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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 1 - us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-->
<!-- xbrl,ns -->
<!-- xbrl,nx -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt"><b></b>
</div>
<div align="left">
</div>
<div align="center" style="font-size: 10pt"><b></b></div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>1. Basis of Presentation and Liquidity</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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<sup style="font-size: 85%; vertical-align: text-top">®</sup> streaming
appliances, Osprey<sup style="font-size: 85%; vertical-align: text-top">®</sup> video capture cards, and ViewCast Media Platform (VMp<sup style="font-size: 85%; vertical-align: text-top">®</sup>) 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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 2 - vcst:AccountsReceivableTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>2. Accounts Receivable</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Changes in the Company’s allowance for doubtful accounts for the three and six months ended
June 30, 2010 and 2011 are as follows:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">For the three months ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">For the six months ended</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Beginning balance
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">81,417</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">21,218</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">69,767</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">76,436</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Bad debt expense (recoveries)
</div></td>
<td> </td>
<td> </td>
<td align="right">13,023</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,021</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,673</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(52,197</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Ending balance
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">94,440</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">24,239</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">94,440</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">24,239</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - us-gaap:InventoryDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>3. Inventories</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Inventories consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="center" colspan="2">(Unaudited)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Purchased materials
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,073,360</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,313,420</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Finished goods
</div></td>
<td> </td>
<td> </td>
<td align="right">1,433,645</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,591,265</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Reserve
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(291,756</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(313,761</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">2,215,249</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">2,590,924</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 4 - us-gaap:IntangibleAssetsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>4. Intangible Assets</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Intangible assets consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">December 31, 2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30, 2011 (Unaudited)</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross carrying</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Accumulated</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Gross carrying</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Accumulated</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">amount</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">amortization</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">amount</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">amortization</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Customer lists
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">60,000</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">21,581</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">60,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">27,581</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Non-compete agreements
</div></td>
<td> </td>
<td> </td>
<td align="right">24,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,387</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">24,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">18,387</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Patents
</div></td>
<td> </td>
<td> </td>
<td align="right">145,200</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">29,985</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">145,703</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">34,263</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">229,200</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">65,953</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">229,703</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">80,231</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Future amortization expense associated with these intangible assets is as follow:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Six months ending December 31, 2011
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">14,286</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Year ending December 31, 2012
</div></td>
<td> </td>
<td> </td>
<td align="right">22,184</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Year ending December 31, 2013
</div></td>
<td> </td>
<td> </td>
<td align="right">20,571</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Year ending December 31, 2014
</div></td>
<td> </td>
<td> </td>
<td align="right">10,990</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Year ending December 31, 2015
</div></td>
<td> </td>
<td> </td>
<td align="right">8,571</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Thereafter
</div></td>
<td> </td>
<td> </td>
<td align="right">72,870</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">149,472</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:AccountsPayableAndAccruedLiabilitiesDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>5. Accrued Expenses</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Accrued expenses consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued compensation
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">207,189</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">316,445</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued warranty
</div></td>
<td> </td>
<td> </td>
<td align="right">155,918</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">172,583</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued inventory purchases
</div></td>
<td> </td>
<td> </td>
<td align="right">75,983</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,019</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Customer deposits
</div></td>
<td> </td>
<td> </td>
<td align="right">57,164</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">74,133</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Deferred rent
</div></td>
<td> </td>
<td> </td>
<td align="right">15,386</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">25,249</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Accrued taxes and other
</div></td>
<td> </td>
<td> </td>
<td align="right">191,081</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">273,296</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">702,721</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">865,725</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 6 - us-gaap:ProductWarrantyDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>6. Warranty Reserves</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table below shows the changes in accrued warranty expense for the three and six
months ended June 30, 2010 and 2011:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">For the three months ended</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6">For the six months ended</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Beginning balance
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">180,592</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">229,633</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">155,850</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">155,918</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Additions
</div></td>
<td> </td>
<td> </td>
<td align="right">38,026</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">47,028</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">63,568</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">134,113</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Usage
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,495</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(104,078</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(5,295</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(117,448</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Ending balance
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">214,123</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">172,583</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">214,123</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">172,583</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 7 - us-gaap:PropertyPlantAndEquipmentDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>7. Property and Equipment</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Property and equipment, at cost, consisted of the following:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Estimated</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Useful Life</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">December 31,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">(Years)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="center" colspan="2">(Unaudited)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Service equipment
</div></td>
<td> </td>
<td> </td>
<td align="right">3</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">242,362</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Computer equipment
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">2 to 7</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">579,059</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">654,607</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Software
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">3 to 5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">207,908</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">220,769</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Leasehold improvements
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">1 to 5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">174,429</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">174,429</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Office furniture and equipment
</div></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="right">5 to 7</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,319,238</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,381,390</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,522,996</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,431,195</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Less accumulated depreciation and amortization
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,191,530</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,088,641</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">331,466</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">342,554</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 8 - vcst:LineOfCreditTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>8. Line of Credit</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 9 - us-gaap:LongTermDebtTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>9. Long-Term Debt</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company’s long-term debt consisted of:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="72%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">December 31, 2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">June 30, 2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="center" colspan="2">(Unaudited)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding Primary Principal Amount
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">1,121,466</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">1,078,621</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding Secondary Principal Amount
</div></td>
<td> </td>
<td> </td>
<td align="right">3,891,361</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,191,361</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Other debt
</div></td>
<td> </td>
<td> </td>
<td align="right">53,919</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">97,971</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total long-term debt
</div></td>
<td> </td>
<td> </td>
<td align="right">5,066,746</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,367,953</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Less current maturities
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(284,523</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(195,741</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Total long-term debt less current maturities
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">4,782,223</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5,172,212</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 10 - us-gaap:EarningsPerShareTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>10. Earnings Per Share Data</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table sets forth the computation of basic and diluted earnings per share:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Three Months Ended June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000">Six Months Ended June 30,</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2010</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">(Unaudited)</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income (loss) applicable to common stockholders
— numerator for basic and diluted earnings per share
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(594,883</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">5,130,801</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(1,110,516</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">4,135,016</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Weighted — average common shares and dilutive potential common
shares outstanding — denominator for diluted earnings per share
</div></td>
<td> </td>
<td> </td>
<td align="right">36,047,159</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">49,463,910</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">36,019,861</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44,268,975</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net income (loss) per share:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Basic and Diluted
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(0.02</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">0.10</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(0.03</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="left">$</td>
<td align="right">0.09</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr>
<td align="left" valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Anti-dilutive securities excluded from diluted earnings per share:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Stock options
</div></td>
<td> </td>
<td> </td>
<td align="right">4,573,760</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,196,835</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">4,436,661</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,060,252</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Convertible preferred stock — Series B
</div></td>
<td> </td>
<td> </td>
<td align="right">2,206,896</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,206,896</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Convertible preferred stock — Series C
</div></td>
<td> </td>
<td> </td>
<td align="right">3,333,333</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,333,333</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Convertible preferred stock — Series E
</div></td>
<td> </td>
<td> </td>
<td align="right">13,333,333</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,666,667</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">13,333,333</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,222,222</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 11 - us-gaap:DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>11. Stock-Based Compensation</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following is a summary of stock option activity from January 1, 2011 through June 30,
2011:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="11%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="8" style="border-bottom: 1px solid #000000">Stock Options</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Weighted-</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Average</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Number</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center">Price Per</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Exercise Price</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">of Shares</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000">Share</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Per Share</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding at December 31, 2010
</div></td>
<td> </td>
<td> </td>
<td align="right">4,787,085</td>
<td> </td>
<td> </td>
<td align="center" valign="top">$0.17 – $1.09</td>
<td> </td>
<td align="left">$</td>
<td align="right">0.41</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td align="center" valign="top"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Granted
</div></td>
<td> </td>
<td> </td>
<td align="right">2,120,000</td>
<td> </td>
<td> </td>
<td align="center" valign="top">0.29 – 0.36</td>
<td> </td>
<td> </td>
<td align="right">0.35</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Exercised
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(3,333</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="center" valign="top">0.17</td>
<td> </td>
<td> </td>
<td align="right">0.17</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Canceled/forfeited
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(709,167</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="center" valign="top">0.17 – 1.09</td>
<td> </td>
<td> </td>
<td align="right">0.85</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="center" valign="top" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Outstanding at June 30, 2011
</div></td>
<td> </td>
<td> </td>
<td align="right">6,194,585</td>
<td> </td>
<td> </td>
<td align="center" valign="top">$0.17 – $0.71</td>
<td> </td>
<td align="left">$</td>
<td align="right">0.34</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="center" valign="top" style="border-top: 3px double #000000"> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following information applies to options outstanding at June 30, 2011:
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="30%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Weighted-</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Average</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Weighted-</td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Weighted-</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left">Range of</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Outstanding at</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Remaining</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Average</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Exercisable at</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Average</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left">Exercise</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Contractual</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Exercise</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">June 30,</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Exercise</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">Prices</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Life</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Price</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Price</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">$0.01 – 1.00
</div></td>
<td> </td>
<td> </td>
<td align="right">6,194,585</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5.2</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.34</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,128,059</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">0.36</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 12 - us-gaap:IncomeTaxDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>12. Income Taxes</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 13 - us-gaap:PreferredStockTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>13. Preferred Stock</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="58%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Carrying amount of</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Fair value as of</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2">Change of value as</td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td nowrap="nowrap" align="left" style="border-bottom: 1px solid #000000">Preferred stock redemption</td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">Preferred Stock</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">May 4, 2011</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000">of May 4, 2011</td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Series B — Preferred Stock
</div></td>
<td> </td>
<td> </td>
<td align="right">8,000,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,066,667</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,933,333</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Series C — Preferred Stock
</div></td>
<td> </td>
<td> </td>
<td align="right">2,000,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,266,667</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">733,333</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Series E — Preferred Stock
</div></td>
<td> </td>
<td> </td>
<td align="right">8,000,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">6,080,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,920,000</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Preferred stock redemption
</div></td>
<td> </td>
<td> </td>
<td align="right">18,000,000</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">12,413,334</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,586,666</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="center" style="font-size: 10pt; margin-top: 0pt">
<b>
</b>
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 14 - us-gaap:FairValueDisclosuresTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>14. Fair Value of Financial Instruments</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
</div>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 15 - us-gaap:RelatedPartyTransactionsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>15. Related Party Transactions</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">As discussed in Note 13, Ardinger and the Ardinger Partnership was a party to the Preferred
Stock Exchange Agreement.
</div>
</div>
false
--12-31
Q2
2011
2011-06-30
10-Q
0000921313
55699005
Yes
Smaller Reporting Company
6590341
VIEWCAST COM INC
No
No
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