was $7,509,582
and accrued and unpaid interest thereon was $1,243,665. Additionally, in
October of 2003 the Company had outstanding $500,000 in advances from Lender
for the purchase of DCi in October 2002. Effective October 15, 2003, the terms
and conditions of the note agreement were amended to establish a long-term
payout for 42




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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 into a revolving credit
note with a maximum credit line of $2,000,000. 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, 2004. 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
into a term note with principal and interest payable as follows:  a)
    
    Thirty-three (33) 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 April 30, 2004 and continuing on the
last day of each calendar month thereafter; andb)
    
    One (1) 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 equal to 25% of calculated excess cash flow.3)
    
    Accrued interest on the original loan in the amount of $1,243,665
is payable in (33) equal consecutive monthly installments commencing on
April 30, 2004 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, 2003, the Company had availability under the amended
stockholder line of $700,000. At December 31, 2003 the Company had outstanding $1,363,362 in stockholder
accrued interest of which $1,006,518 has been classified as long-term. Keltic Asset Based Revolving Credit Facility In October 2002, the Company acquired the assets and operations of DCi
(See Note 3). Part of the acquisition transaction included the payoff of the
Sellers asset based revolving credit facility and established a new $1.5
million asset based revolving credit facility for a period of one year with
Keltic. The initial loan assumed with the business combination was $531,607.
Prior to renewal of the loan in October of 2003, the interest rate was, at the
option of Lender, the greater of: (a) the prime rate published in the Money
Rates column of The Wall Street Journal from time to time or, in the event
that The Wall Street Journal is not available at any time, such rate published
in another nationally recognized publication as determined by Lender, plus two
hundred fifty (250) basis points per annum, or (b) seven and one-quarter
percent (7.25%). In addition, the Company entered into a Guaranty of Payment
and Performance and Subordination Agreement with Keltic relating to this
facility. In October 2003, the Keltic loan was amended to extend the maturity
date of the note to October 11, 2004 and to modify the interest rate to the
greater of, at the option of Keltic,: (a) the prime rate plus two hundred fifty
(250) basis points per annum, or (b) six and one-half percent (6.50%).
Amendments were also made to lower certain EBITDA requirements of the loan
agreement. The credit facility continues to be secured by all DCi assets and is 43




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued guaranteed by the Company. In October 2003, Keltic was paid $7,500 in
extension fees pertaining to the note renewal with Keltic. During 2003, the Company reduced the Keltic note principal balance by
$77,548 and at December 31, 2003 had availability of $345,000 under the
revolving credit facility. Following is a summary of short-term debt with terms and conditions as
described in the preceding paragraphs: December 31,2002
    
    2003Stockholder line of credit
    
    $
    5,161,582
    
    
    $
    1,300,000Keltic asset based revolving credit facility
    
    
    712,553
    
    
    
    635,005Other
    
    
    5,152
    
    
    
    $
    5,879,287
    
    
    $
    1,935,005
 10. 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 is April 28, 2004 and interest
is payable semi-annually in arrears on May 1 and November 1, each year. Unless previously redeemed, the Debentures are 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). Upon voluntary conversion of
any Debenture by its holder, no payment will be made for interest accrued
during the period (i) from the most recent interest payment date preceding the
applicable conversion date, or (ii) from the date of issuance of the Debentures
if the Debenture is converted before the first interest payment (absent default
by the Company, in which event interest shall continue to accrue at a specified
default rate). 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. 44




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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 significantly reduce the per annum
interest rate from the original 12% fixed rate. The term note accrues interest
at a per annum rate equal to the lesser of prime plus 3.0% or 9.5% and requires
monthly principal repayments of $19,193 commencing on April 30, 2004 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 9). Following is a summary of long-term notes payable with terms and
conditions as described in the preceding paragraphs: December 31,2002
    
    20037% Senior Convertible Debentures due 2004
    
    $
    950,000
    
    
    $
    950,000Stockholder term note
    
    
    
    
    
    
    6,909,582Other
    
    
    
    
    
    
    22,968Total long-term debt
    
    
    950,000
    
    
    
    7,882,550Less current maturities
    
    
    
    
    
    
    (1,128,483
    )Total long-term notes payable
    
    $
    950,000
    
    
    $
    6,754,067
 Following are the scheduled maturities of long-term notes payable and
stockholder accrued interest at December 31, 2003: StockholderLong-Term
    
    AccruedYear ended December 31:
    
    Notes Payable
    
    Interest2004
    
    
    
    
    
    $
    1,128,483
    
    
    $
    339,1812005
    
    
    
    
    
    
    236,061
    
    
    
    452,2422006
    
    
    
    
    
    
    6,512,265
    
    
    
    452,2422007
    
    
    
    
    
    
    5,741
    
    
    
    Total
    
    
    
    
    
    $
    7,882,550
    
    
    $
    1,243,665
 11. 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 $23,410,000 and $24,044,000 has been provided against deferred tax
assets in excess of deferred tax liabilities in the accompanying consolidated
financial statements at December 31, 2002 and 2003, respectively. 45




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued The components of the Companys net deferred taxes are as follows: December 31,2002
    
    2003Deferred tax assets:Net operating loss carryforwards
    
    $
    21,893,000
    
    
    $
    22,665,000Revenue deferred for financial statements,
recognized for tax
    
    
    319,000
    
    
    
    30,000Excess of tax over financial statement basis of
patent
    
    
    19,000
    
    
    
    15,000Accruals deductible for tax purposes when paid
    
    
    356,000
    
    
    
    363,000Excess of tax over financial statement basis of
of property and equipment
    
    
    
    
    
    
    192,000Excess of tax over financial statement basis of
software development costs
    
    
    933,000
    
    
    
    798,000Total deferred tax assets
    
    
    23,520,000
    
    
    
    24,063,000Deferred tax liabilities:Excess of financial statement over tax basis
of goodwill and customer contracts
    
    
    
    
    
    
    (19,000
    )Excess of financial statement over tax basis
of property and equipment
    
    
    (110,000
    )
    
    
    Net deferred tax assets
    
    
    23,410,000
    
    
    
    24,044,000Less: valuation allowance
    
    
    (23,410,000
    )
    
    
    (24,044,000
    )Net deferred taxes
    
    $
    
    
    
    $
    
 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: 2002
    
    2003U.S. federal statutory rate applied to pretax loss
    
    $
    (1,396,000
    )
    
    $
    (785,000
    )State tax net of federal benefit
    
    
    (147,000
    )
    
    
    (69,000
    )Change in valuation allowance
    
    
    1,660,000
    
    
    
    634,000Other
    
    
    (117,000
    )
    
    
    220,000$
    
    
    
    $
    
 At December 31, 2003 the Company has federal income tax net operating loss
carryforwards of approximately $61,400,000, 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
    
    
    2,700,000
 46




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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 income or foreign taxes were paid during the years ended December 31,
2002 and 2003. 12. 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 (See Note 3). 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. 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 and will be recorded as
imputed preferred dividends until the initial redemption date of October 11,
2004. Through December 31, 2003, the Company has recognized $113,072 of
dividends on the Series D Preferred Stock. The Series D Preferred Stock is
redeemable at its stated value at the Companys option upon written notice at
any time after October 11, 2005 or prior to that date if the Companys common
stock has a market value of $3.75 per share for ten consecutive trading days.
Holders of Series D redeemable convertible preferred stock have no voting
rights except as required by law. All Series D Preferred Stock outstanding at
December 31, 2003 in the amount of $1,419,172 is presented as a current
liability because the initial redemption is on October 11, 2004. 13. 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. In December 2001, the Company temporarily decreased the Conversion Price
of its outstanding Series B Convertible Preferred Stock from $3.625 per share
to $0.60 per share for a period of ninety (90) days. Pursuant to Section 8(b)
of the Certificate of Designations of Series B Convertible Preferred Stock, the
Company was required to temporarily lower the Series B Conversion Price in
conjunction with the issuance of Series C Convertible Preferred Stock in
November of 2001. Notice was given to Preferred B Stockholders on December 7,
2001 and the temporary Conversion Price Reduction expired at 5:00 p.m. on 47




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued March 7, 2002. In March 2002, holders of $1,450,000 principal amount of Series
B Convertible Preferred Stock converted their Series B shares into 2,416,666
shares of common stock at $0.60 per share. At December 31, 2003, the Company had a consolidated stockholders deficit
of $7,255,322 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 2002 and
2003. The Series B and Series C preferred stock issues carry cumulative
dividends of 8% and 9% per year, respectively, and are generally payable
semi-annually in arrears in cash or common stock of the Company, at the
Companys option. Cumulative dividends on preferred shares in arrears at
December 31, 2003 are: Series B-$1,280,000, Series C-$357,534. Common Stock In September 2002, stockholders of the Company approved a proposal to
increase the number of authorized shares of common stock of the Company from
40,000,000 shares to 100,000,000 shares. During 2002, the Company received $17,467 in proceeds from the sale of
58,312 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, 2002 and September 30, 2002 was $0.40 and $0.21 per
share, respectively. 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. 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 48




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ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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 $950 and $848 has been recognized for the years ended
December 31, 2002 and 2003, 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, 2002
through December 31, 2003: Stock OptionsWeighted-AverageNumber
    
    Price Per
    
    Exercise Priceof Shares
    
    Share
    
    Per ShareOutstanding at January 1, 2002
    
    
    4,045,663
    
    
    $
    0.58-$9.00
    
    
    $
    3.29Granted
    
    
    1,356,500
    
    
    
    0.26  - 0.49
    
    
    
    0.42Canceled/forfeited
    
    
    903,747
    
    
    
    0.28  - 8.75
    
    
    
    3.45Outstanding at December 31, 2002
    
    
    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
    
    
    $
    2.55
 The weighted-average grant-date fair value of options granted was $0.34
and $0.36 for the years ended December 31, 2002 and 2003, respectively. The following information applies to options outstanding at December 31,
2003: Options Outstanding
    
    Options ExercisableWeighted-Average
    
    Weighted-
    
    
    
    
    
    WeightedRange of
    
    Outstanding at
    
    Remaining
    
    Average
    
    Exercisable at
    
    -AverageExercise
    
    December 31,
    
    Contractual
    
    Exercise
    
    December 31,
    
    ExercisePrices
    
    2003
    
    Life
    
    Price
    
    2003
    
    Price$0.01

1.00
  1.01  2.00  2.01  3.00
  3.01  4.00
  4.01  5.00
  5.01  6.00
  6.01  7.00
  7.01  8.00
  8.01  9.00
    
    
    1,124,304
795,691
420,550
184,500
118,666
330,850
17,000
410,000
15,000
    
    
    
    8.5
7.1
3.1
3.7
4.1
5.9
6.1
5.7
5.3
    
    
    $
    0.43
1.15
2.51
3.80
4.43
5.70
6.64
7.10
9.00
    
    
    
    637,378
459,269
384,960
181,750
117,582
265,098
13,116
222,499
15,000
    
    
    $
    0.46
1.15
2.51
3.80
4.43
5.69
6.65
7.10
9.003,416,561
    
    
    
    6.5
    
    
    $
    2.55
    
    
    
    2,296,651
    
    
    $
    2.75
 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 49




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##### Table of Contents



ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 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. Following is a summary of warrant activity from January 1, 2002 through
December 31, 2003: WarrantsWeighted-Number of
    
    Exercise
    
    AverageWarrants
    
    Price
    
    Exercise PriceOutstanding and exercisable
at January 1, 2002
    
    
    4,095,120
    
    
    
    $1.00 - $4.50
    
    
    
    4.44Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    173,108
    
    
    
    3.00  -   3.63
    
    
    
    3.54Outstanding and exercisable
at December 31, 2002
    
    
    3,922,012
    
    
    
    1.00  -   5.00
    
    
    
    1.64Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    
    
    
    
    
    Outstanding and exercisable
at December 31, 2003
    
    
    3,922,012
    
    
    
    $1.00 -   5.00
    
    
    $
    1.09
 In addition, at December 31, 2003 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. 50




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##### Table of Contents



ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued At December 31, 2003, 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. 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, 2003, the Company also had outstanding 122,332
non-redeemable private warrants with exercise prices ranging from $1.00 to
$5.00 per share and with varying expiration dates through February 2007. 14. 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 twenty percent (20%) 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 eighteen.
For the years ended December 31, 2002 and 2003, the Company made no matching or
profit sharing contributions. 15. 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 with initial or
remaining terms of one year or more are as follows: OperatingLeasesYear ended December 31:2004
    
    $
    529,7422005
    
    
    665,6422006
    
    
    327,0562007
    
    
    33,6232008
    
    
    8,185Total minimum lease payments
    
    $
    1,564,248
 Rent expense was $592,777 and $613,114 for the years ended December 31,
2002 and 2003, respectively. 51




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##### Table of Contents



ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 16. Segment Information Prior to October 2002, the Companys organizational structure was based on
one business segment engaged in the design, development and marketing of video
products, systems and services. Since the acquisition of Delta Computec Inc. in
October 2002, the Company now operates in two distinct business segments as
follows: 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 Osprey® line of video capture and video compression-decompression
cards, its ViewCast IVN and Viewpoint VBX video distribution systems, and its
Niagara line of encoding and streaming 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 2002 and 2003: Summary of Sales by Geographic Area: VideoDistrubitonIT Services,
    
    & NetworkingProducts
    
    Products
    
    Total
    
    %2003United 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
    %
 52




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##### Table of Contents



ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued Summary of Sales by Geographic Area (Continued): VideoDistrubitonIT Services,
    
    & NetworkingProducts
    
    Products
    
    Total
    
    %2002United States
    
    
    
    
    
    $
    2,542,109
    
    
    $
    4,118,998
    
    
    $
    6,661,107
    
    
    
    63.88
    %Europe
    
    
    
    
    
    
    
    
    
    
    1,474,982
    
    
    
    1,474,982
    
    
    
    14.15
    %Pacific Rim
    
    
    
    
    
    
    
    
    
    
    1,719,560
    
    
    
    1,719,560
    
    
    
    16.49
    %Other
    
    
    
    
    
    
    
    
    
    
    571,891
    
    
    
    571,891
    
    
    
    5.48
    %Total
    
    
    
    
    
    $
    2,542,109
    
    
    $
    7,885,431
    
    
    $
    10,427,540
    
    
    
    100.00
    %
 Summary of Operations by Operating Segment: VideoDistributionIT Services,
    
    & Networking
    
    UnallocatedProducts
    
    Products
    
    Corporate
    
    Total2003Total 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
 VideoDistributionIT Services,
    
    & Networking
    
    UnallocatedProducts
    
    Products
    
    Corporate
    
    Total2002Total sales
    
    $
    2,547,109
    
    
    $
    7,885,431
    
    
    $
    
    
    
    $
    10,432,540Intersegment sales
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )Revenue from external customers
    
    $
    2,547,109
    
    
    $
    7,880,431
    
    
    $
    
    
    
    $
    10,427,540Gross profit
    
    $
    590,013
    
    
    $
    4,310,883
    
    
    $
    
    
    
    $
    4,900,896Operating loss
    
    $
    (4,841
    )
    
    $
    (2,667,592
    )
    
    $
    (1,730,000
    )
    
    $
    (4,402,433
    )Total assets
    
    $
    4,255,265
    
    
    $
    3,089,180
    
    
    $
    313,698
    
    
    $
    7,658,143Goodwill
    
    $
    1,041,430
    
    
    $
    
    
    
    $
    
    
    
    $
    1,041,430Capital additions
    
    $
    56,305
    
    
    $
    34,179
    
    
    $
    17,003
    
    
    $
    107,487
 53




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##### Table of Contents



ViewCast.com, Inc.
Notes to the Consolidated Financial Statements  Continued 17. 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 Note 9). During 2002, the Company paid
interest of $64,690 to the partnership. No interest was paid to the partnership
during 2003. Effective May 6, 2002, the Company sold all its available-for-sale
securities comprised exclusively of 1,140,310 shares of DYTK common stock for
$2,910,641. All proceeds were used to make a principal reduction in its
stockholder line-of-credit note balance. The price per share of DYTK stock of
$2.553 was determined by negotiations between the parties and represented a
premium to the fair market trading value of DYTK shares on May 6, 2002 of $2.00
per share. During 2002, the Company borrowed $1.7 million under the terms of
the stockholder line of credit financing arrangement and reduced the principal
by $2.9 million, resulting in a net principal note reduction of $1.2 million
during 2002. On October 11, 2002, the Company completed the acquisition of the assets
and operations of Delta Computec Inc. The closing cash payment in the amount of
$500,000 was funded from an advance from one of its principal stockholders and
Chairman of the Board of the Company, H.T. Ardinger, Jr. In October 2003, the
advance was rolled into a revolving line of credit note facility with an entity
controlled by Mr. Ardinger (See Note 9). 54




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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,
in all material respects, to ensure that information required to be disclosed
in the reports the Company files and submits under the Exchange Act is
recorded, processed, summarized and reported as and when required. There have been no changes in the Companys internal control over
financial reporting identified in connection with the evaluation that occurred
during the Companys last fiscal quarter that has materially affected, or that
is reasonably likely to materially affect, the Companys internal control over
financial reporting. 55




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##### Table of Contents



PART III 
 Item 9. Directors and Executive Officers of the Registrant The information required by this item is incorporated by reference to the
Proxy Statement. Code of Ethics The Company has adopted a Corporate Compliance, Program guidelines and
Ethics Policy which 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
is filed as Exhibit 14.1 to this report. 
 Item 10. Executive Compensation The information required by this item is incorporated by reference to the
Proxy Statement. 
 Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item is incorporated by reference to the
Proxy Statement. Equity Compensation Plan Information The following table sets forth certain information as of December 31, 2003
concerning outstanding awards and securities available for future issuance
pursuant to ViewCasts equity compensation plans. Number of securitiesNumber of securities
    
    
    
    
    
    remaining available forto be issued upon
    
    Weighted-average
    
    future issuance under equityexercise of
    
    exercise price of
    
    compensation plansoutstanding options,
    
    outstanding options,
    
    (excluding securitiesPlan category
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))(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
 56




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##### Table of Contents



Item 12. Certain Relationship and Related Transactions The information required by this item is incorporated by reference to the
Proxy Statement. 
 Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a)
    
    
    (1
    )
    
    The following consolidated financial statements required bythis item are included in Part II Item 8 of this report:
 Report of Independent Certified Public Accountants
    
    
    26Consolidated Balance Sheets as of December 31, 2002 and 2003.
    
    
    27Consolidated Statements of Operations for the years ended
December 31, 2002 and 2003
    
    
    28Consolidated Statements of Stockholders Deficit for the
years December 31, 2002 and 2003
    
    
    29Consolidated Statements of Cash Flows for the years ended
December 31, 2002 and 2003
    
    
    30Notes to Consolidated Financial Statements.
    
    
    32
  (2)
    
    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)
 57




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##### Table of Contents



ExhibitPageNo.
    
    Description of Exhibit4(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)9(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 Unisys (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)
 58




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##### Table of Contents



ExhibitPageNo.
    
    Description of Exhibit10(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)10(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)
 59




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ExhibitPageNo.
    
    Description of Exhibit10.16
    
    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)14.1
    
    Code of Ethics*21
    
    List of Subsidiaries of ViewCast. (1)23.1
    
    Consent of Grant Thornton LLP*31.1
    
    Certifications furnished pursuant to section 302 of the Sarbanes-Oxley act of 2002*32.1
    
    Statements furnished pursuant to section 906 of the Sarbanes-Oxley act of 2002*
   *
    
    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  (b)
    
    Reports on Form 8-KOn November 17, 2003, the Company filed a Form 8-K inclusive of a press
release announcing its operating results for the quarter ended September
30, 2003. 
 Item 14. Principal Accountant Fees and Services The information required by this item is incorporated by reference to the Proxy Statement. 60




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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.


|               |     |                                                                                 |  | 
|-------------- | --- | ------------------------------------------------------------------------------- |  | 
|               |     |                                                                                
|March 30, 2004 | By: | /s/ Laurie L. Latham                                                            | 
|               |     | Laurie L. Latham                                                                | 
|               |     | Chief 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.


|               |     |                                    |  | 
|-------------- | --- | ---------------------------------- |  | 
|               |     |                                   
|March 30, 2004 | By: | /s/ H.T. Ardinger, Jr.             | 
|               |     | H.T. Ardinger, Jr.                 | 
|               |     | Director and Chairman of the Board | 
|              

|               |     |                                                 |  | 
|-------------- | --- | ----------------------------------------------- |  | 
|               |     |                                                
|March 30, 2004 | By: | /s/ George C. Platt                             | 
|               |     | George C. Platt                                 | 
|               |     | Director, President and Chief Executive Officer | 
|              

|               |     |                                                                                 |  | 
|-------------- | --- | ------------------------------------------------------------------------------- |  | 
|               |     |                                                                                
|March 30, 2004 | By: | /s/ Laurie L. Latham                                                            | 
|               |     | Laurie L. Latham                                                                | 
|               |     | Chief Financial Officer and Senior Vice President of Finance
and Administration | 
|              

|               |     |                     |  | 
|-------------- | --- | ------------------- |  | 
|               |     |                    
|March 30, 2004 | By: | /s/ Joseph W. Autem | 
|               |     | Joseph W. Autem     | 
|               |     | Director            | 
|              

|               |     |                   |  | 
|-------------- | --- | ----------------- |  | 
|               |     |                  
|March 30, 2004 | By: | /s/ David A. Dean | 
|               |     | David A. Dean     | 
|               |     | Director          | 

61



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EXHIBIT INDEX FOR DOCUMENTS FILED WITH THIS REPORT ExhibitNo.
    
    Description of Exhibit14.1
    
    Code of Ethics23.1
    
    Consent Of Grant Thornton LLP31.1
    
    Rule 13a-14(a)/15d-14(a) Certifications32.1
    
    Section 1350 Certifications
 62