b5914110q.htm

10-Q 1 b5914110q.htm FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014 b5914110q.htm

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 March 31, 2014

£ 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 May 8, 2014
Common Stock, $.05 par value	111,370,878 shares

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	20
	Item 3. Quantitative and Qualitative Disclosures about Market Risk	30
	Item 4. Controls and Procedures	30
PART II -OTHER INFORMATION
	Item 1. Legal Proceedings	31
	Item 1A. Risk Factors	32
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	32
	Item 3. Defaults Upon Senior Securities	32
	Item 4. [REMOVED AND RESERVED]	32
	Item 5. Other Information “Not Applicable”	32
	Item 6. Exhibits	32
Signatures		37

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROADCAST INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31, 2013			March 31, 2014
				(Unaudited)
ASSETS:
Current Assets
Cash	$	215,371		$	35,478
Trade accounts receivable, net		50,745			62,120
Inventory		19,457			19,124
Prepaid expenses		15,136			1,501
Total current assets		300,709			118,223
Property and equipment, net		64,282			33,597
Other Assets, non current
Deposits and other assets		66,081			35,380
Patents, net		111,022			108,851
Total other assets, non current		177,103			144,231

Total assets	$	542,094		$	296,051

LIABILITIES AND STOCKHOLDERS DEFICIT:

Current Liabilities
Accounts payable	$	1,034,053		$	1,082,732
Payroll and related expenses		98,962			81,799
Other accrued expenses		802,364			913,601
Unearned revenue		5,280			4,496
Current portion of notes payable		5,245,000			5,328,700
Derivative valuation		11,736			159,731
Total current liabilities		7,197,395			7,571,059
Long-term liabilities		--			--
Total liabilities		7,197,395			7,571,059
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; 110,233,225 and 111,370,878 shares issued as of December 31, 2013 and March 31, 2014, respectively		5,511,661			5,568,544
Additional paid-in capital		99,706,469			99,684,254
Accumulated deficit		(111,873,431	)		(112,527,806	)
Total stockholders’ deficit		(6,655,301	)		(7,275,008	)

Total liabilities and stockholders’ deficit	$	542,094		$	296,051

See accompanying notes to condensed consolidated financial statements.

BROADCAST INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the three months ended
	March 31,
	2013			2014

Net sales	$	1,480,569		$	73,995
Cost of sales		777,569			57,927
Gross profit		703,000			16,068

Operating expenses:
Administrative and general		986,209			331,280
Selling and marketing		137,469			38,154
Research and development		225,374			3,774
Depreciation and amortization		95,864			11,130
Total operating expenses		1,444,916			384,338
Total operating loss		(741,916	)		(368,270	)

Other income (expense):
Interest expense		(533,785	)		(146,614	)
Loss on derivative valuation		(735,115	)		(147,995	)
Gain on extinguishment of debt		69,087			--
Gain on disposition of assets		50,000			7,941
Other income, net		4,166			563
Total other income (expense)		(1,145,647	)		(286,105	)

Loss before income taxes		(1,887,563	)		(654,375	)
Provision for income taxes		--			--
Net loss	$	(1,887,563	)	$	(654,375	)

Net loss per share – basic & diluted	$	(0.02	)	$	(0.01	)

Weighted average shares – basic & diluted		107,667,431			110,574,521

See accompanying notes to condensed consolidated financial statements.

BROADCAST INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31,
	2013			2014
Cash flows from operating activities:
Net loss	$	(1,887,563	)	$	(654,375	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		97,031			11,130
Accretion of discount on convertible notes payable		392,303			--
Stock based compensation		2,824			13,033
Gain on sale of assets		(50,000	)		(7,941	)
Gain on extinguishment of debt		(69,087	)		--
Loss on derivative liability valuation		735,115			147,995
Allowance for doubtful accounts		23,080			(4,250	)
Changes in assets and liabilities:
Decrease in accounts receivable		430,533			6,198
Decrease in inventories		15,612			333
Decrease in debt offering costs		19,467			--
Decrease in prepaid and other assets		51,610			44,336
Increase in accounts payable and accrued expenses		387,517			164,387
Decrease in deferred revenues		(26,466	)		(784	)

Net cash provided by (used in) operating activities		121,976			(279,938	)

Cash flows from investing activities:
Proceeds from the sale of assets		--			16,345

Net cash provided by investing activities		--			16,345

Cash flows from financing activities:
Proceeds from equity financing		425,000			83,700
Increase in restricted cash		(284,400	)		--

Net cash provided by financing activities		140,600			83,700

Net increase (decrease) in cash		262,576			(179,893	)

Cash beginning of period		394,342			215,371

Cash end of period	$	656,918		$	35,478

Supplemental disclosure of cash flow information:
Interest paid	$	400		$	--
Income taxes paid	$	--		$	--

See accompanying notes to condensed consolidated financial statements.

BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2014

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, 2013 and March 31, 2014 and the results of operations for the three months ended March 31, 2013 and 2014, respectively, with the cash flows for each of the three months ended March 31, 2013 and 2014, 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, 2013. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014.

Note 2 - Reclassifications

Certain 2013 financial statement amounts have been reclassified to conform to 2014 presentations.

Note 3- Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred losses and have not demonstrated the ability to generate sufficient cash flows from operations to satisfy our liabilities and sustain operations. These factors raise substantial doubt about our ability to continue as a going concern.

Our continuation as a going concern is dependent on our ability to generate sufficient income and cash flow to meet our obligations on a timely basis and to obtain additional financing as may be required. There is no assurance we will be successful in efforts to raise additional funds. The accompanying statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Note 4 – Weighted Average Shares

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 year, using the treasury stock method and the average market price per share during the year.

As we experienced net losses during the three month periods ending March 31, 2014 and 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 42,863,636 and 43,711,269, shares of common stock at prices ranging from $0.25 to $2.90 and $0.25 to $4.00 per share were outstanding at March 31, 2014 and 2013, respectively. Additionally, unsettled restricted stock units of 2,484,694 and 3,368,247 were outstanding at March 31, 2014 and 2013, respectively. Furthermore, we had convertible debt that was convertible into 21,234,800 and 17,900,000 shares of common stock at March 31, 2014 and 2013, respectively that was excluded from the calculation of diluted earnings per share because the effect was anti-dilutive.

Note 5 – 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 March 31, 2014 was 4,523,911.

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 363,200 at March 31, 2014.

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.

There were no options granted for either the three months ended March 31, 2014 or 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 three months ended March 31, 2013 estimated at the date of issuance using the Black-Scholes option-pricing model with the following weighted average assumptions:

	Three Months Ended March 31, 2013
Risk free interest rate	0.65%
Expected life (in years)	4.42
Expected volatility	90.68%
Expected dividend yield	0.00%

The weighted average fair value of warrants issued during the three months ended March 31, 2013 was $0.05. There were no warrants issued during the three months ended March 31, 2014.

Results of operations for the three months ended March 31, 2014 and 2013 includes $13,033 and $2,824, 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.

The $13,033 and $2,824 of non-cash stock-based compensation expense for the three months ended March 31, 2014 and 2013 was from the vesting of unexpired options and warrants issued prior to January 1, 2014 and 2013, respectively and were included in our general and administrative expense.

Due to unexercised options and warrants outstanding at March 31, 2014, we will recognize an aggregate total of $29,294 during the year ending December 31, 2014 in accordance with vesting provisions.

The following unaudited tables summarize option and warrant activity during the three months ended March 31, 2014.

	Options and Warrants Outstanding			Weighted Average Exercise Price

Outstanding at December 31, 2013		43,068,136		$	0.47
Options granted		--			--
Warrants issued		--			--
Expired		(4,500	)		4.00
Forfeited		(200,000	)		1.20
Exercised		--			--

Outstanding at March 31, 2014		42,863,636		$	0.47

The following table summarizes information about stock options and warrants outstanding at March 31, 2014.

		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		40,024,414		3.10	$	0.42		39,941,081	$	0.42
	1.00-1.59		2,509,222		2.21		1.03		2,494,555		1.03
	2.25-2.90		330,000		1.72		2.50		330,000		2.50
$	0.25-2.90		42,863,636		3.03	$	0.47		42,765,636	$	0.47

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 three months ended March 31, 2014, 608,553 restricted stock units were settled with issuance of shares of our common stock, (a) 408,553 shares to a former member of our board of directors for prior services rendered and (b) 200,000 shares to a former employee. For the three months ended March 31, 2014 no restricted stock units were awarded.

During the three months ended March 31, 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 three months ended March 31, 2013. The value of the units awarded had been expensed as directors fees in the year ended December 31, 2012.

The following is a summary of restricted stock unit activity for the three months ended March 31, 2014.

	Restricted Stock Units			Weighted Average Grant Date Fair Value

Outstanding at December 31, 2013		3,093,247		$	0.88
Awarded at fair value		--			--
Canceled/Forfeited		--			--
Settled by issuance of stock		(608,553	)		0.51
Outstanding at March 31, 2014		2,484,694		$	0.97
Vested at March 31, 2014		2,484,694		$	0.97

Note 6 - 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 March 31, 2014 and December 31, 2013, we had no bank balances 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 $62,120 and $50,745 net accounts receivable for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively, were (i) $65,910 and $57,655 for billed trade receivables, respectively; (ii) $250 and $1,380 of unbilled trade receivables less (iii) ($4,040) and ($8,290) for allowance for uncollectible accounts, respectively.

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, 2014, the United States Patent and Trademark Office had approved six 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 $2,171 and $2,538 for the three months ended March 31, 2014 and 2013, respectively. Our estimated future amortization expense, if all patents were issued at the beginning of 2014, would be $10,121 for each of the next five years.

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. After our review at March 31, 2014 it was determined that no adjustment was required.

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 $3,774 and $225,374 of research and development costs for the three months ended March 31, 2014 and 2013, 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 three months ended March 31, 2014 and 2013, our largest customer individually constituted 48% and 91%, respectively of our total revenues.

Our largest customer for 2014 is not the same as in 2013. The largest customer included in our 2013 revenue initially signed a three-year agreement which has expired. We provided services for this customer through May 31, 2013, but provided no services for this customer in 2014 and have not been able to secure new customers to replace the lost revenues.

Note 7 – Notes Payable

The recorded value of our notes payable for the three months ended March 31, 2014 and year ended December 31, 2013 was as follows:

	December 31, 2013			March 31, 2014

2012 Secured Convertible Notes	$	4,225,000		$	4,308,700
Unsecured Convertible Note		1,000,000			1,000,000
Unsecured Interest Note		20,000			20,000
Total		5,245,000			5,328,700
Less Current Portion		(5,425,000	)		(5,328,700	)
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 March 31, 2014 we have issued notes having an aggregate principal value of $4,308,700 as explained below. The notes were due and payable on or before December 31, 2013. The principal and accrued interest due remain unsatisfied as of the current date. We are currently in discussions with the note holders regarding the conversion rate and extension of the due date to accommodate the closing of the Wireless Ronin merger.The notes bear interest at 12% per annum and may convertible to common stock at a $.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.

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 and issued warrants to acquire 3,800,000 shares of our common stock.

In August 2012, we increased our 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $900,000 and issued warrants to acquire 1,800,000 shares of our common stock.

In December 2012, we increased our 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 increased our 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.

In August 2013, we converted the $750,000 principal balance of 2013 Accounts Receivable Purchase Agreement into our 2012 Convertible Debt Offering through the issuance of short term debt. No warrants were issued with respect to this transaction.

In March 2014 we increased our 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $83,700 to one member of our Board of Directors. No warrants were issued with respect to this transaction.

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 $179,300 as of March 31, 2013, related to the conversion feature of the note. A derivative valuation loss of $89,700 was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012. The aggregate derivative liability of $179,300 was calculated as follows using a Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.07%, (ii) expected life (in years) of 0.30; (iii) expected volatility of 175.61%, (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.10.

Additionally, we recorded an aggregate derivative liability of $33,523 and $345,800 as of March 31, 2014 and 2013, respectively related to the warrant reset provision. A derivative valuation loss of $30,869 and $119,500 was recorded to reflect the change in value of the aggregate derivative liability from December 31, 2013 and 2012, respectively. The aggregate derivative liability of $33,523 was calculated as follows using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.93%, (ii) expected life (in years) of 3.30; (iii) expected volatility of 125.67%, (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

The principal value of the secured convertible note was being accreted over the amended term of the obligation for which $308,968 was included in interest expense for the three months ended March 31, 2013. The note bears a 12% annual interest rate and for the three months ended March 31, 2014 and 2013, $125,014 and $98,861, respectively were included in interest expense.

Unsecured Convertible Note

On September 29, 2006, we entered into a letter of understanding with Triage Capital Management, or Triage. The letter of understanding provided that Triage loan $1,000,000 to us in a convertible note securities agreement.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. The principal and accrued interest due remain unsatisfied as of the current date. We are currently in discussions with the note holder regarding the conversion rate and extension of the due date to accommodate the closing of the Wireless Ronin merger.

We recorded an aggregate derivative liability of $99,800 as of March 31, 2013 related to the conversion feature of the note. A derivative valuation loss of $53,400 was recorded to reflect the change in value of the aggregate derivative liability since December 31, 2012. The aggregate derivative liability of $99,800 for the conversion feature of the note was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.14%, (ii) expected life (in years) of 0.8; (iii) expected volatility of 142.68%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.10.

In connection with the amendment mentioned above, the principal value of the note was 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 was included in interest expense for the three months March 31, 2013. The note bears an 8% annual interest rate payable semi-annually, and for each the three months ended March 31, 2014 and 2013, $20,000, was included in interest expense.

Unsecured Interest Note

On April 17, 2013, we entered into a promissory note with the holder of our Unsecured Convertible Note in the amount of $20,000. The note was to satisfy unremitted interest due the holder on our Unsecured Convertible Note at that time. The note bears a 12 % per annum interest rate and was due on December 31, 2013. The principal and accrued interest due remain unsatisfied as of the current date.

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 $1,373 and $13,400 as of March 31, 2014 and 2013, respectively, related to the warrant reset provision. A derivative valuation loss of $1,345 and $7,500, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2013 and December 31, 2012, respectively. The aggregate derivative liability of $1,373 was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.45%, (ii) expected life (in years) of 2.0; (iii) expected volatility of 152.63%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

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 bore 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 which has been subsequently reset to $0.50. The note was originally due on February 28, 2012, but was extended and satisfied as described below. 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 which has been subsequently reset to $0.25 per share. In connection with the Bridge Loan we issued warrants to purchase 65,000 shares of our common stock at an exercise price of $0.65 which has been subsequently reset to $0.50 per share, to our investment banker for services in completing the above transaction.

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. On July 13, 2012 the $900,000 principal balance was retired and was included as part of the 2012 Secured Convertible Note (as described above).

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.

We recorded an aggregate derivative liability of $1,324 and $13,000 as of March 31, 2014 and 2013, respectively, related to the reset provision for the original and placement warrants issued. A derivative valuation loss of $1,280 and $5,600, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2013 and December 31, 2012, respectively. The aggregate derivative liability of $1,324 for the reset provision of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.93%, (ii) expected life (in years) of 2.7; (iii) expected volatility of 136.22%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

We recorded an aggregate derivative liability of $1,127 and $10,800 as of March 31, 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 $1,068 and $3,600, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2013 and December 31, 2012, respectively. The aggregate derivative liability of $1,127 for the reset provision of the warrants was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.93%, (ii) expected life (in years) of 2.7; (iii) expected volatility of 136,22%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

Note 8 – 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 the Company’s securities.

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., The holders of the B Warrants agreed in December 2013 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 have now been extinguished.

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 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”). . 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 original 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 original 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.

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 Warrants have an exercise price of $0.25 per share and were valued using the Black Scholes pricing model.

	Common Shares Issued		Number of Warrants		Value of Warrants
Investors		24,816,000		12,408,000	$	67,767
Bridge Loan Conversion		1,600,000		800,000		4,369
Equipment Finance Conversion		2,000,000		1,000,000		5,462
Agency		--		4,262,400		23,280
Total		28,416,000		18,470,400	$	100,878

We recorded an aggregate derivative liability of $100,878 and $1,090,884 as of March 31, 2014 and 2013, respectively related to the reset feature of the warrants mentioned above. A derivative valuation loss of $92,246 and $333,415 was recorded to reflect the change in value of the aggregate derivative liability from December 31, 2013 and 2012, respectively. The aggregate derivative liability of $100,878 was calculated using a Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 1.34%, (ii) expected life (in years) of 4.0; (iii) expected volatility of 119.06%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

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.

In December 2010 we entered into a Placement Agency Agreement, with Philadelphia Brokerage Corporation (“PBC”), pursuant to which PBC agreed to act as the exclusive agent of the Company to sale units of the Company’s securities. The units consisted of two shares of our common stock and one warrant to purchase a share of our common stock.

Pursuant to the Placement Agency Agreement, we entered into Subscription Agreements with select institutional and other accredited investors for the private placement of approximately 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 original exercise price of $1.00 per share which has been reset to $0.725 per share pursuant anti-dilution price protection provisions.

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.

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 , (iv) issued 800,000 shares of common stock to Castlerigg in satisfaction of an obligation under a prior loan amendment, (v) paid Castlerigg an additional $2.75 million in cash in lieu of the issuance of $3.5 million in stock and warrants , 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.

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.

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 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 $0.7250 per share due to subsequent financings.

We recorded an aggregate derivative liability of $21,506 and $231,800 as of March 31, 2014 and 2013 respectively, related to the reset feature of the warrants issued under the Placement agency Agreement. A derivative valuation loss of $21,007 and $122,400, respectively, were recorded to reflect the change in value of the aggregate derivative liability since December 31, 2013 and 2012, respectively. The aggregate derivative liability of $21,506 for the conversion feature of the note was calculated using the Black-Scholes pricing model with the following assumptions: (i) risk free interest rate 0.45%, (ii) expected life (in years) of 1.7; (iii) expected volatility of 159.01%; (iv) expected dividend yield of 0.00%; and (v) stock trading price of $0.015.

Note 9 – Liquidity and Capital Resources

At March 31, 2014, we had a cash balance of $35,478, total current assets of $118,223, total current liabilities of $7,571,059 and total stockholders' deficit of $7,275,008. Included in current liabilities is $159,731 relating to the value of the embedded derivatives for our 2012 Senior Secured Convertible Note, our unsecured convertible note and warrants outstanding granted to investors in the 2012 Senior Secured Convertible Note issuances and the 2012 and 2010 Equity Financings.

Our audited consolidated financial statements for the year ended December 31, 2013 contain a “going concern” qualification. As discussed in Note 3 of the Notes to Consolidated Financial Statements, we have incurred losses and have not demonstrated the ability to generate sufficient cash flows from operations to satisfy our liabilities and sustain operations. Because of these conditions, our independent auditors have raised substantial doubt about our ability to continue as a going concern.

We experienced negative cash flow from operations during the fiscal quarter ended March 31, 2014 of $279,938 compared to positive cash flow used in operations for the quarter ended March 31, 2013 of $121,976. We received proceeds from the issuance of our 2012 Senior Secured Convertible Note financing of $83,700 during the quarter ended March 31, 2014, that was used to pay ongoing expenses of operations and accounts payable. We have decreased our negative cash flow to as low as it can go without discontinuing all operations.

We have trade accounts payable of $1,082,732 that must be all satisfied or settled before we can consummate the Wireless Ronin Merger. We do not have the cash to satisfy those payables and will rely on further investment to do so.

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.

Note 10– 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 March 31, 2014:

					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)	$	159,731	$	--	$	--	$	159,731
Total liabilities measured at fair value	$	159,731	$	--	$	--	$	159,731

(1) See Notes 7 & 8 for additional discussion.

The table below presents our assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at March 31, 2014. 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, 2013	$	(11,736	)
Total gains or losses (realized and unrealized)
Included in net loss		(147,995	)
Valuation adjustment		--
Purchases, issuances, and settlements, net		--
Transfers to Level 3		--
Balance at March 31, 2014	$	(159,731	)

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 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 March 31, 2014, 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 March 31, 2014 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 and Mr. Solomon 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 March 31, 2014 these shares had not been issued, however an aggregate of $38,846 has been accrued representing the value of the benefits which will be exchanged for the shares.

Note 13 – Recent Accounting Pronouncements

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, & Equipment (topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This Update changes the requirements for reporting discontinued operations in Subtopic 205-20. The Update improves the definition of discontinued operations by limiting discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. Under current U.S. GAAP, many disposals, some of which may be routine in nature and not a change in an entity’s strategy, are reported in discontinued operations. In addition, the definition of discontinued operations expanded to include business activities and nonprofit activities that, on acquisition, meet the criteria to be classified as held for sale. The Update requires expanded disclosures for discontinued operations, including more information about the assets, liabilities, revenues and expenses of discontinued operations. This Update is effective for all disposals of components of an entity that occur with annual periods beginning on or after December 15, 2014 for public companies. Since the Company has not disposed of significant components of its business or activities in 2014, the Company doesn’t expect this Update to have a significant impact on its financials.

In March 2014, the FASB issued ASU 2014-06, Technical Corrections and Improvements Related to Glossary Terms. The amendments in this Update represent changes to clarify the Master Glossary of the Codification, consolidate multiple instances of the same term into a single definition, or make minor improvements to the Master Glossary that are not expected to result in substantive changes to the application of existing guidance or create a significant administrative cost to most entities. Additionally, the amendments will make the Master Glossary easier to understand, as well as reduce the number of terms appearing in the Master Glossary. The amendments in this Update are effective immediately. The Company reviewed and noted the changes made in this Update, which can be categorized into four sections: 1) Deletion of Master Glossary Terms, 2) Addition of Master Glossary Term Links, 3) Duplicate Master Glossary Terms, and 4) Other Technical Corrections Related to Glossary Terms. The Company implemented the Update upon issuance, but the changes did not have a significant impact on our financial statements.

Note 14 – Supplemental Cash Flow Information

2014

For the three months ended March 31, 2014 we issued 1,137,653 shares of our common stock to one former employee and one former member of our board of directors for services rendered of which (i) 608,553 was for the settlement of previously awarded restricted stock units and (ii) 529,100 valued at $21,635 for settlement pursuant to a January 6, 2013 Amendment and Settlement Agreement. The value of the settlement had been accrued at December 31, 2013.

For the three months ended March 31, 2014 sold fixed assets resulting in a $7,941 gain on sale. We received $16,345 in proceeds and have included a $13,323 invoice in our accounts receivable at March 31, 2014.

For the three months ended March 31, 2014, we recognized $11,130 in depreciation and amortization expense from the following: (i) $8,959 related to property and equipment, and (ii) $2,171 for patent amortization.

2013

For the three months ended March 31, 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 three months ended March 31, 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 three months ended March 31, 2013 sold certain fully depreciated fixed asset satellite receiving equipment to our largest customer for $50,000 recorded which we recorded as gain on sale of assets. The invoice for this sale was included in our accounts receivable until payment was received in May of 2013.

For the three months ended March 31, 2013 an aggregate non-cash expense of $392,303 was recorded for the accretion of notes payable as follows: (i) $83,334 for our unsecured convertible note and (ii) $308,969 for our 2011 secured convertible notes.

For the three months ended March 31, 2013, we recognized $97,031 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) $93,326 related to other property and equipment, and (iii) $2,538 for patent amortization.

Note 15 – Subsequent Events

In April 2014 we increased our 2012 Convertible Debt Offering by issuing short term debt with a principal amount of $92,000 to one member of our Board of Directors.

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

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 discussed more fully in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013:

consummation of pending merger agreement with Wireless Ronin Technologies, Inc.;

loss of customers that historically constituted more than 80% of our revenues;

dependence on commercialization of our CodecSys technology;

our need and ability to raise sufficient additional capital;

uncertainty about our ability to repay our outstanding 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;

factors affecting our common stock as a “penny stock;”

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.

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, 2013. 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, impacted our ability to secure new customers 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 and are finding it difficult to raise additional investment capital, we determined that we should seek an alternative to continuing by ourselves. In that connection we sought a merger partner that had compatible video broadcasting products and services, with which we could integrate our CodecSys encoding system. On January 7, 2013, we entered into an Agreement of Merger and Reorganization with All Digital, Inc., a Nevada corporation. On November 4, 2013, the Board determined that the merger was unlikely to be consummated in a timely manner, if at all, and terminated the proposed merger with AllDigital. Subsequent to the termination of the AllDigital merger agreement, through our investment banker, we engaged in merger discussions with Wireless Ronin Technologies, Inc., (“Wireless Ronin”) a Minnesota corporation, which have resulted in the execution of an agreement of merger and reorganization on March 6, 2014 (“Ronin Merger Agreement”). Pursuant to the Ronin Merger Agreement, if the merger is consummated, we will become a wholly owned subsidiary of Wireless Ronin. The merger is subject to necessary approvals, due diligence, the effectiveness of a registration statement, the satisfaction of all but $250,000 of our outstanding liabilities and a vote of our shareholders as well as other conditions customary to transactions of this nature.

We were able to complete our video encoding system utilizing an Intel chip, prepare our CodecSys technology for installation on various equipment platforms, and become certified by Microsoft as an approved software video encoding system for use by IPTV providers using Microsoft operating platforms. We installed CodecSys in various large telecoms and labs for evaluation by potential customers. In spite of the acceptance our technology appeared to receive, neither we nor any of our channel partners ever made any significant sales of CodecSys to any end users. We have discontinued making sales presentations and responding to requests for proposals at potential customers because we no longer have the funding necessary to pursue this business and have not been able to raise additional investment capital to fund the sales or further development. We believe we have made significant progress and continue to believe that our CodecSys technology holds substantial value, but we have been unable to bring it to market successfully.

On July 31, 2009, we entered into a $10.1 million, three-year contract with a national banking 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. The contract terminated on May 1, 2013. For the three months ended March 31, 2013, we realized approximately $1,346,644 from this contract, which constituted approximately 90% of our revenues for the period, but for the three months ended March 31, 2014, we received no revenues from this customer. Our revenues for the three months ended March 31, 2013 were $1,480,569 compared to revenues of $73,995 for the three months ended March 31, 2014. As a result, we have continued to deplete our available cash even after we significantly reduced our expenditures through reduction of staff and termination of all development activities and do not believe that we can continue as an independent entity. See Note 3 of the Notes to Consolidated Financial Statements appearing elsewhere herein.

To fund operations in 2012, we engaged our investment banker to raise funds through the issuance of convertible promissory notes. We anticipated 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 March 31, 2014, we have issued notes with an aggregate principal value of $4,308,700 as explained below. The notes bear interest at 12% per annum and may be convertible to common stock at a $.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 continued sales of convertible debt under the 2012 Convertible Debt Offering and issued additional short term debt with a principal amount of $1,225,000, from which we realized cash of $1,176,624 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 an additional 6,950,000 shares of our common stock pursuant to the 2012 Convertible Debt Offering. The convertible notes were due on December 31, 2013 and we are in negotiations with the note holders regarding terms of conversion of the notes in connection with the Wireless Ronin Merger and extension of the due dates of the notes pending the consummation of the Wireless Ronin Merger.

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 our 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 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 $.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, which have since been extinguished.

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 agent’s 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.

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..

In connection with the 2012 Equity Financing and under the terms of the SPA, we 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 certain warrants. We filed as required and the registration statement was declared effective within 120 days following the date of the filing of the registration statement, with the result that we were not obligated to pay any penalties in connection with the registration statement.

During 2010 Broadcast 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, which has since been adjusted to $0.73 per share pursuant to reset provisions of the warrants.

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.

In connection with the 2010 Equity Financing and under the terms of the Subscription Agreements, we 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 certain of the warrants.

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. We 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. We continue to be in negotiation with the holder of the unsecured convertible note regarding the terms of conversion of the unsecured convertible note in connection with the Wireless Ronin Merger and the extension of the due date of the unsecured convertible note pending consummation of the Wireless Ronin Merger.

Results of Operations for the Three Months ended March 31, 2014 and March 31, 2013

Revenues

The Company generated $73,995 in revenue during the three months ended March 31, 2014. During the same three-month period in 2013, the Company generated revenue of $1,480,569. The decrease in revenue of $1,406,574 was due primarily to a decrease of $934,934 in license fees and $464,454 of system sales and installation fees, approximately 95% of which was related to work performed on the digital signage network of our largest customer in 2013. We generated no revenue from that customer in 2014.

We ceased providing services to the customer that was our largest each year since 2009 and realized no revenues from that customer in 2014. Sales revenues from that customer accounted for approximately 91% of total revenues for the quarter ended March 31, 2013. The loss of revenues generated from that customer and our inability to replace those revenues with new customers has resulted in our inability to continue as an independent entity without additional investment or new customers.

Cost of Revenues

Costs of Revenues decreased by $719,642 to $57,927 for the three months ended March 31, 2014, from $777,569 for the three months ended March 31, 2013. The decrease was primarily due to the loss of our largest customer as explained above. The reduction of personnel in our operation’s department and having no installations or sales accounted for the reduction in costs. The gross margin from our operating activities decreased by $686,932 to only $16,068 for the three months ended March 31, 2014.

Expenses

General and Administrative expenses for the three months ended March 31, 2014 were $331,280 compared to $986,209 for the three months ended March 31, 2013. The decrease of $654,929 resulted primarily from a decrease in employee and related costs of $249,171 due to a reduction in staff and salary deductions, a reduction of $176,963 in consulting expenses, a reduction of $315,778 in legal and consulting services expenses, and a decrease in audit and accounting fees of $24,826. The overall decrease in legal and accounting expenses was a reflection of expenses incurred in 2013 for the proposed merger with Alldigital that weren’t repeated in 2014. Research and development in process decreased by $221,599 for the three months ended March 31, 2014 to $3,774 from $225,373 for the three months ended March 31, 2013 reflecting the shutdown of all further development efforts. Sale and marketing expenses decreased by $99,314 primarily due to a reduction of employee and related costs of $83,408. We have only one employee currently employed in sales and marketing who is attempting to secure a contract with a large potential customer.

Interest Expense

For the three months ended March 31, 2014, we incurred interest expense of $146,614 compared to interest expense for the three months ended March 31, 2013 of $533,785. The decrease of $387,171 resulted primarily from all of our convertible notes being fully accreted on our balance sheet and no further interest being recorded for that accretion. All of our interest recorded during the three months ended March 31, 2014 related directly to the accrual of interest on our 2012 convertible debt and our unsecured convertible note.

Net Loss

We realized a net loss for the three months ending March 31, 2014 of $654,375 compared with a net loss for the three months ended March 31, 2013 of $1,887,563. The decrease in net loss of $1,233,188 was primarily the result of a decrease of $587,120 in recorded derivative valuation loss, a decrease of $387,171 in interest expense as explained above, and a decrease of $373,646 in losses from operations as explained above.

Liquidity and Capital Resources

We experienced negative cash flow from operations during the fiscal quarter ended March 31, 2014 of $279,938 compared to positive cash flow used in operations for the quarter ended March 31, 2013 of $121,976. We received proceeds from the issuance of our 2012 Senior Secured Convertible Note financing of $83,700 during the quarter that was used to pay ongoing expenses of operations and accounts payable. We have decreased our negative cash flow to as low as it can go without discontinuing all operations.

Because we have not been successful in deploying our CodecSys technology with customers sufficient to achieve material revenues 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. In that connection 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 an Agreement of Merger and Reorganization with All Digital, Inc., a Nevada corporation. In November of 2013, the Board determined that the merger was unlikely to be consummated in a timely manner, if at all, and terminated the proposed merger agreement. Subsequent to the termination of the January 2013 merger agreement, through our investment banker, we pursued opportunities to merge with a company that services the enterprise market with products that are compatible with our digital signage media management software and our CodecSys technology. In that connection, on March 6, 2014 we entered into an Agreement of Merger and Reorganization with Wireless Ronin Technologies, Inc. (“Ronin”). The agreement is subject to various terms and conditions customary in this type of a transaction, including approval of our shareholders, the conversion of all of our note indebtedness to common stock and not having more than $250,000 of our outstanding liabilities on the date of merger and the effectiveness of a registration statement to be filed by Wireless Ronin registering the securities to be issued in the transaction. All our secured and unsecured notes are convertible to common stock at $.25 per share, but there is no assurance that the noteholders would agree to a conversion at such a rate given our current trading price or that they would convert at all. If the merger is completed, we would be a wholly owned subsidiary of Wireless Ronin and all the equity securities of Broadcast would be converted to securities of Wireless Ronin. All of our convertible notes, both secured and unsecured, are currently due and payable. We are in discussions with the debt holders concerning an extension agreement allowing us to complete the proposed merger.

To fund operations in 2012, we engaged our investment banker to raise funds through the issuance of convertible promissory notes. We anticipated issuing promissory notes with a principal amount of up to $5,000,000 (“2012 Convertible Debt Offering”) which were originally due and payable on or before July 13, 2013, but which were extended to December 31, 2013. As of March 31,2014, we had issued notes with an aggregate principal value of $4,308,700 as explained below. The notes bear interest at 12% per annum and may be convertible to common stock at a $.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. 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 January 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 an additional 6,950,000 shares of our common stock. The convertible notes were due on December 31, 2013 and we are in negotiations with the note holders regarding terms of conversion of the notes in connection with the Wireless Ronin Merger and extension of the due dates of the notes pending the consummation of the Wireless Ronin Merger.

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. 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 have now been extinguished.

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.

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 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.

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.

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.

Our monthly operating expenses exceed our monthly net sales by approximately $50,000 per month at December 31, 2013. 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 with Wireless Ronin.

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 additional private placements of common stock or convertible securities with existing and new investors.

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 March 31, 2014, 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 March 31, 2014, 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.

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 March 31, 2014. 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 March 31, 2014, 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 internal control over financial reporting for the quarter ended March 31, 2014 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 March 31, 2014.

Part II – Other Information

Item 1. Legal Proceedings

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.

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.

In September 2013, we were named as defendant in a lawsuit filed in the Third Judicial District court, Salt Lake County, State of Utah, seeking judgment for damages related to a breach of a termination agreement we entered into with our former landlord when we vacated our former offices. A default judgment was entered in the matter in the amount of $91,666.66 plus attorneys fees.

On November 4, 2013, we notified AllDigital that we terminated the Merger Agreement pursuant to Section 8.1(b), which permitted termination of the Agreement by either party if the Merger was not consummated by October 31, 2013, provided that such failure was not attributable to the terminating party’s failure to perform its obligations under the Merger Agreement. Following delivery of our notice of termination, AllDigital responded by asserting that the Merger did not close because we failed to perform our obligations and that we were not entitled to terminate under Section 8.1(b). AllDigital further notified us that it was terminating the Merger Agreement for cause based on our alleged breach of the non-solicitation covenants in the Merger Agreement, which AllDigital asserts triggered a termination fee of $100,000 and 4% of our equity on a non-diluted basis, and for various other alleged misrepresentations and breaches. We dispute AllDigital’s allegations and assertions, deny that AllDigital is entitled to any termination fee and reserve the right to pursue damages from AllDigital arising from AllDigital’s actions in relation to the Merger Agreement. No litigation has been filed in this matter.

To the knowledge of management, no other litigation has been filed or, except for one collection matter, threatened.

Item 1A. Risk Factors

There have been no material changes in risk factors from those described in our Annual Report of Form 10-K for the year ended December 31, 2013.

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

None

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to Vote of Security Holders.

None.

Item 5. Other Information

(a) None.

(b) None.

Item 6. Exhibits

Exhibit Index

(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 Holdings, Inc. and Alta Acquisition Corporation. (Incorporated by reference to Exhibit 2.2 of the Company’s Current Report on Form 8-K filed with the SEC on April 10, 2013.

2.3	Second Amendment to Agreement and Plan of Merger, dated as of June 30, 2013, by and among Broadcast International, Inc., AllDigital Holdings, Inc. and Alta Acquisition Corporation. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on June 30, 2013.

2.4	First Amendment to Agreement and Plan of Merger, dated as of August 26, 2013, by and among Broadcast International, Inc., AllDigital Holdings, Inc. and Alta Acquisition Corporation. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on August 28, 2013.

2.5	Agreement and Plan of Merger and Reorganization, dated as of March 6, 2013, by and among Broadcast International, Inc., Wireless Ronin Technologies, Inc, and Broadcast Acquisition Co. (Incorporated by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 7, 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*	Employment Agreement of Rodney M. Tiede dated April 28, 2004. (Incorporated by reference to Exhibit No. 10.1 of the Company's Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004 filed with the SEC on May 12, 2004.)

10.2*	Employment Agreement of James E Solomon dated September 19, 2008. (Incorporated by reference to Exhibit No. 10.2 of the Company's Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on Mach 31, 2010.)

10.3*	Broadcast International 2004 Long-Term Incentive Plan. (Incorporated by reference to Exhibit No. 10.4 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the SEC on March 30, 2004.)

10.4*	Broadcast International 2008 Long-Term Incentive Plan. (Incorporated by reference to the Company’s definitive Proxy Statement on Schedule 14A filed with the SEC on April 17, 2009)

10.5	Securities Purchase Agreement dated October 28, 2006 between Broadcast International and Leon Frenkel. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2006.)

10.6	5% Convertible Note dated October 16, 2006 issued by Broadcast International to Leon Frenkel. (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2006.)

10.7	Registration Rights Agreement dated October 28, 2006 between Broadcast International and Leon Frenkel. (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on November 6, 2006.)

10.8	Securities Purchase Agreement dated as of December 21, 2007, by and among Broadcast International and the investors listed on the Schedule of Buyers attached thereto. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2007.)

10.9	Registration Rights Agreement dated as of December 21, 2007, by and among Broadcast International and the buyers listed therein. (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2007.)

10.10	6.25% Senior Secured Convertible Promissory Note dated December 21, 2007 issued to the holder listed therein. (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2007.)

10.11	Warrant to Purchase Common Stock dated December 21, 2007 issued to the holder listed therein. (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on December 26, 2007.)

10.12	Loan Restructuring Agreement between the Company and Castlerigg Master Investments Ltd., dated December 16, 2010 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 22, 2010.)

10.13	Amendment to 8% Convertible Note Due 2010 between the Company and Leon Frenkel, dated December 22, 2010 (Incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the SEC on December 22, 2010.)

10.14	Placement Agency Agreement between the Company and Philadelphia Brokerage Corporation, dated December 17, 2010 (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2010.)

10.15	Form of Subscription Agreement (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2010.)

10.16	Form of Warrant (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2010.)

10.17	Amended and Restated Senior Convertible Note issued by the Company to Castlerigg master Investments Ltd., dated December 23, 2010 (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2010.)

10.18	Investor Rights Agreement between the Company and Castlerigg Master Investments Ltd., dated December 23, 2010 (Incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2010.)

10.19	Letter between the Company and Castlerigg Master Investments Ltd., dated December 23, 2010 (Incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed with the SEC on December 28, 2010.)

10.20	Form of Securities Purchase Agreement dated March 13, 2012. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 13, 2012.)

10.21	Form of A Warrant. (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on March 13, 2012.)

10.22	Form of B Warrant. (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on March 13, 2012.)

10.23	Loan Satisfaction Agreement between the Company and Castlerigg Master Investments Ltd. dated March 13, 2012. (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on March 13, 2012.)

10.24	Registration Rights Agreement dated March 13, 2012. (Incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the SEC on March 13, 2012.)

10.25	Form of Placement Agent Warrant. (Incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed with the SEC on March 13, 2012.)

10.26	Form of Note and Warrant Purchase and Security Agreement dated July 16, 2012. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2012.)

10.27	Form of Promissory Note dated July 16, 2012. (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2012.)

10.28	Form of Warrant. (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on July 18, 2012.)

10.29	Form of Voting Agreement, dated January 6, 2013, by and among AllDigital, Inc. and certain stockholders of Broadcast International, Inc. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2013).

10.30	Form of Voting Agreement, dated January 6, 2013, by and among Broadcast International, Inc. and certain stockholders of AllDigital, Inc. (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2013).

10.31	Professional Services Agreement, dated January 6, 2013, by and between AllDigital, Inc. and Broadcast International, Inc. (Incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2013).

10.32*	Amendment and Settlement Agreement, dated January 6, 2013, by and between Broadcast International, Inc. and Rodney Tiede. (Incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2013).

10.33*	Amendment and Settlement Agreement, dated January 6, 2013, by and between Broadcast International, Inc. and James E. Solomon. (Incorporated by reference to Exhibit 10.5 of the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2013).

10.34*	Amendment and Settlement Agreement, dated January 6, 2013, by and between Broadcast International, Inc. and Steve Jones. (Incorporated by reference to Exhibit 10.6 of the Company’s Current Report on Form 8-K filed with the SEC on January 7, 2013).

10.35	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)

10.36	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)

10.37	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)

10.38	Form of Convertible Promissory Note issued by AllDigital Holdings, Inc. and countersigned by Broadcast International, Inc. (Incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the SEC on August 28, 2013)

14.1	Code of Ethics. (Incorporated by reference to Exhibit No. 14 of the Company’s Annual Report on Form 10-KSB filed with the SEC on March 30, 2004.)

21.1	Subsidiaries. (Incorporated by reference to Exhibit No. 21.1 of the Company’s Annual Report on Form 10-KSB filed with the SEC on April 1, 2005.)

24.1	Power of Attorney. (Included on page II-15).

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.

* Management contract of compensatory plan or arrangement.

+ 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.

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: May 15, 2014	/s/ Rodney M. Tiede
	By:	Rodney M. Tiede
	Its:	President and Principal Executive Officer



Date: May 15, 2014	/s/ James E. Solomon
	By:	James E. Solomon
	Its:	Chief Financial Officer (Principal Financial and Accounting
		Officer)