10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

S           Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2013

OR

£           Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to ________

Commission File No.0-13316

BROADCAST INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Utah	87-0395567
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

6952 S. High Tech Drive Suite C, Salt Lake City, Utah 84047

(Address of principal executive offices and zip code)

(801) 562-2252

(Registrant’s telephone number, including area code)

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

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

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

£ Large accelerated filer   £ Accelerated filer    £ Non-accelerated filer    S  Smaller reporting company

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:

Class	Outstanding as of July 31, 2013
Common Stock, $.05 par value	110,233,225 shares

1

Broadcast International, Inc.

Form 10-Q

Table of Contents

PART I- FINANCIAL INFORMATION			Page
	Item 1.	Financial Statements	3
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
	Item 4.	Controls and Procedures	36
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	37
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
	Item 3.	Defaults Upon Senior Securities	38
	Item 5.	Other Information “Not Applicable”	38
	Item 6.	Exhibits	38
Signatures			40

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROADCAST INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2012			June 30,  2013
				(Unaudited)
ASSETS:
Current Assets
Cash	$	394,342		$	686,347
Restricted cash		140,700			--
Trade accounts receivable, net		821,608			93,379
Inventory		306,296			26,269
Prepaid expenses		90,067			71,443
Total current assets		1,753,013			877,438
Property and equipment, net		572,107			108,225
Other Assets, non current
Debt offering costs		42,176			3,242
Patents, net		120,928			127,382
Deposits and other assets		196,292			115,853
Total other assets, non current		359,396			246,477
Total assets	$	2,684,516		$	1,232,140
LIABILITIES AND STOCKHOLDERS DEFICIT:
Current Liabilities
Accounts payable	$	2,293,470		$	1,038,464
Payroll and related expenses		363,568			138,924
Other accrued expenses		299,728			470,268
Unearned revenue		51,335			13,539
Current portion of notes payable (net of discount of $947,994 and $212,529, respectively)		3,102,006			5,032,471
Derivative valuation		1,191,269			1,275,275
Total current liabilities		7,301,376			7,968,941
Long-term Liabilities
Long-term liabilities		--			--
Total long-term liabilities		--			--
Total liabilities		7,301,376			7,968,941
Commitments and contingencies
STOCKHOLDERS’ DEFICIT:
Preferred stock, no par value, 20,000,000 shares authorized; none issued		--			--
Common stock, $.05 par value, 180,000,000 shares authorized;    107,473,820 and 110,233,225 shares issued as of December 31,   2012 and June 30, 2013, respectively		5,373,691			5,511,661
Additional paid-in capital		99,594,490			99,681,351
Accumulated deficit		(109,585,041	)		(111,929,813	)
Total stockholders’ deficit		(4,616,860	)		(6,736,801	)
Total liabilities and stockholders’ deficit	$	2,684,516		$	1,232,140

See accompanying notes to condensed consolidated financial statements.

3

BROADCAST INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended						For the six months ended
	June 30,						June 30,
	2012			2013			2012			2013
Net sales	$	1,999,988		$	974,657		$	3,745,085		$	2,455,226
Cost of sales		1,345,966			796,333			2,591,458			1,573,902
Gross profit		654,022			178,324			1,153,627			881,324
Operating expenses:
Administrative and general		1,259,320			642,116			2,588,601			1,628,325
Selling and marketing		598,841			47,539			1,115,240			185,008
Research and development		464,847			168,939			1,021,414			394,313
Depreciation and amortization		164,043			54,016			326,675			149,880
Total operating expenses		2,487,051			912,610			5,051,930			2,357,526
Total operating loss		(1,833,029	)		(734,286	)		(3,898,303	)		(1,476,202	)
Other income (expense):
Interest income		1			--			1			--
Interest expense		(263,483	)		(591,398	)		(606,211	)		(1,125,183	)
Gain (loss) on derivative valuation		2,959,155			709,509			4,588,480			(25,606	)
Equity issuance costs related to warrants		(18,836	)		--			(1,095,309	)		--
Gain on extinguishment of debt		--			345,397			1,672,575			414,484
Loss on sale of assets		(1,799	)		(186,621	)		(1,640	)		(136,621	)
Other income , net		5,183			190			2,122			4,356
Total other income (expense)		2,680,221			277,077			4,560,018			(868,570	)
Profit (loss) before income taxes		847,192			(457,209	)		661,715			(2,344,772	)
Provision for income taxes		--			--			--			--
Net profit (loss)	$	847,192		$	(457,209	)	$	661,715		$	(2,344,772	)
Net profit (loss) per share – basic	$	0.01		$	(0.00	)	$	0.01		$	(0.02	)
Net profit (loss) per share – diluted	$	0.01		$	(0.00	)	$	0.01		$	(0.02	)
Weighted average shares – basic		107,193,974			108,284,171			94,167,466			107,977,505
Weighted average shares –diluted		114,128,974			108,284,171			104,042,079			107,977,505

See accompanying notes to condensed consolidated financial statements.

4

BROADCAST INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 30,
	2012			2013
Cash flows from operating activities:
Net income (loss)	$	661,715		$	(2,344,772	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		723,194			151,047
Common stock issued for services		137,500			4,200
Accretion of discount on convertible notes payable		265,636			793,865
Stock based compensation		193,586			272
Loss on sale of assets		1,640			136,621
Gain on extinguishment of debt		(1,672,575	)		(414,484	)
Gain (loss) on derivative liability valuation		(4,588,480	)		25,606
Warrants issued and expensed for issuance costs		1,095,309			--
Allowance for doubtful accounts		(5,618	)		(28,147	)
Changes in assets and liabilities:
Decrease in accounts receivable		26,358			763,461
Decrease (increase) in inventories		(270,721	)		17,915
Decrease in debt offering costs		58,907			38,934
Decrease in prepaid and other assets		195,030			87,534
Increase (decrease) in accounts payable and accrued expenses		1,414,189			(246,728	)
Decrease in deferred revenues		(9,009	)		(37,796	)
Net cash used in operating activities		(1,773,339	)		(1,052,472	)
Cash flows from investing activities:
Purchase of equipment		(142,699	)		--
Proceeds from the sale of assets		750			75,423
Net cash used by investing activities		(141,949	)		75,423
Cash flows from financing activities:
Proceeds from equity financing		6,150,000			425,000
Proceeds from debt financing		--			770,000
Principal payments on debt		(3,741,194	)		--
Equity issuance costs		(776,483	)		--
Decrease in restricted cash		--			140,700
Payments for debt extinguishment and related costs		(275,041	)		(66,646	)
Net cash provided by financing activities		1,357,282			1,269,054
Net increase (decrease) in cash		(558,006	)		292,005
Cash beginning of period		961,265			394,342
Cash end of period	$	403,259		$	686,347
Supplemental disclosure of cash flow information:
Interest paid	$	248,643		$	65,700
Income taxes paid	$	--		$	--

See accompanying notes to condensed consolidated financial statements.

5

BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2013

Note 1 – Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Broadcast International, Inc. (“we” or the “Company”) contain the adjustments, all of which are of a normal recurring nature, necessary to present fairly our financial position at December 31, 2012 and June 30, 2013 and the results of operations for the three and six months ended June 30, 2012 and 2013, respectively, with the cash flows for each of the six months ended June 30, 2012 and 2013, in conformity with U.S. generally accepted accounting principles.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012.  Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013.

Note 2 - Reclassifications

Certain 2012 financial statement amounts have been reclassified to conform to 2013 presentations.

Note 3 – Weighted Average Shares

Basic earnings per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average number of shares outstanding during each period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year, plus the dilutive common stock equivalents that would rise from the exercise of stock options, warrants and restricted stock units outstanding during the period, using the treasury stock method and the average market price per share during the period, plus the effect of assuming conversion of the convertible debt.

The following table sets forth the computation of basic and diluted earnings per common share for the three and six month periods ended June 30, 2012 and 2013:

	For the three months ended						For the six months ended
	June 30,						June 30,
	2012			2013			2012		2013
Numerator
Net income (loss)	$	847,192		$	(457,209	)	$	661,715	$	(2,344,772	)
Effect on earnings of dilutive convertible debt		(225,266	)		--			233,068		--
Net income (loss) plus assumed conversions		621,926			(457,209	)		894,783		(2,334,772	)
Denominator
Basic weighted average shares outstanding		107,193,974			108,284,171			94,167,466		107,977,505
Effect of dilutive securities:
Stock options and warrants		--			--			2,939,613		--
Restricted stock units		2,935,000			--			2,935,000		--
Convertible debt		4,000,000			--			4,000,000		--
Diluted weighted average shares outstanding		114,128,974			108,284,171			104,042,079		107,977,505
Net income (loss) per common share
Basic	$	0.01		$	(0.00	)	$	0.01	$	(0.02	)
Diluted	$	0.01		$	(0.00	)	$	0.01	$	(0.02	)

6

As we experienced net losses during the three and six month periods ending June 30, 2013 no common stock equivalents have been included in the diluted earnings per common share calculations as the effect of such common stock equivalents would be anti-dilutive.

Options and warrants to purchase 43,291,969 shares of common stock at prices ranging from $0.25 to $4.00 per share were outstanding at June 30, 2013. Additionally we had restricted stock units of 3,368,247 outstanding at June 30, 2013.  Furthermore, the Company had convertible debt that was convertible into 17,900,000 shares of common stock at June 30, 2013.  All the above were excluded from the calculation of diluted earnings per share because the effect was anti-dilutive.

Note 4 – Stock-based Compensation

In accordance with ASC Topic 718, stock-based compensation cost is estimated at the grant date, based on the estimated fair value of the awards, and recognized as expense ratably over the requisite service period of the award for awards expected to vest.

Stock Incentive Plans

Under the Broadcast International, Inc. 2004 Long-Term Incentive Plan (the “2004 Plan”), the board of directors may issue incentive stock options to employees and directors and non-qualified stock options to consultants of the company.  Options generally may not be exercised until twelve months after the date granted and expire ten years after being granted. Options granted vest in accordance with the vesting schedule determined by the board of directors, usually ratably over a three-year vesting schedule upon the anniversary date of the grant.  Should an employee terminate before the vesting period is completed, the unvested portion of each grant is forfeited. We have used the Black-Scholes valuation model to estimate fair value of our stock-based awards, which requires various judgmental assumptions including estimated stock price volatility, forfeiture rates, and expected life.  Our computation of expected volatility is based on a combination of historical and market-based implied volatility.  The number of unissued stock options authorized under the 2004 Plan at June 30, 2013 was 4,290,578.

The Broadcast International, Inc. 2008 Equity Incentive Plan (the “2008 Plan”) has become our primary plan for providing stock-based incentive compensation to our eligible employees and non-employee directors and consultants of the company. The provisions of the 2008 Plan are similar to the 2004 Plan except that the 2008 Plan allows for the grant of share equivalents such as restricted stock awards, stock bonus awards, performance shares and restricted stock units in addition to non-qualified and incentive stock options. We continue to maintain and grant awards under our 2004 Plan which will remain in effect until it expires by its terms. The number of unissued shares of common stock reserved for issuance under the 2008 Plan was 88,200 at June 30, 2013.

Stock Options

We estimate the fair value of stock option awards granted beginning January 1, 2006 using the Black-Scholes option-pricing model. We then amortize the fair value of awards expected to vest on a straight-line basis over the requisite service periods of the awards, which is generally the period from the grant date to the end of the vesting period. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected option term.  Our computation of expected volatility is based on a combination of historical and market-based implied volatility.  The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award was granted with a maturity equal to the expected term of the stock option award. The expected option term is derived from an analysis of historical experience of similar awards combined with expected future exercise patterns based on several factors including the strike price in relation to the current and expected stock price, the minimum vest period and the remaining contractual period.

The fair values for the options granted for the six months ended June 30, 2012 were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Six Months Ended June 30, 2012
Risk free interest rate	1.82%
Expected life (in years)	10.0
Expected volatility	77.78%
Expected dividend yield	0.00%

7

The weighted average fair value of options granted during the six months ended June 30, 2012 was $0.37. There were no options granted during the six months ended June 30, 2013.

Warrants

We estimate the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. We amortize the fair value of issued warrants using a vesting schedule based on the terms and conditions of each associated underlying contract, as earned. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and warrant expected exercise term.  Our computation of expected volatility is based on a combination of historical and market-based implied volatility.  The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the warrant was issued with a maturity equal to the expected term of the warrant.

The fair values for the warrants issued for the six months ended June 30, 2012 and 2013 estimated at the date of issuance using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Six Months Ended June 30, 2012	Six Months Ended June 30, 2013
Risk free interest rate	1.32%	0.65%
Expected life (in years)	5.99	4.42
Expected volatility	85.65%	90.68%
Expected dividend yield	0.00%	0.00%

The weighted average fair value of warrants issued during the six months ended June 30, 2012 and 2013 was $0.27 and $0.05, respectively.

Results of operations for the six months ended June 30, 2012 and 2013 includes $193,585 and $272 respectively, of non-cash stock-based compensation expense. Restricted stock units and options issued to directors vest immediately. All other restricted stock units, options and warrants are subject to applicable vesting schedules. Expense is recognized proportionally as each award or grant vests.

Included in the $193,585 non-cash stock-based compensation expense for the six months ended June 30, 2012 are (i) $31,000 for 100,000 restricted stock units issued to one member of the board, (ii) $1,608 for 30,000 options granted to 2 employees and (iii) $160,977 resulting from the vesting of unexpired options and warrants issued prior to January 1, 2012.

The $272 non-cash stock-based compensation expense for the six months ended June 30, 2013 was from the vesting of unexpired options and warrants issued prior to January 1, 2013 which includes is a $2,552 net credit for the three months ended June 30, 2013 related to forfeited employee options.

The impact on our results of operations for recording stock-based compensation for the six months ended June 30, 2012 and 2013 is as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2012		2013			2012		2013
General and administrative	$	61,098	$	(2,552	)	$	120,228	$	272
Research and development		36,322		--			73,357		--
Total	$	97,420	$	(2,552	)	$	193,585	$	272

Due to unexercised options and warrants outstanding at June 30, 2013, we will recognize an aggregate total of $58,959 of compensation expense over the next two years based upon option and warrant award vesting parameters as shown below:

8

2013	$	28,334
2014		30,625
Total	$	58,959

The following unaudited tables summarize option and warrant activity during the six months ended June 30, 2013.

	Options and Warrants Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2012		43,396,863		$	0.54
Options granted		--			--
Warrants issued		850,000			0.25
Expired		(448,094	)		1.05
Forfeited		(506,800	)		1.41
Exercised		--			--
Outstanding at June 30, 2013		43,291,969		$	0.48

The following table summarizes information about stock options and warrants outstanding at June 30, 2013.

		Outstanding					Exercisable
				Weighted Average Remaining	Weighted Average				Weighted Average
Range of Exercise Prices		Number Outstanding		Contractual Life (years)	Exercise Price		Number Exercisable		Exercise Price
$	0.25-0.95		40,124,414	3.84	$	0.42		39,957,747	$	0.42
	1.00-1.59		2,823,055	3.12		1.04		2,803,222		1.04
	2.25-4.00		344,500	2.52		2.54		344,500		2.54
$	0.25-4.00		43,291,969	3.78	$	0.48		43,105,469	$	0.48

Restricted Stock Units

The value of restricted stock units is determined using the fair value of our common stock on the date of the award and compensation expense is recognized in accordance with the vesting schedule.  During the six months ended June 30, 2013, 686,667 restricted stock units valued at $51,500 were awarded to five members of our board of directors for services rendered during the year ended 2012.  One member of our board of directors settled 258,553 restricted stock units at the conclusion of his board participation during the six months ended June 30, 2013.  The value of the units awarded had been expensed as directors fees in the year ended December 31, 2012.  For the six months ended June 30, 2012 100,000 restricted stock units were awarded to one member of our board of directors.

9

The following is a summary of restricted stock unit activity for the six months ended June 30, 2013.

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2012		2,940,133		$	1.11
Awarded at fair value		686,667			0.08
Canceled/Forfeited		--			--
Settled by issuance of stock		(258,553	)		0.82
Outstanding at June 30, 2013		3,368,247		$	0.92
Vested at June 30, 2013		3,368,247		$	0.92

Note 5 - Significant Accounting Policies

Cash and Cash Equivalents

We consider all cash on hand and in banks, and highly liquid investments with maturities of three months or less, to be cash equivalents. At June 30, 2013 and December 31, 2012, we had bank balances of $321,023 and $38,847, respectively, in excess of amounts insured by the Federal Deposit Insurance Corporation.  We have not experienced any losses in such accounts, and believe we are not exposed to any significant credit risk on cash and cash equivalents.

Current financial market conditions have had the effect of restricting liquidity of cash management investments and have increased the risk of even the most liquid investments and the viability of some financial institutions.  We do not believe, however, that these conditions will materially affect our business or our ability to meet our obligations or pursue our business plans.

Accounts Receivable

Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected.

Included in our $93,379 and $821,608 net accounts receivable for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively, were (i) $132,973 and $856,462 for billed trade receivables, respectively; (ii) $(3,113) and $44,478 of unbilled trade receivables less invoiced unearned revenue (iii) $1,479 and $1,808 for employee travel advances and other receivables, respectively; less (iv) ($37,960) and ($81,140) for allowance for uncollectible accounts, respectively.

The service contract with our largest customer expired May 31, 2013. The revenues from this customer accounted for 87% of our revenues for the six months ended June 30, 2013.

Inventories

Inventories consisting of electrical and computer parts are stated at the lower of cost or market determined using the first-in, first-out method.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the property, generally from three to five years.  Repairs and maintenance costs are expensed as incurred except when such repairs significantly add to the useful life or productive capacity of the asset, in which case the repairs are capitalized.

10

Patents and Intangibles

Patents represent initial legal costs incurred to apply for United States and international patents on the CodecSys technology, and are amortized on a straight-line basis over their useful life of approximately 20 years.  We have filed several patents in the United States and foreign countries. As of March 31, 2013, the United States Patent and Trademark Office had approved four patents.  Additionally, eleven foreign countries had approved patent rights.  While we are unsure whether we can develop the technology in order to obtain the full benefits, the patents themselves hold value and could be sold to companies with more resources to complete the development. On-going legal expenses incurred for patent follow-up have been expensed from July 2005 forward.

Amortization expense recognized on all patents totaled $2,538 and $5,075 for both the three and six months ended June 30, 2013 and 2012, respectively. Estimated amortization expense, if all patents were issued at the beginning of 2013, for each of the next five years is as follows:

Year ending December 31:
2013	$	11,343
2014	$	10,121
2015	$	10,121
2016	$	10,121
2017	$	10,121

Long-Lived Assets

We review our long-lived assets, including patents, annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, then the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.  Fair value is determined by using cash flow analyses and other market valuations. For the six months ended June 30, 2013 we recorded a $136,621 loss on disposal of assets of which (i) $40,824 was for the abandonment of lease hold improvements related to our move from our 7050 Union Park location, (ii) $25,685 related to the retirement of furniture & fixtures, (iii) $70,112 related to equipment sold or no longer in use.

Income Taxes

We account for income taxes in accordance with the asset and liability method of accounting for income taxes prescribed by ASC Topic 740.  Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled.

Revenue Recognition

We recognize revenue when evidence exists that there is an arrangement between us and our customers, delivery of equipment sold or service has occurred, the selling price to our customers is fixed and determinable with required documentation, and collectability is reasonably assured. We recognize as deferred revenue, payments made in advance by customers for services not yet provided.

When we enter into a multi-year contract with a customer to provide installation, network management, satellite transponder and help desk, or combination of these services, we recognize this revenue as services are performed and as equipment is sold. These agreements typically provide for additional fees, as needed, to be charged if on-site visits are required by the customer in order to ensure that each customer location is able to receive network communication. As these on-site visits are performed the associated revenue and cost are recognized in the period the work is completed. If we install, for an additional fee, new or replacement equipment to an immaterial number of new customer locations, and the equipment immediately becomes the property of the customer, the associated revenue and cost are recorded in the period in which the work is completed.

11

In instances where we have entered into license agreements with a third parties to use our technology within their product offering, we recognize any base or prepaid revenues over the term of the agreement and any per occurrence or periodic usage revenues in the period they are earned.

Research and Development

Research and development costs are expensed when incurred.  We expensed $168,939 and $394,313 of research and development costs for the three and six months ended June 30, 2013, respectively.  We expensed $464,847 and $1,021,414 of research and development costs for the three and six months ended June 30, 2012, respectively.

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of trade accounts receivable. In the normal course of business, we provide credit terms to our customers. Accordingly, we perform ongoing credit evaluations of our customers and maintain allowances for possible losses which, when realized, have been within the range of management’s expectations.

For the six months ended June 30, 2013 and 2012, we had the same customer that individually constituted 87% and 86%, respectively of our total revenues.

The service contract with our largest customer expired May 31, 2013. The revenues from this customer accounted for 87% of our revenues for the six months ended June 30, 2013.

Note 6 – Notes Payable

The recorded value of our notes payable (net of debt discount) for the six months ended June 30, 2013 and year ended December 31, 2012 was as follows:

	December 31, 2012			June 30, 2013
2012 Secured Convertible Notes	$	2,428,166		$	3,421,963
Unsecured Convertible Note		673,840			840,508
2013 Accounts Receivable Purchase Agreement		--			750,000
Interest Promissory Note		--			20,000
Total		3,102,006			5,032,471
Less Current Portion		(3,102,006	)		(5,032,471	)
Total Long-term	$	--		$	--

2012 Secured Convertible Notes

We engaged Philadelphia Brokerage Corporation to raise funds through the issuance of convertible promissory notes.  We anticipated issuing promissory notes with an aggregate principal amount of up to $5,000,000 (“2012 Convertible Debt Offering”). As of June 30, 2013 we have issued notes having an aggregate principal value of $3,475,000 as explained below.  The notes were originally due and payable on or before July 13, 2013; however on August 6, 2013, we and the requisite parties executed an amendment of the notes whereby, effective as of July 13, 2013, the maturity date of the notes was extended to October 31, 2013.  The notes bear interest at 12% per annum and may convertible to common stock at a $0.25 per share conversion price.  We also granted holders of the notes warrants with a five year life to acquire up to 200,000 shares of our common stock for each $100,000 of principal amount of the convertible notes.  The notes are secured by all of our assets with the exception of the equipment and receivables secured by the equipment lessor for equipment used in providing services for our largest customer’s digital signage network.

In July 2012, we entered into a note and warrant purchase and security agreement with individual investors and broke escrow on the initial funding under the 2012 Convertible Debt Offering, the principal amount of which was $1,900,000, which included the conversion of $900,000 of previously issued short term debt (See Bridge Loan described above) to the 2012 convertible Debt Offering, which extinguished the Bridge Loan.  Of the $1,000,000 non-converted principal amount, we realized $923,175 of cash in the initial closing and issued warrants to acquire 3,800,000 shares of our common stock.  We paid $76,825 in investment banking fees and costs of the offering.

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In August 2012, we continued sales of convertible debt under the 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $900,000, issued warrants to acquire 1,800,000 shares of our common stock, from which we realized cash of $851,624 after payment of investment banking fees of $48,376.

In December 2012, we continued sales of convertible debt under the 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $250,000, issued warrants to acquire 500,000 shares of our common stock to one member of our Board of Directors.

In January 2013, we continued sales of convertible debt under the 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $425,000, issued warrants to acquire 850,000 shares of our common stock to; (i) one member of our Board of Directors, (ii) three individuals and (iii) two companies.

Before June 30, 2013 we received oral assurance that the maturity date of our senior secured convertible notes would be extended to October 31, 2013 and the cumulative effect of that extension has been reflected in our financial statements for the period ending June 30, 2013.

The notes and warrants mentioned above were issued with price protection provisions and were accounted for as derivative liabilities and valued on the dates issued using a Black-Scholes pricing model.

We recorded an aggregate derivative liability of $60,660 as of June 30, 2013, related to the conversion feature of the note. A derivative valuation gain of $28,940 was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012.  The aggregate derivative liability of $60,660 was calculated as follows using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.04%, (ii) expected life (in years) of 0.34; (iii) expected volatility of 143.51%, (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

We recorded an aggregate derivative liability of $237,700 as of June 30, 2013, related to the warrant reset provision. A derivative valuation loss of $11,400 was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012.  The aggregate derivative liability of $237,700 was calculated as follows using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.57%, (ii) expected life (in years) of 4.10; (iii) expected volatility of 91.86%, (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

The principal value of the secured convertible notes is being accreted over the extended term of the obligation, for which $51,525 and $360,494 was included in interest expense for each the three and six months June 30, 2013, respectively.  The notes bear a 12% annual interest rate for which $103,964 and $202,825 was included in interest expense for the three and six months ended June 30, 2013, respectively.

Unsecured Convertible Note

On September 29, 2006, we entered into a letter of understanding with Triage Capital Management, or Triage, dated September 25, 2006.  The letter of understanding provided that Triage loan $1,000,000 to us in exchange for us entering into, on or prior to October 30, 2006, a convertible note securities agreement.  It was intended that the funding provided by Triage be replaced by a convertible note and accompanying warrants, as described below.  Effective November 2, 2006, we entered into securities purchase agreement, a 5% convertible note, a registration rights agreement, and four classes of warrants to purchase our common stock, all of which were with an individual note holder, the controlling owner of Triage, who caused our agreement with Triage to be assigned to him, which satisfied our agreement with Triage.

Pursuant to the securities purchase agreement, (i) we sold to the convertible note holder a three-year convertible note in the principal amount of $1,000,000 representing the funding received by us on September 29, 2006; (ii) the convertible note bears an annual interest rate of 5%, payable semi-annually in cash or shares of our common stock; (iii) the convertible note is convertible into shares of our common stock at a conversion price of $1.50 per share subject to full-ratchet anti-dilution price protection provisions ; and (iv) we issued to the convertible note holder four classes of warrants (A Warrants, B Warrants, C Warrants and D Warrants), which give the convertible note holder the right to purchase a total of 5,500,000 shares of our common stock as described below.  The A and B Warrants originally expired one year after the effective date of a registration statement filed under the Securities Act of 1933, as amended (the “Securities Act”), to register the subsequent sale of shares received from exercise of the A and B Warrants. The C Warrants and D Warrants originally expired eighteen months and twenty four months, respectively, after the effective date of a registration statement to be filed under the Securities Act.  The A Warrants grant the convertible note holder the right to purchase up to 750,000 shares of common stock at an exercise price of $1.60 per share, the B Warrants grant the convertible note holder the right to purchase up to 750,000 shares of common stock at an exercise price of $1.75 per share, the C Warrants grant the convertible note holder the right to purchase up to 2,000,000 shares of common stock at an exercise price of $2.10 per share, and the D Warrants grant the convertible note holder the right to purchase up to 2,000,000 shares of common stock at an exercise price of $3.00 per share.

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During the year ended December 31, 2007, the convertible note holder exercised 454,000 A Warrants. We entered into an exchange agreement dated October 31, 2007 in which the convertible note holder received 650,000 shares of our common stock in exchange for cancellation of the C and the D Warrants.  The expiration date of the A Warrants and the B Warrants was extended from January 11, 2008 to December 3, 2008. During the year ended December 31, 2008, the convertible note holder exercised 64,400 A Warrants. On December 3, 2008, the remaining 231,600 A Warrants and 750,000 B Warrants were unexercised and expired.

On December 23, 2009 we entered into an amendment with the holder of our unsecured convertible note in the principal amount of $1.0 million which (i) extended the note maturity date to December 22, 2010 and (ii) increased the annual rate of interest from 5% to 8% commencing October 16, 2009. All other terms and conditions of the note remain unchanged.

On December 24, 2010 we closed on a Debt Restructuring as mentioned above, In connection with that Debt Restructuring the Company amended the note with the holder of a $1.0 million unsecured convertible note, pursuant to which the maturity date of the note was extended to December 31, 2013.  We issued 150,000 shares to the holder of this note as consideration to extend the term of the note.

During March 2011, we issued 135,369 shares of common stock to the holder of our unsecured convertible note in satisfaction of $81,221 of accrued interest on the unsecured convertible note.  Also in connection with the satisfaction of the accrued interest we granted to the holder a warrant to acquire up to 221,758 additional shares of our common stock at an exercise price of $0.96 per share.  The warrant is exercisable at any time for a five-year period.

We recorded an aggregate derivative liability of $34,600 and $326,400 as of June 30, 2013 and 2012, respectively, related to the conversion feature of the note. A derivative valuation gain of $11,800 and a derivative valuation loss of $26,400, respectively, was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $34,600 for the conversion feature of the note was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.10%, (ii) expected life (in years) of 0.5; (iii) expected volatility of 143.51%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

In connection with the amendment mentioned above, the principal value of the note is being accreted due to the difference in the value of the conversion feature before and after the amendment. The principal value of $1,000,000 of the unsecured convertible note was accreted over the amended term of the obligation, for which $83,334 and $166,668 was included in interest expense for each the three and six months ended June 30, 2013 and 2012, respectively. The note bears an 8% annual interest rate payable semi-annually, and for each the three and six months ended June 30, 2013 and 2012, $20,000 and $40,000, respectively was included in interest expense.

2013 Accounts Receivable Purchase Agreement

In April 2013 we entered into an accounts receivable purchase agreement with one of our directors under the terms of which he agreed to purchase $750,000 of our accounts receivable generated over the next succeeding three months.  Because our receivables are no longer in excess of the amount purchased, we have classified our obligation as short term debt in our financial statements.

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Interest Promissory Note

On April 17, 2013 we entered into a $20,000 Promissory Note with the holder of our Unsecured Convertible Note for unpaid interest due at that time on the note The Promissory Note is due on December 31, 2013 and contains a 12% annual interest rate.

Senior Unsecured 6.25% Convertible Note

On December 24, 2007, we entered into a securities purchase agreement in which we raised $15,000,000 (less $937,000 of prepaid interest).  We used the proceeds from this financing to support our CodecSys commercialization and development and for general working capital purposes.  Pursuant to the financing, we issued a senior secured convertible note in the principal amount of $15,000,000 (which principal amount has been increased as discussed below).The senior secured convertible note was originally due December 21, 2010, but was amended, restated and extended to December 21, 2013 and was subsequently retired as discussed below.

On March 26, 2012, we closed on an equity financing (the “2012 Equity Financing”), as well as a restructuring of our outstanding senior convertible indebtedness (the “2012 Debt Restructuring”), resulting in complete satisfaction of our senior indebtedness under the Amended and Restated Note.

A portion of the net proceeds from the 2012 Equity Financing was used to close on the 2012 Debt Restructuring. The Company paid $2,750,000 and issued 2,000,000 shares of common stock valued at $760,000 in satisfaction of the Amended and Restated Note and remaining interest value of $680,816. In consideration of negotiating the 2012 Debt Restructuring and amending our agreement with our placement agent, we paid $275,041 and issued 586,164 shares of our common stock valued at $222,742 to our placement agent, and recognized a $2,173,033 gain on extinguishment of debt as a result of this retirement.

With the retirement of the Amended and Restated Note we recorded no aggregate derivative liability at June 30, 2012, however at the date of retirement we recorded a derivative valuation gain of $203,700, related to the conversion feature of the Amended and Restated Note to reflect the change in value of the aggregate derivative from December 31, 2011 to the date of retirement. The derivative value of $81,500 at the date of retirement was recorded as additional paid in capital.

2010 Accounts Receivable Purchase Agreements

During the year ended December 31, 2010 we entered into two Accounts Receivable Purchase Agreements with one individual for an aggregate amount of $775,000. During the year ended December 31, 2011 we remitted $100,000 of the principal balance and converted the remaining $675,000 of principal balance plus accrued and unpaid interest into 1,307,153 shares of our common stock and warrants to purchase an additional 653,576 shares of our common stock. The warrants contain anti-dilution price protection provisions in the event the Company issues stock or convertible debt with a purchase price or conversion price less than $1.00 per share.  The current exercise price has been reset to $0.725 per share due to subsequent financings.

We recorded an aggregate derivative liability of $7,700 and $50,200 as of June 30, 2013 and 2012, respectively, related to the warrant reset provision.  A derivative valuation loss of $1,800 and a derivative valuation gain of $106,100, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $7,700 was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.66%, (ii) expected life (in years) of 2.7; (iii) expected volatility of 96.68%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

2011 Bridge Loan

On December 28, 2011 we entered into a Note and Warrant Purchase and Security Agreement with seven individuals for an aggregate of $1,300,000 (“Bridge Loan”) to be used as working capital. The note bears an annual interest rate of 18%, payable monthly in cash.  Additionally, we granted to the holders of the Bridge Loan warrants with a five year term to purchase an aggregate of 357,500 shares of our common stock at an exercise price of $0.65.  The note was due on February 28, 2012, but the term was subsequently extended to the earlier of the date nine months from the original maturity date or the date we closed on an additional sale of our securities that resulted in gross proceeds to us of $12 million.  In consideration of the extension of the maturity date of the Bridge Loan, we granted the holders of the Bridge Loan warrants with a six year term to purchase 247,500 shares of our common stock at an exercise price of $0.35 per share.  This note is collateralized by a security interest in all of our accounts receivable

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In connection with the Bridge Loan, we paid an $84,500 placement fee and issued warrants to purchase 65,000 shares of our common stock at an exercise price of $0.65 per share and subsequently reset to $0.53, to our investment banker for services in completing the above transaction and paid a $3,000 escrow fee to the Escrow Agent in exchange for holding the funds prior to their disbursement to us.

On March 26, 2012, we closed on the 2012 Equity Financing and under the terms of the associated securities purchase agreement, two of the above described bridge lenders converted the principal balance of their portion of the bridge loan in the amount of $400,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing, reducing the outstanding principal balance to $900,000. The warrants issued had a total value of $222,426 which resulted in a loss on extinguishment of debt of $222,426. The aggregate derivative liability and valuation gain or loss for the warrants issued for the converted portion of the principal balance are included in the aggregate of 2012 Equity Financing information.

All warrants mentioned above were issued with price protection provisions and were accounted for as derivative liabilities and valued using a Black Scholes pricing model.

On July 13, 2012 the $900,000 principal balance was retired and was included as part of the 2012 Convertible Note (as described below) and recorded a (i) $93,661 loss on extinguishment of debt related to the remaining un-accreted portion of the note and (ii) $53,160 expense related to unrecognized offering costs, at the time of retirement.

We recorded an aggregate derivative liability of $8,700 and $46,700 as of June 30, 2013 and 2012, respectively, related to the reset provision for the original and placement warrants issued.  A derivative valuation loss of $1,300 and a derivative valuation gain of $97,000, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $8,700 for the reset provision of the warrants and placement warrants issued was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.85%, (ii) expected life (in years) of 3.5; (iii) expected volatility of 92.74%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

We recorded an aggregate derivative liability of $7,700 and $34,700 as of June 30, 2013 and 2012, respectively, related to the reset provision for the warrants issued for an extension of the maturity date.  A derivative valuation loss of $500 and a derivative valuation gain of $61,825, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $7,700 for the reset provision of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.85%, (ii) expected life (in years) of 3.5; (iii) expected volatility of 94.74%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

The principal value of the note was being accreted over the amended term of the obligation, for which $51,848 and $98,968 was included in interest expense for the three and six months ended June 30, 2012, respectively.  The note bore an 18% annual interest rate and for the three and six months ended June 30, 2012, $40,389 and $95,130, respectively was included in interest expense

Equipment Purchase and Sale Agreement

In October 2011, we entered into an Equipment Purchase and Sale Agreement with a Utah corporation whereby we use the funds advanced to purchase certain electronic receiving and digital signage equipment along with installation costs.  A 3% fee is due each month the amount remains outstanding.  At December 31, 2011 we had an outstanding amount owed of $700,000 plus accrued unpaid interest.

On March 26, 2012, we closed on the 2012 Equity Financing and under the terms of the associated securities purchase agreement the above described lender converted the principal balance of its portion of the loan in the amount of $500,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing, the remaining $200,000 principal balance plus $105,000 of interest due was paid in cash. The warrants issued had a total value of $278,032 which resulted in a loss on extinguishment of debt of $278,032. The aggregate derivative liability and valuation gain or loss for the warrants issued for the converted portion of the principal balance are included in the aggregate of 2012 Equity Financing information.

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The 3% fee mention above was recorded as interest expense for which $63,000 was included for the six months ended June 30, 2012.

Note 7 – Equity Financing and the Debt Restructuring

2012 Equity Financing and the Debt Restructuring

On March 26, 2012, we closed on an equity financing (the “2012 Equity Financing”) as well as a restructuring of our outstanding senior convertible indebtedness (the “2012 Debt Restructuring”) resulting in complete satisfaction of our senior indebtedness.

We entered into an Engagement Agreement, dated October 28, 2011, with MDB Capital Group, LLC (“MDB”), pursuant to which MDB agreed to act as the exclusive agent of the Company on a “best efforts” basis with respect to the sale of up to a maximum gross consideration of $6,000,000, subsequently verbally increased to $10,000,000, of the Company’s securities, subject to a minimum gross consideration of $3,000,000.  The Company agreed to pay to MDB a commission of 10% of the gross offering proceeds received by the Company, to grant to MDB warrants to acquire up to 10% of the shares of our common stock and warrants issued in the financing, and to pay the reasonable costs and expenses of MDB related to the offering.

Pursuant to the Engagement Agreement, we entered into a Securities Purchase Agreement (“SPA”) dated March 23, 2012 with select institutional and other accredited investors for the private placement of 27,800,000 units of our securities.  The SPA included a purchase price of $0.25 per unit, with each unit consisting of one share of common stock and two forms of Warrant: (1) The “A” Warrant grants the investors the right to purchase an additional share of common stock for each two shares of common stock purchased, for a term of six years and at an exercise price of $0.35 per share; and (2) The “B” Warrant will not be exercisable unless and until the occurrence of a future issuance of stock at less than $0.25 per share, but, in the event of such issuance, grants the investors the right to acquire additional shares at a price of $0.05 to reduce the impact of the dilution caused by such issuance, but in no event shall the number of shares to be issued under the B Warrant cause us to exceed the number of authorized shares of common stock. The shares in excess of our authorized shares that would have been issuable under the B Warrant shall be “net settled” by payment of cash in an amount equal to the number of shares in excess of the authorized common shares multiplied by the closing price of our common stock as of the trading day immediately prior to the applicable date of the exercise of such B Warrant.  A majority of the holders of the B Warrants agreed in December 2012 to amend the terms of the B Warrant to reduce the amount of subsequent financing required to extinguish the B Warrants with the result that the B Warrants may now be extinguished through notice to the Warrant Holders.

Net proceeds from the 2012 Equity Financing, after deducting the commissions and the estimated legal, printing and other costs and expenses related to the financing, were approximately $6.1 million.  Coincident to the closing of the 2012 Equity Financing, we also closed on the 2012 Debt Restructuring.  In connection therewith, the Company paid $2,750,000 to Castlerigg Master Investment Ltd. (“Castlerigg”), and issued to Castlerigg 2,000,000 shares of common stock in full and complete satisfaction of the senior convertible note and all accrued interest. In consideration of negotiating the 2012 Debt Restructuring, we issued to one of our placement agents 586,164 shares of our common stock and paid them $275,041.

In December 2011, we entered into a loan with 7 accredited individuals and entities under the terms of which we borrowed $1,300,000 to be used as working capital (“Bridge Loan”).  The Bridge Loan bears an interest rate of 18% per annum and had a maturity date of February 28, 2012, which was subsequently extended to the earlier of the date nine months from the original maturity date or the date we close on an additional sale of our securities that results in gross proceeds to us of $12 million.  In consideration of the Bridge Loan we granted to the holders of the Bridge Loan warrants with a five year term to purchase 357,500 shares of our common stock at an exercise price of $0.65 per share.  In consideration of the extension of the maturity date of the Bridge Loan, we granted the holders of the Bridge Loan warrants with a six year term to purchase 247,500 shares of our common stock at an exercise price of $0.35 per share.

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In connection with the 2012 Equity Financing and under the terms of the SPA, two of the above described bridge lenders converted the principal balance of their portion of the bridge loan in the amount of $400,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing.  In addition, one other entity converted the amount owed by us for equipment purchases in the amount of $500,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing. The proceeds from these conversions were treated as funds raised with respect to the financing.

In connection with the 2012 Equity Financing and under the terms of the SPA, the Company agreed to prepare and file, within 60 days following the issuance of the securities, a registration statement covering the resale of the shares of common stock sold in the financing and the shares of common stock underlying the Warrants.  The Company filed the registration statement on April 9, 2012 and it was declared effective on August 1, 2012.

On April 5, 2012 we secured an additional $154,000 from 1 company and 4 individuals (three of which are members of our Board of Directors) on the same terms and conditions as the investors of the 2012 Equity Financing. As a result of this funding we issued 616,000 shares of our common stock and A warrants totaling 400,400 of which 308,000 were issued to investors and 92,400 were issued to our investment banker.

All warrants listed below were issued with price protection provisions and were accounted for as derivative liabilities. The A Warrants were valued using the Black Scholes pricing model and the B Warrants were valued using the Geometric Brownian Motion methodology with a risk neutral Monte Carlo approach.

	Common Shares Issued		Number of A Warrants		Value of A Warrants		Value of B Warrants		Total Warrant Value
Investors		24,816,000		12,408,000	$	487,095	$	39,387	$	526,482
Bridge Loan Conversion		1,600,000		800,000		31,405		2,539		33,944
Equipment Finance Conversion		2,000,000		1,000,000		39,257		3,174		42,431
Agency		--		4,262,400		167,327		13,531		180,858
Total		28,416,000		18,470,400	$	725,084	$	58,631	$	783,715

We recorded an aggregate derivative liability of $783,715 and $3,101,537 as of June 30, 2013 and 2012, respectively, related to the reset feature of the A warrants and the B warrants mentioned above. A derivative valuation loss of $26,246 and a derivative valuation gain of $1,659,855 were recorded to reflect the change in value of the aggregate derivative liability from December 31, 2012 and the time the warrants were first issued, respectively.  The aggregate derivative liability of $783,715 was calculated as follows: (1) $725,084 for the reset feature of the A warrants using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 1.41%, (ii) expected life (in years) of 4.7; (iii) expected volatility of 91.50%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08 and (2) $58,631 for the B warrants using the Geometric Brownian Motion methodology with a risk neutral Monte Carlo approach.

2010 Equity Financing and the Debt Restructuring

On December 24, 2010, we closed on an equity financing (the “Equity Financing”) as well as a restructuring of our then outstanding convertible indebtedness (the “Debt Restructuring”).  The Equity Financing and the Debt Restructuring are described as follows.

We entered into a Placement Agency Agreement, dated December 17, 2010, with Philadelphia Brokerage Corporation (“PBC”), pursuant to which PBC agreed to act as the exclusive agent of the Company on a “best efforts” basis with respect to the sale of up to a maximum gross consideration of $15,000,000 of units of the Company’s securities, subject to a minimum gross consideration of $10,000,000.  The units consisted of two shares of our common stock and one warrant to purchase a share of our common stock.  The Company agreed to pay PBC a commission of 8% of the gross offering proceeds received by the Company, to issue PBC 40,000 shares of its common stock for each $1,000,000 raised, and to pay the reasonable costs and expenses of PBC related to the offering.  The Company also agreed to pay PBC a restructuring fee in the amount of approximately $180,000 upon the closing of the Equity Financing and the simultaneous Debt Restructuring.

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Pursuant to the Placement Agency Agreement, we entered into Subscription Agreements dated December 23, 2010 with select institutional and other accredited investors for the private placement of 12,500,000 units of our securities.  The Subscription Agreements included a purchase price of $1.20 per unit, with each unit consisting of two shares of common stock and one warrant to purchase an additional share of common stock.  The warrants have a term of five years and had an exercise price of $1.00 per share which was reset to $0.78 pursuant to the 2012 Equity Financing.

Net proceeds from the Equity Financing, after deducting the commissions and debt restructuring fees payable to PBC and the estimated legal, printing and other costs and expenses related to the financing, were approximately $13.5 million.  We used a portion of the net proceeds of the Equity Financing to pay down debt and the remainder was used for working capital.

On November 29, 2010, we entered into a bridge loan transaction with three accredited investors pursuant to which we issued unsecured notes in the aggregate principal amount of $1.0 million.  Upon the closing of the Equity Financing, the lenders converted the entire principal amount plus accrued interest into the same units offered in the Equity Financing and the proceeds from the bridge loan transaction were treated as funds raised with respect to the financing.

In connection with the Equity Financing and under the terms of the Subscription Agreements, the Company agreed to prepare and file, and did file, within 60 days following the issuance of the securities, a registration statement covering the resale of the shares of common stock sold in the financing and the shares of common stock underlying the warrants.  The registration statement was declared effective June 16, 2011 satisfying the obligation contained in the Subscription Agreements.

On December 24, 2010, we also closed on the Debt Restructuring.  In connection therewith, we (i) issued an Amended and Restated Senior Convertible Note in the principal amount of $5.5 million (the “Amended and Restated Note”) to Castlerigg Master Investment Ltd. (“Castlerigg”), (ii) paid $2.5 million in cash to Castlerigg, (iii) cancelled warrants previously issued to Castlerigg that were exercisable for a total of 5,208,333 shares of common stock, (iv) issued 800,000 shares of common stock to Castlerigg in satisfaction of an obligation under a prior loan amendment, (v) entered into the Letter Agreement pursuant to which we paid Castlerigg an additional $2.75 million in cash in lieu of the issuance of $3.5 million in stock and warrants as provided in the loan restructuring agreement under which the Amended and Restated Note and other documents were issued (the “Loan Restructuring Agreement”), and (vi) entered into an Investor Rights Agreement with Castlerigg dated December 23, 2010.  As a result of the foregoing, Castlerigg forgave approximately $7.2 million of principal and accrued but unpaid interest.

The Amended and Restated Note, dated December 23, 2010, was a senior, unsecured note that matured in three years from the closing and bore interest at an annual rate of 6.25%, payable semi-annually.  We paid the first year’s interest of $350,434 at the closing.  The Amended and Restated Note was convertible into shares of common stock at a conversion price of $1.35 per share, subject to adjustment.  The Amended and Restated Note was convertible in whole or in part at any time upon notice by Castlerigg to us.  The Amended and Restated Note also contained various restrictions, acceleration provisions and other standard and customary terms and conditions.  Two of our consolidated subsidiaries guaranteed our obligations under the Amended and Restated Note.

The Investor Rights Agreement provides Castlerigg with certain registration rights with respect to the Company’s securities held by Castlerigg.  These registration rights include an obligation of the Company to issue additional warrants to Castlerigg if certain registration deadlines or conditions are not satisfied.  The agreement also contains full-ratchet anti-dilution price protection provisions in the event the Company issues stock or convertible debt with a purchase price or conversion price less than the conversion price described above.

During the three months ended March 31, 2011, we issued Castlerigg 400,000 warrants pursuant to a waiver agreement dated March 10, 2011 allowing the issuance of shares and warrants for the conversion of the AR Note Payable without adjusting the conversion price of the Amended and Restated Senior 6.25% Convertible Note.  These warrants contain full-ratchet anti-dilution price protection provisions in the event the Company issues stock or convertible debt with a purchase price or conversion price less than the conversion price described above and were accounted for as embedded derivatives and valued on the transaction date using a Black Scholes pricing model. During the three and six months ended June 30 ,2011 the warrant holder exercised these warrants using a cashless provision resulting in the company issuing 372,272 shares of our common stock. A valuation gain of $144,000 was recorded to reflect the change in value of the aggregate derivative from the time of issue to the date of conversion.

In connection with the Debt Restructuring, the Company amended the note with the holder of a $1.0 million unsecured convertible note, pursuant to which the maturity date of the note was extended to December 31, 2013. We also issued 150,000 shares and 75,000 warrants to acquire our common stock at $.90 per share to the holder of this note as consideration to extend the term of the note.

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On March 26, 2012, we closed on an equity financing (the “2012 Equity Financing”) as well as a restructuring of our outstanding senior convertible indebtedness (the “2012 Debt Restructuring”) resulting in complete satisfaction our senior indebtedness.

A portion of the net proceeds from the 2012 Equity Financing was used to close on the 2012 Debt Restructuring therewith. The Company paid $2,750,000 and issued 2,000,000 shares of common stock valued at $760,000 to Castlerigg in satisfaction of the $5,500,000 senior convertible note and $680,816 of accrued interest.

Investor warrants totaling 12,499,980 issued under the Subscription  Agreements contain price protection adjustments in the event we issue new common stock or common stock equivalents in certain transactions at a price less than $1.00 per share and were accounted for as embedded derivatives and valued on the transaction date using a Black Scholes pricing model. The exercise price has been reset to $0.7312 per share due to subsequent financings.

We recorded an aggregate derivative liability of $134,500 and $750,000 as of June 30, 2013 and 2012, respectively, related to the reset feature of the warrants issued under the Placement Agency Agreement. A derivative valuation loss of $25,100 and derivative valuation gain $2,125,000, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $134,500 for the conversion feature of the note was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.51%, (ii) expected life (in years) of 2.5; (iii) expected volatility of 98.23%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

Note 8 – Liquidity and Capital Resources

At June 30, 2013, we had cash of $686,347, total current assets of $877,438, total current liabilities of $7,968,941 and total stockholders' deficit of $6,736,801.  Included in current liabilities is $1,275,275 related to the value of the embedded derivatives for our senior secured convertible notes, our unsecured convertible note, and warrants issued in connection with our 2012 Equity Financing and notes.  All of our notes mature within the next six months and must either be refinanced or otherwise retired.  We do not have the liquidity to do so nor do we have the ability to raise additional equity to retire the notes.

Cash used in operations during the six months ended June 30, 2013 was $1,052,472 compared to cash used in operations for the six months June 30, 2012 of $1,773,339. Although the net cash used in operations decreased it was primarily due to a decrease in accounts receivable of $763,461 and a decrease in accounts payable of $246,738.  The negative cash flow was sustained by cash reserves from the issuance of our senior secured convertible notes and the sales of our accounts receivable to a related party, which has been treated as debt in our financial statements.  We expect to continue to experience negative operating cash flow until we consummate the merger with AllDigital or until we secure additional customers that replace the revenue no longer realized from our former largest customer.

We initiated discussions with various of our accounts payable vendors to settle some of our accounts payable for less than face value in exchange for a payment in cash and/or issuance of common stock.  During the three months ended June 30, 2013 we entered into agreements to discount our payables by approximately $962,630 through the payment of cash and/or issuance of stock and return of equipment to a vendor.  We paid cash of $66,646, issued 2,240,852 shares of our common stock valued at $153,860 from which we recognized a $414,484 gain from the reduction of these company obligations. At June 30, 2013 our accounts payable included $76,409 which we owed to vendors as part of these settlements. Additionally, we returned equipment to a vendor for which we had been invoiced $327,640.

In April 2013 we entered into an accounts receivable purchase agreement with one of our directors under the terms of which he agreed to purchase $750,000 of our accounts receivable generated over the next succeeding three months.

The current recession and market conditions have had substantial impacts on the global and national economies and financial markets.  These factors, together with soft credit markets, have slowed business growth and generally made potential funding sources more difficult to access.  We continue to be affected by prevailing economic and market conditions, which present considerable risks and challenges to it.

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Because we have not been successful in deploying our CodecSys technology with customers sufficient to achieve a breakeven and are finding it difficult to raise additional investment capital, we determined that we should seek an alternative to continuing to commercialize CodecSys by ourselves.  Accordingly we sought a merger partner that has compatible video broadcasting products and services, with which we could integrate our CodecSys encoding system.  In January 2013 we entered into a Merger Agreement with AllDigital, Inc., a Nevada corporation.  The merger is subject among other things to normal due diligence, approval of the shareholders of both companies, and the filing and effectiveness of a registration statement.  The registration statement requires year-end financial statements be included with the proxy statements furnished to the shareholders and will not be effective until at least the third quarter of 2013.  On February 8, 2013, AllDigital notified us that we were in breach of certain covenants regarding unencumbered ownership or potential claims against our technology, which gave us 30 days to cure the alleged defects before the merger agreement could be terminated.  On March 8, 2013 AllDigital notified us that sufficient progress had been made that the cure period was extended to April 8, 2013 and later to May 8, 2013 for the remainder of the alleged defects to be cured or waived.  On April 10, 2013, the parties entered into an amendment to the Merger Agreement which provides that either party may (i) terminate the Merger Agreement upon 3 days notice, with or without cause, without liability, (ii) eliminates the cure period date requirement and (iii) that the “No Shop” provision preventing us from contacting other potential purchasers or merger partners was removed.  On June 30, 2013, we entered into a second amendment to the Merger Agreement which (i) increases the percentage of our outstanding common stock AllDigital’s shareholders would receive in the merger from 54% to 58%, (i) modifies a number of the closing conditions of the merger, including the working capital and net cash flow require, (iii) adds a new closing condition that we have post-merger financing commitments in place for the purchase of no less than $1.5 million, nor more than $3.5 million, of our common stock, (iv) extends the “end date” (a date upon which either party may terminate the Merger Agreement if the merger has not been consummated) from July 31, 2013 to October 31, 2013, (v) eliminates one of our existing directors from the post-closing board of directors such that the post-closing directors are expected to be Donald A. Harris, Paul Summers, David Williams and up to two additional directors mutually approved by us and AllDigital prior to the closing of the merger and (vi) changes the reverse stock split ratio from a 10 to 1 reverse stock split to a 15 to 1 reverse stock split.  On July 9, 2013, we filed a Registration Statement on Form S-4 (File No. 333-189869) with the SEC in connection with the anticipated merger.

To fund operations, we engaged our investment banker to raise funds through the issuance of convertible promissory notes.  We anticipate issuing promissory notes with a principal amount of up to $5,000,000 (“2012 Convertible Debt Offering”) due and payable on or before July 13, 2013.  As of June 30, 2013, we had issued notes with an aggregate principal value of $3,475,000 as explained below.  The notes bear interest at 12% per annum and may be convertible to common stock at a $0.25 per share conversion price.  We also granted holders of the notes warrants with a five year life to acquire up to 200,000 shares of our common stock for each $100,000 of principal amount of the convertible notes.  The notes are secured by all of our assets.  On July 13, 2012, we entered into a note and warrant purchase and security agreement with individual investors and broke escrow on the initial funding under the 2012 Convertible Debt Offering, the principal amount of which was $1,900,000, which included the conversion of $900,000 of previously issued short term debt (See Bridge Loan described below) to the 2012 Convertible Debt Offering, which extinguished the Bridge Loan.  We realized $923,175 of cash in the initial closing, issued warrants to acquire 3,800,000 shares of our common stock and paid $76,825 in investment banking fees and costs of the offering.  We have continued sales of convertible debt under the 2012 Convertible Debt Offering and as of March 31, 2013 have issued additional short term debt with a principal amount of $1,575,000, from which we realized cash of $1,526,624 after payment of investment banking fees of $48,376.  We have, however, paid no investment banking fees on sales of our 2012 Convertible Debt Offering since August 2012 and do not anticipate paying additional investment banking fees for the 2012 Convertible Debt Offering. We have issued warrants to acquire a total of 6,950,000 shares of our common stock pursuant to the 2012 Convertible Debt Offering.  On August 6, 2013, we and the requisite parties executed an amendment of the notes issued pursuant to the 2012 Convertible Debt Offering whereby, effective as of July 13, 2013, the maturity date of the notes was extended to October 31, 2013.

Our monthly operating expenses, since our expense reductions including that for CodecSys technology research and development expenses, no longer exceeds our monthly net sales.  However, at the end of May when our largest customer contract expired our revenues have been significantly reduced to the point where if we do not locate new customers our ability to continue without additional adjustments and expense reductions will be negatively impacted.  The foregoing estimates, expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our expenses and sales fluctuate from period to period.

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The amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions, thereby affecting our need for additional capital. We expect that our operating expenses will continue to outpace our net sales until we are able to generate additional revenue.  Our business model contemplates that sources of additional revenue include (i) sales from private communication network services, (ii) sales resulting from new customer contracts, and (iii) sales, licensing fees and/or royalties related to commercial applications of CodecSys technology, and (iv) operational efficiencies to be obtained through the merger will AllDigital.

Our long-term liquidity is dependent upon execution of our business model and the realization of additional revenue and working capital as described above, and upon capital needed for continued commercialization and development of the CodecSys technology.  Commercialization and future applications of the CodecSys technology are expected to require additional capital for the foreseeable future.  The amount required will be determined based on specific opportunities and available funding.

To date, we have met our working capital needs primarily through funds received from sales of common stock and from convertible debt financings.  Until our operations become profitable, we will continue to rely on proceeds received from external funding.  We expect additional investment capital may come from (i) the exercise of outstanding warrants to purchase capital stock currently held by existing warrant holders; (ii) additional private placements of common stock with existing and new investors; and (iii) the private placement of other securities with institutional investors similar to those institutions that have provided funding in the past.

Note 9 – Fair Value Measurements

The Company has certain financial instruments that are measured at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy has been established which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).  These tiers include:

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

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We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2013:

					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets
None	$	--	$	--	$	--	$	--
Total assets measured at fair value	$	--	$	--	$	--	$	--
Liabilities
Derivative valuation (1)	$	1,275,275	$	--	$	--	$	1,275,275
Total liabilities measured at fair value	$	1,275,275	$	--	$	--	$	1,275,275

(1) See Notes 6 & 7 for additional discussion.

The table below presents our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at June 30, 2013.  We classify financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model.

	Derivative
	Valuation
	Liability
Balance at December 31, 2012	$	(1,191,269	)
Total gains or losses (realized and unrealized)
Included in net loss		(25,606	)
Valuation adjustment		--
Purchases, issuances, and settlements, net		(58,400	)
Transfers to Level 3		--
Balance at June 30, 2013	$	(1,275,275	)

Fair Value of Other Financial Instruments

The carrying amounts of our accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their immediate or short-term maturities.  The aggregate carrying amount of the notes payable approximates fair value as the individual notes bear interest at market interest rates and there has not been a significant change in our operations and risk profile.

Note 10 – Equipment Financing

On August 27, 2009, we completed an equipment lease financing transaction with a financial institution.  Pursuant to the financing, we entered into various material agreements with the financial institution. These agreements are identified and summarized below.

We entered into a Master Lease Agreement dated as of July 28, 2009 with the financial institution pursuant to which we sold to the financing institution certain telecommunications equipment to be installed at 1,981 (subsequent additional locations have increased the customer’s network to an aggregate of approximately 2,100 locations) of our customer’s retail locations in exchange for a one-time payment of $4,100,670 by the financial institution. We paid to the financial institution 36 monthly lease payments of approximately $144,000 plus applicable sales taxes. We had the right to terminate the lease after making 33 payments for a termination fee of the higher of approximately 10% of the original equipment value (approximately $410,000) or the then “in-place fair market value” after which payment we would own all of the equipment. We gave timely notice of exercise of this option. We are currently a party to a lawsuit to determine if the “in-place fair market value” exceeds the 10% of the original lease value and by what amount.  We contend that the three payments made subsequent to the notice exercising our right to purchase constitute full payment for the equipment. The equipment broker contends that we owe an additional amount.  Our accounting records reflect that the capital lease has been retired and the equipment has been fully depreciated.

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During the year ended December 31, 2012 we included in our lease payments approximately $422,100 toward the in place fair market value. Additionally during the year ended December 31, 2012 and the five months ended May 31, 2013 we made payments of $140,700 and $284,400, respectively, into an escrow account held by the court pending resolution of our dispute.

On June 13, 2013 this matter was settled resulting in a $370,000 payment to the plaintiff which had previously been deposited in escrow with the Court.  For the three and six months ended June 30, 2013 we recorded this expense as part of our cost of sales as it was related to the equipment used by one of our customers.

During the three and six months ended June 30, 2012, we made lease payments totaling approximately $422,096 and $844,191 of which $402,614 and $791,195 was applied toward the outstanding lease with $19,482 and $52,996, respectively, included in interest expense. Additionally, we recognized amortization of the lease acquisition fee of $12,567 and $25,134 which was included in interest expense for the three and six months ended June 30, 2012, respectively.

Note 11 – Interact Devices Inc. (IDI)

We began investing in and advancing monies to IDI in 2001.  IDI was developing technology which became an initial part of the CodecSys technology.

On October 23, 2003, IDI filed for Chapter 11 Federal Bankruptcy protection. We desired that the underlying patent process proceed and that the development of CodecSys technology continue. Therefore, we participated in IDI’s plan of reorganization, whereby we would satisfy the debts of the creditors and obtained certain licensing rights.  On May 18, 2004, the debtor-in-possession’s plan of reorganization for IDI was confirmed by the United States Bankruptcy Court. As a result of this confirmation, we issued to the creditors of IDI shares of our common stock and cash in exchange for approximately 50,127,218 shares of the common stock of IDI. Since May 18, 2004, we have acquired additional common share equivalents IDI.  As of June 30, 2013, we owned approximately 55,897,169 IDI common share equivalents, representing approximately 94% of the total outstanding IDI share equivalents

Since May 18, 2004, we have advanced additional cash to IDI for the payment of operating expenses, which continues development and marketing of the CodecSys technology. As of June 30, 2013 we have advanced an aggregate amount of $3,393,149, pursuant to a promissory note that is secured by assets and technology of IDI.

Note 12 – Employment Amendment and Settlement Agreements

Pursuant to the January 6, 2013 Amendment and Settlement Agreement with each of Mr. Tiede, Mr. Solomon, and a Senior Vice President their respective employment agreements were modified and we agreed to issue each individual 529,100 shares of common stock if they were terminated by us at any time following January 6, 2013.  All other termination benefits and severance were terminated as of January 6, 2013. We had an obligation as of March 6, 2013 to issue to each of them 529,100 shares of common stock.  As of June 30, 2013 these shares had not been issued, however an aggregate of $60,481 has been accrued representing the value of the benefits which will be exchanged for the shares.

Note 13 – Recent Accounting Pronouncements

In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830) – Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This Update indicates that when the reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. This should be done if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. Partial sale guidance for an equity method investment that is a foreign entity still applies resulting in a pro rata portion of the cumulative translation adjustment being released to net income upon a partial sale of the equity method investment. This Update is effective prospectively for fiscal years beginning after December 15, 2013 for public companies and after December 15, 2014 for non-public companies. The Company doesn’t expect this Update to significantly impact its financials since it does not have any foreign entities. However, the guidance will be applied if it does occur.

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In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405) – Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. The Update requires a company to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of the following: 1) The amount the entity agreed to pay on the basis of its arrangement among its co-obligors and 2) Any additional amount the entity expects to pay on behalf of its co-obligors. This Update is effective retrospectively for fiscal years beginning after December 15, 2013 for public companies and after December 15, 2014 for non-public companies. The Company doesn’t expect this Update to impact its financials since it does not have any obligations from joint and several liability arrangements.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The main purpose of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The Update requires that the effect of significant reclassifications out of accumulated other comprehensive income be reported on the respective line items in net income if the amount being reclassified in its entirety to net income. For those items not reclassified in its entirety to net income, a cross-reference to other disclosures providing information about those amounts.  Furthermore, information about amounts reclassified out of accumulated other comprehensive income must be shown by component. This Update is effective prospectively for reporting periods beginning after December 15, 2012 for public companies and after December 15, 2013 for non-public companies. The Company doesn’t expect this Update to impact its financials since it does not have any comprehensive income items.  However, if any are noted in the future, the appropriate disclosures will be incorporated.

.

In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210) – Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The main purpose of this Update is to clarify that the disclosures regarding offsetting assets and liabilities per ASU 2011-11 apply to derivatives including embedded derivatives, repurchase agreements and reverse repurchase agreements and securities borrowing and lending transactions that are offset or subject to a master netting agreement. Other types of transactions are not impacted. This Update is effective for fiscal years beginning on or after January 1, 2013 and for all interim periods within that fiscal year. The Company doesn’t expect this Update to impact the Company’s financials since it does not have instruments noted in the Update that are offset.

Note 14 – Supplemental Cash Flow Information

2013

For the six months ended June 30, 2013 we issued 458,553 shares of our common stock to one former member of our board of directors for services rendered of which (i) 258,553 was for the settlement of previously awarded restricted stock units and (ii) 200,000 valued at $15,000 for unpaid services rendered in 2012, which had been expensed and included in our accounts payable at December 31, 2012.

For the six months ended June 30, 2013 we issued an aggregate of 60,000 shares of our common stock valued at $4,200 to six individuals for services rendered.

For the six months ended June 30, 2013 we awarded 686,667 restricted stock units issued valued at $51,500 to four members of our board of directors for services rendered in 2012. The value of these awards had been expensed and included in our Accounts Payable at December 31, 2012.

For the six months ended June 30, 2013 we recorded a $136,621 loss on disposal of assets of which (i) $40,824 was for the abandonment of lease hold improvements related to our move from our 7050 Union Park location, (ii) $25,685 related to the retirement of furniture & fixtures, (iii) $70,112 related to equipment sold or no longer in use. Additionally, we received cash proceeds net of costs from these sales of $75,423.

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For the six months ended June 30, 2013 we recorded a $414,474 gain on extinguishment of debt resulting from the issuance of 2,240,852 shares of our common stock valued at $153,860 and the payment of $137,865 in cash, of which $66,646 had been paid at June 30, 2013, to 19 of our accounts payable vendors.

For the six months ended June 30, 2013 an aggregate non-cash expense of $527,162 was recorded for the accretion of notes payable as follows: (i) $166,668 for our unsecured convertible note and (ii) $360,494 for our 2012 secured convertible notes.

For the six months ended June 30, 2013, we recognized $151,047 in depreciation and amortization expense from the following: (i) $1,167 related to cost of sales for equipment used directly by or for customers, (ii) $144,805 related to other property and equipment, and (iii) $5,075 for patent amortization.

2012

During the six months ended June 30, 2012, we issued 250,000 shares of our common stock valued at $137,500 to one consultant in consideration for cancellation of a warrant issued for consulting services rendered.

For the six months ended June 30, 2012 an aggregate non-cash expense of $265,636 was recorded for the accretion of notes payable as follows: (i) $166,668 for the unsecured convertible note and (ii) $98,968 for the Bridge Loan.

For the six months ended June 30, 2012, we recognized $723,194 in depreciation and amortization expense from the following: (i) $396,520 related to cost of sales for equipment used directly by or for customers, (ii) $321,599 related to other property and equipment, and (iii) $5,075 for patent amortization.

Note 15 – Subsequent Events

  On August 6, 2013, we and the requisite parties executed an amendment of the notes issued pursuant to the 2012 Convertible Debt Offering whereby, effective as of July 13, 2013, the maturity date of the notes was extended to October 31, 2013.

On August 8, 2013, we entered into a consent to convert accounts receivable agreement with one of our directors whereby he agreed to accept a convertible promissory note in a principal amount of $750,000 in full satisfaction of our obligations to him under an accounts receivable purchase agreement between us and him.  The note bears interest of 12% per annum, is due October 31, 2013 and is convertible into shares of our common stock at a rate of $0.25 per share at the option of the holder.

We evaluated subsequent events pursuant to ASC Topic 855 and have determined that there are no additional events that need to be reported.

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Item 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder, that involve inherent risk and uncertainties.  Any statements about our expectations, beliefs, plans, objectives, strategies or future events or performance constitute forward-looking statements.  These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend” and similar words or phrases.  Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied therein.  All forward-looking statements are qualified in their entirety by reference to the factors discussed in this report and to the following risk factors set forth more fully in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012 and in our Registration Statement on Form S-4 (File No, 333-189869)., including without limitation :

· dependence on consummating the proposed merger with AllDigital Holdings, Inc.

·  dependence on commercialization of our CodecSys technology;

·  our need and ability to raise sufficient additional capital;

·  uncertainty about our ability to repay our outstanding convertible notes;

·  our continued losses;

·  delays in adoption of our CodecSys technology;

·  concerns of OEMs and customers relating to our financial uncertainty;

·  restrictions contained in our outstanding convertible notes;

·  general economic and market conditions;

·  ineffective internal operational and financial control systems;

·  rapid technological change;

·  intense competitive factors;

·  our ability to hire and retain specialized and key personnel;

·  dependence on the sales efforts of others;

·  dependence on significant customers;

·  uncertainty of intellectual property protection;

·  potential infringement on the intellectual property rights of others;

·  extreme price fluctuations in our common stock;

·  price decreases due to future sales of our common stock;

·  future shareholder dilution; and

·  absence of dividends.

Because the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed or implied in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any forward-looking statement.  Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of future events or developments.  New factors emerge from time to time, and it is not possible for us to predict which factors will arise.  In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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Critical Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our assumptions and estimates, including those related to recognition of revenue, valuation of investments, valuation of inventory, valuation of intangible assets, valuation of derivatives, measurement of stock-based compensation expense and litigation. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We discuss our critical accounting policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2012. There have been no other significant changes in our critical accounting policies or estimates since those reported in our Annual Report.

Executive Overview

The current recession and market conditions have had substantial impacts on the global and national economies and financial markets.  These factors, together with soft credit markets, have slowed business growth and generally made potential funding sources more difficult to access.  We continue to be affected by prevailing economic and market conditions, which present considerable risks and challenges.

Because we have not been successful in deploying our CodecSys technology with customers sufficient to achieve a breakeven and are finding it difficult to raise additional investment capital, we determined that we should seek an alternative to continuing to commercialize CodecSys by itself.  Accordingly, we sought a merger partner that has compatible video broadcasting products and services, with which it could integrate the CodecSys encoding system.  In January 2013, we entered into the Merger Agreement with AllDigital Holdings, Inc. (“AllDigital”). On February 8, 2013, AllDigital notified us that we were in breach of certain covenants regarding unencumbered ownership or potential claims against our technology, and gave us 30 days to cure the alleged defects before the merger agreement could be terminated.  On March 8, 2013 AllDigital notified us that sufficient progress had been made that the cure period was extended to April 8, 2013 and later to May 8, 2013 for the remainder of the alleged defects to be cured or waived.  On April 10, 2013, we entered into an amendment to the Merger Agreement which (i) provides that either party may terminate the Merger Agreement upon 3 days notice, with or without cause, without liability, (ii) eliminates the cure period date requirement and (iii) removes the “No Shop” provision preventing us from contacting other potential purchasers or merger partners.  On June 30, 2013, we entered into a second amendment to the Merger Agreement which (i) increases the percentage of our outstanding common stock AllDigital’s shareholders would receive in the merger from 54% to 58%, (i) modifies a number of the closing conditions of the merger, including the working capital and net cash flow require, (iii) adds a new closing condition that we have post-merger financing commitments in place for the purchase of no less than $1.5 million, nor more than $3.5 million, of our common stock, (iv) extends the “end date” (a date upon which either party may terminate the Merger Agreement if the merger has not been consummated) from July 31, 2013 to October 31, 2013, (v) eliminates one of our existing directors from the post-closing board of directors such that the post-closing directors are expected to be Donald A. Harris, Paul Summers, David Williams and up to two additional directors mutually approved by us and AllDigital prior to the closing of the merger and (vi) changes the reverse stock split ratio from a 10 to 1 reverse stock split to a 15 to 1 reverse stock split.  On July 9, 2013, we filed a Registration Statement on Form S-4 (File No. 333-189869) with the SEC in connection with the anticipated merger.

During 2009, we decreased certain of our development activities and expenses notwithstanding the need to refocus and develop our CodecSys technology on a different platform using a newly announced Intel operating chip.  Even with decreased engineering staff and certain related development employees, we were able to complete our video encoding system utilizing the Intel chip, prepare our CodecSys technology for installation on both the IBM and HP equipment platforms, and become certified by Microsoft as an approved software video encoding system for use by IPTV providers using Microsoft operating platforms.  On July 1, 2010, we released CodecSys 2.0, which has been installed in various large telecoms and labs for evaluation by potential customers. In 2011 we continued development of additional sales channel partners by integrating CodecSys on hardware manufactured and sold by Fujitsu, which, before termination of the relationship with Fujitsu, adopted CodecSys as its compression technology for use in its NuVolo cloud initiative.  Until the beginning of 2013, we continued to make sales presentations and respond to requests for proposals at other large telecoms, cable companies and broadcasting companies.  These presentations were made with our technology partners which are suppliers of hardware and software for video transmission applications in media room environments such as IBM, HP and Microsoft. In October 2011, we completed our first sale of CodecSys to a small cable operator in Mexico as part of our OTT product offering operating on Fujitsu hardware.  The sale demonstrates that the CodecSys product offering does operate to its operating specifications in a working environment, which we believe will help in sales and marketing efforts.

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On July 31, 2009, we entered into a $10.1 million, three-year contract with Bank of America, a Fortune 10 financial institution, to provide technology and digital signage services to approximately 2,100 of its more than 6,000 retail and administrative locations throughout North America. For the year ended December 31, 2012, we realized approximately $6,386,903 from this contract, which constituted approximately 85% of our revenues for the period.  For the year ended December 31, 2011, we realized approximately $7,540,025 in revenue from this contract, which contributed approximately 89% of our revenues for the year.  For the six months ended June 30, 2013, we realized approximately $2,148,313 in revenue compared to $3,212,332 for the six months ended June 30, 2012, which constituted 87% and 86% of its total revenues respectively. The contract with our largest customer expired in May 2013, and we expect our revenues will be substantially less going forward unless we can secure contracts which can replace the revenue lost from this customer.

Our revenues for the three months ended June 30, 2013 decreased by approximately $1,025,331 compared to the three month period ended June 30, 2012. Even with the large decrease in our revenues, our gross margin decreased only $475,698 compared to our gross margin for the three months ended June 30, 2012 due primarily to cost cutting efforts, but we continue to deplete our available cash and need future equity and debt financing because we continue to spend more money that we generate from operations.  To fund operations, we have engaged in the transactions described below under the heading “Liquidity and Capital Resources.”

Results of Operations for the Six Months ended June 30, 2013 and June 30, 2012

Revenues

We generated $2,455,226 in revenue during the six months ended June 30, 2013.  During the same six-month period in 2012, we generated revenue of $3,745,085.  The decrease in revenue of $1,289,859 or 34% was due primarily to the loss of our largest customer.  Revenues from this customer decreased by $1,061,550, which accounted for 82% of the total decrease in revenues. In addition, web hosting and streaming revenues from one other customer of $132,000 in 2012 were not repeated in 2013.

Sales revenues from our largest customer, which we will no longer service in the future, accounted for approximately 87% of total revenues for the six months ended June 30, 2013 and approximately 86% for the six months ended June 30, 2012.  We will no longer be servicing this customer in the future, which makes restructuring of our costs imperative until we merge with AllDigital or secure new customers to replace the lost revenues.

Cost of Revenues

Cost of revenues decreased by approximately $1,017,556 to $1,573,902 for the six months ended June 30, 2013 from $2,591,458 for the six months ended June 30, 2012. The gross margin from operations decreased $272,303 from a gross margin of $1,153,627 in the six months ended June 30, 2012 to a gross margin of $881,324 for the six months ended June 30, 2013. The decrease in cost of revenues was due primarily to less installation activity for our largest customer’s digital signage network and other smaller customers, which accounted for approximately $432,500 of the total decrease in cost of revenues and a decrease in the general operations department costs of $189,704, due to cost savings measures including reducing the number of our employees.  Although the total revenues and costs of revenues decreased, the gross margin from operations increased primarily due to the cost reduction measures implemented.

Expenses

General and administrative expenses for the six months ended June 30, 2013 were $1,628,325 compared to $2,588,601 for the six months ended June 30, 2012. The decrease of approximately $960,276 resulted from decreases totaling $432,101 in employee related expenses due to a reduction in the number of employees and a reduction in salaries for some executives, $217,528 in consulting fees, $205,260 in temporary help, $190,979 in trade show and convention related expenses, $119,956 in granted option and warrant expenses and a reduction of $76,000 in director fees.  Most of these reductions were the result of the reduction in activity due to the loss of our largest customer for which we ceased performing any material services at the end of May.  The total reductions were partially offset by an increase of $170,412 in legal and other profession services related primarily to the proposed merger with AllDigital.  Research and development in process decreased by $627,100 for the six months ended June 30, 2013 to $394,313 from $1,021,414 for the six months ended June 30, 2012. The development expenditures have been significantly curtailed in view of the proposed merger and cessation of sales efforts of the CodecSys products. The decrease resulted primarily from a decrease of $197,649 in employee related expenses reflecting a decrease in the number of employees, a decrease of $179,034 in tradeshow and convention related expenses, and a decrease of $124,447 in consulting fees.   Sales and marketing expenses decreased $930,232 to $1,573,225 for the six months ending June 30, 2013 from $1,115,240 for the six months ending June 30, 2012.  The decrease was primarily a result of decreased employee related expenses of $495,661 and a decrease in conventions and related travel expenses of $281,184, which were the result of reducing staff and sales efforts of the CodecSys products and services.

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Even with the reduced revenue, due to a reduction of operating expenses as explained above, our operating loss decreased $2,422,101 from an operating loss of $3,898,303 for the six months ended June 30, 2012 to an operating loss of $1,476,202 for the six months ended June 30, 2013.

Interest Expense

For the six months ended June 30, 2013, we incurred interest expense of $1,125,183 compared to interest expense for the six months ended June 30, 2012 of $606,211.  The increase of $518,972 resulted primarily from interest expense of approximately $202,825 related to the interest on our senior secured convertible notes, most of which were outstanding for the first six months of 2013 and note accretion of $832,799 on our senior secured convertible notes and our unsecured convertible note.  Interest expense for the six months ended June 30, 2013 is $252,269 greater than interest expense for the six months ended June 30, 2012 because the senior secured convertible notes were outstanding for the entire period in 2013 and the note accretion for those notes and the unsecured note were reflected for the entire period.

Net Income

We realized a net loss for the six months ended June 30, 2013 of $2,344,772 compared with a net income for the six months ended June 30, 2012 of $661,715 resulting in an aggregate reduction of $3,006,487. The resulting increase in net loss resulted primarily from a reduction of $4,614,086 income related to our derivative valuation gain calculation.  In addition, the gain from the extinguishment of debt decreased by $1,258,091. These elements that increased the net loss were partially offset by a decrease in our operating loss of $2,422,101 as explained above due to our cost reduction efforts and the expense of $1,095,309 incurred for costs related to the issuance of warrants for the six months ended June 30, 2012 that were not repeated in 2013.

Results of Operations for the Three Months ended June 30, 2013 and June 30, 2012

Revenues

We generated $974,656 in revenue during the three months ended June 30, 2013.  During the same three-month period in 2012, we generated revenue of $1,999,987.  The decrease in revenue of $1,025,331 or approximately 51% was due primarily to the expiration of the contract with our largest customer and the general reduction of services provided for that customer after the expiration of the contract on May 31, 2013.    The revenue generated for this customer aggregated $800,893 for the three months ended June 30, 2013 compared to $1,692,029 for the three months ended June 30, 2012.  The decrease of $891,135 in revenues from this customer was due to the expiration of our service contract with the customer. In addition, web hosting and streaming revenues from one other customer of $132,000 in 2012 were not repeated in 2013.

Our largest customer accounted for approximately 82% of our revenues for the three months ended June 30, 2013 compared to 85% of our revenues for the three months ended June 30, 2012.  We will no longer being servicing this customer in the future, which makes restructuring and reducing of our costs imperative until we merge with AllDigital or secure new customers to replace the lost revenues.

Cost of Revenues

Costs of revenues decreased by $549,633 to $796,333 for the three months ended June 30, 2013, from $1,345,966 for the three months ended June 30, 2012.  The decrease was primarily due to a reduction of $218,706 in costs related to a reduction in services for our largest customer, a reduction of $132,712 in costs of our production department of which $100,420 was due to a reduction of staff and a reduction of $198,215 in depreciation expense due to the fact that our equipment providing services to our largest customer was fully depreciated for the entire quarter.

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Expenses

General and administrative expenses for the three months ended June 30, 2013 were $642,116 compared to $1,259,320 for the three months ended June 30, 2012.  The net decrease of $617,204 resulted primarily from a reduction in employee and related costs of $233,500 reflecting a reduction in staff, a decrease in temporary help expenses of $176,077, a decrease of $105,899 in tradeshow and convention expenses, a decrease of $13,346 in legal expenses and smaller decreases in a number of expenses all reflecting the reduction of business activity in the quarter.  Research and development in process decreased by $295,907 for the three months ended June 30, 2013 to $168,940 from $464,847 for the three months ended June 30, 2012, which resulted primarily from a decrease of $147,628 in employee and related expenses and a decrease of $82,688 in expenses for tradeshows and related travel.  Sales and marketing expenses decreased by $551,302, which decrease was composed mainly of decreases of $289,847 in employee related expenses, $153,582 in tradeshow and related travel expenses and $66,504 in consulting expenses.  All of these reductions reflect the discontinuation of active marketing expenses pending the consummation of the proposed merger with AllDigital.

Even with the reduced revenue, due to a reduction of operating expenses, our operating loss decreased $1,098,743 from an operating loss of $1,833,028 for the three months ended June 30, 2012 to an operating loss of $734,286 for the three months ended June 30, 2013.

Interest Expense

For the three months ended June 30, 2013, we incurred interest expense of $591,398 compared to interest expense for the three months ended June 30, 2012 of $263,483.  The increase of $327,915 resulted primarily from interest of $103,964 related to our senior secured convertible notes, and a net increase of $266,380 related the accretion of our convertible note discounts, which was partially offset by a decrease of $32,049 in interest incurred for equipment financing for our largest digital signage network customer and a decrease of $13,442 in amortization of debt offering costs.

Net Income

The Company realized a net loss for the three months ending June 30, 2013 of $457,209 compared with net income for the three months ended June 30, 2012 of $847,192. The aggregate decrease in net income of $1,304,401 was primarily the result of the decrease in our derivative valuation of $2,249,646, and a loss of $184,822 in the disposition of assets partially offset by the reduction in our operating loss of $1,523,841, as explained above, and a gain on the extinguishment of debt of $345,398.

Liquidity and Capital Resources

At June 30, 2013, we had cash of $686,347, total current assets of $877,438, total current liabilities of $7,968,941 and total stockholders' deficit of $6,736,801.  Included in current liabilities is $1,275,275 related to the value of the embedded derivatives for our senior secured convertible notes, our unsecured convertible note, and warrants issued in connection with our 2012 Equity Financing and notes.  All of our notes mature within the next six months and must either be refinanced or otherwise retired.  We do not have the liquidity to do so nor do we have the ability to raise additional equity to retire the notes.

Cash used in operations during the six months ended June 30, 2013 was $1,052,472 compared to cash used in operations for the six months June 30, 2012 of $1,773,339. Although the net cash used in operations decreased it was primarily due to a decrease in accounts receivable of $763,461 and a decrease in accounts payable of $246,738.  The negative cash flow was sustained by cash reserves from the issuance of our senior secured convertible notes and the sales of our accounts receivable to a related party, which has been treated as debt in our financial statements.  We expect to continue to experience negative operating cash flow until we consummate the merger with AllDigital or until we secure additional customers that replace the revenue no longer realized from our former largest customer.

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We initiated discussions with various of our accounts payable vendors to settle some of our accounts payable for less than face value in exchange for a payment in cash and/or issuance of common stock.  During the three months ended June 30, 2013 we entered into agreements to discount our payables by approximately $962,630 through the payment of cash and/or issuance of stock and return of equipment to a vendor.  We paid cash of $66,646, issued 2,240,852 shares of our common stock valued at $153,860 from which we recognized a $414,484 gain from the reduction of these company obligations. At June 30, 2013 our accounts payable included $76,409 which we owed to vendors as part of these settlements. Additionally, we returned equipment to a vendor for which we had been invoiced $327,640.

In April 2013 we entered into an accounts receivable purchase agreement with one of our directors under the terms of which he agreed to purchase $750,000 of our accounts receivable generated over the next succeeding three months.  The $750,000 was discounted by $45,000 and we received net proceeds from the accounts receivable factoring of $705,000.  On August 8, 2013, we entered into a consent to convert accounts receivable agreement with this director whereby he agreed to accept a convertible promissory note in a principal amount of $750,000 in full satisfaction of our obligations under the accounts receivable purchase agreement.  The note bears interest of 12% per annum, is due October 31, 2013 and is convertible into shares of our common stock at a rate of $0.25 per share at the option of the holder.

The current recession and market conditions have had substantial impacts on the global and national economies and financial markets.  These factors, together with soft credit markets, have slowed business growth and generally made potential funding sources more difficult to access.  We continue to be affected by prevailing economic and market conditions, which present considerable risks and challenges to it.

Because we have not been successful in deploying our CodecSys technology with customers sufficient to achieve a breakeven and are finding it difficult to raise additional investment capital, we determined that we should seek an alternative to continuing to commercialize CodecSys by ourselves.  Accordingly we sought a merger partner that has compatible video broadcasting products and services, with which we could integrate our CodecSys encoding system.  In January 2013 we entered into a Merger Agreement with AllDigital, Inc., a Nevada corporation.  The merger is subject among other things to normal due diligence, approval of the shareholders of both companies, and the filing and effectiveness of a registration statement.  The registration statement requires year-end financial statements be included with the proxy statements furnished to the shareholders and will not be effective until at least the third quarter of 2013.  On February 8, 2013, AllDigital notified us that we were in breach of certain covenants regarding unencumbered ownership or potential claims against our technology, which gave us 30 days to cure the alleged defects before the merger agreement could be terminated.  On March 8, 2013 AllDigital notified us that sufficient progress had been made that the cure period was extended to April 8, 2013 and later to May 8, 2013 for the remainder of the alleged defects to be cured or waived.  On April 10, 2013, the parties entered into an amendment to the Merger Agreement which provides that either party may (i) terminate the Merger Agreement upon 3 days notice, with or without cause, without liability, (ii) eliminates the cure period date requirement and (iii) that the “No Shop” provision preventing us from contacting other potential purchasers or merger partners was removed.

To fund operations, we engaged our investment banker to raise funds through the issuance of convertible promissory notes.  We anticipate issuing promissory notes with a principal amount of up to $5,000,000 (“2012 Convertible Debt Offering”) due and payable on or before July 13, 2013.  As of June 30, 2013, we had issued notes with an aggregate principal value of $3,475,000 as explained below.  The notes bear interest at 12% per annum and may be convertible to common stock at a $0.25 per share conversion price.  We also granted holders of the notes warrants with a five year life to acquire up to 200,000 shares of our common stock for each $100,000 of principal amount of the convertible notes.  The notes are secured by all of our assets.  On July 13, 2012, we entered into a note and warrant purchase and security agreement with individual investors and broke escrow on the initial funding under the 2012 Convertible Debt Offering, the principal amount of which was $1,900,000, which included the conversion of $900,000 of previously issued short term debt (See Bridge Loan described below) to the 2012 Convertible Debt Offering, which extinguished the Bridge Loan.  We realized $923,175 of cash in the initial closing, issued warrants to acquire 3,800,000 shares of our common stock and paid $76,825 in investment banking fees and costs of the offering.  We have continued sales of convertible debt under the 2012 Convertible Debt Offering and as of March 31, 2013 have issued additional short term debt with a principal amount of $1,575,000, from which we realized cash of $1,526,624 after payment of investment banking fees of $48,376.  We have, however, paid no investment banking fees on sales of our 2012 Convertible Debt Offering since August 2012 and do not anticipate paying additional investment banking fees for the 2012 Convertible Debt Offering. We have issued warrants to acquire a total of 6,950,000 shares of our common stock pursuant to the 2012 Convertible Debt Offering.  On August 6, 2013, we and the requisite parties executed an amendment of the notes issued pursuant to the 2012 Convertible Debt Offering whereby, effective as of July 13, 2013, the maturity date of the notes was extended to October 31, 2013.

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On March 16, 2012, we closed on an equity financing (the “2012 Equity Financing”) as well as a restructuring of our outstanding senior convertible indebtedness (the “2012 Debt Restructuring”) resulting in complete satisfaction our senior indebtedness.

We entered in to an Engagement Agreement, dated October 28, 2011, with MDB Capital Group, LLC (“MDB”), pursuant to which MDB agreed to act as our exclusive agent on a “best efforts” basis with respect to the sale of up to a maximum gross consideration of $6,000,000, subsequently verbally increased to $10,000,000, of our securities, subject to a minimum gross consideration of $3,000,000.  We agreed to pay to MDB a commission of 10% of the gross offering proceeds received by us, to grant to MDB warrants to acquire up to 10% of the shares of ours common stock issued in the financing, and to pay the reasonable costs and expenses of MDB related to the offering.

Pursuant to the Engagement Agreement, we entered into a Securities Purchase Agreement (“SPA”) dated March 13, 2012 with select institutional and other accredited investors for the private placement of 27,800,000 units of its securities.  The SPA included a purchase price of $0.25 per unit, with each unit consisting of one share of common stock and two forms of Warrant: (1) The “A” Warrant grants the investors the right to purchase an additional share of common stock for each two shares of common stock purchased, for a term of six years and at an exercise price of $.35 per share; and (2) The “B” Warrant, which has now been extinguished as described below, would not have been exercisable unless and until the occurrence of a future issuance of stock at less than $0.25 per share, but, in the event of such issuance, granted the investors the right to acquire additional shares at a price of $0.05 to reduce the impact of the dilution caused by such issuance, but in no event were the number of shares to be issued under the B Warrant to cause us to exceed the number of authorized shares of our common stock.  A majority of the holders of the B Warrants agreed in December 2012 to amend the terms of the B Warrant to reduce the amount of subsequent financing required to extinguish the B Warrants with the result that the B Warrants may now be extinguished by notice to the holders of the B Warrants.

Proceeds from the 2012 Equity Financing, before deducting the commissions and the legal, printing and other costs and expenses related to the financing, were approximately $6,950,000.  Coincident to the closing of the 2012 Equity Financing, we also closed on the 2012 Debt Restructuring.  In connection therewith, we paid $2.75 million to Castlerigg Master Investment Ltd. (“Castlerigg”), and issued to Castlerigg 2,000,000 shares of common stock valued at $760,000 in full and complete satisfaction of the $5.5 million senior convertible note and all accrued interest then owing.  In accepting the cash and stock tendered, Castlerigg forgave $2,670,712, which included $680,816 in accrued but unpaid interest. In consideration of negotiating the 2012 Debt Restructuring, we paid to one of our placement agents compensation equal to 10% of the savings realized through the 2012 Debt Restructuring, which consisted of paying cash of $275,041 and issuing 586,164 shares of Broadcast common stock valued at $222,742. As a result of the forgoing we recognized a gain on settlement of debt of $2,173,032.

In December 2011, we entered into a loan with 7 accredited individuals and entities under the terms of which we borrowed $1,300,000 to be used as working capital (“Bridge Loan”).  The Bridge Loan bears an interest rate of 18% per annum and had a maturity date of February 28, 2012, which was subsequently extended to the earlier of the date nine months from the original maturity date or the date we closed on an additional sale of its securities that resulted in gross proceeds to us of $12 million.  In consideration of the Bridge Loan, we granted to lenders of the Bridge Loan warrants with a five year term to purchase 357,500 shares of our common stock at an exercise price of $0.65 per share.  In consideration of the extension of the maturity date of the Bridge Loan, we granted the lenders Bridge Loan warrants with a six year term to purchase 247,500 shares of our common stock at an exercise price of $.35 per share.

In connection with the 2012 Equity Financing and under the terms of the SPA, two of the above described bridge lenders converted the principal balance of their portion of the bridge loan in the amount of $400,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing.  In addition, one other entity converted the amount owed by us for equipment purchases in the amount of $500,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing. The proceeds from these conversions were treated as funds raised with respect to the financing.

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During 2010 we sold 1,601,666 shares of its common stock to 19 separate investors at a purchase price of $1.00 per share together with a warrant to purchase additional shares of our common stock for $1.50 per share. The warrant expires at the end of three years. The net proceeds from the sale of these shares were used for general working capital purposes. Each of the investors was given the right to adjust their purchase in the event we sold additional equity at a price and on terms different from the terms on which their equity was purchased.  Upon completion of the 2010 Equity Financing described below, each of the investors converted their purchase to the terms contained in the 2010 Equity Financing.  This resulted in the issuance of an additional 2,083,374 shares of common stock and the cancellation of 2,495,075 warrants with an exercise price of $1.50 and the issuance of 2,079,222 warrants with an exercise price of $1.00 and an expiration date of five years from the conversion.

On December 24, 2010, we closed on an equity financing (the “2010 Equity Financing”) as well as a restructuring of its outstanding convertible indebtedness (the “2010 Debt Restructuring”).  The 2010 Equity Financing and the 2010 Debt Restructuring are described as follows.

We entered into a Placement Agency Agreement, dated December 17, 2010, with Philadelphia Brokerage Corporation (“PBC”), pursuant to which PBC agreed to act as our exclusive agent on a “best efforts” basis with respect to the sale of up to a maximum gross consideration of $15,000,000 of units of our securities, subject to a minimum gross consideration of $10,000,000.  The Units consisted of two shares of our common stock and one warrant to purchase a share of our common stock. We agreed to pay PBC a commission of 8% of the gross offering proceeds received by us, to issue PBC 40,000 shares of our common stock for each $1,000,000 raised, and to pay the reasonable costs and expenses of PBC related to the offering. We also agreed to pay PBC a restructuring fee in the amount of approximately $180,000 upon the closing of the 2010 Equity Financing and the simultaneous 2010 Debt Restructuring.

Pursuant to the Placement Agency Agreement, we entered into Subscription Agreements dated December 23, 2010 with select institutional and other accredited investors for the private placement of 12,500,000 units of its securities.  The Subscription Agreements included a purchase price of $1.20 per unit, with each unit consisting of two shares of common stock and one warrant to purchase an additional share of common stock.  The warrants have a term of five years and an exercise price of $1.00 per share.

Net proceeds from the 2010 Equity Financing, after deducting the commissions and debt restructuring fees payable to PBC and the estimated legal, printing and other costs and expenses related to the financing, were approximately $13.5 million.  We used a portion of the net proceeds of the 2010 Equity Financing to pay down debt and the remainder was used for working capital.

On November 29, 2010, we entered into a bridge loan transaction with three accredited investors pursuant to which we issued unsecured notes in the aggregate principal amount of $1.0 million.  Upon the closing of the 2010 Equity Financing, the lenders converted the entire principal amount plus accrued interest into the same units offered in the 2010 Equity Financing and the proceeds from the bridge loan transaction were treated as funds raised with respect to the financing.

On December 24, 2010, we also closed on the 2010 Debt Restructuring.  In connection therewith, we (i) issued an Amended and Restated Senior Convertible Note in the principal amount of $5.5 million (the “Amended and Restated Note”) to Castlerigg Master Investment Ltd. (“Castlerigg”), (ii) paid $2.5 million in cash to Castlerigg, (iii) cancelled warrants previously issued to Castlerigg that were exercisable for a total of 5,208,333 shares of common stock, (iv) issued 800,000 shares of common stock to Castlerigg in satisfaction of an obligation under a prior loan amendment, (v) entered into the Letter Agreement pursuant to which we paid Castlerigg an additional $2.75 million in cash in lieu of the issuance of $3.5 million in stock and warrants as provided in the loan restructuring agreement under which the Amended and Restated Note and other documents were issued (the “Loan Restructuring Agreement”), and (vi) entered into an Investor Rights Agreement with Castlerigg dated December 23, 2010.  As a result of the foregoing, Castlerigg forgave approximately $7.2 million of principal and accrued but unpaid interest.

The Amended and Restated Note, dated December 23, 2010, was a senior, unsecured note that matured in three years from the closing and bore interest at an annual rate of 6.25%, payable semi-annually.  Broadcast paid the first year’s interest of approximately $344,000 at the closing.

In connection with the 2010 Debt Restructuring, we amended the note with the holder of a $1.0 million unsecured convertible note, pursuant to which the maturity date of the note was extended to December 31, 2013.  We also issued 150,000 shares to the holder of this note and a warrant to acquire up to 75,000 shares of our common stock as consideration to extend the term of the note. The warrant is exercisable for $0.90 per share and has a five year life.

During 2010, we entered into two Accounts Receivable Purchase Agreements with one individual for an aggregate amount of $775,000. In these agreements, we pledged certain outstanding accounts receivable in exchange for an advance payment and a commitment to remit to the purchaser the amount advanced upon collection from Broadcast’s customer.  Terms of the first agreement under which we were advanced $275,000 include a 3% discount with a 3% interest fee for every 30 days the advances remain outstanding.  Terms of the second agreement under which we were advanced $500,000 include a 10% discount with a 0.5% interest fee for every 30 days the advances remain outstanding.

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During 2010, we entered into a $500,000 line of credit for equipment financing to purchase equipment for our largest customer’s digital signage network.  The terms of the line of credit include a 3% interest fee for every 30 days the advances on the line of credit remain outstanding.  We received total advances on the line of credit of $500,000 and subsequent to the completion of the Equity Financing repaid the line of credit.  We used the proceeds to purchase and install the equipment at our customer’s locations.

In August 2009, we entered into a sale and leaseback agreement which financed the purchase and installation of equipment to retrofit our new customer’s approximately 2,100 retail sites with our digital signage product offering.  We received approximately $4,100,000 from the sale of the equipment in exchange for making lease payments over a 36 month period of approximately $144,000 per month.

On December 24, 2007, we entered into a securities purchase agreement in connection with its senior secured convertible note financing in which it raised $15,000,000 (less $937,000 of prepaid interest).  We used the proceeds from this financing to support its CodecSys commercialization and development and for general working capital purposes.  The senior secured convertible note has been retired as described above.  During 2010, we capitalized interest of $1,491,161 related to the senior secured convertible note.

On November 2, 2006, we closed on a convertible note securities agreement dated October 28, 2006 with an individual that provided we issue to the convertible note holder (i) an unsecured convertible note in the principal amount of $1,000,000 representing the funding received by us from an affiliate of the convertible note holder on September 29, 2006, and (ii) four classes of warrants (A warrants, B warrants, C warrants and D warrants) which gave the convertible note holder the right to purchase a total of 5,500,000 shares of our common stock.  The holder of the note no longer has any warrants to purchase any of our stock.  The unsecured convertible note was due October 16, 2009 and was extended to December 22, 2010 and the annual interest rate was increased to 8%, payable semi-annually in cash or in shares of our common stock if certain conditions are satisfied  The unsecured convertible note was convertible into shares of common stock originally at a conversion price of $1.50 per share, convertible any time during the term of the note, and is subject to standard anti-dilution rights, pursuant to which the note is now convertible at a conversion price of $.25 per share.  The term of the convertible note has been extended and now is due December 31, 2013.  In connection with the extension of the note, Broadcast issued to the holder of the note 150,000 shares of common stock and a five year warrant to acquire up to 75,000 shares of our common stock at an exercise price of $.90 per share to extend the term of the note.  In addition, we committed to pay accrued interest due on the convertible note through the issuance of common stock and warrants on the same terms as the Equity Financing.

The conversion feature and the prepayment provision of our $5.5 million Amended and Restated Note and its $1.0 million unsecured convertible note have been accounted for as embedded derivatives and valued on the respective transaction dates using a Black-Scholes pricing model.  The warrants related to the $1.0 million unsecured convertible notes have been accounted for as derivatives and were valued on the respective transaction dates using a Black-Scholes pricing model as well.  At the end of each quarterly reporting date, the values of the embedded derivatives and the warrants are evaluated and adjusted to current market value.  The conversion features of the convertible notes and the warrants may be exercised at any time and, therefore, have been reported as current liabilities.  Prepayment provisions contained in the convertible notes limit Broadcast’s ability to prepay the notes in certain circumstances.  For all periods since the issuance of the senior secured convertible note and the unsecured convertible note, the derivative values of the respective prepayment provisions have been nominal and have not had any offsetting effect on the valuation of the conversion features of the notes.  For a description of the accounting treatment of the senior secured convertible note financing, see Note 7 to the Notes to Condensed Consolidated Financial Statements (Unaudited) included elsewhere herein.

On March 21, 2011, we converted $784,292 of our short-term debt into equity through the issuance of common stock and warrants to two lenders at the same unit pricing as the 2010 Equity Financing. In consideration of converting the short- term loans on the basis of $1.20 for two shares of common stock plus one warrant at an exercise price of $1.00, we issued 1,307,153 shares of common stock and warrants to acquire up to 653,576 shares of common stock, which warrants have a five year term and are exercisable at $1.00 per share.  Our objective for converting the short-term debt into equity was to conserve cash.

35

Our monthly operating expenses, since our expense reductions including that for CodecSys technology research and development expenses, no longer exceeds our monthly net sales.  The contract with largest customer expired in May of 2013 and we expect our revenues will be significantly reduced to the point where if we do not locate new customers our ability to continue without additional adjustments and expense reductions will be negatively impacted. The foregoing estimates, expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our expenses and sales fluctuate from period to period.

The amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions, thereby affecting our need for additional capital. We expect that our operating expenses will continue to outpace our net sales until we are able to generate additional revenue.  Our business model contemplates that sources of additional revenue include (i) sales from private communication network services, (ii) sales resulting from new customer contracts, and (iii) sales, licensing fees and/or royalties related to commercial applications of CodecSys technology, and (iv) operational efficiencies to be obtained through the merger will AllDigital.

Our long-term liquidity is dependent upon execution of our business model and the realization of additional revenue and working capital as described above, and upon capital needed for continued commercialization and development of the CodecSys technology.  Commercialization and future applications of the CodecSys technology are expected to require additional capital for the foreseeable future.  The amount required will be determined based on specific opportunities and available funding.

To date, we have met our working capital needs primarily through funds received from sales of common stock and from convertible debt financings.  Until our operations become profitable, we will continue to rely on proceeds received from external funding.  We expect additional investment capital may come from (i) the exercise of outstanding warrants to purchase capital stock currently held by existing warrant holders; (ii) additional private placements of common stock with existing and new investors; and (iii) the private placement of other securities with institutional investors similar to those institutions that have provided funding in the past.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.  We do not issue financial instruments for trading purposes or have any derivative financial instruments.  As discussed above, however, the embedded conversion feature and prepayment option of our senior secured convertible notes and our related warrants are deemed to be derivatives and are subject to quarterly “mark-to-market” valuations.

Our cash and cash equivalents are also exposed to market risk.  However, because of the short-term maturities of our cash and cash equivalents, we do not believe that an increase in market rates would have any significant impact on the realized value of our cash and cash equivalent investments.  We currently do not hedge interest rate exposure and are not exposed to the impact of foreign currency fluctuations.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act.  As of June 30, 2013, an evaluation was performed, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of June 30, 2013, were effective in ensuring that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and in ensuring that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

36

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our system of internal control over financial reporting within the meaning of Rules 13a-15(f) and 15d-15(f) of the Exchange Act is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of our published financial statements in accordance with U.S. generally accepted accounting principles.

Our management, including the chief executive officer and the chief financial officer, assessed the effectiveness of our system of internal control over financial reporting as of June 30, 2013.  In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.  Based on our assessment, we believe that, as of June 30, 2013, our system of internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Changes in Internal Control Over Financial Reporting

There were no changes in our procedures related to internal control over financial reporting for the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, such control.  However, the accounting staff has been reduced to a staff of two persons, which has impacted our ability to maintain the same level of segregation of duties as employed in the past.

Limitations on Controls and Procedures

The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud.  Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time.  Because of these limitations, any system of disclosure controls and procedures or internal control over financial reporting may not be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.

The foregoing limitations do not qualify the conclusions set forth above by our chief executive officer and our chief financial officer regarding the effectiveness of our disclosure controls and procedures and our internal control over financial reporting as of June 30, 2013.

Part II – Other Information

Item 1.       Legal Proceedings

On July 27, 2012, CTC Resources Inc. dba U.S. Media Capital (“CTC”) filed a lawsuit in the Third Judicial District Court in and for Salt Lake City, State of Utah against ACC Capital Corporation (“ACC”), Loni L. Lowder and Broadcast (the “CTCD Lawsuit”) asserting claims for relief for breach of contract against ACC, breach of fiduciary duty and fraud against ACC and Mr. Lowder and civil conspiracy against ACC, Mr. Lowder and Broadcast, and seeking injunctive relief and constructive trust as to all defendants as well as money damages.    This matter was settled and dismissed with prejudice on June 13, 2013 in exchange for Broadcast’s payment of $370,000 to the plaintiff, all of which had previously been deposited in escrow with the Court.

We are a defendant in a lawsuit filed in Los Angeles Superior court seeking payment for services rendered by the Plaintiff, Audio Visual Plus, Inc.  The total amount in dispute is $29,235.  We have paid the plaintiff approximately one half of the amount claimed and the action is not proceeding at the present time.

37

In May 2013, we were named as defendant in a lawsuit filed in the Small Claims Court in the Third Judicial District, State of Utah, seeking payment for services rendered by the plaintiff, Performance Audio.  The total amount in dispute is approximately $9,663.  We have paid approximately one half of the amount claimed and the action is not proceeding at the present time.

  To the knowledge of management, no other litigation has been filed or threatened.

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

In June 2013, we issued a total of 2,240,852 shares of our common stock to eight different companies and one individual, who were vendors who supplied services to us, in satisfaction of $153,859 in accounts payable pursuant to written satisfaction agreements.  The shares were valued at $.06 and $.07 per share.  The investors were not accredited investors, but were fully informed regarding their investment.  In the transaction, we relied on the exemptions from registration under the Securities Act set forth in Section 4(2) thereof.

In April, May and June 2013, we issued a total of 60,000 shares to one company and five individuals who had provided software engineering services for us in exchange for a written release of claims to ownership of our intellectual property pursuant to written agreements.  The shares were valued at $.07 per share, which aggregated $4,200 in value.  The investors were not accredited investors, but were fully informed regarding their investment.   In the transaction, we relied on the exemptions from registration under the Securities Act set forth in Section 4(2) thereof.

On August 8, 2013, we entered into a consent to convert account receivable agreement with one of our directors whereby he agreed to accept a convertible promissory note in a principal amount of $750,000 in full satisfaction of our obligations to him under an accounts receivable purchase agreement between us and him.  The note bears interest of 12% per annum, is due October 31, 2013 and is convertible into shares of our common stock at a rate of $0.25 per share at the option of the holder.  In the transaction, we relied on the exemptions from registration under the Securities Act set forth In Section 4(2) thereof.

Item 3.  Defaults Upon Senior Securities

None.

Item 5.    Other Information

(a) None.

(b) None.

Item 6.   Exhibits

(a) Exhibits

Exhibit Number	Description of Document
2.1*	Agreement and Plan of Merger and Reorganization, dated as of January 6, 2012, by and among Broadcast International, Inc., AllDigital, Inc., and Alta Acquisition Corporation.  (Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2013)
2.2	First Amendment to Agreement and Plan of Merger, dated as of April 10, 2013, by and among Broadcast International, Inc., AllDigital, Inc. and Alta Acquisition Corporation.  (Incorporated by reference to Exhibit 2.2 of the Company’s Current Report of Form 8-K filed with the SEC on April 10, 2013)

38

2.3	Second Amendment to Agreement and Plan of Merger, dated as of June 30, 2013, by and among Broadcast International, Inc., Alta Acquisition Corporation and AllDigital Holdings, Inc. (Incorporated by reference to Exhibit No. 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2013)
3.1	Amended and Restated Articles of Incorporation of Broadcast International.   (Incorporated by reference to Exhibit No. 3.1 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed with the SEC on November 14, 2006.)
3.2	Amended and Restated Bylaws of Broadcast International.  (Incorporated by reference to Exhibit No. 3.2 of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 filed with the SEC on November 14, 2006)
4.1	Specimen Stock Certificate of Common Stock of Broadcast International.  (Incorporated by reference to Exhibit No. 4.1 of the Company's Registration Statement on Form SB-2, filed under cover of Form S-3, pre-effective Amendment No. 3 filed with the SEC on October 11, 2005)
10.1	Amendment to Note and Warrant Purchase and Security Agreement and Senior Secured Convertible Promissory Notes, effective as of July 13, 2013, by and among Broadcast International, Inc., Interact Devices, Inc., Amir L. Ecker and the Purchasers indicated on the signature pages thereto, (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on August 8, 2013)
10.2	Consent to Convert Accounts Receivable Agreement dated August 8, 2013, by and between Broadcast International, Inc. and Don Harris, (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on August 8, 2013)
10.3	Senior Secured Convertible Promissory Note, dated August 8, 2013 (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on August 8, 2013)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1+	Principal Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2+	Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†	XBRL Instance Document
101.SCH†	XBRL Taxonomy Extension Schema Document
101.CAL†	Taxonomy Extension Calculation Linkbase Document
101.DEF†	Taxonomy Extension Definition Linkbase Document
101.LAB†	Extension Labels Linkbase Document
101.PRE†	Taxonomy Extension Presentation Linkbase Document

* The schedules and exhibits to this agreement are omitted pursuant to Item 601(b)(2) of Regulation S-K.  Broadcast International agrees to furnish supplementally a copy of any omitted schedule and exhibit to the SEC upon request

+  Furnished herewith.

†  In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and not deemed filed or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as set forth by specific reference in such filing.

39

SIGNATURES

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

	Broadcast International, Inc.
Date: August 13, 2013	/s/	Rodney M. Tiede
	By:	Rodney M. Tiede
	Its:	President (Principal Executive Officer)
Date: August 13, 2013	/s/	James E. Solomon
	By:	James E. Solomon
	Its:	Chief Financial Officer (Principal Financial and Accounting Officer)

 40

EX-31.1

Exhibit 31.1

Broadcast International, Inc. & Subsidiaries

Certification Of Principal 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 M. Tiede, certify that:

1.   I have reviewed this quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;

4. The registrant’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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepting accounting principles;

c. Evaluated the effectiveness of the registrant’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

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Date: August 13, 2013

/s/ Rodney M. Tiede

Rodney M. Tiede

President (Principal Executive Officer)

EX-31.2

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, James E. Solomon, certify that:

1.   I have reviewed this quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;

4. The registrant’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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepting accounting principles;

c. Evaluated the effectiveness of the registrant’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

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Date August 13, 2013

/s/ James E. Solomon

James E. Solomon Chief Financial Officer

EX-32.1

Exhibit 32.1

Broadcast International, Inc. & Subsidiaries

Certification Of Principal 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-Q for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof, Rodney M. Tiede, President 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-Q 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-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 13, 2013

/s/ Rodney M. Tiede

Rodney M. Tiede

President (Principal Executive Officer)

EX-32.2

Exhibit 32.2

Broadcast International, Inc. & Subsidiaries

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

In connection with the quarterly report of Broadcast International, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof, James E. Solomon, 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:

(3) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(4) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 13, 2013

/s/ James E. Solomon

James E. Solomon

Chief Financial Officer

XML

Employment Amendment and Settlement Agreements

6 Months Ended

Jun. 30, 2013

Employment Amendment and Settlement Agreements [Abstract]

Employment Amendment and Settlement Agreements

Note 12 - Employment Amendment and Settlement Agreements

Pursuant to the January 6, 2013 Amendment and Settlement Agreement with each of Mr. Tiede, Mr. Solomon, and a Senior Vice President their respective employment agreements were modified and we agreed to issue each individual 529,100 shares of common stock if they were terminated by us at any time following January 6, 2013.  All other termination benefits and severance were terminated as of January 6, 2013. We had an obligation as of March 6, 2013 to issue to each of them 529,100 shares of common stock.  As of June 30, 2013 these shares had not been issued, however an aggregate of $60,481 has been accrued representing the value of the benefits which will be exchanged for the shares.

XML

Fair Value Measurements (Details) (USD $)	6 Months Ended
	Jun. 30, 2013
Derivative Valuation Liability [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Balance at December 31, 2012	$ (1,191,269)
Included in net loss	(25,606)
Valuation adjustment
Purchases, issuances, and settlements, net	(58,400)
Transfers to Level 3
Balance at June 30, 2013	(1,275,275)
Fair Value, Measurements, Recurring [Member]
Assets
Total assets measured at fair value
Liabilities
Derivative valuation	1,275,275	[1]
Total liabilities measured at fair value	1,275,275
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets
Total assets measured at fair value
Liabilities
Derivative valuation		[1]
Total liabilities measured at fair value
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets
Total assets measured at fair value
Liabilities
Derivative valuation		[1]
Total liabilities measured at fair value
Fair Value, Measurements, Recurring [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets
Total assets measured at fair value
Liabilities
Derivative valuation	1,275,275	[1]
Total liabilities measured at fair value	$ 1,275,275

[1] See Notes 6 & 7 for additional discussion.

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS [Abstract]
Net sales	$ 974,657	$ 1,999,988	$ 2,455,226	$ 3,745,085
Cost of sales	796,333	1,345,966	1,573,902	2,591,458
Gross profit	178,324	654,022	881,324	1,153,627
Operating expenses:
Administrative and general	642,116	1,259,320	1,628,325	2,588,601
Selling and marketing	47,539	598,841	185,008	1,115,240
Research and development	168,939	464,847	394,313	1,021,414
Depreciation and amortization	54,016	164,043	149,880	326,675
Total operating expenses	912,610	2,487,051	2,357,526	5,051,930
Total operating loss	(734,286)	(1,833,029)	(1,476,202)	(3,898,303)
Other income (expense):
Interest income		1		1
Interest expense	(591,398)	(263,483)	(1,125,183)	(606,211)
Gain (loss) on derivative valuation	709,509	2,959,155	(25,606)	4,588,480
Equity issuance costs related to warrants		(18,836)		(1,095,309)
Gain on extinguishment of debt	345,397		414,484	1,672,575
Loss on sale of assets	(186,621)	(1,799)	(136,621)	(1,640)
Other income, net	190	5,183	4,356	2,122
Total other income (expense)	277,077	2,680,221	(868,570)	4,560,018
Profit (loss) before income taxes	(457,209)	847,192	(2,344,772)	661,715
Provision for income taxes
Net profit (loss)	$ (457,209)	$ 847,192	$ (2,344,772)	$ 661,715
Net profit (loss) per share - basic	$ 0.00	$ 0.01	$ (0.02)	$ 0.01
Net profit (loss) per share - diluted	$ 0.00	$ 0.01	$ (0.02)	$ 0.01
Weighted average shares - basic	108,284,171	107,193,974	107,977,505	94,167,466
Weighted average shares - diluted	108,284,171	114,128,974	107,977,505	104,042,079

XML

Significant Accounting Policies

6 Months Ended

Jun. 30, 2013

Significant Accounting Policies [Abstract]

Significant Accounting Policies

Note 5 - Significant Accounting Policies

Cash and Cash Equivalents

We consider all cash on hand and in banks, and highly liquid investments with maturities of three months or less, to be cash equivalents. At June 30, 2013 and December 31, 2012, we had bank balances of $321,023 and $38,847, respectively, in excess of amounts insured by the Federal Deposit Insurance Corporation.  We have not experienced any losses in such accounts, and believe we are not exposed to any significant credit risk on cash and cash equivalents.

Current financial market conditions have had the effect of restricting liquidity of cash management investments and have increased the risk of even the most liquid investments and the viability of some financial institutions.  We do not believe, however, that these conditions will materially affect our business or our ability to meet our obligations or pursue our business plans.

Accounts Receivable

Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected.

Included in our $93,379 and $821,608 net accounts receivable for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively, were (i) $132,973 and $856,462 for billed trade receivables, respectively; (ii) $(3,113) and $44,478 of unbilled trade receivables less invoiced unearned revenue (iii) $1,479 and $1,808 for employee travel advances and other receivables, respectively; less (iv) ($37,960) and ($81,140) for allowance for uncollectible accounts, respectively.

The service contract with our largest customer expired May 31, 2013. The revenues from this customer accounted for 87% of our revenues for the six months ended June 30, 2013.

Inventories

Inventories consisting of electrical and computer parts are stated at the lower of cost or market determined using the first-in, first-out method.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the property, generally from three to five years.  Repairs and maintenance costs are expensed as incurred except when such repairs significantly add to the useful life or productive capacity of the asset, in which case the repairs are capitalized.

Patents and Intangibles

Patents represent initial legal costs incurred to apply for United States and international patents on the CodecSys technology, and are amortized on a straight-line basis over their useful life of approximately 20 years.  We have filed several patents in the United States and foreign countries. As of March 31, 2013, the United States Patent and Trademark Office had approved four patents.  Additionally, eleven foreign countries had approved patent rights.  While we are unsure whether we can develop the technology in order to obtain the full benefits, the patents themselves hold value and could be sold to companies with more resources to complete the development. On-going legal expenses incurred for patent follow-up have been expensed from July 2005 forward.

Amortization expense recognized on all patents totaled $2,538 and $5,075 for both the three and six months ended June 30, 2013 and 2012, respectively. Estimated amortization expense, if all patents were issued at the beginning of 2013, for each of the next five years is as follows:

Year ending December 31:
2013	$	11,343
2014	$	10,121
2015	$	10,121
2016	$	10,121
2017	$	10,121

Long-Lived Assets

We review our long-lived assets, including patents, annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, then the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.  Fair value is determined by using cash flow analyses and other market valuations. For the six months ended June 30, 2013 we recorded a $136,621 loss on disposal of assets of which (i) $40,824 was for the abandonment of lease hold improvements related to our move from our 7050 Union Park location, (ii) $25,685 related to the retirement of furniture & fixtures, (iii) $70,112 related to equipment sold or no longer in use.

Income Taxes

We account for income taxes in accordance with the asset and liability method of accounting for income taxes prescribed by ASC Topic 740.  Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled.

Revenue Recognition

We recognize revenue when evidence exists that there is an arrangement between us and our customers, delivery of equipment sold or service has occurred, the selling price to our customers is fixed and determinable with required documentation, and collectability is reasonably assured. We recognize as deferred revenue, payments made in advance by customers for services not yet provided.

When we enter into a multi-year contract with a customer to provide installation, network management, satellite transponder and help desk, or combination of these services, we recognize this revenue as services are performed and as equipment is sold. These agreements typically provide for additional fees, as needed, to be charged if on-site visits are required by the customer in order to ensure that each customer location is able to receive network communication. As these on-site visits are performed the associated revenue and cost are recognized in the period the work is completed. If we install, for an additional fee, new or replacement equipment to an immaterial number of new customer locations, and the equipment immediately becomes the property of the customer, the associated revenue and cost are recorded in the period in which the work is completed.

In instances where we have entered into license agreements with a third parties to use our technology within their product offering, we recognize any base or prepaid revenues over the term of the agreement and any per occurrence or periodic usage revenues in the period they are earned.

Research and Development

Research and development costs are expensed when incurred.  We expensed $168,939 and $394,313 of research and development costs for the three and six months ended June 30, 2013, respectively.  We expensed $464,847 and $1,021,414 of research and development costs for the three and six months ended June 30, 2012, respectively.

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of trade accounts receivable. In the normal course of business, we provide credit terms to our customers. Accordingly, we perform ongoing credit evaluations of our customers and maintain allowances for possible losses which, when realized, have been within the range of management's expectations.

For the six months ended June 30, 2013 and 2012, we had the same customer that individually constituted 87% and 86%, respectively of our total revenues.

The service contract with our largest customer expired May 31, 2013. The revenues from this customer accounted for 87% of our revenues for the six months ended June 30, 2013.

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Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2013

Significant Accounting Policies [Abstract]

Schedule of Future Patent Amortization

Estimated amortization expense, if all patents were issued at the beginning of 2013, for each of the next five years is as follows:

Year ending December 31:
2013	$	11,343
2014	$	10,121
2015	$	10,121
2016	$	10,121
2017	$	10,121

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Employment Amendment and Settlement Agreements (Details) (USD $)	Jun. 30, 2013	Jan. 06, 2013
Employment Amendment and Settlement Agreements [Abstract]
Shares authorized for issuance		529,100
Accrued liability	$ 60,481

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2013

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 13 - Recent Accounting Pronouncements

In March 2013, the FASB issued ASU 2013-05, Foreign Currency Matters (Topic 830) - Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This Update indicates that when the reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. This should be done if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. Partial sale guidance for an equity method investment that is a foreign entity still applies resulting in a pro rata portion of the cumulative translation adjustment being released to net income upon a partial sale of the equity method investment. This Update is effective prospectively for fiscal years beginning after December 15, 2013 for public companies and after December 15, 2014 for non-public companies. The Company doesn't expect this Update to significantly impact its financials since it does not have any foreign entities. However, the guidance will be applied if it does occur.

In February 2013, the FASB issued ASU 2013-04, Liabilities (Topic 405) - Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date. The Update requires a company to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the sum of the following: 1) The amount the entity agreed to pay on the basis of its arrangement among its co-obligors and 2) Any additional amount the entity expects to pay on behalf of its co-obligors. This Update is effective retrospectively for fiscal years beginning after December 15, 2013 for public companies and after December 15, 2014 for non-public companies. The Company doesn't expect this Update to impact its financials since it does not have any obligations from joint and several liability arrangements.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220) - Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The main purpose of this Update is to improve the reporting of reclassifications out of accumulated other comprehensive income. The Update requires that the effect of significant reclassifications out of accumulated other comprehensive income be reported on the respective line items in net income if the amount being reclassified in its entirety to net income. For those items not reclassified in its entirety to net income, a cross-reference to other disclosures providing information about those amounts.  Furthermore, information about amounts reclassified out of accumulated other comprehensive income must be shown by component. This Update is effective prospectively for reporting periods beginning after December 15, 2012 for public companies and after December 15, 2013 for non-public companies. The Company doesn't expect this Update to impact its financials since it does not have any comprehensive income items.  However, if any are noted in the future, the appropriate disclosures will be incorporated.

.

In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210) - Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The main purpose of this Update is to clarify that the disclosures regarding offsetting assets and liabilities per ASU 2011-11 apply to derivatives including embedded derivatives, repurchase agreements and reverse repurchase agreements and securities borrowing and lending transactions that are offset or subject to a master netting agreement. Other types of transactions are not impacted. This Update is effective for fiscal years beginning on or after January 1, 2013 and for all interim periods within that fiscal year. The Company doesn't expect this Update to impact the Company's financials since it does not have instruments noted in the Update that are offset.

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Notes Payable (Equipment Purchase and Sale Agreement) (Details) (USD $)	3 Months Ended		6 Months Ended				0 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 2012 Plan [Member]	Mar. 26, 2012 2012 Plan [Member]	Mar. 26, 2012 Equipment Purchase and Sale Agreement [Member]	Jun. 30, 2012 Equipment Purchase and Sale Agreement [Member]	Dec. 31, 2011 Equipment Purchase and Sale Agreement [Member]
Debt Instrument [Line Items]
Fee percent									3.00%
Amount of debt converted							$ 500,000
Long-term debt									700,000
Accrued interest payable						680,816
Repayment of debt				3,741,194			200,000
Interest paid			65,700	248,643			105,000
Interest expense								63,000
Fair value of warrants					783,715		278,032
Gain on extinguishment of debt	$ 345,397		$ 414,484	$ 1,672,575			$ (278,032)

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Supplemental Cash Flow Information (Details) (USD $)	3 Months Ended		6 Months Ended					3 Months Ended	6 Months Ended	3 Months Ended		6 Months Ended		0 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Leasehold Improvements [Member]	Jun. 30, 2013 Furniture and Fixtures [Member]	Jun. 30, 2013 Equipment [Member]	Jun. 30, 2013 2012 Convertible Notes [Member]	Jun. 30, 2013 2012 Convertible Notes [Member]	Jun. 30, 2013 Unsecured Convertible Note [Member]	Jun. 30, 2012 Unsecured Convertible Note [Member]	Jun. 30, 2013 Unsecured Convertible Note [Member]	Jun. 30, 2012 Unsecured Convertible Note [Member]	Jul. 13, 2012 Bridge Loan Note Payable [Member]	Mar. 26, 2012 Bridge Loan Note Payable [Member]	Jun. 30, 2012 Bridge Loan Note Payable [Member]	Jun. 30, 2012 Bridge Loan Note Payable [Member]	Jun. 30, 2013 Six Individuals [Member]	Jun. 30, 2013 Restricted Stock Units [Member]	Jun. 30, 2012 Restricted Stock Units [Member]	Jun. 30, 2013 Deferred Compensation, Share-based Payments [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares issued for services rendered			458,553
Settled by issuance of stock																			258,553
Shares issued for services																		60,000			200,000
Value of shares issued for services																		$ 4,200	$ 51,500		$ 15,000
Restricted stock units awarded																			686,667	100,000
Share-based Goods and Nonemployee Services Transaction [Line Items]
Warrants issued to investment banker				250,000
Common stock issued for services			4,200	137,500
Other Significant Noncash Transactions [Line Items]
Accretion of discount on convertible notes payable			793,865	265,636				51,525	360,494	20,000	83,334	83,334	166,668			51,848	98,968
Gain on extinguishment of debt	345,397		414,484	1,672,575										(93,661)	(222,426)
Stock issued to extinguish debt, shares			2,240,852
Value of stock issued to extinguish debt			153,860
Total cash payment to extinguish debt			137,865											900,000
Payments for debt extinguishment costs			66,646	275,041
Total depreciation and amortization expense			151,047	723,194
Depreciation and amortization included in cost of sales			1,167	396,520
Depreciation related to equipment other property and equipment, and (iii) $2,538 for patent amortization.			144,805	321,599
Patent amortization	2,538	2,538	5,075	5,075
Property, Plant and Equipment [Line Items]
Loss on disposal of assets	(186,621)	(1,799)	(136,621)	(1,640)	(40,824)	(25,685)	(70,112)
Proceeds from the sale of assets			$ 75,423	$ 750

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Significant Accounting Policies (Accounts Receivable) (Details) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Accounts Receivable
Net accounts receivable	$ 93,379	$ 821,608
Billed trade receivables	132,973	856,462
Unbilled trade receivables	(3,113)	44,478
Employee travel advances and other receivables	1,479	1,808
Allowance for uncollectible accounts	$ 37,960	$ 81,140

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Schedule of Fair Value of Financial Instruments

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2013:

					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets
None	$	--	$	--	$	--	$	--
Total assets measured at fair value	$	--	$	--	$	--	$	--
Liabilities
Derivative valuation (1)	$	1,275,275	$	--	$	--	$	1,275,275
Total liabilities measured at fair value	$	1,275,275	$	--	$	--	$	1,275,275

(1) See Notes 6 & 7 for additional discussion.

Schedule of Liabilities Measured at Fair Value on a Recurring Basis using Significant Unobservable Inputs

The table below presents our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at June 30, 2013.  We classify financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model.

	Derivative
	Valuation
	Liability
Balance at December 31, 2012	$	(1,191,269	)
Total gains or losses (realized and unrealized)
Included in net loss		(25,606	)
Valuation adjustment		--
Purchases, issuances, and settlements, net		(58,400	)
Transfers to Level 3		--
Balance at June 30, 2013	$	(1,275,275	)

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Equity Financing and the Debt Restructuring (Tables)

6 Months Ended

Jun. 30, 2013

Equity Financing and the Debt Restructuring [Abstract]

Schedule of Debt Conversion

	Common Shares Issued		Number of A Warrants		Value of A Warrants		Value of B Warrants		Total Warrant Value
Investors		24,816,000		12,408,000	$	487,095	$	39,387	$	526,482
Bridge Loan Conversion		1,600,000		800,000		31,405		2,539		33,944
Equipment Finance Conversion		2,000,000		1,000,000		39,257		3,174		42,431
Agency		--		4,262,400		167,327		13,531		180,858
Total		28,416,000		18,470,400	$	725,084	$	58,631	$	783,715

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Notes Payable (2010 Accounts Receivable Purchase Agreements) (Details) (USD $)	3 Months Ended		6 Months Ended			6 Months Ended		12 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jun. 30, 2013 Accounts Receivable [Member]	Jun. 30, 2012 Accounts Receivable [Member]	Dec. 31, 2011 Accounts Receivable [Member]	Dec. 31, 2010 Accounts Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Accounts receivable purchase agreement, amount									$ 775,000
Repayment of advances								100,000
Interest paid			65,700	248,643
Amount of debt converted								675,000
Common stock issued in conversion								1,307,153
Number of warrants issued in conversion								653,576
Anti-dilution price protection provisions, stock price threshold								$ 1.00
Exercise price of warrants						0.725
Derivative valuation	1,275,275	4,309,537	1,275,275	4,309,537	1,191,269	7,700	50,200
Gain (loss) on derivative valuation	$ 709,509	$ 2,959,155	$ (25,606)	$ 4,588,480		$ (1,800)	$ 106,100
Risk-free interest rate						0.66%
Expected life						2 years 8 months 12 days
Expected volatility						96.68%
Dividend yield						0.00%
Stock trading price						$ 0.08

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Stock-based Compensation (Schedule of Option and Warrant Activity) (Details) (USD $)	6 Months Ended
	Jun. 30, 2013
Options and Warrants Outstanding
Outstanding at December 31, 2012	43,396,863
Expired	(448,094)
Forfeited	(506,800)
Exercised
Outstanding at June 30, 2013	43,291,969
Weighted Average Exercise Price
Outstanding at December 31, 2012	$ 0.54
Expired	$ 1.05
Forfeited	$ 1.41
Exercised
Outstanding at June 30, 2013	$ 0.48
Stock Options [Member]
Options and Warrants Outstanding
Granted/Issued
Weighted Average Exercise Price
Granted/Issued
Warrant [Member]
Options and Warrants Outstanding
Granted/Issued	850,000
Weighted Average Exercise Price
Granted/Issued	$ 0.25

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Notes Payable (Schedule of Notes Payable) (Details) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Debt Instrument [Line Items]
Total	$ 5,032,471	$ 3,102,006
Less Current Portion	(5,032,471)	(3,102,006)
Total Long-term
2012 Convertible Notes [Member]
Debt Instrument [Line Items]
Total	3,421,963	2,428,166
Unsecured Convertible Note [Member]
Debt Instrument [Line Items]
Total	840,508	673,840
2013 Accounts Receivable Purchase Agreement [Member]
Debt Instrument [Line Items]
Total	750,000
Interest Promissory Note [Member]
Debt Instrument [Line Items]
Total	$ 20,000

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Equity Financing and the Debt Restructuring (2012 Equity Financing and the Debt Restructuring) (Details) (USD $)	3 Months Ended		6 Months Ended			0 Months Ended							0 Months Ended		1 Months Ended	6 Months Ended					1 Months Ended	6 Months Ended	9 Months Ended		0 Months Ended		6 Months Ended		0 Months Ended	6 Months Ended				0 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Dec. 28, 2011 Warrants Issued to Reset Provision and Extend Maturity Date of Bridge Loan Warrants [Member]	Dec. 28, 2011 Original Warrants Issued for Bridge Loan [Member]	Mar. 26, 2012 Bridge Loan Conversion [Member]	Mar. 26, 2012 Equipment Purchase Agreement Conversion [Member]	Mar. 26, 2012 Amended and Restated Senior Convertible Note [Member]	Dec. 24, 2007 Amended and Restated Senior Convertible Note [Member]	Dec. 24, 2010 Amended and Restated Senior Convertible Note [Member]	Mar. 26, 2012 Bridge Loan Note Payable [Member]	Dec. 28, 2011 Bridge Loan Note Payable [Member]	Dec. 31, 2011 Bridge Loan Note Payable [Member]	Jun. 30, 2013 Bridge Loan Note Payable [Member] Warrants Issued to Reset Provision and Extend Maturity Date of Bridge Loan Warrants [Member]	Jun. 30, 2012 Bridge Loan Note Payable [Member] Warrants Issued to Reset Provision and Extend Maturity Date of Bridge Loan Warrants [Member]	Jun. 30, 2013 Bridge Loan Note Payable [Member] Original Warrants Issued for Bridge Loan [Member]	Jun. 30, 2012 Bridge Loan Note Payable [Member] Original Warrants Issued for Bridge Loan [Member]	Jun. 30, 2013 Class A Warrant [Member]	Oct. 31, 2007 Class B Warrant [Member]	Jun. 30, 2013 Class A and B Warrants [Member]	Dec. 31, 2012 Class A and B Warrants [Member]	Jun. 30, 2012 Class A and B Warrants [Member]	Apr. 05, 2012 2012 Plan [Member]	Mar. 26, 2012 2012 Plan [Member]	Jun. 30, 2013 2012 Plan [Member]	Jun. 30, 2012 2012 Plan [Member]	Apr. 05, 2012 2012 Plan [Member] Class A Warrant [Member]	Jun. 30, 2013 2012 Plan [Member] Class A Warrant [Member]	Mar. 26, 2012 2012 Plan [Member] Class A Warrant [Member]	Jun. 30, 2013 2012 Plan [Member] Class B Warrant [Member]	Mar. 26, 2012 2012 Plan [Member] Class B Warrant [Member]	Mar. 26, 2012 2012 Plan [Member] Maximum [Member]	Mar. 26, 2012 2012 Plan [Member] Minimum [Member]
Equity Financing and Debt Restructuring [Line Items]
Gross consideration in equity financing transaction																										$ 6,000,000								$ 10,000,000	$ 3,000,000
Commission fee percentage																										10.00%
Percent of issued common stock covered by warrants issued in transaction																										10.00%
Number of units to be issued in financing transaction																										27,800,000
Price per unit																										$ 0.25
Shares of stock issued per warrant exercised																										0.5
Warrant term length						6 years	5 years
Exercise price of warrants						0.35	0.65																								0.35		0.05
Maximum share price triggering exercisability of warrant																										$ 0.25
Amount of financing proceeds triggering expiration of warrants														12,000,000	12,000,000
Number of shares of common stock warrants can be exercised for						247,500	357,500								357,500
Proceeds from issuance of stock and warrants																										6,100,000
Proceeds from equity financing			425,000	6,150,000																					154,000
Shares of common stock issued																					650,000				616,000	2,000,000
Value of shares issued for debt restructuring										760,000																760,000
Cash paid to settle debt										2,750,000																2,750,000
Amount of debt converted								400,000	500,000				400,000
Number of shares issued for agent fees										586,164
Payments for debt extinguishment costs			66,646	275,041						275,041
Number of warrants issued																													400,400
Number of warrants issued to investors																													308,000
Principal issued											15,000,000	5,500,000	900,000	1,300,000	1,300,000
Warrants issued to investment banker				250,000																									92,400
Debt interest rate											6.25%			18.00%	18.00%
Debt maturity date											Dec. 21, 2013				Feb. 28, 2012
Derivative valuation	1,275,275	4,309,537	1,275,275	4,309,537	1,191,269											7,700	34,700	8,700	46,700			783,715		3,101,537			783,715	3,101,537		725,084		58,631
Gain (loss) on derivative valuation	$ 709,509	$ 2,959,155	$ (25,606)	$ 4,588,480												$ (500)	$ 61,825	$ (1,300)	$ 97,000			$ (26,246)	$ 659,855				$ (26,246)	$ 1,659,855
Risk-free interest rate																0.85%		0.85%		1.41%										1.41%
Expected life																3 years 6 months		3 years 6 months		4 years 8 months 12 days										4 years 8 months 12 days
Expected volatility																94.74%		92.74%		91.50%										91.50%
Dividend yield																0.00%		0.00%		0.00%										0.00%
Stock trading price																$ 0.08		$ 0.08		$ 0.08										$ 0.08

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Stock-based Compensation (Schedule of Assumptions Used to Value Warrants) (Details) (Warrant [Member])	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate	0.65%	1.32%
Expected life (in years)	4 years 5 months 1 day	5 years 11 months 27 days
Expected volatility	90.68%	85.65%
Expected dividend yield	0.00%	0.00%

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Notes Payable (2013 Accounts Receivable Purchase Agreement) (Details) (USD $)	Apr. 30, 2013
Notes Payable [Abstract]
Receivables sold	$ 750,000

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Notes Payable (Tables)

6 Months Ended

Jun. 30, 2013

Notes Payable [Abstract]

Schedule of Notes Payable

The recorded value of our notes payable (net of debt discount) for the six months ended June 30, 2013 and year ended December 31, 2012 was as follows:

	December 31, 2012			June 30, 2013
2012 Secured Convertible Notes	$	2,428,166		$	3,421,963
Unsecured Convertible Note		673,840			840,508
2013 Accounts Receivable Purchase Agreement		--			750,000
Interest Promissory Note		--			20,000
Total		3,102,006			5,032,471
Less Current Portion		(3,102,006	)		(5,032,471	)
Total Long-term	$	--		$	--

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Basis of Presentation

6 Months Ended

Jun. 30, 2013

Basis of Presentation [Abstract]

Basis of Presentation

Note 1 - Basis of Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements of Broadcast International, Inc. ("we" or the "Company") contain the adjustments, all of which are of a normal recurring nature, necessary to present fairly our financial position at December 31, 2012 and June 30, 2013 and the results of operations for the three and six months ended June 30, 2012 and 2013, respectively, with the cash flows for each of the six months ended June 30, 2012 and 2013, in conformity with U.S. generally accepted accounting principles.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012.  Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013.

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Weighted Average Shares

6 Months Ended

Jun. 30, 2013

Weighted Average Shares [Abstract]

Weighted Average Shares

Note 3 - Weighted Average Shares

Basic earnings per common share is computed by dividing net income or loss applicable to common shareholders by the weighted average number of shares outstanding during each period. The computation of diluted earnings per common share is based on the weighted average number of shares outstanding during the year, plus the dilutive common stock equivalents that would rise from the exercise of stock options, warrants and restricted stock units outstanding during the period, using the treasury stock method and the average market price per share during the period, plus the effect of assuming conversion of the convertible debt.

The following table sets forth the computation of basic and diluted earnings per common share for the three and six month periods ended June 30, 2012 and 2013:

	For the three months ended						For the six months ended
	June 30,						June 30,
	2012			2013			2012		2013
Numerator
Net income (loss)	$	847,192		$	(457,209	)	$	661,715	$	(2,344,772	)
Effect on earnings of dilutive convertible debt		(225,266	)		--			233,068		--
Net income (loss) plus assumed conversions		621,926			(457,209	)		894,783		(2,334,772	)
Denominator
Basic weighted average shares outstanding		107,193,974			108,284,171			94,167,466		107,977,505
Effect of dilutive securities:
Stock options and warrants		--			--			2,939,613		--
Restricted stock units		2,935,000			--			2,935,000		--
Convertible debt		4,000,000			--			4,000,000		--
Diluted weighted average shares outstanding		114,128,974			108,284,171			104,042,079		107,977,505
Net income (loss) per common share
Basic	$	0.01		$	(0.00	)	$	0.01	$	(0.02	)
Diluted	$	0.01		$	(0.00	)	$	0.01	$	(0.02	)

As we experienced net losses during the three and six month periods ending June 30, 2013 no common stock equivalents have been included in the diluted earnings per common share calculations as the effect of such common stock equivalents would be anti-dilutive.

Options and warrants to purchase 43,291,969 shares of common stock at prices ranging from $0.25 to $4.00 per share were outstanding at June 30, 2013. Additionally we had restricted stock units of 3,368,247 outstanding at June 30, 2013.  Furthermore, the Company had convertible debt that was convertible into 17,900,000 shares of common stock at June 30, 2013.  All the above were excluded from the calculation of diluted earnings per share because the effect was anti-dilutive.

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Notes Payable

6 Months Ended

Jun. 30, 2013

Notes Payable [Abstract]

Notes Payable

Note 6 - Notes Payable

The recorded value of our notes payable (net of debt discount) for the six months ended June 30, 2013 and year ended December 31, 2012 was as follows:

	December 31, 2012			June 30, 2013
2012 Secured Convertible Notes	$	2,428,166		$	3,421,963
Unsecured Convertible Note		673,840			840,508
2013 Accounts Receivable Purchase Agreement		--			750,000
Interest Promissory Note		--			20,000
Total		3,102,006			5,032,471
Less Current Portion		(3,102,006	)		(5,032,471	)
Total Long-term	$	--		$	--

2012 Secured Convertible Notes

We engaged Philadelphia Brokerage Corporation to raise funds through the issuance of convertible promissory notes.  We anticipated issuing promissory notes with an aggregate principal amount of up to $5,000,000 ("2012 Convertible Debt Offering"). As of June 30, 2013 we have issued notes having an aggregate principal value of $3,475,000 as explained below.  The notes were originally due and payable on or before July 13, 2013; however on August 6, 2013, we and the requisite parties executed an amendment of the notes whereby, effective as of July 13, 2013, the maturity date of the notes was extended to October 31, 2013.  The notes bear interest at 12% per annum and may convertible to common stock at a $0.25 per share conversion price.  We also granted holders of the notes warrants with a five year life to acquire up to 200,000 shares of our common stock for each $100,000 of principal amount of the convertible notes.  The notes are secured by all of our assets with the exception of the equipment and receivables secured by the equipment lessor for equipment used in providing services for our largest customer's digital signage network.

In July 2012, we entered into a note and warrant purchase and security agreement with individual investors and broke escrow on the initial funding under the 2012 Convertible Debt Offering, the principal amount of which was $1,900,000, which included the conversion of $900,000 of previously issued short term debt (See Bridge Loan described above) to the 2012 convertible Debt Offering, which extinguished the Bridge Loan.  Of the $1,000,000 non-converted principal amount, we realized $923,175 of cash in the initial closing and issued warrants to acquire 3,800,000 shares of our common stock.  We paid $76,825 in investment banking fees and costs of the offering.

In August 2012, we continued sales of convertible debt under the 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $900,000, issued warrants to acquire 1,800,000 shares of our common stock, from which we realized cash of $851,624 after payment of investment banking fees of $48,376.

In December 2012, we continued sales of convertible debt under the 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $250,000, issued warrants to acquire 500,000 shares of our common stock to one member of our Board of Directors.

In January 2013, we continued sales of convertible debt under the 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $425,000, issued warrants to acquire 850,000 shares of our common stock to; (i) one member of our Board of Directors, (ii) three individuals and (iii) two companies.

Before June 30, 2013 we received oral assurance that the maturity date of our senior secured convertible notes would be extended to October 31, 2013 and the cumulative effect of that extension has been reflected in our financial statements for the period ending June 30, 2013.

The notes and warrants mentioned above were issued with price protection provisions and were accounted for as derivative liabilities and valued on the dates issued using a Black-Scholes pricing model.

We recorded an aggregate derivative liability of $60,660 as of June 30, 2013, related to the conversion feature of the note. A derivative valuation gain of $28,940 was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012.  The aggregate derivative liability of $60,660 was calculated as follows using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.04%, (ii) expected life (in years) of 0.34; (iii) expected volatility of 143.51%, (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

We recorded an aggregate derivative liability of $237,700 as of June 30, 2013, related to the warrant reset provision. A derivative valuation loss of $11,400 was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012.  The aggregate derivative liability of $237,700 was calculated as follows using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.57%, (ii) expected life (in years) of 4.10; (iii) expected volatility of 91.86%, (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

The principal value of the secured convertible notes is being accreted over the extended term of the obligation, for which $51,525 and $360,494 was included in interest expense for each the three and six months June 30, 2013, respectively.  The notes bear a 12% annual interest rate for which $103,964 and $202,825 was included in interest expense for the three and six months ended June 30, 2013, respectively.

Unsecured Convertible Note

On September 29, 2006, we entered into a letter of understanding with Triage Capital Management, or Triage, dated September 25, 2006.  The letter of understanding provided that Triage loan $1,000,000 to us in exchange for us entering into, on or prior to October 30, 2006, a convertible note securities agreement.  It was intended that the funding provided by Triage be replaced by a convertible note and accompanying warrants, as described below.  Effective November 2, 2006, we entered into securities purchase agreement, a 5% convertible note, a registration rights agreement, and four classes of warrants to purchase our common stock, all of which were with an individual note holder, the controlling owner of Triage, who caused our agreement with Triage to be assigned to him, which satisfied our agreement with Triage.

Pursuant to the securities purchase agreement, (i) we sold to the convertible note holder a three-year convertible note in the principal amount of $1,000,000 representing the funding received by us on September 29, 2006; (ii) the convertible note bears an annual interest rate of 5%, payable semi-annually in cash or shares of our common stock; (iii) the convertible note is convertible into shares of our common stock at a conversion price of $1.50 per share subject to full-ratchet anti-dilution price protection provisions ; and (iv) we issued to the convertible note holder four classes of warrants (A Warrants, B Warrants, C Warrants and D Warrants), which give the convertible note holder the right to purchase a total of 5,500,000 shares of our common stock as described below.  The A and B Warrants originally expired one year after the effective date of a registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"), to register the subsequent sale of shares received from exercise of the A and B Warrants. The C Warrants and D Warrants originally expired eighteen months and twenty four months, respectively, after the effective date of a registration statement to be filed under the Securities Act.  The A Warrants grant the convertible note holder the right to purchase up to 750,000 shares of common stock at an exercise price of $1.60 per share, the B Warrants grant the convertible note holder the right to purchase up to 750,000 shares of common stock at an exercise price of $1.75 per share, the C Warrants grant the convertible note holder the right to purchase up to 2,000,000 shares of common stock at an exercise price of $2.10 per share, and the D Warrants grant the convertible note holder the right to purchase up to 2,000,000 shares of common stock at an exercise price of $3.00 per share.

During the year ended December 31, 2007, the convertible note holder exercised 454,000 A Warrants. We entered into an exchange agreement dated October 31, 2007 in which the convertible note holder received 650,000 shares of our common stock in exchange for cancellation of the C and the D Warrants.  The expiration date of the A Warrants and the B Warrants was extended from January 11, 2008 to December 3, 2008. During the year ended December 31, 2008, the convertible note holder exercised 64,400 A Warrants. On December 3, 2008, the remaining 231,600 A Warrants and 750,000 B Warrants were unexercised and expired.

On December 23, 2009 we entered into an amendment with the holder of our unsecured convertible note in the principal amount of $1.0 million which (i) extended the note maturity date to December 22, 2010 and (ii) increased the annual rate of interest from 5% to 8% commencing October 16, 2009. All other terms and conditions of the note remain unchanged.

On December 24, 2010 we closed on a Debt Restructuring as mentioned above, In connection with that Debt Restructuring the Company amended the note with the holder of a $1.0 million unsecured convertible note, pursuant to which the maturity date of the note was extended to December 31, 2013.  We issued 150,000 shares to the holder of this note as consideration to extend the term of the note.

During March 2011, we issued 135,369 shares of common stock to the holder of our unsecured convertible note in satisfaction of $81,221 of accrued interest on the unsecured convertible note.  Also in connection with the satisfaction of the accrued interest we granted to the holder a warrant to acquire up to 221,758 additional shares of our common stock at an exercise price of $0.96 per share.  The warrant is exercisable at any time for a five-year period.

We recorded an aggregate derivative liability of $34,600 and $326,400 as of June 30, 2013 and 2012, respectively, related to the conversion feature of the note. A derivative valuation gain of $11,800 and a derivative valuation loss of $26,400, respectively, was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $34,600 for the conversion feature of the note was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.10%, (ii) expected life (in years) of 0.5; (iii) expected volatility of 143.51%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

In connection with the amendment mentioned above, the principal value of the note is being accreted due to the difference in the value of the conversion feature before and after the amendment. The principal value of $1,000,000 of the unsecured convertible note was accreted over the amended term of the obligation, for which $83,334 and $166,668 was included in interest expense for each the three and six months ended June 30, 2013 and 2012, respectively. The note bears an 8% annual interest rate payable semi-annually, and for each the three and six months ended June 30, 2013 and 2012, $20,000 and $40,000, respectively was included in interest expense.

2013 Accounts Receivable Purchase Agreement

In April 2013 we entered into an accounts receivable purchase agreement with one of our directors under the terms of which he agreed to purchase $750,000 of our accounts receivable generated over the next succeeding three months.  Because our receivables are no longer in excess of the amount purchased, we have classified our obligation as short term debt in our financial statements.

Interest Promissory Note

On April 17, 2013 we entered into a $20,000 Promissory Note with the holder of our Unsecured Convertible Note for unpaid interest due at that time on the note The Promissory Note is due on December 31, 2013 and contains a 12% annual interest rate.

Senior Unsecured 6.25% Convertible Note

On December 24, 2007, we entered into a securities purchase agreement in which we raised $15,000,000 (less $937,000 of prepaid interest).  We used the proceeds from this financing to support our CodecSys commercialization and development and for general working capital purposes.  Pursuant to the financing, we issued a senior secured convertible note in the principal amount of $15,000,000 (which principal amount has been increased as discussed below).The senior secured convertible note was originally due December 21, 2010, but was amended, restated and extended to December 21, 2013 and was subsequently retired as discussed below.

On March 26, 2012, we closed on an equity financing (the "2012 Equity Financing"), as well as a restructuring of our outstanding senior convertible indebtedness (the "2012 Debt Restructuring"), resulting in complete satisfaction of our senior indebtedness under the Amended and Restated Note.

A portion of the net proceeds from the 2012 Equity Financing was used to close on the 2012 Debt Restructuring. The Company paid $2,750,000 and issued 2,000,000 shares of common stock valued at $760,000 in satisfaction of the Amended and Restated Note and remaining interest value of $680,816. In consideration of negotiating the 2012 Debt Restructuring and amending our agreement with our placement agent, we paid $275,041 and issued 586,164 shares of our common stock valued at $222,742 to our placement agent, and recognized a $2,173,033 gain on extinguishment of debt as a result of this retirement.

With the retirement of the Amended and Restated Note we recorded no aggregate derivative liability at June 30, 2012, however at the date of retirement we recorded a derivative valuation gain of $203,700, related to the conversion feature of the Amended and Restated Note to reflect the change in value of the aggregate derivative from December 31, 2011 to the date of retirement. The derivative value of $81,500 at the date of retirement was recorded as additional paid in capital.

2010 Accounts Receivable Purchase Agreements

During the year ended December 31, 2010 we entered into two Accounts Receivable Purchase Agreements with one individual for an aggregate amount of $775,000. During the year ended December 31, 2011 we remitted $100,000 of the principal balance and converted the remaining $675,000 of principal balance plus accrued and unpaid interest into 1,307,153 shares of our common stock and warrants to purchase an additional 653,576 shares of our common stock. The warrants contain anti-dilution price protection provisions in the event the Company issues stock or convertible debt with a purchase price or conversion price less than $1.00 per share.  The current exercise price has been reset to $0.725 per share due to subsequent financings.

We recorded an aggregate derivative liability of $7,700 and $50,200 as of June 30, 2013 and 2012, respectively, related to the warrant reset provision.  A derivative valuation loss of $1,800 and a derivative valuation gain of $106,100, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $7,700 was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.66%, (ii) expected life (in years) of 2.7; (iii) expected volatility of 96.68%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

2011 Bridge Loan

On December 28, 2011 we entered into a Note and Warrant Purchase and Security Agreement with seven individuals for an aggregate of $1,300,000 ("Bridge Loan") to be used as working capital. The note bears an annual interest rate of 18%, payable monthly in cash.  Additionally, we granted to the holders of the Bridge Loan warrants with a five year term to purchase an aggregate of 357,500 shares of our common stock at an exercise price of $0.65.  The note was due on February 28, 2012, but the term was subsequently extended to the earlier of the date nine months from the original maturity date or the date we closed on an additional sale of our securities that resulted in gross proceeds to us of $12 million.  In consideration of the extension of the maturity date of the Bridge Loan, we granted the holders of the Bridge Loan warrants with a six year term to purchase 247,500 shares of our common stock at an exercise price of $0.35 per share.  This note is collateralized by a security interest in all of our accounts receivable

In connection with the Bridge Loan, we paid an $84,500 placement fee and issued warrants to purchase 65,000 shares of our common stock at an exercise price of $0.65 per share and subsequently reset to $0.53, to our investment banker for services in completing the above transaction and paid a $3,000 escrow fee to the Escrow Agent in exchange for holding the funds prior to their disbursement to us.

On March 26, 2012, we closed on the 2012 Equity Financing and under the terms of the associated securities purchase agreement, two of the above described bridge lenders converted the principal balance of their portion of the bridge loan in the amount of $400,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing, reducing the outstanding principal balance to $900,000. The warrants issued had a total value of $222,426 which resulted in a loss on extinguishment of debt of $222,426. The aggregate derivative liability and valuation gain or loss for the warrants issued for the converted portion of the principal balance are included in the aggregate of 2012 Equity Financing information.

All warrants mentioned above were issued with price protection provisions and were accounted for as derivative liabilities and valued using a Black Scholes pricing model.

On July 13, 2012 the $900,000 principal balance was retired and was included as part of the 2012 Convertible Note (as described below) and recorded a (i) $93,661 loss on extinguishment of debt related to the remaining un-accreted portion of the note and (ii) $53,160 expense related to unrecognized offering costs, at the time of retirement.

We recorded an aggregate derivative liability of $8,700 and $46,700 as of June 30, 2013 and 2012, respectively, related to the reset provision for the original and placement warrants issued.  A derivative valuation loss of $1,300 and a derivative valuation gain of $97,000, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $8,700 for the reset provision of the warrants and placement warrants issued was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.85%, (ii) expected life (in years) of 3.5; (iii) expected volatility of 92.74%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

We recorded an aggregate derivative liability of $7,700 and $34,700 as of June 30, 2013 and 2012, respectively, related to the reset provision for the warrants issued for an extension of the maturity date.  A derivative valuation loss of $500 and a derivative valuation gain of $61,825, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $7,700 for the reset provision of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.85%, (ii) expected life (in years) of 3.5; (iii) expected volatility of 94.74%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

The principal value of the note was being accreted over the amended term of the obligation, for which $51,848 and $98,968 was included in interest expense for the three and six months ended June 30, 2012, respectively.  The note bore an 18% annual interest rate and for the three and six months ended June 30, 2012, $40,389 and $95,130, respectively was included in interest expense

Equipment Purchase and Sale Agreement

In October 2011, we entered into an Equipment Purchase and Sale Agreement with a Utah corporation whereby we use the funds advanced to purchase certain electronic receiving and digital signage equipment along with installation costs.  A 3% fee is due each month the amount remains outstanding.  At December 31, 2011 we had an outstanding amount owed of $700,000 plus accrued unpaid interest.

On March 26, 2012, we closed on the 2012 Equity Financing and under the terms of the associated securities purchase agreement the above described lender converted the principal balance of its portion of the loan in the amount of $500,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing, the remaining $200,000 principal balance plus $105,000 of interest due was paid in cash. The warrants issued had a total value of $278,032 which resulted in a loss on extinguishment of debt of $278,032. The aggregate derivative liability and valuation gain or loss for the warrants issued for the converted portion of the principal balance are included in the aggregate of 2012 Equity Financing information.

The 3% fee mention above was recorded as interest expense for which $63,000 was included for the six months ended June 30, 2012.

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Stock-based Compensation

6 Months Ended

Jun. 30, 2013

Stock-based Compensation [Abstract]

Stock-based Compensation

Note 4 - Stock-based Compensation

In accordance with ASC Topic 718, stock-based compensation cost is estimated at the grant date, based on the estimated fair value of the awards, and recognized as expense ratably over the requisite service period of the award for awards expected to vest.

Stock Incentive Plans

Under the Broadcast International, Inc. 2004 Long-Term Incentive Plan (the "2004 Plan"), the board of directors may issue incentive stock options to employees and directors and non-qualified stock options to consultants of the company.  Options generally may not be exercised until twelve months after the date granted and expire ten years after being granted. Options granted vest in accordance with the vesting schedule determined by the board of directors, usually ratably over a three-year vesting schedule upon the anniversary date of the grant.  Should an employee terminate before the vesting period is completed, the unvested portion of each grant is forfeited. We have used the Black-Scholes valuation model to estimate fair value of our stock-based awards, which requires various judgmental assumptions including estimated stock price volatility, forfeiture rates, and expected life.  Our computation of expected volatility is based on a combination of historical and market-based implied volatility.  The number of unissued stock options authorized under the 2004 Plan at June 30, 2013 was 4,290,578.

The Broadcast International, Inc. 2008 Equity Incentive Plan (the "2008 Plan") has become our primary plan for providing stock-based incentive compensation to our eligible employees and non-employee directors and consultants of the company. The provisions of the 2008 Plan are similar to the 2004 Plan except that the 2008 Plan allows for the grant of share equivalents such as restricted stock awards, stock bonus awards, performance shares and restricted stock units in addition to non-qualified and incentive stock options. We continue to maintain and grant awards under our 2004 Plan which will remain in effect until it expires by its terms. The number of unissued shares of common stock reserved for issuance under the 2008 Plan was 88,200 at June 30, 2013.

Stock Options

We estimate the fair value of stock option awards granted beginning January 1, 2006 using the Black-Scholes option-pricing model. We then amortize the fair value of awards expected to vest on a straight-line basis over the requisite service periods of the awards, which is generally the period from the grant date to the end of the vesting period. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and expected option term.  Our computation of expected volatility is based on a combination of historical and market-based implied volatility.  The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the stock option award was granted with a maturity equal to the expected term of the stock option award. The expected option term is derived from an analysis of historical experience of similar awards combined with expected future exercise patterns based on several factors including the strike price in relation to the current and expected stock price, the minimum vest period and the remaining contractual period.

The fair values for the options granted for the six months ended June 30, 2012 were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Six Months Ended June 30, 2012
Risk free interest rate	1.82%
Expected life (in years)	10.0
Expected volatility	77.78%
Expected dividend yield	0.00%

The weighted average fair value of options granted during the six months ended June 30, 2012 was $0.37. There were no options granted during the six months ended June 30, 2013.

Warrants

We estimate the fair value of issued warrants on the date of issuance as determined using a Black-Scholes pricing model. We amortize the fair value of issued warrants using a vesting schedule based on the terms and conditions of each associated underlying contract, as earned. The Black-Scholes valuation model requires various judgmental assumptions including the estimated volatility, risk-free interest rate and warrant expected exercise term.  Our computation of expected volatility is based on a combination of historical and market-based implied volatility.  The risk-free interest rate was based on the yield curve of a zero-coupon U.S. Treasury bond on the date the warrant was issued with a maturity equal to the expected term of the warrant.

The fair values for the warrants issued for the six months ended June 30, 2012 and 2013 estimated at the date of issuance using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Six Months Ended June 30, 2012	Six Months Ended June 30, 2013
Risk free interest rate	1.32%	0.65%
Expected life (in years)	5.99	4.42
Expected volatility	85.65%	90.68%
Expected dividend yield	0.00%	0.00%

The weighted average fair value of warrants issued during the six months ended June 30, 2012 and 2013 was $0.27 and $0.05, respectively.

Results of operations for the six months ended June 30, 2012 and 2013 includes $193,585 and $272 respectively, of non-cash stock-based compensation expense. Restricted stock units and options issued to directors vest immediately. All other restricted stock units, options and warrants are subject to applicable vesting schedules. Expense is recognized proportionally as each award or grant vests.

Included in the $193,585 non-cash stock-based compensation expense for the six months ended June 30, 2012 are (i) $31,000 for 100,000 restricted stock units issued to one member of the board, (ii) $1,608 for 30,000 options granted to 2 employees and (iii) $160,977 resulting from the vesting of unexpired options and warrants issued prior to January 1, 2012.

The $272 non-cash stock-based compensation expense for the six months ended June 30, 2013 was from the vesting of unexpired options and warrants issued prior to January 1, 2013 which includes is a $2,552 net credit for the three months ended June 30, 2013 related to forfeited employee options.

The impact on our results of operations for recording stock-based compensation for the six months ended June 30, 2012 and 2013 is as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2012		2013			2012		2013
General and administrative	$	61,098	$	(2,552	)	$	120,228	$	272
Research and development		36,322		--			73,357		--
Total	$	97,420	$	(2,552	)	$	193,585	$	272

Due to unexercised options and warrants outstanding at June 30, 2013, we will recognize an aggregate total of $58,959 of compensation expense over the next two years based upon option and warrant award vesting parameters as shown below:

2013	$	28,334
2014		30,625
Total	$	58,959

The following unaudited tables summarize option and warrant activity during the six months ended June 30, 2013.

	Options and Warrants Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2012		43,396,863		$	0.54
Options granted		--			--
Warrants issued		850,000			0.25
Expired		(448,094	)		1.05
Forfeited		(506,800	)		1.41
Exercised		--			--
Outstanding at June 30, 2013		43,291,969		$	0.48

The following table summarizes information about stock options and warrants outstanding at June 30, 2013.

		Outstanding					Exercisable
				Weighted Average Remaining	Weighted Average				Weighted Average
Range of Exercise Prices		Number Outstanding		Contractual Life (years)	Exercise Price		Number Exercisable		Exercise Price
$	0.25-0.95		40,124,414	3.84	$	0.42		39,957,747	$	0.42
	1.00-1.59		2,823,055	3.12		1.04		2,803,222		1.04
	2.25-4.00		344,500	2.52		2.54		344,500		2.54
$	0.25-4.00		43,291,969	3.78	$	0.48		43,105,469	$	0.48

Restricted Stock Units

The value of restricted stock units is determined using the fair value of our common stock on the date of the award and compensation expense is recognized in accordance with the vesting schedule.  During the six months ended June 30, 2013, 686,667 restricted stock units valued at $51,500 were awarded to five members of our board of directors for services rendered during the year ended 2012.  One member of our board of directors settled 258,553 restricted stock units at the conclusion of his board participation during the six months ended June 30, 2013.  The value of the units awarded had been expensed as directors fees in the year ended December 31, 2012.  For the six months ended June 30, 2012 100,000 restricted stock units were awarded to one member of our board of directors.

The following is a summary of restricted stock unit activity for the six months ended June 30, 2013.

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2012		2,940,133		$	1.11
Awarded at fair value		686,667			0.08
Canceled/Forfeited		--			--
Settled by issuance of stock		(258,553	)		0.82
Outstanding at June 30, 2013		3,368,247		$	0.92
Vested at June 30, 2013		3,368,247		$	0.92

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Notes Payable (2012 Secured Convertible Notes) (Details) (USD $)	3 Months Ended		6 Months Ended			6 Months Ended			1 Months Ended		3 Months Ended	6 Months Ended				1 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jun. 30, 2013 Conversion Feature of Debt [Member]	Jun. 30, 2013 Warrant Reset Provision [Member]	Jul. 31, 2012 Tranche One of Warrants Issued with 2012 Convertible Notes [Member]	Aug. 31, 2012 2012 Convertible Notes [Member]	Jul. 31, 2012 2012 Convertible Notes [Member]	Jun. 30, 2013 2012 Convertible Notes [Member]	Jun. 30, 2013 2012 Convertible Notes [Member]	Jan. 31, 2013 2012 Convertible Notes [Member]	Dec. 31, 2012 2012 Convertible Notes [Member]	Jul. 31, 2012 2012 Convertible Notes [Member] Maximum [Member]	Jul. 31, 2012 2012 Convertible Notes Subsequently Amended [Member]	Jul. 31, 2012 Newly Issued Debt [Member]
Debt Instrument [Line Items]
Principal issued									$ 900,000	$ 1,900,000	$ 3,475,000	$ 3,475,000	$ 425,000	$ 250,000	$ 5,000,000
Debt maturity date										Jul. 13, 2013						Oct. 31, 2013
Debt interest rate										12.00%
Conversion price										$ 0.25
Warrant term length										5 years
Number of shares of common stock warrants can be exercised for								3,800,000	1,800,000	200,000			850,000	500,000			3,800,000
Amount of debt converted										900,000
Continued sales of convertible debt			770,000														1,000,000
Proceeds from issuance of convertible note and warrants									851,624	923,175							923,175
Payment of investment banking fees									48,376	76,825							76,825
Derivative valuation	1,275,275	4,309,537	1,275,275	4,309,537	1,191,269	60,660	237,700
Gain (loss) on derivative valuation	709,509	2,959,155	(25,606)	4,588,480		28,940	(11,400)
Risk-free interest rate						0.04%	0.57%
Expected life						4 months 2 days	4 years 1 month 6 days
Expected volatility						143.51%	91.86%
Dividend yield						0.00%	0.00%
Stock trading price						$ 0.08	$ 0.08
Accretion of discount on convertible notes payable			793,865	265,636							51,525	360,494
Interest expense											$ 103,964	$ 202,825

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Weighted Average Shares (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Numerator
Net income (loss)	$ (457,209)	$ 847,192	$ (2,344,772)	$ 661,715
Effect on earnings of dilutive convertible debt		(225,266)		233,068
Net income (loss) plus assumed conversions	$ (457,209)	$ 621,926	$ (2,344,772)	$ 894,783
Denominator
Basic weighted average shares outstanding	108,284,171	107,193,974	107,977,505	94,167,466
Stock options and warrants				2,939,613
Restricted stock units		2,935,000		2,935,000
Convertible debt		4,000,000		4,000,000
Diluted weighted average shares outstanding	108,284,171	114,128,974	107,977,505	104,042,079
Basic	$ 0.00	$ 0.01	$ (0.02)	$ 0.01
Diluted	$ 0.00	$ 0.01	$ (0.02)	$ 0.01
Options and Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities			43,291,969
Range of Exercise Prices, minimum			$ 0.25
Range of Exercise Prices, maximum			$ 4.00
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities			3,368,247
Convertible Debt Securities [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities			17,900,000

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Stock-based Compensation (Schedule of Allocated Stock-Based Compensation) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Stock-based compensation
Total	$ (2,552)	$ 97,420	$ 272	$ 193,585
General and Administrative Expense [Member]
Stock-based compensation
Total	(2,552)	61,098	272	120,228
Research and Development Expense [Member]
Stock-based compensation
Total		$ 36,322		$ 73,357

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Significant Accounting Policies (Narrative) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Cash and Cash Equivalents
Total cash balance not insured by the FDIC	$ 321,023		$ 321,023		$ 38,847
Property, Plant and Equipment [Line Items]
Loss on disposal of assets	(186,621)	(1,799)	(136,621)	(1,640)
Research and Development
Research and development	168,939	464,847	394,313	1,021,414
Customer One [Member]
Revenue, Major Customer [Line Items]
Percentage of revenues from major customer			87.00%	86.00%
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Loss on disposal of assets			(40,824)
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Loss on disposal of assets			(25,685)
Equipment [Member]
Property, Plant and Equipment [Line Items]
Loss on disposal of assets			$ (70,112)
Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life			3 years
Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life			5 years

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Interact Devices Inc. (IDI) (Details) (Interact Devices Inc. [Member], USD $)	1 Months Ended	6 Months Ended
	May 18, 2004	Jun. 30, 2013
Interact Devices Inc. [Member]
Subsidiary or Equity Method Investee [Line Items]
Shares issued to acquire shares of subsidiary	50,127,218
Number of shares owned		55,987,169
Percent ownership		94.00%
Advances to subsidiary		$ 3,393,149

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Equity Financing and the Debt Restructuring (Schedule of Debt Conversion) (Details) (2012 Plan [Member], USD $)	6 Months Ended
	Jun. 30, 2013
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	$ 783,715
Class A Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Number of A Warrants	18,470,400
Value of Warrants	725,084
Class B Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	58,631
Common Stock [Member]
Equity Financing and Debt Restructuring [Line Items]
Common Shares Issued	28,416,000
Bridge Loan Conversion [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	33,944
Bridge Loan Conversion [Member] | Class A Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Number of A Warrants	800,000
Value of Warrants	31,405
Bridge Loan Conversion [Member] | Class B Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	2,539
Bridge Loan Conversion [Member] | Common Stock [Member]
Equity Financing and Debt Restructuring [Line Items]
Common Shares Issued	1,600,000
Equipment Finance Conversion [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	42,431
Equipment Finance Conversion [Member] | Class A Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Number of A Warrants	1,000,000
Value of Warrants	39,257
Equipment Finance Conversion [Member] | Class B Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	3,174
Equipment Finance Conversion [Member] | Common Stock [Member]
Equity Financing and Debt Restructuring [Line Items]
Common Shares Issued	2,000,000
Investors [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	526,482
Investors [Member] | Class A Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Number of A Warrants	12,408,000
Value of Warrants	487,095
Investors [Member] | Class B Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	39,387
Investors [Member] | Common Stock [Member]
Equity Financing and Debt Restructuring [Line Items]
Common Shares Issued	24,816,000
Agency [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	180,858
Agency [Member] | Class A Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Number of A Warrants	4,262,400
Value of Warrants	167,327
Agency [Member] | Class B Warrant [Member]
Equity Financing and Debt Restructuring [Line Items]
Value of Warrants	$ 13,531
Agency [Member] | Common Stock [Member]
Equity Financing and Debt Restructuring [Line Items]
Common Shares Issued

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Notes Payable (Senior 6.25% Convertible Note) (Details) (USD $)	3 Months Ended		6 Months Ended			0 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Mar. 26, 2012 Amended and Restated Senior 6.25% Convertible Note [Member]	Dec. 24, 2010 Amended and Restated Senior 6.25% Convertible Note [Member]	Dec. 24, 2007 Amended and Restated Senior 6.25% Convertible Note [Member]	Jun. 30, 2012 Amended and Restated Senior 6.25% Convertible Note [Member]
Convertible notes
Principal issued							$ 5,500,000	$ 15,000,000
Debt maturity date								Dec. 21, 2013
Debt interest rate								6.25%
Conversion price							$ 1.35
Payments for debt extinguishment costs			66,646	275,041		275,041
Value of shares issued for debt restructuring						760,000
Number of shares issued for debt restructuring						2,000,000
Cash paid to settle debt						2,750,000
Interest paid			65,700	248,643		680,816	350,434	937,000
Gain on extinguishment of debt	345,397		414,484	1,672,575		2,173,033
Number of shares issued for agent fees						586,164
Value of shares issued for agent fees						222,742
Gain (loss) on derivative valuation	709,509	2,959,155	(25,606)	4,588,480
Derivative valuation	1,275,275	4,309,537	1,275,275	4,309,537	1,191,269
Accrued interest payable									203,700
Accrued interest payable currently									$ 81,500

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2013	Dec. 31, 2012
CONDENSED CONSOLIDATED BALANCE SHEETS [Abstract]
Current portion of notes payable, discount	$ 212,529	$ 947,994
Preferred stock, no par value	$ 0	$ 0
Preferred Stock, shares authorized	20,000,000	20,000,000
Preferred Stock, shares issued	0	0
Common stock, par value per share	$ 0.05	$ 0.05
Common stock, shares authorized	180,000,000	180,000,000
Common stock, shares issued	110,233,225	107,473,820

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Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 9 - Fair Value Measurements

The Company has certain financial instruments that are measured at fair value on a recurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-tier fair value hierarchy has been established which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).  These tiers include:

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2013:

					Significant
			Quoted Prices in		Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets
None	$	--	$	--	$	--	$	--
Total assets measured at fair value	$	--	$	--	$	--	$	--
Liabilities
Derivative valuation (1)	$	1,275,275	$	--	$	--	$	1,275,275
Total liabilities measured at fair value	$	1,275,275	$	--	$	--	$	1,275,275

(1) See Notes 6 & 7 for additional discussion.

The table below presents our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at June 30, 2013.  We classify financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model.

	Derivative
	Valuation
	Liability
Balance at December 31, 2012	$	(1,191,269	)
Total gains or losses (realized and unrealized)
Included in net loss		(25,606	)
Valuation adjustment		--
Purchases, issuances, and settlements, net		(58,400	)
Transfers to Level 3		--
Balance at June 30, 2013	$	(1,275,275	)

Fair Value of Other Financial Instruments

The carrying amounts of our accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their immediate or short-term maturities.  The aggregate carrying amount of the notes payable approximates fair value as the individual notes bear interest at market interest rates and there has not been a significant change in our operations and risk profile.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities:
Net income (loss)	$ (2,344,772)	$ 661,715
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	151,047	723,194
Common stock issued for services	4,200	137,500
Accretion of discount on convertible notes payable	793,865	265,636
Stock based compensation	272	193,586
Loss on sale of assets	136,621	1,640
Gain on extinguishment of debt	(414,484)	(1,672,575)
Gain (loss) on derivative liability valuation	25,606	(4,588,480)
Warrants issued and expensed for issuance costs		1,095,309
Allowance for doubtful accounts	(28,147)	(5,618)
Changes in assets and liabilities:
Decrease in accounts receivable	763,461	26,358
Decrease (increase) in inventories	17,915	(270,721)
Decrease in debt offering costs	38,934	58,907
Decrease in prepaid and other assets	87,534	195,030
Increase (decrease) in accounts payable and accrued expenses	(246,728)	1,414,189
Decrease in deferred revenues	(37,796)	(9,009)
Net cash used in operating activities	(1,052,472)	(1,773,339)
Cash flows from investing activities:
Purchase of equipment		(142,699)
Proceeds from the sale of assets	75,423	750
Net cash used by investing activities	75,423	(141,949)
Cash flows from financing activities:
Proceeds from equity financing	425,000	6,150,000
Proceeds from debt financing	770,000
Principal payments on debt		(3,741,194)
Equity issuance costs		(776,483)
Decrease in restricted cash	140,700
Payments for debt extinguishment and related costs	(66,646)	(275,041)
Net cash provided by financing activities	1,269,054	1,357,282
Net increase (decrease) in cash	292,005	(558,006)
Cash beginning of period	394,342	961,265
Cash end of period	686,347	403,259
Supplemental disclosure of cash flow information:
Interest paid	65,700	248,643
Income taxes paid

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Subsequent Events (Details) (Subsequent Event [Member], Convertible Promissory Note [Member], USD $)	0 Months Ended
	Aug. 13, 2013
Subsequent Event [Member] | Convertible Promissory Note [Member]
Subsequent Event [Line Items]
Principal issued	$ 750,000
Debt interest rate	12.00%
Debt maturity date	Oct. 31, 2013
Conversion price	$ 0.25

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Jun. 30, 2013	Dec. 31, 2012
Current Assets
Cash	$ 686,347	$ 394,342
Restricted cash		140,700
Trade accounts receivable, net	93,379	821,608
Inventory	26,269	306,296
Prepaid expenses	71,443	90,067
Total current assets	877,438	1,753,013
Property and equipment, net	108,225	572,107
Other Assets, non current
Debt offering costs	3,242	42,176
Patents, net	127,382	120,928
Deposits and other assets	115,853	196,292
Total other assets, non current	246,477	359,396
Total assets	1,232,140	2,684,516
Current Liabilities
Accounts payable	1,038,464	2,293,470
Payroll and related expenses	138,924	363,568
Other accrued expenses	470,268	299,728
Unearned revenue	13,539	51,335
Current portion of notes payable (net of discount of $947,994 and $4212,529, respectively)	5,032,471	3,102,006
Derivative valuation	1,275,275	1,191,269
Total current liabilities	7,968,941	7,301,376
Long-term Liabilities
Long-term liabilities
Total long-term liabilities
Total liabilities	7,968,941	7,301,376
Commitments and contingencies
STOCKHOLDERS' DEFICIT:
Preferred stock, no par value, 20,000,000 shares authorized; none issued
Common stock, $.05 par value, 180,000,000 shares authorized; 107,473,820 and 110,233,225 shares issued as of December 31, 2012 and June 30, 2013, respectively	5,511,661	5,373,691
Additional paid-in capital	99,681,351	99,594,490
Accumulated deficit	(111,929,813)	(109,585,041)
Total stockholders' deficit	(6,736,801)	(4,616,860)
Total liabilities and stockholders' deficit	$ 1,232,140	$ 2,684,516

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Equity Financing and the Debt Restructuring (2010 Equity Financing and the Debt Restructuring) (Details) (USD $)	3 Months Ended		6 Months Ended				0 Months Ended				0 Months Ended	6 Months Ended				1 Months Ended		0 Months Ended	6 Months Ended				6 Months Ended	0 Months Ended				6 Months Ended		0 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Mar. 31, 2011 Warrants Issued Pursuant to Waiver Agreement [Member]	Mar. 26, 2012 Amended and Restated Senior 6.25% Convertible Note [Member]	Dec. 24, 2010 Amended and Restated Senior 6.25% Convertible Note [Member]	Dec. 24, 2007 Amended and Restated Senior 6.25% Convertible Note [Member]	Jun. 30, 2012 Amended and Restated Senior 6.25% Convertible Note [Member]	Dec. 24, 2010 Unsecured Convertible Note [Member]	Jun. 30, 2013 Unsecured Convertible Note [Member]	Jun. 30, 2012 Unsecured Convertible Note [Member]	Dec. 23, 2009 Unsecured Convertible Note [Member]	Nov. 02, 2006 Unsecured Convertible Note [Member]	Mar. 31, 2011 Unsecured Convertible Note [Member] Warrants Issued for Convertible Note Restructuring [Member]	Nov. 29, 2010 2010 Bridge Loan [Member]	Dec. 24, 2010 2010 Plan [Member]	Jun. 30, 2013 2010 Plan [Member]	Jun. 30, 2012 2010 Plan [Member]	Jun. 30, 2011 2010 Plan [Member]	Mar. 26, 2012 2010 Plan [Member]	Jun. 30, 2011 2010 Plan [Member] Warrants Issued Pursuant to Waiver Agreement [Member]	Dec. 24, 2010 2010 Plan [Member] Minimum [Member]	Dec. 24, 2010 2010 Plan [Member] Maximum [Member]	Apr. 05, 2012 2012 Plan [Member]	Mar. 26, 2012 2012 Plan [Member]	Jun. 30, 2013 2012 Plan [Member]	Jun. 30, 2012 2012 Plan [Member]	Mar. 26, 2012 2012 Plan [Member] Minimum [Member]	Mar. 26, 2012 2012 Plan [Member] Maximum [Member]
Equity Financing and Debt Restructuring [Line Items]
Gross consideration in equity financing transaction																								$ 10,000,000	$ 15,000,000		$ 6,000,000			$ 3,000,000	$ 10,000,000
Shares of stock issued per warrant exercised																		1									0.5
Commission fee percentage																		8.00%									10.00%
Shares of common stock issued											150,000							40,000								616,000	2,000,000
Value of shares issued for agent fees, denominator																		1,000,000
Payments for placement fees																		180,000
Equity units subscribed but unissued																		12,500,000
Per share subscription price of equity units																		$ 1.20
Warrant term length																5 years		5 years
Exercise price of warrants											0.90					0.96		1.00	0.7312			0.78
Proceeds from equity financing			425,000	6,150,000														13,500,000								154,000
Principal issued								5,500,000	15,000,000						1,000,000		1,000,000
Repayments of convertible debt																		2,750,000
Cash paid to settle debt							2,750,000											2,500,000									2,750,000
Number of warrants cancelled																		5,208,333
Number of shares issued for debt restructuring							2,000,000											800,000
Value of shares issued for debt restructuring							760,000																				760,000
Shares of stock issuable, but forgone in lieu of cash payment																		3,500,000
Debt forgiveness																		7,200,000
Debt interest rate									6.25%					8.00%	5.00%
Interest paid			65,700	248,643			680,816	350,434	937,000
Accrued interest payable										203,700																	680,816
Conversion price								$ 1.35							$ 1.50
Warrants issued						400,000					75,000								12,499,980
Stock issued upon exercise of warrants																					372,272
Derivative valuation	1,275,275	4,309,537	1,275,275	4,309,537	1,191,269							34,600	326,400						134,500	750,000								783,715	3,101,537
Gain (loss) on derivative valuation	$ 709,509	$ 2,959,155	$ (25,606)	$ 4,588,480								$ 11,800	$ (26,400)						$ (25,100)	$ 2,125,000			$ 144,000					$ (26,246)	$ 1,659,855
Risk-free interest rate												0.10%							0.51%
Expected life												6 months							2 years 6 months
Expected volatility												143.51%							98.23%
Dividend yield												0.00%							0.00%
Stock trading price												$ 0.08							$ 0.08

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Stock-based Compensation (Narrative) (Details) (USD $)	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2013	Jun. 30, 2012
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation		$ 272	$ 193,586
Unrecognized compensation expense	58,959	58,959
Period over which compensation expense will be recognized		2 years
Warrants exercised
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of unissued stock options authorized	4,290,578	4,290,578
Number of unissued shares of common stock reserved for issuance	88,200	88,200
Maximum contractual term		10 years
Vesting period		3 years
Weighted average fair value of options granted			$ 0.37
Stock based compensation	(2,552)
Stock Options [Member] | Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation			1,608
Options granted			30,000
Number of individuals			2
Warrant [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average fair value of options granted		$ 0.05	$ 0.27
Restricted Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock units awarded		686,667	100,000
Settled by issuance of stock		258,553
Restricted Stock Units [Member] | Directors [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation		51,500	31,000
Number of individuals		5	1
Restricted stock units awarded		686,667	100,000
Stock Options and Warrants [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation		$ 272	$ 160,977

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Stock-based Compensation (Tables)

6 Months Ended

Jun. 30, 2013

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Allocated Stock-based Compensation

The impact on our results of operations for recording stock-based compensation for the six months ended June 30, 2012 and 2013 is as follows:

	For the three months ended June 30,					For the six months ended June 30,
	2012		2013			2012		2013
General and administrative	$	61,098	$	(2,552	)	$	120,228	$	272
Research and development		36,322		--			73,357		--
Total	$	97,420	$	(2,552	)	$	193,585	$	272

Schedule of Unrecognized Compensation Expense

Due to unexercised options and warrants outstanding at June 30, 2013, we will recognize an aggregate total of $58,959 of compensation expense over the next two years based upon option and warrant award vesting parameters as shown below:

2013	$	28,334
2014		30,625
Total	$	58,959

Schedule of Option and Warrant Activity

The following unaudited tables summarize option and warrant activity during the six months ended June 30, 2013.

	Options and Warrants Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2012		43,396,863		$	0.54
Options granted		--			--
Warrants issued		850,000			0.25
Expired		(448,094	)		1.05
Forfeited		(506,800	)		1.41
Exercised		--			--
Outstanding at June 30, 2013		43,291,969		$	0.48

Schedule of Information About Stock Options and Warrants

The following table summarizes information about stock options and warrants outstanding at June 30, 2013.

		Outstanding					Exercisable
				Weighted Average Remaining	Weighted Average				Weighted Average
Range of Exercise Prices		Number Outstanding		Contractual Life (years)	Exercise Price		Number Exercisable		Exercise Price
$	0.25-0.95		40,124,414	3.84	$	0.42		39,957,747	$	0.42
	1.00-1.59		2,823,055	3.12		1.04		2,803,222		1.04
	2.25-4.00		344,500	2.52		2.54		344,500		2.54
$	0.25-4.00		43,291,969	3.78	$	0.48		43,105,469	$	0.48

Schedule of Restricted Stock Unit Activity

The following is a summary of restricted stock unit activity for the six months ended June 30, 2013.

	Restricted Stock Units			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2012		2,940,133		$	1.11
Awarded at fair value		686,667			0.08
Canceled/Forfeited		--			--
Settled by issuance of stock		(258,553	)		0.82
Outstanding at June 30, 2013		3,368,247		$	0.92
Vested at June 30, 2013		3,368,247		$	0.92

Stock Options [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Assumptions Used to Value Awards

The fair values for the options granted for the six months ended June 30, 2012 were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Six Months Ended June 30, 2012
Risk free interest rate	1.82%
Expected life (in years)	10.0
Expected volatility	77.78%
Expected dividend yield	0.00%

Warrant [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Assumptions Used to Value Awards

The fair values for the warrants issued for the six months ended June 30, 2012 and 2013 estimated at the date of issuance using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Six Months Ended June 30, 2012	Six Months Ended June 30, 2013
Risk free interest rate	1.32%	0.65%
Expected life (in years)	5.99	4.42
Expected volatility	85.65%	90.68%
Expected dividend yield	0.00%	0.00%

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Notes Payable (Interest Promissory Note) (Details) (Promissory Note [Member], USD $)	1 Months Ended
	Apr. 17, 2013
Promissory Note [Member]
Short-term Debt [Line Items]
Principal issued	$ 20,000
Debt maturity date	Dec. 31, 2013
Debt interest rate	12.00%

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Equipment Financing (Details) (USD $)	6 Months Ended			1 Months Ended	3 Months Ended	5 Months Ended	6 Months Ended	12 Months Ended		3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jul. 28, 2009 Telecommunications Equipment [Member]	Jun. 30, 2012 Telecommunications Equipment [Member]	May 31, 2013 Telecommunications Equipment [Member]	Jun. 30, 2012 Telecommunications Equipment [Member]	Dec. 31, 2012 Telecommunications Equipment [Member]	Jun. 30, 2013 Telecommunications Equipment [Member]	Jun. 30, 2012 Telecommunications Equipment [Member] Capital Lease Obligations [Member]	Jun. 30, 2012 Telecommunications Equipment [Member] Capital Lease Obligations [Member]
Capital Leased Assets [Line Items]
Number of customers locations where equipment is installed				1,981					2,100
Proceeds from sale of equipment to financing institution				$ 4,100,670
Number of payments				36
Monthly rental payment				144,000
Number of payments until lease can be cancelled				33
One time fee for cancellation				410,000
Cancellation fee as a percentage of equipment value				10.00%
Payments toward in place fair market value								422,100
Increase in restricted cash	(140,700)					284,400		140,700
Restricted cash			140,700
Lease payments					422,096		844,191
Lease payments applied to principal					402,614		791,195
Interest portion of lease payments										19,482	52,996
Amortization of the lease acquisition fee					$ 12,597		$ 25,134

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Significant Accounting Policies (Patents and Intangibles) (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Intangible Assets [Abstract]
Patent useful life			20 years
Patent amortization	$ 2,538	$ 2,538	$ 5,075	$ 5,075
Estimated future annual amortization expense related to intangible assets:
2013	11,343		11,343
2014	10,121		10,121
2015	10,121		10,121
2016	10,121		10,121
2017	$ 10,121		$ 10,121

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Stock-based Compensation (Schedule of Information About Options and Warrants) (Details) (USD $)	6 Months Ended
	Jun. 30, 2013
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Number Outstanding	43,291,969
Weighted Average Remaining Contractual Life (years)	3 years 9 months 11 days
Weighted Average Exercise Price	$ 0.48
Number Exercisable	43,105,469
Weighted Average Exercise Price	$ 0.48
$ 0.25-0.95 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, minimum	$ 0.25
Range of Exercise Prices, maximum	$ 0.95
Number Outstanding	40,124,414
Weighted Average Remaining Contractual Life (years)	3 years 10 months 2 days
Weighted Average Exercise Price	$ 0.42
Number Exercisable	39,957,747
Weighted Average Exercise Price	$ 0.42
$ 1.00-1.59 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, minimum	$ 1.00
Range of Exercise Prices, maximum	$ 1.59
Number Outstanding	2,823,055
Weighted Average Remaining Contractual Life (years)	3 years 1 month 13 days
Weighted Average Exercise Price	$ 1.04
Number Exercisable	2,803,222
Weighted Average Exercise Price	$ 1.04
$ 2.25-4.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Range of Exercise Prices, minimum	$ 2.25
Range of Exercise Prices, maximum	$ 4.00
Number Outstanding	344,500
Weighted Average Remaining Contractual Life (years)	2 years 6 months 7 days
Weighted Average Exercise Price	$ 2.54
Number Exercisable	344,500
Weighted Average Exercise Price	$ 2.54

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Stock-based Compensation (Schedule of Restricted Stock Unit Activity) (Details) (Restricted Stock Units [Member], USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Restricted Stock Units [Member]
Restricted Stock Units
Outstanding at December 31, 2012	2,940,133
Awarded at fair value	686,667	100,000
Canceled/Forfeited
Settled by issuance of stock	(258,553)
Outstanding at June 30, 2013	3,368,247
Vested at June 30, 2013	3,368,247
Weighted Average Grant Date Fair Value
Outstanding at December 31, 2012	$ 1.11
Awarded at fair value	$ 0.08
Canceled/Forfeited
Settled by issuance of stock	$ 0.82
Outstanding at June 30, 2013	$ 0.92
Vested at June 30, 2013	$ 0.92

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Liquidity and Capital Resources

6 Months Ended

Jun. 30, 2013

Liquidity and Capital Resources [Abstract]

Liquidity and Capital Resources

Note 8 - Liquidity and Capital Resources

At June 30, 2013, we had cash of $686,347, total current assets of $877,438, total current liabilities of $7,968,941 and total stockholders' deficit of $6,736,801.  Included in current liabilities is $1,275,275 related to the value of the embedded derivatives for our senior secured convertible notes, our unsecured convertible note, and warrants issued in connection with our 2012 Equity Financing and notes.  All of our notes mature within the next six months and must either be refinanced or otherwise retired.  We do not have the liquidity to do so nor do we have the ability to raise additional equity to retire the notes.

Cash used in operations during the six months ended June 30, 2013 was $1,052,472 compared to cash used in operations for the six months June 30, 2012 of $1,773,339. Although the net cash used in operations decreased it was primarily due to a decrease in accounts receivable of $763,461 and a decrease in accounts payable of $246,738.  The negative cash flow was sustained by cash reserves from the issuance of our senior secured convertible notes and the sales of our accounts receivable to a related party, which has been treated as debt in our financial statements.  We expect to continue to experience negative operating cash flow until we consummate the merger with AllDigital or until we secure additional customers that replace the revenue no longer realized from our former largest customer.

We initiated discussions with various of our accounts payable vendors to settle some of our accounts payable for less than face value in exchange for a payment in cash and/or issuance of common stock.  During the three months ended June 30, 2013 we entered into agreements to discount our payables by approximately $962,630 through the payment of cash and/or issuance of stock and return of equipment to a vendor.  We paid cash of $66,646, issued 2,240,852 shares of our common stock valued at $153,860 from which we recognized a $414,484 gain from the reduction of these company obligations. At June 30, 2013 our accounts payable included $76,409 which we owed to vendors as part of these settlements. Additionally, we returned equipment to a vendor for which we had been invoiced $327,640.

In April 2013 we entered into an accounts receivable purchase agreement with one of our directors under the terms of which he agreed to purchase $750,000 of our accounts receivable generated over the next succeeding three months.

The current recession and market conditions have had substantial impacts on the global and national economies and financial markets.  These factors, together with soft credit markets, have slowed business growth and generally made potential funding sources more difficult to access.  We continue to be affected by prevailing economic and market conditions, which present considerable risks and challenges to it.

Because we have not been successful in deploying our CodecSys technology with customers sufficient to achieve a breakeven and are finding it difficult to raise additional investment capital, we determined that we should seek an alternative to continuing to commercialize CodecSys by ourselves.  Accordingly we sought a merger partner that has compatible video broadcasting products and services, with which we could integrate our CodecSys encoding system.  In January 2013 we entered into a Merger Agreement with AllDigital, Inc., a Nevada corporation.  The merger is subject among other things to normal due diligence, approval of the shareholders of both companies, and the filing and effectiveness of a registration statement.  The registration statement requires year-end financial statements be included with the proxy statements furnished to the shareholders and will not be effective until at least the third quarter of 2013.  On February 8, 2013, AllDigital notified us that we were in breach of certain covenants regarding unencumbered ownership or potential claims against our technology, which gave us 30 days to cure the alleged defects before the merger agreement could be terminated.  On March 8, 2013 AllDigital notified us that sufficient progress had been made that the cure period was extended to April 8, 2013 and later to May 8, 2013 for the remainder of the alleged defects to be cured or waived.  On April 10, 2013, the parties entered into an amendment to the Merger Agreement which provides that either party may (i) terminate the Merger Agreement upon 3 days notice, with or without cause, without liability, (ii) eliminates the cure period date requirement and (iii) that the "No Shop" provision preventing us from contacting other potential purchasers or merger partners was removed.  On June 30, 2013, we entered into a second amendment to the Merger Agreement which (i) increases the percentage of our outstanding common stock AllDigital's shareholders would receive in the merger from 54% to 58%, (i) modifies a number of the closing conditions of the merger, including the working capital and net cash flow require, (iii) adds a new closing condition that we have post-merger financing commitments in place for the purchase of no less than $1.5 million, nor more than $3.5 million, of our common stock, (iv) extends the "end date" (a date upon which either party may terminate the Merger Agreement if the merger has not been consummated) from July 31, 2013 to October 31, 2013, (v) eliminates one of our existing directors from the post-closing board of directors such that the post-closing directors are expected to be Donald A. Harris, Paul Summers, David Williams and up to two additional directors mutually approved by us and AllDigital prior to the closing of the merger and (vi) changes the reverse stock split ratio from a 10 to 1 reverse stock split to a 15 to 1 reverse stock split.  On July 9, 2013, we filed a Registration Statement on Form S-4 (File No. 333-189869) with the SEC in connection with the anticipated merger.

To fund operations, we engaged our investment banker to raise funds through the issuance of convertible promissory notes.  We anticipate issuing promissory notes with a principal amount of up to $5,000,000 ("2012 Convertible Debt Offering") due and payable on or before July 13, 2013.  As of June 30, 2013, we had issued notes with an aggregate principal value of $3,475,000 as explained below.  The notes bear interest at 12% per annum and may be convertible to common stock at a $0.25 per share conversion price.  We also granted holders of the notes warrants with a five year life to acquire up to 200,000 shares of our common stock for each $100,000 of principal amount of the convertible notes.  The notes are secured by all of our assets.  On July 13, 2012, we entered into a note and warrant purchase and security agreement with individual investors and broke escrow on the initial funding under the 2012 Convertible Debt Offering, the principal amount of which was $1,900,000, which included the conversion of $900,000 of previously issued short term debt (See Bridge Loan described below) to the 2012 Convertible Debt Offering, which extinguished the Bridge Loan.  We realized $923,175 of cash in the initial closing, issued warrants to acquire 3,800,000 shares of our common stock and paid $76,825 in investment banking fees and costs of the offering.  We have continued sales of convertible debt under the 2012 Convertible Debt Offering and as of March 31, 2013 have issued additional short term debt with a principal amount of $1,575,000, from which we realized cash of $1,526,624 after payment of investment banking fees of $48,376.  We have, however, paid no investment banking fees on sales of our 2012 Convertible Debt Offering since August 2012 and do not anticipate paying additional investment banking fees for the 2012 Convertible Debt Offering. We have issued warrants to acquire a total of 6,950,000 shares of our common stock pursuant to the 2012 Convertible Debt Offering.  On August 6, 2013, we and the requisite parties executed an amendment of the notes issued pursuant to the 2012 Convertible Debt Offering whereby, effective as of July 13, 2013, the maturity date of the notes was extended to October 31, 2013.

Our monthly operating expenses, since our expense reductions including that for CodecSys technology research and development expenses, no longer exceeds our monthly net sales.  However, at the end of May when our largest contract expires our revenues will be significantly reduced to the point where if we do not locate new customers our ability to continue without additional adjustments and expense reductions will be negatively impacted.             The foregoing estimates, expectations and forward-looking statements are subject to change as we make strategic operating decisions from time to time and as our expenses and sales fluctuate from period to period.

The amount of our operating deficit could decrease or increase significantly depending on strategic and other operating decisions, thereby affecting our need for additional capital. We expect that our operating expenses will continue to outpace our net sales until we are able to generate additional revenue.  Our business model contemplates that sources of additional revenue include (i) sales from private communication network services, (ii) sales resulting from new customer contracts, and (iii) sales, licensing fees and/or royalties related to commercial applications of CodecSys technology, and (iv) operational efficiencies to be obtained through the merger will AllDigital.

Our long-term liquidity is dependent upon execution of our business model and the realization of additional revenue and working capital as described above, and upon capital needed for continued commercialization and development of the CodecSys technology.  Commercialization and future applications of the CodecSys technology are expected to require additional capital for the foreseeable future.  The amount required will be determined based on specific opportunities and available funding.

To date, we have met our working capital needs primarily through funds received from sales of common stock and from convertible debt financings.  Until our operations become profitable, we will continue to rely on proceeds received from external funding.  We expect additional investment capital may come from (i) the exercise of outstanding warrants to purchase capital stock currently held by existing warrant holders; (ii) additional private placements of common stock with existing and new investors; and (iii) the private placement of other securities with institutional investors similar to those institutions that have provided funding in the past.

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Stock-based Compensation (Schedule of Assumptions Used to Value Options) (Details) (Stock Options [Member])	6 Months Ended
	Jun. 30, 2012
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk free interest rate	1.82%
Expected life (in years)	10 years
Expected volatility	77.78%
Expected dividend yield	0.00%

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Notes Payable (Unsecured Convertible Note) (Details) (USD $)	3 Months Ended		6 Months Ended			0 Months Ended	6 Months Ended	12 Months Ended		0 Months Ended	1 Months Ended		0 Months Ended		1 Months Ended	3 Months Ended		6 Months Ended			1 Months Ended	0 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Dec. 03, 2008 Class A Warrant [Member]	Jun. 30, 2013 Class A Warrant [Member]	Dec. 31, 2008 Class A Warrant [Member]	Dec. 31, 2007 Class A Warrant [Member]	Dec. 03, 2008 Class B Warrant [Member]	Oct. 31, 2007 Class B Warrant [Member]	Sep. 25, 2006 Letter of Understanding [Member]	Dec. 24, 2010 Unsecured Convertible Note [Member]	Dec. 23, 2009 Unsecured Convertible Note [Member]	Mar. 31, 2011 Unsecured Convertible Note [Member]	Jun. 30, 2013 Unsecured Convertible Note [Member]	Jun. 30, 2012 Unsecured Convertible Note [Member]	Jun. 30, 2013 Unsecured Convertible Note [Member]	Jun. 30, 2012 Unsecured Convertible Note [Member]	Nov. 02, 2006 Unsecured Convertible Note [Member]	Mar. 31, 2011 Unsecured Convertible Note [Member] Warrants Issued for Convertible Note Restructuring [Member]	Nov. 02, 2006 Unsecured Convertible Note [Member] Class A Warrant [Member]	Nov. 02, 2006 Unsecured Convertible Note [Member] Class B Warrant [Member]	Nov. 02, 2006 Unsecured Convertible Note [Member] Class C Warrant [Member]	Nov. 02, 2006 Unsecured Convertible Note [Member] Class D Warrant [Member]
Convertible notes
Amount of credit facility												$ 1,000,000
Principal issued																				1,000,000
Debt interest rate														8.00%						5.00%
Debt maturity date													Dec. 31, 2013	Dec. 22, 2010
Conversion price																				$ 1.50
Number of shares of common stock warrants can be exercised for																				5,500,000	221,758	750,000	750,000	2,000,000	2,000,000
Warrant term length																					5 years	1 year	1 year	18 months	24 months
Exercise price of warrants													0.90								0.96	1.60	1.75	2.10	3.00
Warrants exercised								64,400	454,000
Warrants expired			448,094			231,600				750,000
Shares of common stock issued											650,000		150,000
Number of shares issued for interest															135,369
Common stock issued for interest															81,221
Derivative valuation	1,275,275	4,309,537	1,275,275	4,309,537	1,191,269											34,600	326,400	34,600	326,400
Gain (loss) on derivative valuation	709,509	2,959,155	(25,606)	4,588,480														11,800	(26,400)
Risk-free interest rate							1.41%											0.10%
Expected life							4 years 8 months 12 days											6 months
Expected volatility							91.50%											143.51%
Dividend yield							0.00%											0.00%
Stock trading price							$ 0.08									$ 0.08		$ 0.08
Accretion of discount on convertible notes payable			793,865	265,636												20,000	83,334	83,334	166,668
Interest expense of convertible debt																$ 83,334	$ 20,000	$ 20,000	$ 40,000

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Interact Devices Inc. (IDI)

6 Months Ended

Jun. 30, 2013

Interact Devices Inc. (IDI) [Abstract]

Interact Devices Inc. (IDI)

Note 11 - Interact Devices Inc. (IDI)

We began investing in and advancing monies to IDI in 2001.  IDI was developing technology which became an initial part of the CodecSys technology.

On October 23, 2003, IDI filed for Chapter 11 Federal Bankruptcy protection. We desired that the underlying patent process proceed and that the development of CodecSys technology continue. Therefore, we participated in IDI's plan of reorganization, whereby we would satisfy the debts of the creditors and obtained certain licensing rights.  On May 18, 2004, the debtor-in-possession's plan of reorganization for IDI was confirmed by the United States Bankruptcy Court. As a result of this confirmation, we issued to the creditors of IDI shares of our common stock and cash in exchange for approximately 50,127,218 shares of the common stock of IDI. Since May 18, 2004, we have acquired additional common share equivalents IDI.  As of June 30, 2013, we owned approximately 55,897,169 IDI common share equivalents, representing approximately 94% of the total outstanding IDI share equivalents

Since May 18, 2004, we have advanced additional cash to IDI for the payment of operating expenses, which continues development and marketing of the CodecSys technology. As of June 30, 2013 we have advanced an aggregate amount of $3,393,149, pursuant to a promissory note that is secured by assets and technology of IDI.

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Equity Financing and the Debt Restructuring

6 Months Ended

Jun. 30, 2013

Equity Financing and the Debt Restructuring [Abstract]

Equity Financing and the Debt Restructuring

Note 7 - Equity Financing and the Debt Restructuring

2012 Equity Financing and the Debt Restructuring

On March 26, 2012, we closed on an equity financing (the "2012 Equity Financing") as well as a restructuring of our outstanding senior convertible indebtedness (the "2012 Debt Restructuring") resulting in complete satisfaction of our senior indebtedness.

We entered into an Engagement Agreement, dated October 28, 2011, with MDB Capital Group, LLC ("MDB"), pursuant to which MDB agreed to act as the exclusive agent of the Company on a "best efforts" basis with respect to the sale of up to a maximum gross consideration of $6,000,000, subsequently verbally increased to $10,000,000, of the Company's securities, subject to a minimum gross consideration of $3,000,000.  The Company agreed to pay to MDB a commission of 10% of the gross offering proceeds received by the Company, to grant to MDB warrants to acquire up to 10% of the shares of our common stock and warrants issued in the financing, and to pay the reasonable costs and expenses of MDB related to the offering.

Pursuant to the Engagement Agreement, we entered into a Securities Purchase Agreement ("SPA") dated March 23, 2012 with select institutional and other accredited investors for the private placement of 27,800,000 units of our securities.  The SPA included a purchase price of $0.25 per unit, with each unit consisting of one share of common stock and two forms of Warrant: (1) The "A" Warrant grants the investors the right to purchase an additional share of common stock for each two shares of common stock purchased, for a term of six years and at an exercise price of $0.35 per share; and (2) The "B" Warrant will not be exercisable unless and until the occurrence of a future issuance of stock at less than $0.25 per share, but, in the event of such issuance, grants the investors the right to acquire additional shares at a price of $0.05 to reduce the impact of the dilution caused by such issuance, but in no event shall the number of shares to be issued under the B Warrant cause us to exceed the number of authorized shares of common stock. The shares in excess of our authorized shares that would have been issuable under the B Warrant shall be "net settled" by payment of cash in an amount equal to the number of shares in excess of the authorized common shares multiplied by the closing price of our common stock as of the trading day immediately prior to the applicable date of the exercise of such B Warrant.  A majority of the holders of the B Warrants agreed in December 2012 to amend the terms of the B Warrant to reduce the amount of subsequent financing required to extinguish the B Warrants with the result that the B Warrants may now be extinguished through notice to the Warrant Holders.

Net proceeds from the 2012 Equity Financing, after deducting the commissions and the estimated legal, printing and other costs and expenses related to the financing, were approximately $6.1 million.  Coincident to the closing of the 2012 Equity Financing, we also closed on the 2012 Debt Restructuring.  In connection therewith, the Company paid $2,750,000 to Castlerigg Master Investment Ltd. ("Castlerigg"), and issued to Castlerigg 2,000,000 shares of common stock in full and complete satisfaction of the senior convertible note and all accrued interest. In consideration of negotiating the 2012 Debt Restructuring, we issued to one of our placement agents 586,164 shares of our common stock and paid them $275,041.

In December 2011, we entered into a loan with 7 accredited individuals and entities under the terms of which we borrowed $1,300,000 to be used as working capital ("Bridge Loan").  The Bridge Loan bears an interest rate of 18% per annum and had a maturity date of February 28, 2012, which was subsequently extended to the earlier of the date nine months from the original maturity date or the date we close on an additional sale of our securities that results in gross proceeds to us of $12 million.  In consideration of the Bridge Loan we granted to the holders of the Bridge Loan warrants with a five year term to purchase 357,500 shares of our common stock at an exercise price of $0.65 per share.  In consideration of the extension of the maturity date of the Bridge Loan, we granted the holders of the Bridge Loan warrants with a six year term to purchase 247,500 shares of our common stock at an exercise price of $0.35 per share.

In connection with the 2012 Equity Financing and under the terms of the SPA, two of the above described bridge lenders converted the principal balance of their portion of the bridge loan in the amount of $400,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing.  In addition, one other entity converted the amount owed by us for equipment purchases in the amount of $500,000 to common stock and warrants as part of and on the same terms as the 2012 Equity Financing. The proceeds from these conversions were treated as funds raised with respect to the financing.

In connection with the 2012 Equity Financing and under the terms of the SPA, the Company agreed to prepare and file, within 60 days following the issuance of the securities, a registration statement covering the resale of the shares of common stock sold in the financing and the shares of common stock underlying the Warrants.  The Company filed the registration statement on April 9, 2012 and it was declared effective on August 1, 2012.

On April 5, 2012 we secured an additional $154,000 from 1 company and 4 individuals (three of which are members of our Board of Directors) on the same terms and conditions as the investors of the 2012 Equity Financing. As a result of this funding we issued 616,000 shares of our common stock and A warrants totaling 400,400 of which 308,000 were issued to investors and 92,400 were issued to our investment banker.

All warrants listed below were issued with price protection provisions and were accounted for as derivative liabilities. The A Warrants were valued using the Black Scholes pricing model and the B Warrants were valued using the Geometric Brownian Motion methodology with a risk neutral Monte Carlo approach.

	Common Shares Issued		Number of A Warrants		Value of A Warrants		Value of B Warrants		Total Warrant Value
Investors		24,816,000		12,408,000	$	487,095	$	39,387	$	526,482
Bridge Loan Conversion		1,600,000		800,000		31,405		2,539		33,944
Equipment Finance Conversion		2,000,000		1,000,000		39,257		3,174		42,431
Agency		--		4,262,400		167,327		13,531		180,858
Total		28,416,000		18,470,400	$	725,084	$	58,631	$	783,715

We recorded an aggregate derivative liability of $783,715 and $3,101,537 as of June 30, 2013 and 2012, respectively, related to the reset feature of the A warrants and the B warrants mentioned above. A derivative valuation loss of $26,246 and a derivative valuation gain of $1,659,855 were recorded to reflect the change in value of the aggregate derivative liability from December 31, 2012 and the time the warrants were first issued, respectively.  The aggregate derivative liability of $783,715 was calculated as follows: (1) $725,084 for the reset feature of the A warrants using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 1.41%, (ii) expected life (in years) of 4.7; (iii) expected volatility of 91.50%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08 and (2) $58,631 for the B warrants using the Geometric Brownian Motion methodology with a risk neutral Monte Carlo approach.

2010 Equity Financing and the Debt Restructuring

On December 24, 2010, we closed on an equity financing (the "Equity Financing") as well as a restructuring of our then outstanding convertible indebtedness (the "Debt Restructuring").  The Equity Financing and the Debt Restructuring are described as follows.

We entered into a Placement Agency Agreement, dated December 17, 2010, with Philadelphia Brokerage Corporation ("PBC"), pursuant to which PBC agreed to act as the exclusive agent of the Company on a "best efforts" basis with respect to the sale of up to a maximum gross consideration of $15,000,000 of units of the Company's securities, subject to a minimum gross consideration of $10,000,000.  The units consisted of two shares of our common stock and one warrant to purchase a share of our common stock.  The Company agreed to pay PBC a commission of 8% of the gross offering proceeds received by the Company, to issue PBC 40,000 shares of its common stock for each $1,000,000 raised, and to pay the reasonable costs and expenses of PBC related to the offering.  The Company also agreed to pay PBC a restructuring fee in the amount of approximately $180,000 upon the closing of the Equity Financing and the simultaneous Debt Restructuring.

Pursuant to the Placement Agency Agreement, we entered into Subscription Agreements dated December 23, 2010 with select institutional and other accredited investors for the private placement of 12,500,000 units of our securities.  The Subscription Agreements included a purchase price of $1.20 per unit, with each unit consisting of two shares of common stock and one warrant to purchase an additional share of common stock.  The warrants have a term of five years and had an exercise price of $1.00 per share which was reset to $0.78 pursuant to the 2012 Equity Financing.

Net proceeds from the Equity Financing, after deducting the commissions and debt restructuring fees payable to PBC and the estimated legal, printing and other costs and expenses related to the financing, were approximately $13.5 million.  We used a portion of the net proceeds of the Equity Financing to pay down debt and the remainder was used for working capital.

On November 29, 2010, we entered into a bridge loan transaction with three accredited investors pursuant to which we issued unsecured notes in the aggregate principal amount of $1.0 million.  Upon the closing of the Equity Financing, the lenders converted the entire principal amount plus accrued interest into the same units offered in the Equity Financing and the proceeds from the bridge loan transaction were treated as funds raised with respect to the financing.

In connection with the Equity Financing and under the terms of the Subscription Agreements, the Company agreed to prepare and file, and did file, within 60 days following the issuance of the securities, a registration statement covering the resale of the shares of common stock sold in the financing and the shares of common stock underlying the warrants.  The registration statement was declared effective June 16, 2011 satisfying the obligation contained in the Subscription Agreements.

On December 24, 2010, we also closed on the Debt Restructuring.  In connection therewith, we (i) issued an Amended and Restated Senior Convertible Note in the principal amount of $5.5 million (the "Amended and Restated Note") to Castlerigg Master Investment Ltd. ("Castlerigg"), (ii) paid $2.5 million in cash to Castlerigg, (iii) cancelled warrants previously issued to Castlerigg that were exercisable for a total of 5,208,333 shares of common stock, (iv) issued 800,000 shares of common stock to Castlerigg in satisfaction of an obligation under a prior loan amendment, (v) entered into the Letter Agreement pursuant to which we paid Castlerigg an additional $2.75 million in cash in lieu of the issuance of $3.5 million in stock and warrants as provided in the loan restructuring agreement under which the Amended and Restated Note and other documents were issued (the "Loan Restructuring Agreement"), and (vi) entered into an Investor Rights Agreement with Castlerigg dated December 23, 2010.  As a result of the foregoing, Castlerigg forgave approximately $7.2 million of principal and accrued but unpaid interest.

The Amended and Restated Note, dated December 23, 2010, was a senior, unsecured note that matured in three years from the closing and bore interest at an annual rate of 6.25%, payable semi-annually.  We paid the first year's interest of $350,434 at the closing.  The Amended and Restated Note was convertible into shares of common stock at a conversion price of $1.35 per share, subject to adjustment.  The Amended and Restated Note was convertible in whole or in part at any time upon notice by Castlerigg to us.  The Amended and Restated Note also contained various restrictions, acceleration provisions and other standard and customary terms and conditions.  Two of our consolidated subsidiaries guaranteed our obligations under the Amended and Restated Note.

The Investor Rights Agreement provides Castlerigg with certain registration rights with respect to the Company's securities held by Castlerigg.  These registration rights include an obligation of the Company to issue additional warrants to Castlerigg if certain registration deadlines or conditions are not satisfied.  The agreement also contains full-ratchet anti-dilution price protection provisions in the event the Company issues stock or convertible debt with a purchase price or conversion price less than the conversion price described above.

During the three months ended March 31, 2011, we issued Castlerigg 400,000 warrants pursuant to a waiver agreement dated March 10, 2011 allowing the issuance of shares and warrants for the conversion of the AR Note Payable without adjusting the conversion price of the Amended and Restated Senior 6.25% Convertible Note.  These warrants contain full-ratchet anti-dilution price protection provisions in the event the Company issues stock or convertible debt with a purchase price or conversion price less than the conversion price described above and were accounted for as embedded derivatives and valued on the transaction date using a Black Scholes pricing model. During the three and six months ended June 30 ,2011 the warrant holder exercised these warrants using a cashless provision resulting in the company issuing 372,272 shares of our common stock. A valuation gain of $144,000 was recorded to reflect the change in value of the aggregate derivative from the time of issue to the date of conversion.

In connection with the Debt Restructuring, the Company amended the note with the holder of a $1.0 million unsecured convertible note, pursuant to which the maturity date of the note was extended to December 31, 2013. We also issued 150,000 shares and 75,000 warrants to acquire our common stock at $.90 per share to the holder of this note as consideration to extend the term of the note.

On March 26, 2012, we closed on an equity financing (the "2012 Equity Financing") as well as a restructuring of our outstanding senior convertible indebtedness (the "2012 Debt Restructuring") resulting in complete satisfaction our senior indebtedness.

A portion of the net proceeds from the 2012 Equity Financing was used to close on the 2012 Debt Restructuring therewith. The Company paid $2,750,000 and issued 2,000,000 shares of common stock valued at $760,000 to Castlerigg in satisfaction of the $5,500,000 senior convertible note and $680,816 of accrued interest.

Investor warrants totaling 12,499,980 issued under the Subscription  Agreements contain price protection adjustments in the event we issue new common stock or common stock equivalents in certain transactions at a price less than $1.00 per share and were accounted for as embedded derivatives and valued on the transaction date using a Black Scholes pricing model. The exercise price has been reset to $0.7312 per share due to subsequent financings.

We recorded an aggregate derivative liability of $134,500 and $750,000 as of June 30, 2013 and 2012, respectively, related to the reset feature of the warrants issued under the Placement Agency Agreement. A derivative valuation loss of $25,100 and derivative valuation gain $2,125,000, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012 and December 31, 2011, respectively.  The aggregate derivative liability of $134,500 for the conversion feature of the note was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.51%, (ii) expected life (in years) of 2.5; (iii) expected volatility of 98.23%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.08.

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Reclassifications

6 Months Ended

Jun. 30, 2013

Reclassifications [Abstract]

Reclassifications

Note 2 - Reclassifications

Certain 2012 financial statement amounts have been reclassified to conform to 2013 presentations.

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Liquidity and Capital Resources (Details) (USD $)	3 Months Ended		6 Months Ended					6 Months Ended				3 Months Ended			1 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Apr. 30, 2013	Dec. 31, 2012	Dec. 31, 2011	Jun. 30, 2013 AllDigital, Inc. [Member] Merger Agreement [Member] Rate	Jun. 30, 2013 AllDigital, Inc. [Member] Merger Agreement Amendment [Member] Rate	Jun. 30, 2013 AllDigital, Inc. [Member] Merger Agreement Amendment [Member] Minimum [Member]	Jun. 30, 2013 AllDigital, Inc. [Member] Merger Agreement Amendment [Member] Maximum [Member]	Mar. 31, 2013 Loans Payable [Member]	Jul. 31, 2012 Tranche One of Warrants Issued with Twenty Twelve Convertible Notes [Member]	Jun. 30, 2013 Warrants Issued with Convertible Debt Offering [Member]	Aug. 31, 2012 2012 Convertible Notes [Member]	Jul. 31, 2012 2012 Convertible Notes [Member]	Jun. 30, 2013 2012 Convertible Notes [Member]	Jan. 31, 2013 2012 Convertible Notes [Member]	Dec. 31, 2012 2012 Convertible Notes [Member]	Jul. 31, 2012 2012 Convertible Notes [Member] Maximum [Member]
Liquidity and Capital Resources [Abstract]
Cash	$ 686,347	$ 403,259	$ 686,347	$ 403,259		$ 394,342	$ 961,265
Current assets	877,438		877,438			1,753,013
Current liabilities	7,968,941		7,968,941			7,301,376
Stockholders' deficit	(6,736,801)		(6,736,801)			(4,616,860)
Derivative valuation	1,275,275	4,309,537	1,275,275	4,309,537		1,191,269
Cash flow used in operations			(1,052,472)	(1,773,339)
Increase (Decrease) in Accounts Receivable			(763,461)	(26,358)
Increase (decrease) in accounts payable and accrued expenses			(246,728)	1,414,189
Reduction in payables	962,630
Payments for debt extinguishment costs			66,646	275,041
Stock issued to extinguish debt, shares			2,240,852
Value of stock issued to extinguish debt			153,860
Gain on extinguishment of debt	345,397		414,484	1,672,575
Amount still owed from settlement of debt	76,409		76,409
Receivables sold					750,000
Equipment returned to vendor			327,640
Debt Instrument [Line Items]
Principal issued												1,575,000			900,000	1,900,000	3,475,000	425,000	250,000	5,000,000
Debt maturity date																Jul. 13, 2013
Debt interest rate																12.00%
Conversion price																$ 0.25
Number of shares of common stock warrants can be exercised for													3,800,000	6,950,000	1,800,000	200,000		850,000	500,000
Warrant term length																5 years
Amount of debt converted																900,000
Proceeds from issuance of convertible note and warrants															851,624	923,175
Payment of investment banking fees												48,376			48,376	76,825
Proceeds from short term debt												1,526,624
Business Acquisition [Line Items]
Percentage of equity interests acquired								54.00%	58.00%
Post merger contract agreement, value of stock to be purchased										$ 1,500,000	$ 3,500,000
Reverse stock split ratio								0.1	0.066

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Notes Payable (Bridge Loan) (Details) (USD $)	3 Months Ended		6 Months Ended			6 Months Ended		0 Months Ended		0 Months Ended						1 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Jun. 30, 2013 2012 Plan [Member]	Jun. 30, 2012 2012 Plan [Member]	Mar. 26, 2012 Bridge Loan Conversion [Member]	Jun. 30, 2013 Bridge Loan Conversion [Member] 2012 Plan [Member]	Dec. 28, 2011 Original Warrants Issued for Bridge Loan [Member]	Dec. 28, 2011 Warrants Issued to Reset Provision and Extend Maturity Date of Bridge Loan Warrants [Member]	Dec. 28, 2011 Warrants Issued to Investment Banker for Payment [Member]	Jul. 13, 2012 Bridge Loan Note Payable [Member]	Mar. 26, 2012 Bridge Loan Note Payable [Member]	Dec. 28, 2011 Bridge Loan Note Payable [Member]	Dec. 31, 2011 Bridge Loan Note Payable [Member]	Jun. 30, 2012 Bridge Loan Note Payable [Member]	Jun. 30, 2012 Bridge Loan Note Payable [Member]	Jun. 30, 2013 Bridge Loan Note Payable [Member] Original Warrants Issued for Bridge Loan [Member]	Jun. 30, 2012 Bridge Loan Note Payable [Member] Original Warrants Issued for Bridge Loan [Member]	Jun. 30, 2013 Bridge Loan Note Payable [Member] Warrants Issued to Reset Provision and Extend Maturity Date of Bridge Loan Warrants [Member]	Jun. 30, 2012 Bridge Loan Note Payable [Member] Warrants Issued to Reset Provision and Extend Maturity Date of Bridge Loan Warrants [Member]
Debt
Principal issued														$ 900,000	$ 1,300,000	$ 1,300,000
Number of warrants issued												65,000
Debt interest rate															18.00%	18.00%
Warrant term length										5 years	6 years
Number of shares of common stock warrants can be exercised for										357,500	247,500					357,500
Exercise price of warrants										0.65	0.35	0.65
Debt maturity date																Feb. 28, 2012
Amount of financing proceeds triggering expiration of warrants															12,000,000	12,000,000
Payments for placement fees												84,500
Payments of escrow fees															3,000
Amount of debt converted								400,000						400,000
Fair value of warrants						783,715			33,944					222,426
Total cash payment to extinguish debt			137,865										900,000
Gain on extinguishment of debt	345,397		414,484	1,672,575									(93,661)	(222,426)
Loss on retirement of debt offering costs													53,160
Derivative valuation	1,275,275	4,309,537	1,275,275	4,309,537	1,191,269	783,715	3,101,537												8,700	46,700	7,700	34,700
Gain (loss) on derivative valuation	709,509	2,959,155	(25,606)	4,588,480		(26,246)	1,659,855												(1,300)	97,000	(500)	61,825
Risk-free interest rate																			0.85%		0.85%
Expected life																			3 years 6 months		3 years 6 months
Expected volatility																			92.74%		94.74%
Dividend yield																			0.00%		0.00%
Stock trading price																			$ 0.08		$ 0.08
Accretion of discount on convertible notes payable			793,865	265,636													51,848	98,968
Interest expense																	$ 40,389	$ 95,130

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Stock-based Compensation (Schedule of Unrecognized Compensation Expense) (Details) (USD $)	Jun. 30, 2013
Stock-based Compensation [Abstract]
2013	$ 28,334
2014	30,625
Total	$ 58,959

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Supplemental Cash Flow Information

6 Months Ended

Jun. 30, 2013

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

Note 14 - Supplemental Cash Flow Information

2013

For the six months ended June 30, 2013 we issued 458,553 shares of our common stock to one former member of our board of directors for services rendered of which (i) 258,553 was for the settlement of previously awarded restricted stock units and (ii) 200,000 valued at $15,000 for unpaid services rendered in 2012, which had been expensed and included in our accounts payable at December 31, 2012.

For the six months ended June 30, 2013 we issued an aggregate of 60,000 shares of our common stock valued at $4,200 to six individuals for services rendered.

For the six months ended June 30, 2013 we awarded 686,667 restricted stock units issued valued at $51,500 to four members of our board of directors for services rendered in 2012. The value of these awards had been expensed and included in our Accounts Payable at December 31, 2012.

For the six months ended June 30, 2013 we recorded a $136,621 loss on disposal of assets of which (i) $40,824 was for the abandonment of lease hold improvements related to our move from our 7050 Union Park location, (ii) $25,685 related to the retirement of furniture & fixtures, (iii) $70,112 related to equipment sold or no longer in use. Additionally, we received cash proceeds net of costs from these sales of $75,423.

For the six months ended June 30, 2013 we recorded a $414,474 gain on extinguishment of debt resulting from the issuance of 2,240,852 shares of our common stock valued at $153,860 and the payment of $137,865 in cash, of which $66,646 had been paid at June 30, 2013, to 19 of our accounts payable vendors.

For the six months ended June 30, 2013 an aggregate non-cash expense of $527,162 was recorded for the accretion of notes payable as follows: (i) $166,668 for our unsecured convertible note and (ii) $360,494 for our 2012 secured convertible notes.

For the six months ended June 30, 2013, we recognized $151,047 in depreciation and amortization expense from the following: (i) $1,167 related to cost of sales for equipment used directly by or for customers, (ii) $144,805 related to other property and equipment, and (iii) $5,075 for patent amortization.

2012

During the six months ended June 30, 2012, we issued 250,000 shares of our common stock valued at $137,500 to one consultant in consideration for cancellation of a warrant issued for consulting services rendered.

For the six months ended June 30, 2012 an aggregate non-cash expense of $265,636 was recorded for the accretion of notes payable as follows: (i) $166,668 for the unsecured convertible note and (ii) $98,968 for the Bridge Loan.

For the six months ended June 30, 2012, we recognized $723,194 in depreciation and amortization expense from the following: (i) $396,520 related to cost of sales for equipment used directly by or for customers, (ii) $321,599 related to other property and equipment, and (iii) $5,075 for patent amortization.

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Equipment Financing

6 Months Ended

Jun. 30, 2013

Equipment Financing [Abstract]

Equipment Financing

Note 10 - Equipment Financing

On August 27, 2009, we completed an equipment lease financing transaction with a financial institution.  Pursuant to the financing, we entered into various material agreements with the financial institution. These agreements are identified and summarized below.

We entered into a Master Lease Agreement dated as of July 28, 2009 with the financial institution pursuant to which we sold to the financing institution certain telecommunications equipment to be installed at 1,981 (subsequent additional locations have increased the customer's network to an aggregate of approximately 2,100 locations) of our customer's retail locations in exchange for a one-time payment of $4,100,670 by the financial institution. We paid to the financial institution 36 monthly lease payments of approximately $144,000 plus applicable sales taxes. We had the right to terminate the lease after making 33 payments for a termination fee of the higher of approximately 10% of the original equipment value (approximately $410,000) or the then "in-place fair market value" after which payment we would own all of the equipment. We gave timely notice of exercise of this option. We are currently a party to a lawsuit to determine if the "in-place fair market value" exceeds the 10% of the original lease value and by what amount.  We contend that the three payments made subsequent to the notice exercising our right to purchase constitute full payment for the equipment. The equipment broker contends that we owe an additional amount.  Our accounting records reflect that the capital lease has been retired and the equipment has been fully depreciated.

During the year ended December 31, 2012 we included in our lease payments approximately $422,100 toward the in place fair market value. Additionally during the year ended December 31, 2012 and the five months ended May 31, 2013 we made payments of $140,700 and $284,400, respectively, into an escrow account held by the court pending resolution of our dispute.

On June 13, 2013 this matter was settled resulting in a $370,000 payment to the plaintiff which had previously been deposited in escrow with the Court.  For the three and six months ended June 30, 2013 we recorded this expense as part of our cost of sales as it was related to the equipment used by one of our customers.

During the three and six months ended June 30, 2012, we made lease payments totaling approximately $422,096 and $844,191 of which $402,614 and $791,195 was applied toward the outstanding lease with $19,482 and $52,996, respectively, included in interest expense. Additionally, we recognized amortization of the lease acquisition fee of $12,567 and $25,134 which was included in interest expense for the three and six months ended June 30, 2012, respectively.

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Weighted Average Shares (Tables)

6 Months Ended

Jun. 30, 2013

Weighted Average Shares [Abstract]

Schedule of Computation of Basic and Diluted Earnings per Common Share

The following table sets forth the computation of basic and diluted earnings per common share for the three and six month periods ended June 30, 2012 and 2013:

	For the three months ended						For the six months ended
	June 30,						June 30,
	2012			2013			2012		2013
Numerator
Net income (loss)	$	847,192		$	(457,209	)	$	661,715	$	(2,344,772	)
Effect on earnings of dilutive convertible debt		(225,266	)		--			233,068		--
Net income (loss) plus assumed conversions		621,926			(457,209	)		894,783		(2,334,772	)
Denominator
Basic weighted average shares outstanding		107,193,974			108,284,171			94,167,466		107,977,505
Effect of dilutive securities:
Stock options and warrants		--			--			2,939,613		--
Restricted stock units		2,935,000			--			2,935,000		--
Convertible debt		4,000,000			--			4,000,000		--
Diluted weighted average shares outstanding		114,128,974			108,284,171			104,042,079		107,977,505
Net income (loss) per common share
Basic	$	0.01		$	(0.00	)	$	0.01	$	(0.02	)
Diluted	$	0.01		$	(0.00	)	$	0.01	$	(0.02	)

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Subsequent Events

6 Months Ended

Jun. 30, 2013

Subsequent Events [Abstract]

Subsequent Events

Note 15 - Subsequent Events

  On August 6, 2013, we and the requisite parties executed an amendment of the notes issued pursuant to the 2012 Convertible Debt Offering whereby, effective as of July 13, 2013, the maturity date of the notes was extended to October 31, 2013.

On August 8, 2013, we entered into a consent to convert accounts receivable agreement with one of our directors whereby he agreed to accept a convertible promissory note in a principal amount of $750,000 in full satisfaction of our obligations to him under an accounts receivable purchase agreement between us and him.  The note bears interest of 12% per annum, is due October 31, 2013 and is convertible into shares of our common stock at a rate of $0.25 per share at the option of the holder.

We evaluated subsequent events pursuant to ASC Topic 855 and have determined that there are no additional events that need to be reported.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Jul. 31, 2013
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Entity Registrant Name	BROADCAST INTERNATIONAL INC
Entity Central Index Key	0000740726
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		110,233,225

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Significant Accounting Policies (Policy)

6 Months Ended

Jun. 30, 2013

Significant Accounting Policies [Abstract]

Cash and Cash Equivalents

Cash and Cash Equivalents

We consider all cash on hand and in banks, and highly liquid investments with maturities of three months or less, to be cash equivalents. At June 30, 2013 and December 31, 2012, we had bank balances of $321,023 and $38,847, respectively, in excess of amounts insured by the Federal Deposit Insurance Corporation.  We have not experienced any losses in such accounts, and believe we are not exposed to any significant credit risk on cash and cash equivalents.

Current financial market conditions have had the effect of restricting liquidity of cash management investments and have increased the risk of even the most liquid investments and the viability of some financial institutions.  We do not believe, however, that these conditions will materially affect our business or our ability to meet our obligations or pursue our business plans.

Accounts Receivable

Accounts Receivable

Trade accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when collected.

Included in our $93,379 and $821,608 net accounts receivable for the six months ended June 30, 2013 and the year ended December 31, 2012, respectively, were (i) $132,973 and $856,462 for billed trade receivables, respectively; (ii) $(3,113) and $44,478 of unbilled trade receivables less invoiced unearned revenue (iii) $1,479 and $1,808 for employee travel advances and other receivables, respectively; less (iv) ($37,960) and ($81,140) for allowance for uncollectible accounts, respectively.

The service contract with our largest customer expired May 31, 2013. The revenues from this customer accounted for 87% of our revenues for the six months ended June 30, 2013.

Inventories

Inventories

Inventories consisting of electrical and computer parts are stated at the lower of cost or market determined using the first-in, first-out method.

Property and Equipment

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the property, generally from three to five years.  Repairs and maintenance costs are expensed as incurred except when such repairs significantly add to the useful life or productive capacity of the asset, in which case the repairs are capitalized.

Patents and Intangibles

Patents and Intangibles

Patents represent initial legal costs incurred to apply for United States and international patents on the CodecSys technology, and are amortized on a straight-line basis over their useful life of approximately 20 years.  We have filed several patents in the United States and foreign countries. As of March 31, 2013, the United States Patent and Trademark Office had approved four patents.  Additionally, eleven foreign countries had approved patent rights.  While we are unsure whether we can develop the technology in order to obtain the full benefits, the patents themselves hold value and could be sold to companies with more resources to complete the development. On-going legal expenses incurred for patent follow-up have been expensed from July 2005 forward.

Amortization expense recognized on all patents totaled $2,538 and $5,075 for both the three and six months ended June 30, 2013 and 2012, respectively. Estimated amortization expense, if all patents were issued at the beginning of 2013, for each of the next five years is as follows:

Year ending December 31:
2013	$	11,343
2014	$	10,121
2015	$	10,121
2016	$	10,121
2017	$	10,121

Long-Lived Assets

Long-Lived Assets

We review our long-lived assets, including patents, annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, then the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.  Fair value is determined by using cash flow analyses and other market valuations. For the six months ended June 30, 2013 we recorded a $136,621 loss on disposal of assets of which (i) $40,824 was for the abandonment of lease hold improvements related to our move from our 7050 Union Park location, (ii) $25,685 related to the retirement of furniture & fixtures, (iii) $70,112 related to equipment sold or no longer in use.

Income Taxes

Income Taxes

We account for income taxes in accordance with the asset and liability method of accounting for income taxes prescribed by ASC Topic 740.  Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to the taxable income in the years in which those temporary differences are expected to be recovered or settled.

Revenue Recognition

Revenue Recognition

We recognize revenue when evidence exists that there is an arrangement between us and our customers, delivery of equipment sold or service has occurred, the selling price to our customers is fixed and determinable with required documentation, and collectability is reasonably assured. We recognize as deferred revenue, payments made in advance by customers for services not yet provided.

When we enter into a multi-year contract with a customer to provide installation, network management, satellite transponder and help desk, or combination of these services, we recognize this revenue as services are performed and as equipment is sold. These agreements typically provide for additional fees, as needed, to be charged if on-site visits are required by the customer in order to ensure that each customer location is able to receive network communication. As these on-site visits are performed the associated revenue and cost are recognized in the period the work is completed. If we install, for an additional fee, new or replacement equipment to an immaterial number of new customer locations, and the equipment immediately becomes the property of the customer, the associated revenue and cost are recorded in the period in which the work is completed.

In instances where we have entered into license agreements with a third parties to use our technology within their product offering, we recognize any base or prepaid revenues over the term of the agreement and any per occurrence or periodic usage revenues in the period they are earned.

Research and Development

Research and Development

Research and development costs are expensed when incurred.  We expensed $168,939 and $394,313 of research and development costs for the three and six months ended June 30, 2013, respectively.  We expensed $464,847 and $1,021,414 of research and development costs for the three and six months ended June 30, 2012, respectively.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentration of credit risk, consist primarily of trade accounts receivable. In the normal course of business, we provide credit terms to our customers. Accordingly, we perform ongoing credit evaluations of our customers and maintain allowances for possible losses which, when realized, have been within the range of management's expectations.

For the six months ended June 30, 2013 and 2012, we had the same customer that individually constituted 87% and 86%, respectively of our total revenues.

The service contract with our largest customer expired May 31, 2013. The revenues from this customer accounted for 87% of our revenues for the six months ended June 30, 2013.