-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ok22ZADJelgtkyoGfsp1jdXEGZRhPY2gGsew8qB7l2e1Iit3e67aiyqAJy0blF0R 08JGHKn/9yIHWVNRV9P93A== 0001023175-04-000166.txt : 20040819 0001023175-04-000166.hdr.sgml : 20040819 20040819152642 ACCESSION NUMBER: 0001023175-04-000166 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROADCAST INTERNATIONAL INC CENTRAL INDEX KEY: 0000740726 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 870395567 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13316 FILM NUMBER: 04986224 BUSINESS ADDRESS: STREET 1: 7050 UNION PARK AVENUE, #600 CITY: SALT LAKE CITY STATE: UT ZIP: 84047 BUSINESS PHONE: 801-562-2252 MAIL ADDRESS: STREET 1: 7050 UNION PARK AVENUE #600 CITY: SALT LAKE CITY STATE: UT ZIP: 84047 FORMER COMPANY: FORMER CONFORMED NAME: LASER CORP DATE OF NAME CHANGE: 19920703 10QSB 1 broadcast10qsb.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the Quarterly Period ended June 30, 2004 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transitional period ________ to __________. Commission File Number: 0-13316 BROADCAST INTERNATIONAL, INC. ---------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Utah 87-0395567 ----------------------- -------------------------------- (State of Incorporation) (IRS Employer Identification No.) 7050 Union Park Ave. #600, Salt Lake City, Utah 84047 ------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (801) 562-2252 ----------------------------------------------- (Issuer's telephone number, including area code) Check whether the issuer (1) 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. ( x ) Yes ( ) No State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding as of August 15, 2004 ----- --------------------------------- Common Stock,.05 Par Value 19,624,701 shares Transitional Small Business Disclosure Format: Yes [ ] No [ X ] 1 Broadcast International, Inc. Form 10-QSB Table of Contents Part I - Financial Information Page Item 1. Financial Statements 3 Item 2. Management's Discussion and Analysis or Plan of Operation 9 Item 3. Controls and Procedures 13 Part II - Other Information Item 1. Legal Proceedings 14 Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities 14 Item 3. Defaults Upon Senior Securities 15 Item 4. Submission of Matters to a Vote of Security Holders 15 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 16 2 Item 1. Financial Information BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (Unaudited) June 30, ASSETS 2004 - ------ ------------- CURRENT ASSETS Cash and cash equivalents $ 254,296 Trade receivable (net) 707,156 Inventory 27,836 Prepaid expenses 174,704 ------------- Total Current Assets 1,163,992 ------------- NON-CURRENT ASSETS Equipment and leasehold improvements, net 912,705 Patents 137,552 Other assets 7,824 ------------- TOTAL ASSETS $ 2,222,073 ============= LIABILITIES AND STOCKHOLDERS' DEFICIT - ------------------------------------- CURRENT LIABILITIES Accounts payable $ 161,167 Accrued payroll & related expenses 285,324 Other accrued liabilities 30,444 Unearned revenue 205,141 Current portion of long term liabilities 78,824 ------------ Total Current Liabilities 760,900 ------------ LONG-TERM DEBT Deferred bonus 600,000 Notes and other liabilities 1,139,307 ------------ Total Liabilities 2,500,207 ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' DEFICIT Preferred Stock, no par value, 10,000,000 shares authorized; no shares issued - Common Stock, $.05 par value, 40,000,000 shares authorized; 19,621,701 shares issued and outstanding 981,085 Additional paid-in capital 16,440,858 Accumulated deficit (17,700,077) ------------ Total Stockholders' Deficit (278,134) ------------ $ 2,222,073 ============ See accompanying notes to consolidated condensed financial statements 3
BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended --------------------------- --------------------------- June 30, June 30, June 30, June 30, 2004 2003 2004 2003 ------------- ------------- ------------- ------------- REVENUES: Net sales $ 1,556,040 $ 1,201,913 $ 2,931,896 $ 2,710,541 Interest and other income 14,958 4,007 17,403 5,476 ------------- ------------- ------------- ------------- 1,570,998 1,205,920 2,949,299 2,716,017 COSTS AND EXPENSES: Cost of sales 1,511,644 1,181,176 2,869,691 2,382,829 Research and development in process 10,343,945 - 11,519,377 - Administrative and general 296,504 302,072 989,025 502,640 Selling and marketing 265,086 246,830 458,266 430,514 Interest 445,657 418 795,306 2,116 ------------- ------------- ------------- ------------- 12,862,836 1,730,496 16,631,665 3,318,099 ------------- ------------- ------------- ------------- LOSS FROM OPERATIONS BEFORE INCOME TAXES (11,291,838) (524,576) (13,682,366) (602,082) Income Tax Benefit - - - - ------------- ------------- ------------- ------------- NET LOSS $(11,291,838) $ (524,576) $(13,682,366) $ (602,082) ============= ============= ============= ============= TOTAL NET LOSS PER SHARE - Basic and Diluted $ (.59) $ (.03) $ (.73) $ (.04) ============= ============= ============= ============= Weighted average number of shares of Common Stock outstanding - Basic and Diluted 19,019,793 16,741,703 18,663,465 15,996,195 ============= ============= ============== ============ See accompanying notes to consolidated condensed financial statements 4
BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended --------------------------- June 30, June 30, 2004 2003 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(13,682,366) $ (602,082) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 202,199 201,060 Deferred bonus payable - 120,000 Beneficial conversion 795,230 - Common stock issued for services 420,000 - Common stock and options issued for research and development in process 10,228,019 - Liability assumed for research and development in process 1,291,358 Provision for losses on accounts receivable 26,000 (10,000) (Increase) decrease in: Receivables (287,645) 595,656 Inventories 50,334 (20,603) Other assets (15,903) (27,453) Increase (decrease) in: Accounts payable and accrued expenses 70,594 (44,067) Unearned revenue (51,822) (96,765) ------------- ------------- Net cash (used in) provided by operating activities (954,002) 115,746 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (32,779) (115,924) Technology patents (137,552) - Investment in related party - (120,000) ------------- ------------- Net cash used in investing activities (170,331) (235,924) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on capital leases (13,830) (81,948) Related party note receivable, net (182,800) - Proceeds from the sale of Stock 465,362 898,731 Loan proceeds 795,230 - ------------- ------------- Net Cash provided by financing activities 1,063,963 816,783 ------------- ------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (60,371) 696,605 CASH AND CASH EQUIVALENTS, BEGINNIG OF PERIOD 314,667 316,166 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 254,296 $ 1,012,771 ============= ============= See accompanying notes to consolidated condensed financial statements 5
BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) June 30, 2004 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB and Rule 310 of Regulation S-B. Accordingly, they do not include all of the information and footnote disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months and the six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2003 included in the Company's Annual Report on Form 10-KSB (file number 0-13316). NOTE B - GOING CONCERN The accompanying financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitability. Potential sources of cash include external debt and the sale of new shares of company stock or alternative methods such as mergers or sale transactions. No assurances can be given, however, that the Company will be able to obtain any of these potential sources of cash. NOTE C - RECLASSIFICATIONS Certain 2003 financial statement amounts have been reclassified to conform to 2004 presentations. NOTE D - WEIGHTED AVERAGE SHARES The computation of basic earnings (loss) per common share is based on the weighted average number of shares outstanding during each year. The computation of diluted earnings per common share is based on the weighted average number of common shares outstanding during the periods presented, plus the common stock equivalents that would arise from the exercise of stock options and warrants outstanding, using the treasury stock method and the average market price per share during the periods presented. Options to purchase 6,030,903 and 3,185,427 shares of common stock at prices ranging from $.02 to $60.63 per share were outstanding at June 30, 2004 and 6 Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ------------- ------------ ------------- ------------ Net loss, as reported $(11,291,838) $ (524,576) $(13,682,366) $ (602,082) Addback: Stock-based employee compensation expense determined under intrinsic value based method for all awards, net of related tax effects - - - - Deduct: Total stock- based employee compensation expense determined under fair value based method for all awards, net of related tax effects (124,767) - (241,973) (23,398) ------------- ------------ ------------- ------------ Pro forma net loss $(11,416,605) $ (524,576) $(13,924,339) $ (625,480) ============= ============ ============= ============ (Loss) earnings per share: Basic and diluted - as reported $ (.59) $ (.03) $ (.73) $ (.04) ============= ============ ============= ============ Basic and diluted - pro forma $ (.60) $ (.03) $ (.75) $ (.04) ============= ============ ============= ============ The weighted average fair value of options granted during the three and six months ended June 30, 2004 was $3.07 and $2.32 per share, respectively. The fair value for the options granted in the three months ended June 30, 2004 were estimated at the date of grant using a Black Scholes option pricing model with the following weighted average assumptions: Risk free interest rate 4.04% Expected life (in years) 8 Expected volatility 37.49% Expected dividend yield 0.00% 7 NOTE F - SUPPLEMENTAL CASH FLOW INFORMATION For the six months ended June 30, 2004, a non-cash expense of $420,000 was recorded in Administrative and General Expense for services rendered by consultants compensated by the issuance of 105,000 shares of common stock. On May 18, 2004 an Order Confirming the Debtor in Possession's Plan of Reorganization (the Plan) in the bankruptcy case for Interact Devices, Inc. (IDI) was issued. As a result of this action, the Company was issued approximately 50,127,218 shares of the common stock of IDI representing approximately 79% of the outstanding stock of IDI. The Company recorded the following amounts related to the acquisition of research and development in process from IDI from the assumption of liabilities and consolidation of IDI: Receivable from IDI $ (265,008) Liabilities assumed from IDI (1,066,773) Research and development in process 1,291,358 Trade receivables, net 13,506 Inventory 6,997 Prepaid expenses 2,166 Equipment 46,450 Accounts payable and accrued liabilities (28,696) ------------- - In accordance with the Plan, in exchange for the common shares of IDI, the Company issued 120,308 shares of common stock of Broadcast International, Inc. valued at approximately $733,866 to the former creditors of IDI. Additional payments totaling approximately $332,907 will be made to the former IDI creditors in equal quarterly installments of approximately $20,000 over of the next four years, which together total the $1,066,773 liabilities assumed by the Company. Additionally, the principals of Streamware Solutions AB, a Swedish Corporation, purchased 187,500 shares of common stock below fair market value pursuant to a Stock Purchase and Option Grant Agreement dated February 6, 2004. Streamware was issued an additional 1,000,000 shares of common stock pursuant to a Stock Issuance and Option Grant Agreement also dated February 6, 2004. The Company also issued to Streamware or its principals 2,812,500 options to purchase common shares of the Company at an exercise price of $4.50 per share, expiring February 6, 2006, associated with the agreements mentioned above. These agreements were entered concurrently with IDI entering into an amended Partner Agreement with Streamware, and all expenses associated with Streamware and the IDI bankruptcy settlement above were recorded as Research and Development in Process, as part of the on-going development costs of the CodecSys technology. The Company recorded the following related to these agreements: Research and development in process expense, stock issued below market 375,000 Research and development in process expense, additional stock issued 6,000,000 Research and development in process expense, fair value of stock options 3,853,019 Common stock (50,000) Additional paid-in capital (10,178,019) ------------ - 8 On December 23, 2003, the Company entered into a convertible line of credit for up to $1,000,000 with Meridel LTD and Pascoe Holdings LTD, both Turks and Caicos corporations. The Company may obtain advances as needed to fund operating expenses. On June 30, 2004 the Note was amended to increase the limit from $1,000,000 to $2,000,000 with the original due date of the Note extended from March 31, 2005 to April 1, 2006. Any portion of the note is convertible at the lenders sole discretion, for common shares of the Company at the rate of $1.00 per share. During the six months ended June 30, 2004, the Company borrowed an additional $795,230 making the total amount borrowed $895,210. Although the note bears an annual interest rate of 6%, which would be forgiven upon conversion, the Company believes the entire amount of the note will be converted, whereby it has recorded the beneficial conversion feature of the note. During the six months ended June 30, 2004, the Company recorded $795,230 as a beneficial conversion feature associated with the advances made under this line of credit. The $795,230 is included in interest expense. The Company paid no cash for income taxes or interest expense during the three and six months ended June 30, 2004 and 2003. NOTE G - SUBSEQUENT EVENT None. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Forward-Looking Information This report on Form 10-QSB includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may relate to such matters as anticipated financial performance, future revenues or earnings, business prospects, projected ventures, new products and services, anticipated market performance and similar matters. When used in this report, the words "may," "will," expect," anticipate," "continue," "estimate," "project," "intend," and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 regarding events, conditions, and financial trends that may affect the Company's future plans of operations, business strategy, operating results, and financial position. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. To comply with the terms of the safe harbor, we caution readers that a variety of factors could cause our actual results to differ materially from the anticipated results or other matters expressed in forward-looking statements. These risks and uncertainties, many of which are beyond our control, include (i) the sufficiency of existing capital resources and the Company's ability to raise additional capital to fund cash requirements for future operations; (ii) 9 uncertainties involved in the rate of growth of the Company's business and acceptance of the Company's products and services; (iii) volatility of the stock market, particularly within the technology sector; and (iv) general economic conditions. Although the Company believes the expectations reflected in these forward-looking statements are reasonable, such expectations may prove to be incorrect. Results of Operations for the three months ended June 30, 2004 and June 30, 2003 Revenues The Company generated approximately $1,556,000 in revenue during the three months ended June 30, 2004. During the same three-month period in 2003, the Company generated revenue of approximately $1,202,000. The increase in revenue of $354,000 was due primarily to an increase in sales of equipment to customers of $ 510,000, which was offset by a decrease in license fees of approximately $145,000. Cost of Revenues Costs of Revenues increased by approximately $331,000 to $1,512,000 for the three months ending June 30, 2004, from $1,181,000 for the three months ending June 30, 2003. The increase was due primarily to the increased sales of equipment referenced above, which resulted in an increase in the cost of equipment sold to the Company's customers of $384,000. There was not an increase in the cost of equipment relative to the sales price of the equipment. The increase in costs of revenues was partially offset by a decrease of $28,000 in operating costs and $27,000 in satellite distribution costs. Research and Development in Process The Company recorded a non-cash expense of approximately $10,344,000 in the three months ending June 30, 2004. All of this expense related primarily to clarification of marketing and development rights through amendments to existing technology licensing agreements and partially for the active development of the Company's CodecSys technology. Details of this expense are as follows: 1) $6,000,000 for the issuance of 1,000,000 shares of common stock of Company to Streamware Solutions AB, a Swedish company, 2) approximately $3,053,000 for options to purchase 1,500,000 shares of common stock of the Company at an exercise price of $4.50 per share, 3) approximately $1,066,000 to provide funding to former Interact Devices, Inc. ("IDI") creditors as specified in IDI's Plan of Reorganization, offset by approximately $40,000 of net assets obtained from IDI 4) approximately $265,000 in cancellation of a note due the Company from IDI. The issuance of stock and options were recorded as an expense due to the amendments to existing technology licensing agreements. See additional details in Note F and Part II, Item number 5. Expenses Operating Expenses for the three months ending June 30, 2004 were approximately $561,600 compared with operating expenses for the three months ending June 30, 2003 of approximately $548,900. The increase of approximately $12,700 resulted from an increase in various expense items offset by an decrease in salaries. 10 Other For the three months ended June 30, 2004, the Company incurred interest expense of $445,657 compared to interest expense for the three months ended June 30, 2003 of $418. The full amount of the increase resulted from the Company recording interest expense related to the beneficial conversion feature on the Convertible Note and assuming that the note holder will exercise its option to convert and satisfy the obligation through conversion. The Company realized a net loss for the three months ending June 30, 2004 of $11,291,838 compared with a net loss for the three months ended June 30, 2003 of $524,576. Of the net loss for the quarter ended June 30, 2004, $10,343,945, or approximately 92% resulted from additional costs of Research and Development in Process. The other significant factor is the increase to $445,657 in interest expense from the beneficial conversion feature of the convertible note. Absent these two items, the total loss for the three months ended June 30, 2004 would have been $502,236, a decreased net loss of approximately $22,000 when compared to the net loss for the three months ended June 30, 2003. Results of Operations for the six months ended June 30, 2004 and June 30, 2003 Revenues The Company generated approximately $2,932,000 in revenue during the six months ended June 30, 2004. During the same six-month period in 2003, the Company generated revenue of approximately $2,711,000. The increase in revenue of $221,000 was primarily a combination of an increase in sales of equipment to customers of $ 814,000 and an increase in studio and video production revenue of $205,000, which was offset by a decrease in license fees of approximately $454,000 and a decrease in installation and service revenue of approximately $405,000. Cost of Revenues Costs of Revenues increased by approximately $487,000 to $2,870,000 for the six months ending June 30, 2004, from $2,383,000 for the six months ending June 30, 2003. The increase was due primarily to the increased sales of equipment referenced above, which resulted in an increase in the cost of equipment sold to the Company's customers of $579,000. There was not an increase in the cost of equipment relative to the sales price of the equipment. The increase in costs of revenues was partially offset by a decrease of $35,000 in operating costs and $59,000 in satellite distribution costs. Research and Development in Process The Company recorded a non-cash expense of $11,519,377 in the six months ending June 30, 2004. All of this expense related primarily to clarification of marketing and development rights through amendments to existing technology licensing agreements and partially for the active development of the Company's CodecSys technology. Details of this expense are as follows: 1) $6,375,000 for the issuance of 1,187,500 shares of common stock of Company to Streamware Solutions AB, a Swedish company, and its principals; 2) approximately $3,853,000 for options to purchase 2,812,500 shares of common stock of the Company at an exercise price of $4.50 per share, 3) approximately $1,066,000 to provide funding to former Interact Devices, Inc. ("IDI") 11 creditors as specified in IDI's Plan of Reorganization, offset by approximately $40,000 of net assets obtained from IDI 4) approximately $265,000 in cancellation of a note due the Company from IDI. The issuance of stock and options were recorded as an expense due to the amendments to existing technology licensing agreements. See additional details in Note F and Part II, Item number 5. Expenses Operating Expenses for the six months ending June 30, 2004 were approximately $1,447,000 compared with operating expenses for the six months ending June 30, 2003 of approximately $933,000. The increase of approximately $514,000 resulted primarily from two items; 1) $420,000 from the issuance of 105,000 shares of common stock for services rendered by outside consultants assisting the Company in positioning the development of the CodecSys technology, 2) approximately $60,000 increase in general and administrative expense for additional legal, audit and investor relations costs associated with being publicly traded, 3) Other material items include an increase of approximately $154,000 in sales and marketing expenses primarily due to additional presence at trade shows offset by a decrease in other operating expenses of approximately $126,000. Other For the six months ended June 30, 2004, the Company incurred interest expense of approximately $795,000 compared to interest expense for the six months ended June 30, 2003 of approximately $2,000. The full amount of the increase resulted from the Company recording interest expense related to the beneficial conversion feature on the Convertible Note and assuming that the note holder will exercise its option to convert and satisfy the obligation through conversion. The Company realized a net loss for the six months ending June 30, 2004 of approximately $13,682,000 compared with a net loss for the six months ended June 30, 2003 of approximately $602,000. The increase in the net loss for the six months ended June 30, 2004 was $13,121,000 of which $11,980,000 resulted primarily from five non cash expenses: 1) $6,375,000 for the issuance of 1,187,500 shares of common stock of Company to Streamware, 2) approximately $3,853,000 for options to purchase 2,812,500 shares of common stock of the Company at an exercise price of $4.50 per share, 3) approximately $1,066,000 to provide funding to former IDI creditors as specified in The Plan of Reorganization, offset by approximately $40,000 of net assets obtained from IDI 4) approximately $265,000 fulfillment of a note due the Company from IDI, 5) $420,000 from the issuance of common stock for services rendered by outside consultants assisting the Company in positioning the development and deployment of the CodecSys technology. Interest expense of approximately $795,000 from the beneficial conversion feature of the convertible note was recorded by the Company. Absent the treatment of the non cash expenses described above, and the beneficial conversion feature interest, the total loss for the six months ended June 30, 2004 would have increased by approximately $347,000 when compared to the net loss for the six months ended June 30, 2003. 12 Liquidity and Capital Resources At June 30, 2004, the Company had cash of approximately $254,000 and total current assets of $1,164,000 compared to total current liabilities of $760,900 and total stockholder's deficit of ($278,000). For the six months ended June 30, 2004, the Company used $954,002 of cash for operating activities compared to cash provided from operations for the six months ended June 30, 2003 of $115,746. The cash used in operations was provided primarily from proceeds from sales of Company common stock and from loan financing. The Company estimates that its monthly expenses over the next several months will exceed its monthly income by between approximately $100,000 and $150,000 per month, depending on the level of activity of the Company. The Company anticipates that its negative cash flow will diminish somewhat as a result of recent sales activity. However, to the extent the Company continues to experience a revenue shortfall between its sales activities and the Company's operating costs, the Company will continue to have the need for infusions of capital over at least the next several months. To date, the Company has met its working capital needs through payments received from sales of its common stock and borrowings under a convertible line of credit agreement. There can be no assurance that the Company will continue to receive loans or equity contributions if the Company does not demonstrate increased revenues and other favorable operating results over the next several months. In the event payments were to terminate, for any reason, the Company would be in immediate need of another source of capital or would be required to restructure its development program and reduce its costs, which may have a negative impact on the Company and its ability to continue with its business plan. The dilution experienced by the existing shareholders in the event of such additional capital infusions cannot be determined at this time. There can be no assurance that, in such event, the Company will be able to locate a source of capital on terms acceptable to the Company, if at all. Risk Factors and Cautionary Statements This quarterly report contains certain forward-looking statements. The Company wishes to advise readers that actual results may differ substantially from such forward-looking statements. Forward looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements, including but not limited to, the following: the ability of the Company to maintain a sufficient customer base to have sufficient revenues to fund and maintain its operations, and the ability of the Company to meet its cash and working capital needs, and to have sufficient revenues to continue operations. Item 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures. Based upon an evaluation under supervision and with the participation of Registrant's management, as of June 30, 2004, Registrant's principal executive officer and principal financial officer has concluded that the Registrant's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)) under the Securities Exchange Act of 1934, are effective to ensure that information required to be disclosed (in reports that we file or submit under that 13 Exchange Act) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Changes in Internal Accounting. There were no significant changes in Registrant's internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken. However, the design of any system of controls is based in part upon the assumptions about the likelihood of future events, and there is no certainty that any design will succeed in achieving its stated goal under all potential future considerations, regardless of how remote. 14 Part II - Other Information Item 1. Legal Proceedings None. Item 2. Changes in Securities and Small Business Issuer Use of Proceeds. On February 6, 2004, the Company issued 187,500 shares of common stock of the Company to six individuals in exchange for $375,000. In addition, the Company granted options to the same individuals to purchase 1,312,500 shares of common stock of the Company at $4.50 per shares. The options are exercisable at any time for a two year period from the date of grant. The shares and options were issued as part of a larger transaction related to the amendment of a technology license agreement. On June 7, 2004, the Company issued 22,500 shares of common stock to three individuals in exchange for $90,000. On May 28, 2004, the Company issued 120,308 shares of common stock to 30 individuals and companies related to the satisfaction of the Company's obligation to fund a Bankruptcy Plan of Reorganization. See Item 5 for additional information. The Company relied on exemptions under the Bankruptcy Code for this issuance. On February 6, 2004 the Company entered into an agreement to issue 1,000,000 shares of common stock to Streamware Solutions, AB., a Swedish company, in consideration of Streamware amending a technology license agreement. The Company also granted to Streamware options to purchase up to 1,500,000 shares of common stock of the Company at an exercise price of $4.50 per share. The options are exercisable for a two year period from the date of grant. On June 30, 2004, the Company amended and restated a Convertible Line of Credit Promissory Note ("Note") dated December 23, 2004, under the terms of which the Lenders have the right to convert the principal and interest under the Note to common stock of the Company. The total amount of advances that may be made under the Note is $2,000,000,approximately $1,000,000 of which has been made to date. The conversion price under the Note is $1.00 per share. The Note also contains registration provisions under which the Company will have the responsibility to register the stock issued at the time of conversion. The conversion may take place at any time until the Note is repaid, the due date for which is April 1, 2006. The Company granted options to purchase 233,000 shares of common stock of the Company to employees and options to purchase 25,000 shares to a consultant. The options are exercisable at prices between $4.00 and $6.05 per share. These options were granted pursuant an exemption contained in Rule 701. For each of the issuances of unregistered stock referenced above, except for those shares of stock issued pursuant to the IDI Plan of Reorganization described herein and the options to purchase stock, the Company relied upon an exemption from registration under Section 4(2) of the Securities Act of 1933. 15 Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to Vote of Security Holders. None. Item 5. Other Information On May 18, 2004, the Plan of Reorganization (the "Plan") filed by Interact Devices, Inc. on April 8, 2004, was confirmed by the United States Bankruptcy Court. The Company had entered into an agreement with Interact Devices, Inc. ("IDI") to provide the funding required by IDI's Plan of Reorganization. As a result of the confirmation, the Company received 50,127,218 shares of common stock of IDI, these shares along with approximately 1,299,501 convertible preferred shares of stock previously owned by the Company, represents an approximate 79% ownership of IDI. Funding of the Plan provided by the Company to former creditors of IDI, was in the form of issuing 120,308 shares of common stock of the Company valued at approximately $733,866 along with deferred cash payments totaling approximately $332,907 to be remitted over the next four years in equal quarterly payments of approximately $20,000 per quarter. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a -14(A) of the Securities Exchange Act of 1934, As Amended, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K None. 16 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Broadcast International, Inc. Date: August 19, 2004 /s/ Rodney M. Tiede ------------------------------------------- By: Rodney M. Tiede Its: President and Chief Executive Officer (Principal Executive Officer) Date: August 19, 2004 /s/ Randy Turner ------------------------------------------- By: Randy Turner Its: Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-31.1 2 broadcastex311.txt SECTION 302 CERTIFICATION - CEO Exhibit 31.1 Broadcast International, Inc. & Subsidiaries Certification Of Chief Executive Officer PURSUANT TO RULE 13a - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Rodney Tiede, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Broadcast International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting. 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 19, 2004 /s/ Rodney Tiede - ---------------------------- Rodney Tiede Chief Executive Officer EX-31.2 3 broadcastex312.txt SECTION 302 CERTIFICATION - CFO Exhibit 31.2 Broadcast International, Inc. & Subsidiaries Certification Of Chief Financial Officer PURSUANT TO RULE 13a - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Randy Turner, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Broadcast International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting. 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: August 19, 2004 /s/ Randy Turner - -------------------------- Randy Turner Chief Financial Officer EX-32.1 4 broadcastex321.txt SECTION 906 CERTIFICATION - CEO Exhibit 32.1 Broadcast International, Inc. & Subsidiaries Certification Of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 In connection with the quarterly report of Broadcast International, Inc. (the "Company") on Form 10-QSB for the period ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof, Rodney Tiede, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Form 10-QSB fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 19, 2004 /s/ Rodney Tiede - ---------------------------- Rodney Tiede Chief Executive Officer EX-32.2 5 broadcastex322.txt SECTION 906 CERTIFICATION - CFO Exhibit 32.2 Broadcast International, Inc. & Subsidiaries Certification Of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 In connection with the quarterly report of Broadcast International, Inc. (the "Company") on Form 10-QSB for the period ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof, Randy Turner , Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Form 10-QSB fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 19, 2004 /s/ Randy Turner - -------------------------- Randy Turner Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----