United States
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

þ		QUARTERLY 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: 000-29020

ViewCast.com, Inc.

(Exact name of registrant as specified in its charter)

Delaware		75-2528700
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3701 W. Plano Parkway, Suite 300, Plano, TX		75075
(Address of principal executive offices)		(Zip Code)

(972) 488-7200
(Registrant’s telephone number including area code)

N/A

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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

As of July 31, 2011, there were 55,699,005 outstanding shares of common stock, par value $0.0001 per share.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at December 31, 2010 and June 30, 2011 (Unaudited)			3
Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2010 and 2011 (Unaudited)			4
Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Six Months ended June 30, 2011 (Unaudited)			5
Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2010 and 2011 (Unaudited)			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosure About Market Risk			19
Item 4. Controls and Procedures			20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			21
Item 1A. Risk Factors			21
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			21
Item 3. Defaults Upon Senior Securities			21
Item 4. Reserved			21
Item 5. Other Information			21
Item 6. Exhibits			21
SIGNATURES			22
Rule 13a-14(a)/15d-14(a) President Certification
Rule 13a-14(a)/15d-14(a) CFO Certification
Section 1350 President Certification
Section 1350 CFO Certification
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q (“Report”) under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements regarding ViewCast’s expectations, beliefs, hopes, intentions or strategies regarding the future. These statements involve known and unknown risks, uncertainties, and other factors that may cause ViewCast or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, product demand and market acceptance risks, the impact of competitive products and pricing, product development, commercialization and technological difficulties, capacity and supply constraints or difficulties, general business and economic conditions, the availability of sufficient working capital, the ability to service our debt, continued losses, the ability to successfully integrate acquired operations, the effect of our accounting policies and other risks detailed in our Annual Report on Form 10-K for the year ended December 31, 2010, as amended by Amendment No. 1 thereto, and other filings with the Securities and Exchange Commission.

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

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

PART I. FINANCIAL INFORMATION

Item 1.		Financial Statements

VIEWCAST.COM, INC. AND SUBSIDIARIES

		December 31,				June 30,
		2010				2011
						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	1,648,476			$	724,774
Accounts receivable, less allowance for doubtful accounts of $76,436 and $24,239 at December 31, 2010 and June 30, 2011, respectively			2,204,125				2,247,432
Inventories, net			2,215,249				2,590,924
Prepaid expenses			278,928				222,136
Total current assets			6,346,778				5,785,266
Property and equipment, net			331,466				342,554
Capitalized software development costs, net			982,503				898,614
Goodwill			620,002				620,002
Intangible assets, net			163,247				149,472
Deposits			32,637				90,986
Total assets		$	8,476,633			$	7,886,894
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Line of credit		$	1,041,478			$	955,142
Accounts payable			1,078,639				999,912
Accrued expenses			702,721				865,725
Deferred revenue			426,929				562,520
Current maturities of long-term debt and stockholder notes payable			284,523				195,741
Total current liabilities			3,534,290				3,579,040
Long-term debt, less current maturities			26,464				52,186
Stockholder notes payable, less current maturities			4,755,759				5,120,026
Total liabilities			8,316,513				8,751,252
Commitments and contingencies
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value, authorized 5,000,000 shares:
Series B convertible — issued and outstanding shares — 800,000 and no shares at December 31, 2010 and June 30, 2011, respectively			80				—
Series C convertible — issued and outstanding shares — 200,000 and no shares at December 31, 2010 and June 30, 2011, respectively			20				—
Series E convertible — issued and outstanding shares — 80,000 — liquidation value of $107 per share as of December 31, 2010 and June 30, 2011			8				8
Common stock, $0.0001 par value, authorized 100,000,000 shares:
Issued shares — 39,277,815 and 55,960,502 at December 31, 2010 and June 30, 2011			3,927				5,595
Additional paid-in capital			72,641,272				72,723,676
Accumulated deficit			(72,473,281	)			(73,581,731	)
Treasury stock, 261,497 shares at cost			(11,906	)			(11,906	)
Total stockholders’ equity (deficit)			160,120				(864,358	)
Total liabilities and stockholders’ equity (deficit)		$	8,476,633			$	7,886,894

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

VIEWCAST.COM, INC. AND SUBSIDIARIES

		For the three months ended								For the six months ended
		June 30,								June 30,
		2010				2011				2010				2011
Net sales		$	4,140,541			$	4,253,190			$	7,818,884			$	7,962,509
Cost of sales			1,670,350				1,655,554				2,980,055				3,204,425
Gross profit			2,470,191				2,597,636				4,838,829				4,758,084
Operating expenses:
Selling, general and administrative			1,756,023				1,841,408				3,200,801				3,550,512
Research and development			855,511				898,227				1,833,095				1,927,213
Depreciation and amortization			199,065				173,090				428,699				345,090
Total operating expenses			2,810,599				2,912,725				5,462,595				5,822,815
Operating loss			(340,408	)			(315,089	)			(623,766	)			(1,064,731	)
Other income (expense):
Interest expense (including $22,641, $37,292, $44,141, and $55,533 of expense to related parties, respectively)			(49,542	)			(63,373	)			(76,913	)			(107,336	)
Interest income			67				41				163				458
Other			—				—				—				2,403
Total other expense, net			(49,475	)			(63,332	)			(76,750	)			(104,475	)
Provision for income taxes			—				—				—				—
NET LOSS		$	(389,883	)		$	(378,421	)		$	(700,516	)		$	(1,169,206	)
Preferred stock dividends			(205,000	)			(77,444	)			(410,000	)			(282,444	)
Preferred stock redemption			—				5,586,666				—				5,586,666
Net income (loss) applicable to common stockholders		$	(594,883	)		$	5,130,801			$	(1,110,516	)		$	4,135,016
Net income (loss) per share
Basic and Diluted		$	(0.02	)		$	0.10			$	(0.03	)		$	0.09
Weighted average number of common shares outstanding
Basic and Diluted			36,047,159				49,463,910				36,019,861				44,268,975

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

VIEWCAST.COM, INC. AND SUBSIDIARIES

		Series B								Series C								Series E
		Convertible								Convertible								Convertible																Additional												Total
		Preferred Stock								Preferred Stock								Preferred Stock								Common Stock								Paid-in				Accumulated				Treasury				Stockholders’
		Shares				Par Value				Shares				Par Value				Shares				Par Value				Shares				Par Value				Capital				Deficit				Stock				Equity (Deficit)
Balances, December 31, 2010			800,000			$	80				200,000			$	20				80,000			$	8				39,277,815			$	3,927			$	72,641,272			$	(72,473,281	)		$	(11,906	)		$	160,120
Stock based compensation expense			—				—				—				—				—				—				—				—				79,789				—				—				79,789
Employee stock purchase plan issuance			—				—				—				—				—				—				12,688				1				3,615				—				—				3,616
Conversion of preferred stock to common stock			(800,000	)			(80	)			(200,000	)			(20	)			—				—				16,666,666				1,667				(1,567	)			—				—				—
Forfeiture of convertible preferred stock dividends — Series B			—				—				—				—				—				—				—				—				—				33,140				—				33,140
Forfeiture of convertible preferred stock dividends — Series C			—				—				—				—				—				—				—				—				—				27,616				—				27,616
Exercise of stock option			—								—								—				—				3,333				—				567				—				—				567
Net loss			—				—				—				—				—				—				—				—				—				(1,169,206	)			—				(1,169,206	)
Balances, June 30, 2011			—			$	—				—			$	—				80,000			$	8				55,960,502			$	5,595			$	72,723,676			$	(73,581,731	)		$	(11,906	)		$	(864,358	)

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

VIEWCAST.COM, INC. AND SUBSIDIARIES

		For the six months ended
		June 30,
		2010				2011
Operating activities:
Net loss		$	(700,516	)		$	(1,169,206	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense (recoveries)			24,673				(52,198	)
Depreciation of property and equipment			203,589				140,629
Amortization of intangible assets			225,110				204,462
Stock based compensation expense			78,390				79,789
Gain on disposition of property and equipment			—				(2,398	)
Stock issued for services			25,000				—
Changes in operating assets and liabilities:
Accounts receivable			(601,653	)			8,891
Inventories			(76,385	)			(375,675	)
Prepaid expenses			(34,163	)			56,792
Deposits			15,796				(58,349	)
Accounts payable			252,611				(78,727	)
Accrued expenses			143,606				223,760
Deferred revenue			201,364				135,591
Net cash used in operating activities			(242,578	)			(886,639	)
Investing activities:
Capitalized software development and patent costs			(45,191	)			(106,798	)
Purchase of property and equipment			(53,968	)			(91,996	)
Proceeds from disposition of property and equipment			—				2,398
Net cash used in investing activities			(99,159	)			(196,396	)
Financing activities:
Net proceeds from stockholder line of credit			—				300,000
Proceeds from sale of common stock			4,916				3,616
Proceeds from exercise of employee stock options			—				567
Net proceeds (repayments) from line of credit			539,053				(86,336	)
Repayments of long-term debt, including $42,845 for the six months ended June 30, 2011 to related party			(17,377	)			(58,514	)
Net cash provided by financing activities			526,592				159,333
Net increase (decrease) in cash and cash equivalents			184,855				(923,702	)
Cash and cash equivalents, beginning of period			368,151				1,648,476
Cash and cash equivalents, end of period		$	553,006			$	724,774
Supplemental cash flow information:
Cash paid for interest		$	76,913			$	107,336

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

ViewCast.com, Inc. and Subsidiaries

1. Basis of Presentation and Liquidity

The accompanying consolidated interim unaudited financial statements include the accounts of ViewCast.com, Inc. doing business as ViewCast Corporation and its wholly-owned subsidiaries, VideoWare, Inc., Osprey Technologies, Inc., Ancept Corporation, and ViewCast Technology Services Corporation (collectively, ViewCast or the “Company”). The Company develops industry-leading hardware and software for the capture, management, transformation and delivery of digital media over IP and mobile networks. ViewCast’s solutions simplify the complex workflows required for these tasks, allowing broadcasters, businesses, and governments to reach and expand their use and distribution of their digital media easily and effectively. ViewCast’s Niagara^® streaming appliances, Osprey^® video capture cards, and ViewCast Media Platform (VMp^®) asset management software suite provide the highly reliable technology required to deliver the multi-platform experiences driving today’s digital media market. ViewCast markets and sells its products and professional services worldwide directly to end-users or through indirect channels including original equipment manufacturers (“OEMs”), value-added resellers (“VARs”), resellers, distributors and integrators.

These consolidated interim unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included for the three and six month periods ended June 30, 2011. The condensed consolidated balance sheet of the Company as of December 31, 2010 has been derived from the audited consolidated balance sheet as of that date. The results for the three and six month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the full year. The unaudited financial statements included in this filing should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s annual report on Form 10-K as amended by Amendment No. 1 there to and for the year ended December 31, 2010.

During the first six months of 2011, the Company incurred a net loss of $1,169,206 and used cash in operations of $886,639. At June 30, 2011, the Company had working capital of $2,206,226 and cash and cash equivalents of $724,774. The Company expects to obtain additional working capital by increasing revenue, maintaining reduced operating expenses, borrowing on its line of credit and through other initiatives that may include raising additional capital. The Company believes that these items will provide sufficient cash to fund operations for the next 12 months, however, the Company may require additional working capital during 2011 to support operations and the expansion of sales channels and market distribution, to develop and introduce new products and services, to enhance existing product offerings, to address unanticipated competitive threats or technical problems, to transition adverse economic conditions and for potential acquisition transactions. 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 its then existing stockholders. In the event the Company is unable to raise additional capital or execute other alternatives, it may be required to sell segments of the business, or substantially reduce or curtail its activities. Such actions could result in charges that could be material to ViewCast’s results of operations or financial position.

2. Accounts Receivable

The Company’s accounts receivable are primarily due from resellers and distributors of its video communications products and services. Credit is extended based on evaluation of each customer’s financial condition and, generally, collateral is not required except for certain international customers. Accounts receivable are generally due within 30 days and are stated net of an allowance for doubtful accounts. Accounts that are outstanding longer than contractual payment terms are considered past due. The Company records an allowance 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.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

Changes in the Company’s allowance for doubtful accounts for the three and six months ended June 30, 2010 and 2011 are as follows:

		For the three months ended								For the six months ended
		June 30,								June 30,
		2010				2011				2010				2011
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Beginning balance		$	81,417			$	21,218			$	69,767			$	76,436
Bad debt expense (recoveries)			13,023				3,021				24,673				(52,197	)
Ending balance		$	94,440			$	24,239			$	94,440			$	24,239

3. Inventories

Inventories consisted of the following:

		December 31,				June 30,
		2010				2011
						(Unaudited)
Purchased materials		$	1,073,360			$	1,313,420
Finished goods			1,433,645				1,591,265
Reserve			(291,756	)			(313,761	)
		$	2,215,249			$	2,590,924

4. Intangible Assets

Intangible assets consisted of the following:

		December 31, 2010								June 30, 2011 (Unaudited)
		Gross carrying				Accumulated				Gross carrying				Accumulated
		amount				amortization				amount				amortization
Customer lists		$	60,000			$	21,581			$	60,000				27,581
Non-compete agreements			24,000				14,387				24,000				18,387
Patents			145,200				29,985				145,703				34,263
		$	229,200			$	65,953			$	229,703				80,231

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

Six months ending December 31, 2011		$	14,286
Year ending December 31, 2012			22,184
Year ending December 31, 2013			20,571
Year ending December 31, 2014			10,990
Year ending December 31, 2015			8,571
Thereafter			72,870
		$	149,472

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

5. Accrued Expenses

Accrued expenses consisted of the following:

		December 31,				June 30,
		2010				2011
						(Unaudited)
Accrued compensation		$	207,189			$	316,445
Accrued warranty			155,918				172,583
Accrued inventory purchases			75,983				4,019
Customer deposits			57,164				74,133
Deferred rent			15,386				25,249
Accrued taxes and other			191,081				273,296
		$	702,721			$	865,725

6. Warranty Reserves

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

The following table below shows the changes in accrued warranty expense for the three and six months ended June 30, 2010 and 2011:

		For the three months ended								For the six months ended
		June 30,								June 30,
		2010				2011				2010				2011
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Beginning balance		$	180,592			$	229,633			$	155,850			$	155,918
Additions			38,026				47,028				63,568				134,113
Usage			(4,495	)			(104,078	)			(5,295	)			(117,448	)
Ending balance		$	214,123			$	172,583			$	214,123			$	172,583

7. Property and Equipment

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

		Estimated
		Useful Life				December 31,				June 30,
		(Years)				2010				2011
										(Unaudited)
Service equipment			3			$	242,362			$	—
Computer equipment			2 to 7				579,059				654,607
Software			3 to 5				207,908				220,769
Leasehold improvements			1 to 5				174,429				174,429
Office furniture and equipment			5 to 7				1,319,238				1,381,390
							2,522,996				2,431,195
Less accumulated depreciation and amortization							(2,191,530	)			(2,088,641	)
						$	331,466			$	342,554

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

8. Line of Credit

On June 29, 2007, the Company entered into a Purchase and Sale Agreement/Security Agreement (the “Agreement”) with Amegy Bank National Association (“Amegy”), a national banking association. The Agreement provides the Company with an accounts receivable loan facility to provide a source of working capital with advances generally limited to 85% of submitted accounts receivable. Upon collection of an account receivable, the remaining fifteen percent is rebated to the Company less the Agreement’s fixed and variable discounts. The fixed discount equals 0.2% of the account receivable for the first 15 days the account receivable is outstanding plus an additional 0.2% for each additional 15 day period, up to 1.2% for receivables 76 to 90 days outstanding. The variable discount is calculated for each day that the amount advanced by Amegy is outstanding until repaid by collection of the account receivable and equals the prime rate plus 1.5% divided by 360 multiplied by the advance amount for each account receivable. The borrowing line under this facility currently is $1,000,000, reviewed as growth of business dictates. To secure the amounts due under the Agreement, the Company granted Amegy a security interest in all of its assets owned as of the date of the agreement or thereafter acquired. The Company had $1,041,478 and $955,142 outstanding as of December 31, 2010 and June 30, 2011, respectively, under this facility. There is no expiration date to the Agreement.

9. Long-Term Debt

Since October 1998, the Company has maintained a credit facility with the Ardinger Family Partnership, LTD., an entity controlled by one of its principal stockholders, Mr. H.T. Ardinger. Most recently, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare, Inc. (jointly and severally, the “Borrower”) amended the terms and conditions of the loan and security agreement with the Ardinger Family Partnership, Ltd. effective March 31, 2011. Under the amended terms minimum monthly principal payments of $21,422 will begin December 31, 2011 and any amount outstanding of the primary principal and the secondary principal mature December 31, 2014, subject to certain earlier payment conditions. The interest on the primary principal amount will accrue and be paid monthly based on an interest rate per annum which is the greater of 5.0% or the effective prime rate plus 0.75% (Effective rate of 5.00% as of December 31, 2010 and June 30, 2011). Interest on the secondary principal shall accrue and be paid monthly based on the effective Applicable Federal Rate, as defined in the agreement, (0.32% and 2.00% as of December 31, 2010 and June 30, 2011, respectively). The amended note agreement is secured by all the assets of the Borrower. In the event of default, the Ardinger Family Partnership, LTD. may exercise one or more of the following rights and remedies (i) the entire unpaid balance of principal of the note, together with all accrued but unpaid interest thereon, and all other indebtedness owing to the Ardinger Family Partnership, LTD. or by the Company shall, at the option of the Ardinger Family Partnership, LTD., become immediately due and payable (ii) the Ardinger Family Partnership, LTD., may, at its option, cease further advances.

The Company’s long-term debt consisted of:

		December 31, 2010				June 30, 2011
						(Unaudited)
Outstanding Primary Principal Amount		$	1,121,466			$	1,078,621
Outstanding Secondary Principal Amount			3,891,361				4,191,361
Other debt			53,919				97,971
Total long-term debt			5,066,746				5,367,953
Less current maturities			(284,523	)			(195,741	)
Total long-term debt less current maturities		$	4,782,223			$	5,172,212

10. Earnings Per Share Data

Basic earnings per share (“EPS”) is calculated by dividing net income or loss applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by using the weighted-average number of common shares outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares of common stock had been issued. Dilutive potential shares of common stock include convertible preferred stock, options and warrants. The potential dilution for options and warranty is based on the average market price during the period. The average market price of the common stock was $0.3222 during the six months ended June 30, 2011. For periods presented, the computation of diluted loss per share excludes the portion of convertible preferred stock, options and warrants that are anti-dilutive.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

On May 4, 2011, the Series B Convertible Preferred Stock and Series C Convertible Preferred Stock were converted and the Series E Convertible Redeemable Preferred Stock was restructured under a Preferred Stock Exchange Agreement more fully described in Note 13.

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

		Three Months Ended June 30,								Six Months Ended June 30,
		2010				2011				2010				2011
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net income (loss) applicable to common stockholders — numerator for basic and diluted earnings per share		$	(594,883	)		$	5,130,801			$	(1,110,516	)		$	4,135,016
Weighted — average common shares and dilutive potential common shares outstanding — denominator for diluted earnings per share			36,047,159				49,463,910				36,019,861				44,268,975
Net income (loss) per share:
Basic and Diluted		$	(0.02	)		$	0.10			$	(0.03	)		$	0.09
Anti-dilutive securities excluded from diluted earnings per share:
Stock options			4,573,760				5,196,835				4,436,661				5,060,252
Convertible preferred stock — Series B			2,206,896				—				2,206,896				—
Convertible preferred stock — Series C			3,333,333				—				3,333,333				—
Convertible preferred stock — Series E			13,333,333				14,666,667				13,333,333				14,222,222

11. Stock-Based Compensation

The Company has various stock-based employee compensation plans, which are described more fully in Note 10 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as amended by Amendment No. 1 thereto.

Stock-based compensation expense was $78,390 and $79,789 for the six months ended June 30, 2010 and June 30, 2011, respectively. There were 2,120,000 new options granted by the Company during the six months ended June 30, 2011. Stock-based compensation expense is based on awards ultimately expected to vest and has been reduced for estimated forfeitures.

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

At June 30, 2011, the balance of unearned stock-based compensation to be expensed in future periods related to unvested share-based awards, as adjusted for expected forfeitures, is approximately $632,000. The weighted-average grant date fair value for options granted during the six months ended June 30, 2011 was $0.35 per share. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately three years.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

The following is a summary of stock option activity from January 1, 2011 through June 30, 2011:

		Stock Options
								Weighted-
								Average
		Number				Price Per		Exercise Price
		of Shares				Share		Per Share
Outstanding at December 31, 2010			4,787,085			$0.17 – $1.09		$	0.41
Granted			2,120,000			0.29 – 0.36			0.35
Exercised			(3,333	)		0.17			0.17
Canceled/forfeited			(709,167	)		0.17 – 1.09			0.85
Outstanding at June 30, 2011			6,194,585			$0.17 – $0.71		$	0.34

The following information applies to options outstanding at June 30, 2011:

Weighted-

Average

Weighted-

Weighted-

Range of

Outstanding at

Remaining

Average

Exercisable at

Average

Exercise

June 30,

Contractual

Exercise

June 30,

Exercise

Prices

2011

Life

Price

2011

Price

$0.01 – 1.00

6,194,585

5.2

$

0.34

3,128,059

$

0.36

12. Income Taxes

At December 31, 2010, the Company had federal income tax net operating loss carryforwards of approximately $73,000,000, which carryfowards expire at various dates beginning in 2011. 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. The Company recognized no federal income tax benefit in the first six months of 2011 as it has recorded a valuation allowance to reduce all deferred tax assets to zero.

13. Preferred Stock

On May 4, 2011, the Company entered into a Preferred Stock Exchange Agreement (the “Exchange Agreement”) with H.T. Ardinger Jr. (“Ardinger”), Ardinger Family Partnership, Ltd. (the “Ardinger Partnership”), Adkins Family Partnership, Ltd. and RDB Limited, p/k/a Baker Family Partnership, Ltd. to convert the outstanding shares of its Series B Convertible Preferred Stock (the “Series B Preferred Stock”) and Series C Convertible Preferred Stock (the “Series C Preferred Stock”) and to restructure Series E Convertible Redeemable Preferred Stock (the “Series E Preferred Stock), and collectively with the Series B Preferred Stock and Series C Preferred Stock, (the “Preferred Stock”). The exchange agreement and all related changes to the Preferred Stock (collectively the “preferred stock redemption”) have been accounted for as an extinguishment of Preferred Stock.

As of December 31, 2010 and March 31, 2011, 800,000 shares of Series B Preferred Stock were outstanding at a stated value of $10 per share. Ardinger, a principal stockholder of the Company, held 400,000 shares of Series B Preferred Stock, with the remainder held by other existing stockholders. The Series B Preferred Stock was convertible into common stock of the Company at a fixed price of $3.625 per share, subject to certain requirements, which was modified under the Exchange Agreement to $0.60 per share of underlying Common Stock and was converted on May 4, 2011 into a total of 13,333,333 shares of Common Stock.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

As of December 31, 2010 and March 31, 2011, 200,000 shares of Series C Preferred Stock were outstanding at a stated value of $10 per share held by Ardinger. The Series C Preferred Stock was convertible into common stock of the Company at a fixed price of $0.60 per share, subject to certain requirements, which remained the conversion price under the Exchange Agreement and was converted on May 4, 2011 into a total of 3,333,333 shares of Common Stock.

Holders of Series B Preferred Stock and Series C Preferred Stock had 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. The Series B Preferred Stock and Series C Preferred Stock carried cumulative dividends of 8% and 9% per year, respectively, and were generally payable semi-annually in arrears in cash or common stock of the Company, at the Company’s option. On May 4, 2011, under the Exchange Agreement, when the Series B Preferred Stock and Series C Preferred Stock were converted into Common Stock, any and all dividends, owed or owing on the Preferred Stock, were cancelled.

In December 2006, the Company retired certain debt from the Ardinger Family Partnership, Ltd. in exchange for certain Company securities, including 80,000 shares of ViewCast’s Series E Preferred Stock with each share having a stated value of $100 with voting rights on an “as converted’ basis with the common stock and accrues no dividends. The liquidation preference on the Series E Preferred Stock is the $100 per share stated value multiplied by 107% if the liquidation event occurs after December 11, 2010.

Under the Exchange Agreement, until May 4, 2012 (the “Temporary Conversion Period”), each outstanding share of Series E Preferred Stock shall be convertible, at the option of the holder of such Series E Preferred Stock, into shares of Common Stock at a temporary conversion price of $0.50 per share of underlying Common Stock (the “Temporary Conversion Price”). If at any time during the Temporary Conversion Period, the Company completes, in one transaction or a series of related transactions, the placement(s) of Common Stock for total aggregate net proceeds of at least $7,000,000 (a “Securities Placement”), each outstanding share of Series E Preferred Stock shall automatically convert into the corresponding number of shares of Common Stock at the Temporary Conversion Price. During the Temporary Conversion Period, if any shares of Series E Preferred Stock are converted, all other outstanding shares of Series E Preferred Stock shall also automatically convert at the Temporary Conversion Price. Upon a conversion of the shares of Series E Preferred Stock during the Temporary Conversion Period, either voluntarily or as a result of a Securities Placement, the Company shall issue 16,000,000 shares of Common Stock in exchange for the 80,000 outstanding shares of Series E preferred stock.

The Company accounted for the changes made to its Preferred Stock in connection with the exchange agreement as an extinguishment in accordance with FASB’s Codification at ASC 260-10-S99-2. Therefore, in calculating the net income (loss) applicable to common shareholders, the Company has recognized an imputed amount for the extinguishment which represents the carrying amount of securities and other consideration issuable pursuant to the original terms in excess of the fair value of all securities and other consideration transferred in the transaction.

		Carrying amount of				Fair value as of				Change of value as
Preferred stock redemption		Preferred Stock				May 4, 2011				of May 4, 2011
Series B — Preferred Stock			8,000,000				5,066,667				2,933,333
Series C — Preferred Stock			2,000,000				1,266,667				733,333
Series E — Preferred Stock			8,000,000				6,080,000				1,920,000
Preferred stock redemption			18,000,000				12,413,334				5,586,666

The Preferred Stock extinguishment value results in an adjustment to the net loss, which is a reconciling adjustment in calculating the net income (loss) applicable to common shareholders.

ViewCast.com, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements — Continued

14. Fair Value of Financial Instruments

The Company believes that the carrying amount 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 has long-term debt with its primary shareholder.

15. Related Party Transactions

As discussed in Note 9, the Company has an outstanding note payable to the Ardinger Family Partnership, Ltd., an entity controlled by its largest stockholder, Mr. H.T. Ardinger, Jr.

As discussed in Note 13, Ardinger and the Ardinger Partnership was a party to the Preferred Stock Exchange Agreement.

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

The following information should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed above under “Special Note Regarding Forward-Looking Statements.”

Overview

ViewCast.com, Inc., doing business as ViewCast Corporation (“ViewCast”), develops industry-leading hardware and software for the capture, management, transformation and delivery of digital media over IP and mobile networks. ViewCast’s solutions simplify the complex workflows required for these tasks, allowing broadcasters, businesses, and governments to reach and expand their use and distribution of their digital media easily and effectively. ViewCast’s Niagara^® streaming appliances, Osprey^® video capture cards, and ViewCast Media Platform (VMp^®) asset management software suite provide the highly reliable technology required to deliver the multi-platform experiences driving today’s digital media market. ViewCast markets and sells its products and professional services worldwide directly to end-users or through indirect channels including original equipment manufacturers (“OEMs”), value-added resellers (“VARs”), resellers, distributors and integrators. ViewCast is focused on growth by leveraging the digital media market expansion and our product solutions to capitalize on sales opportunities. We believe that emphasis on revenue and market share growth will enable us to realize long-term profitability and stockholder value.

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 (“GAAP”). We review the accounting policies we use in reporting our financial results on a regular basis. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis we evaluate our estimates, including those related to accounts receivable, inventories, warranty obligations, income taxes, restructuring and contingencies and litigation. Our estimates are based on historical experience and other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. In addition to the items listed above which are affected by estimates, we believe that the following are critical accounting policies used in the preparation of our consolidated financial statements:

•

Revenue Recognition — We apply provisions of Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements as revised by SAB 104, Revenue Recognition, FASB ASC 605, “Revenue Recognition” and FASB ASC 985, “Software”. Under these guidelines, we recognize revenue on transactions where persuasive evidence of an arrangement exists, title has transferred, product payment is not contingent upon performance of installation or service obligations, the price is fixed or determinable and payment is reasonably assured. We accrue warranty costs and sales allowances for promotional activities at time of shipment based on historical experience. In addition, we defer revenue associated with maintenance and support contracts and recognize revenue ratably over the contract term.

•

Allowance for Doubtful Accounts — We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers or distribution partners were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

•

Excess and Obsolete Inventories — We write down our inventories for estimated obsolescence and unmarketable inventory equal to the difference between the cost of the inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less than those projected by management, additional write-downs may be required.

•

Goodwill Arising from the Acquisitions of Business — In accordance with FASB ASC 350, “Intangibles — Goodwill and Other,” we are required to test goodwill for impairment annually or more frequently if circumstances indicate potential impairment. Consistent with this standard, we will review goodwill, as well as other intangible assets and long-term assets, for impairment annually or more frequently as warranted, and if circumstances indicate that the recorded value of any such other asset is impaired, such asset is written down to its new, lower fair value. If any item of goodwill or such other asset is determined to be impaired, an impairment loss would be recognized equal to the amount by which the recorded value exceeds the estimated fair market value.

Results of Operations

Three and Six Months Ended June 30, 2011 compared to
Three and Six Months Ended June 30, 2010.

Net Sales. During the second quarter ended June 30, 2011, net sales increased $112,649 to $4,253,190 from $4,140,541 in the second quarter 2010, representing a 3% increase. During the six months ended June 30, 2011, net sales increased $143,625 to $7,962,509 from $7,818,884 for the same period in 2010, representing a 2% increase. The overall sales increase during the first six months of 2011 was primarily due to increases in Osprey and Niagara product sales in all regions, which were partially offset by decreased software licenses and other revenues. ViewCast expects improvement in all regions as new personnel gain traction and as new products are introduced during the last half of the year.

Osprey Product Sales. During the second quarter ended June 30, 2011, Osprey sales increased $505,508 to $2,656,697 from $2,151,189 in the second quarter 2010, representing a 23% increase from the 2010 levels and 63% of total second quarter 2011 revenue, compared to 52% in 2010. During the six months ended June 30, 2011, Osprey sales increased $233,057 to $4,668,130 from $4,435,073 for the same period in 2010, representing a 5% increase from the 2010 levels and 59% of total revenue, compared to 57% in 2010. The increase in sales for the six months ended June 30, 2011 was primarily due to increases of volume sales to integrators, particularly in the second quarter, as their project funding and business recovered during 2011.

ViewCast Niagara^® Streaming/Encoding System Sales. During the second quarter ended June 30, 2011, combined system sales decreased $270,894 to $1,246,888 from $1,517,782 in the second quarter 2010, representing an 18% decrease from the 2010 levels and 29% of total second quarter 2011 revenue, compared to 37% in 2010. During the six months ended June 30, 2011, combined system sales increased $104,959 to $2,667,372 from $2,562,413 for the same period in 2010, representing a 4% increase from the 2010 levels and 34% of total revenue, compared to 33% in 2010. The decrease in sales for the three months ended June 30, 2011 was primarily due to minimal shipments to a large OEM customer during the second quarter which equaled a 44% decline in year to date sales to that customer compared to the prior year. This OEM sales decline was offset by a 43% increase in sales to other customers for the six months ended June 30, 2011 with all regions contributing to this increase. With the OEM customer resuming shipments against backlogged orders and new sales personnel gaining traction, we are expecting to continue sales growth throughout the remainder of 2011.

Software Licenses and Other Revenues. During the second quarter ended June 30, 2011, other revenues from software licenses, support and maintenance, professional services and net third-party product revenue decreased $121,965 to $349,605 from $471,570 in the second quarter 2010, representing a 26% decrease from the 2010 levels and 8% of total second quarter 2011 revenue, compared to 11% in 2010. During the six months ended June 30, 2011, other revenues decreased $194,391 to $627,007 from $821,398 for the same period in 2010, representing a 24% decrease from the 2010 levels and 8% of total revenue, compared to 11% in 2010. This decrease was primarily due to decreased revenue from the software products and services. We anticipate that Other Revenue will vary quarter to quarter depending on the mix of software license and professional service revenues in addition to support and maintenance revenues that are amortized over the contract period.

Cost of Sales/Gross Profit. During the second quarter ended June 30, 2011, cost of sales decreased $14,796 to $1,655,554 from $1,670,350 in the second quarter 2010, representing a 1% decrease from the 2010 levels and 39% of total second quarter 2011 revenue, compared to 40% in 2010. During the second quarter ended June 30, 2011, gross profit increased $127,445 to $2,597,636 from $2,470,191 in the second quarter 2010, representing a 5% increase from the 2010 levels and 61% of total second quarter 2011 revenue, compared to 60% in 2010. During the six months ended June 30, 2011, cost of sales increased $224,370 to $3,204,425 from $2,980,055 in the same period 2010, representing an 8% increase from the 2010 levels and 40% of total revenue, compared to 38% in 2010. During the six months ended June 30, 2011, gross profit decreased $80,745 to $4,758,084 from $4,838,829 in the same period in 2010, representing a 2% decrease from the 2010 levels and 60% of total revenue, compared to 62% in 2010. The gross profit margin decrease was primarily due to a slight shift in sales mix to lower margin products from higher margin products.

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

Selling, General and Administrative Expenses. During the second quarter ended June 30, 2011, selling, general and administrative expenses increased $85,385 to $1,841,408 from $1,756,023 in the second quarter 2010, representing a 5% increase from the 2010 levels. During the six months ended June 30, 2011, selling, general and administrative expenses increased $349,711 to $3,550,512 from $3,200,801 in the same period 2010, representing an 11% increase from the 2010 levels. The increase is primarily due to an increase in sales headcount and travel expenses to more thoroughly penetrate our global markets.

Research and Development Expense. During the second quarter ended June 30, 2011, research and development expense, net of capitalized software development, increased $42,716 to $898,227 from $855,511 in the second quarter 2010, representing a 5% increase from the 2010 levels. During the six months ended June 30, 2011, research and development expense, net of capitalized software development, increased $94,118 to $1,927,213 from $1,833,095 in the same period in 2010, representing a 5% increase from the 2010 levels. Research and development expenses vary period to period depending on the number of product introductions planned and as new product prototypes, testing and certifications are completed.

Depreciation and Amortization Expense. During the second quarter ended June 30, 2011, depreciation and amortization expense decreased $25,975 to $173,090 from $199,065 in the second quarter 2010, representing a 13% decrease from the 2010 levels. During the six months ended June 30, 2011, depreciation and amortization expense decreased $83,609 to $345,090 from $428,699 in the same period 2010, representing a 20% decrease from the 2010 levels.

Other Income (Expense). During the second quarter ended June 30, 2011, total other expenses increased $13,857 to $63,332 from $49,475 in the second quarter 2010, representing a 28% increase from the 2010 levels. During the six months ended June 30, 2011, total other expenses increased $27,725 to $104,475 from $76,750 in the same period 2010, representing a 36% increase from the 2010 levels. Interest expense for the second quarter ended June 30, 2011 increased $13,831 to $63,373 from $49,542 in the second quarter 2010, representing a 28% increase from the 2010 levels. Interest expense for the six months ended June 30, 2011 increased $30,423 to $107,336 from $76,913 in the same period 2010, representing a 40% increase from the 2010 levels. The increase in interest expense is principally due to the increase in the average outstanding balance on the Amegy Bank Credit Facility (see Note 8), partially offset by a decrease of interest rates from our debt under the credit facility we have in place with Ardinger Family Partnership, Ltd. (see Note 9). Interest income was nominal for the three and six months ended June 30, 2011 and 2010 primarily due to lower interest rates and average cash balance during these periods.

Net Loss. During the second quarter ended June 30, 2011, net loss decreased $11,462 to a net loss of $378,421 from a net loss of $389,883 in the second quarter 2010. After increasing the net loss for stated preferred dividends of $77,444 and decreasing the net loss for preferred stock redemption of $5,586,666 (See Note 13), the net income per share applicable to the common shareholders for the second quarter of 2011 was $0.10 per share. For the same period 2010, after increasing the net loss for stated preferred dividends of $205,000, the net loss per share applicable to the common shareholders was ($0.02) per share. During the six months ended June 30, 2011, after increasing the net loss for stated preferred dividends of $282,444 and decreasing the net loss for preferred stock redemption of $5,586,666, the net income per share applicable to the common shareholders for the six months ended 2011 was $0.09 per share. For the same period 2010, after increasing the net loss for stated preferred dividends of $410,000, the net loss per share applicable to the common shareholders was ($0.03) per share.

Liquidity and Capital Resources

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

Net cash used in operating activities for the six months ended June 30, 2011 was $886,639 resulting from a net loss of $1,169,206, plus non-cash operating expense of $370,284 and less net cash used for changes in operating assets and liabilities of $87,717. Cash used for changes in operating assets and liabilities was primarily due to increased inventories and deposits, and decreased accounts payable, which was partially offset by cash provided from increased accrued expenses and deferred revenue, supplemented by decreased prepaid expenses and accounts receivable.

Cash used in investing activities during the six months ended June 30, 2011 totaled $196,396, consisting of $91,996 of property and equipment purchased and $106,798 of software development costs capitalized, partially offset by $2,398 of proceeds provided from the disposition of property and equipment.

During the six months ended June 30, 2011, ViewCast’s financing activities provided cash of $159,333, of which $300,000 was provided from borrowings under the stockholder credit facility (see Note 9), supplemented by $3,616 and $567 cash provided from proceeds from the sale of stock and the exercise of employees stock options, respectively. These were partially offset by $86,336 and $58,514 of cash used for net repayments of the line of credit and long-term debt, respectively.

Since October 1998, ViewCast has maintained a credit facility with the Ardinger Family Partnership, LTD., an entity controlled by one of its principal stockholders, Mr. H.T. Ardinger. Most recently, ViewCast.com, Inc., Osprey Technologies, Inc. and VideoWare, Inc. (jointly and severally, the “Borrower”) amended the terms and conditions of the loan and security agreement with the Ardinger Family Partnership, Ltd. effective March 31, 2011. Under the amended terms minimum monthly principal payments of $21,422 will begin December 31, 2011 and any amount outstanding of the primary principal and the secondary principal mature December 31, 2014, subject to certain earlier payment conditions. The interest on the primary principal amount will accrue and be paid monthly based on an interest rate per annum which is the greater of 5.0% or the effective prime rate plus 0.75% (Effective rate of 5.00% as of December 31, 2010 and June 30, 2011). Interest on the secondary principal shall accrue and be paid monthly based on the effective Applicable Federal Rate, as defined in the agreement, (0.32% and 2.00% as of December 31, 2010 and June 30, 2011, respectively). The amended note agreement is secured by all the assets of the Borrower. In the event of default, the Ardinger Family Partnership, LTD., may exercise one or more of the following rights and remedies (i) the entire unpaid balance of principal of the note, together with all accrued but unpaid interest thereon, and all other indebtedness owing to the Ardinger Family Partnership, LTD. by the Company shall, at the option of the Ardinger Family Partnership, LTD., become immediately due and payable or (ii) the Ardinger Family Partnership, LTD., may, at its option, cease further advances.

In June 2007, ViewCast entered into a Purchase and Sale Agreement/Security Agreement with Amegy Bank National Association, a national banking association. The borrowing line under this facility currently is $1,000,000, reviewed as growth of business dictates. As of June 30, 2011, ViewCast had an outstanding balance of $955,142 under this facility.

There were no preferred stock dividends declared or paid during the first six months of 2011. On May 4, 2011, under an Exchange Agreement, the Series B Preferred Stock and Series C Preferred Stock were converted into Common Stock and any and all dividends, owed or owing on the Preferred Stock, were cancelled (see Note 13).

During the first six months of 2011, ViewCast incurred a net loss of $1,169,206 and used cash in operations of $886,639. At June 30, 2011, ViewCast had working capital of $2,206,226 and cash and cash equivalents of $724,774. ViewCast expects to obtain additional working capital by increasing sales, maintaining reduced operating expenses, borrowing under its loan facilities and through other initiatives that may include raising additional equity. ViewCast utilizes significant capital to design, develop and commercialize its products and intends to fund its 2011 operating activities and sales growth by utilizing existing cash, cash provided from operations and working capital lines of credit to the extent possible. ViewCast believes that these items will provide sufficient cash to fund operations for the next 12 months. However, ViewCast anticipates it may require additional working capital during the next year to support operations and the expansion of sales channels and market distribution, to develop and introduce new products and services, to enhance existing product offerings, to address unanticipated competitive threats or technical problems, to transition adverse economic conditions and for potential acquisition transactions. 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 its then existing stockholders. In the event ViewCast is unable to raise additional capital or execute other alternatives, it may be required to sell segments of the business or substantially reduce or curtail its activities. Such actions could result in charges that could be material to ViewCast’s results of operations or financial position.

At June 30, 2011, ViewCast had no material commitments for capital expenditures.

Off Balance Sheet Arrangements

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

Item 3.		Quantitative and Qualitative Disclosure About Market Risk

Not required.

Item 4.		Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As required by Rule 13a-15(b) under the Exchange Act, our management carried out an evaluation, with the participation of our President and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of December 31, 2010. Based upon that evaluation, our President and Chief Financial Officer concluded that, as of June 30, 2011, our disclosure controls and procedures were effective in providing such reasonable assurance.

Changes in Internal Control Over Financial Reporting

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

PART II: OTHER INFORMATION

Item 1.		Legal Proceedings

(None)

Item 1A.		Risk Factors

(Not Applicable)

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

(None)

Item 3.		Defaults Upon Senior Securities

(None)

Item 4.		(Removed and Reserved)

Item 5.		Other Information

(a) (None)

(b) (None)

Item 6.		Exhibits

See Exhibit Index.

SIGNATURES

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

EXHIBIT INDEX

Exhibit
Number
	10.53			Fourth Amendment to Amended and Restated Security Agreement by and among Ardinger Family Partnership, Ltd., ViewCast.com, Inc., Osprey Technologies, Inc. and Videoware, Inc.(1)
	10.54			Preferred Stock Exchange Agreement, dated May 4, 2011, by and between the Company and H.T. Ardinger Jr., Ardinger Family Partnership, Ltd., Adkins Family Partnership, Ltd. and RDB Limited. (2)
	31.1			Rule 13a-14(a)/15d-14(a) President Certification
	31.2			Rule 13a-14(a)/15d-14(a) CFO Certification
	32.1			Section 1350 President Certification
	32.2			Section 1350 CFO Certification
	101			Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets at December 31, 2010 and June 30, 2011 (Unaudited), (ii) Condensed Consolidated Statement of Operations for the Three and Six Months Ended June 30, 2010 and 2011 (Unaudited), (iii) Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six Months Ended June 30, 2011 (Unaudited), (iv) Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2011 (Unaudited) and (v) Notes to the Condensed Consolidated Financial Statements. (3)