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I did and looks like merger deal on track, we looking good.
Yep check out new CFO of RNIN on LinkedIn
All.... Good
Will add more cheapoes
Financials out yesterday things looking to turn around. Long bcst
No not yet but I'm getting more confident and things going to happen here soon.
Any news from the pres?
Me too! certainly if you can make BIG after merger w $RNIN
im confused as to why someone would be selling here but i guess to each his own.
$BCST .0145 it looks like you will make out well here.
No link, text real company! Worth the gamble! See it 2gether with mcdonald's #digitalOrdering
Annual Report (10-k)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
R
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the fiscal year ended December 31, 2013 .
£
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from __________ to __________.
Commission File Number: 0-13316
BROADCAST INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Utah
87-0395567
(State or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
6952 S. High Tech Dr. Suite C, Salt Lake City, UT 84047-3766
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, including Area Code: (801) 562-2252
Securities Registered Pursuant to Section 12(b) of the Exchange Act: None .
Securities Registered Pursuant to Section 12(g) of the Exchange Act: Common Stock, Par Value $0.05
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act Yes £ No R
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Exchange Act. Yes £ No R
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 R No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data 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 submit and post such files).
Yes £ No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
£ Large accelerated filer
£ Accelerated filer
£ Non-accelerated filer (Do not check if a smaller reporting company)
R 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 R
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity, as of June 28, 2013 the last business day of the Registrant’s most recently completed second fiscal quarter, was $7,737,563.
As of March 28, 2014 the Registrant had outstanding 111,370,878 shares of its common stock.
TABLE OF CONTENTS
Page No .
PART I
3
ITEM 1.
BUSINESS
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ITEM 1A.
RISK FACTORS
11
ITEM 1B.
UNRESOLVED STAFF COMMENTS
17
ITEM 2.
PROPERTIES
17
ITEM 3.
LEGAL PROCEEDINGS
17
ITEM 4.
MINE SAFETY DISCLOUSRES
17
PART II
18
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
18
ITEM 6.
SELECTED FINANCIAL DATA
19
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
19
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
33
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
33
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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ITEM 9A(T).
CONTROLS AND PROCEDURES
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ITEM 9B.
OTHER INFORMATION
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PART III
35
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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ITEM 11.
EXECUTIVE COMPENSATION
38
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
45
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
47
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
50
PART IV
50
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
50
SIGNATURES
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2
PART I
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, including, among others, the following risk factors discussed more fully in Item 1A hereof:
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Our inability to consummate the proposed merger with Wireless Ronin;
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loss of customers that historically provided more than 80% of our revenues;
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dependence on commercialization of our CodecSys technology;
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our need and ability to raise sufficient additional capital;
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uncertainty about our ability to repay our outstanding notes;
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our continued losses;
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delays in adoption of our CodecSys technology;
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concerns of OEMs and customers relating to our financial uncertainty;
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restrictions contained in our outstanding convertible notes;
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general economic and market conditions;
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ineffective internal operational and financial control systems;
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rapid technological change;
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intense competitive factors;
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our ability to hire and retain specialized and key personnel;
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dependence on the sales efforts of others;
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dependence on significant customers;
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uncertainty of intellectual property protection;
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potential infringement on the intellectual property rights of others;
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extreme price fluctuations in our common stock;
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price decreases due to future sales of our common stock;
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future shareholder dilution; and
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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.
ITEM 1. BUSINESS
Broadcast International, Inc. is a communications services and technology company headquartered in Salt Lake City, Utah. Broadcast operates two divisions – BI Networks and CodecSys. Broadcast was incorporated in Utah in 1983 under the name “Laser Corporation,” but did not commence its current business until the year 2000.
Overview of BI Networks
Through BI Networks, we install, manage and support private communication networks for large organizations that have widely-dispersed locations or operations. Our enterprise clients use these networks to deliver digital signage solutions, training programs, product announcements, entertainment and other communications to their employees and customers. We use a variety of delivery technologies, including satellite, Internet streaming and WIFI, depending on the industry standard products and equipment sold by other companies.
In July 2009, we entered into a $10.1 million, three-year contract with a national bank to provide technology and digital signage services to approximately 2,100 of its more than 6,000 retail and administrative locations throughout North America. This digital signage network grew to approximately 2,500 retail banking sites. For the past three years this has been our largest customer, but in December 2012, we were notified that a new vendor would begin servicing the customer. Although we may continue providing some services, our revenues from this customer have decreased by approximately 90%. In addition, we have signed a master license agreement to be a vendor for a large religious institution that has in excess of 16,000 churches and other places of worship worldwide to provide digital signage software and services. This religious organization has paid us for development engineering work, but as yet we have not entered into a statement of work defining the price and terms of a contemplated beta test that will need to be completed and approved before any wider rollout can begin and we do not have any assurance that that will be completed. Because we have not continued with our largest customer and have not replaced those revenues with new customers, we have severely scaled back our operations.
BI Networks Products and Services
Following are some of the ways in which businesses utilize Broadcast’s products and services.
Internal Business Applications
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Deliver briefings from the CEO or other management
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Launch new products or services
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Present new marketing campaigns
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Train employees
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Announce significant changes or implement new policies and procedures
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Respond to crisis situations
External Business Applications
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Display advertising in public areas utilizing digital signage
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Make promotional presentations to prospective customers or recruits
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Provide product/service training to customers
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Train and communicate with sales agents, dealers, VARs, franchisees, association members, etc.
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Sponsor satellite media tours
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Provide video/audio news releases
Network-Based Services
Broadcast utilizes satellite technology for various business training and communication applications. The list that follows describes the comprehensive offering of products and services that attracts companies in need of a satellite solution.
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Network design and engineering
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Equipment and installation
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Network management
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24/7 help desk services
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On-site maintenance and service
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Full-time or occasional satellite transponder purchases (broadcast time)
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Uplink facilities or remote SNG uplink trucks
Streamed Video Hosting Services
With the advancement of streaming technologies and the increase of bandwidth, the Internet provides an effective platform for video-based business training and communications. Broadcast management believes that the Internet will become an increasing means of broadband business video delivery. Consequently, Broadcast has invested in the infrastructure and personnel needed to be a recognized provider of Internet-based services. Following are the services Broadcast currently provides:
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Dedicated server space
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High-speed, redundant Internet connection
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Secure access
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Seamless links from client's website
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Customized link pages and media viewers
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Testing or self-checks
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Interactive discussion threads
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Participation/performance reports for managers/administrators
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Notification of participants via email
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Pay-per-view or other e-commerce applications
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Live events
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24/7 technical support
Production and Content Development Services
To support both satellite and Internet-based delivery platforms, we employ professional production and content development teams and operate full service video and audio production studios. A list of support services follows:
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In-studio or on-location video/audio production
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Editing/post-production
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Instructional design
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Video/audio encoding for Internet delivery
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Conversion of text or PowerPoint to HTML
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Alternative language conversion
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Access to “off-the-shelf” video training content
Service Revenue
We generate revenue by charging fees for the services we provide, and/or by selling equipment and satellite time. A typical satellite network generates one-time revenues from the sale and installation of satellite receivers and antennas and monthly revenues from network management services. On-site maintenance/service, production fees, and occasional satellite time are charged as they are used.
For Internet-based services, we charge customers monthly fees for hosting content, account management, quality assurance and technical support, if requested. For delivery of content, we generally charge a fee every time a person listens to or watches a streamed audio or video presentation. Encoding, production and content creation or customization are billed as these services are performed. We have also entered into content development partnerships with professional organizations that have access to subject matter experts. In these cases, we produce web-based training presentations and sell them on a pay-per-view basis, sharing revenues with the respective partner.
In the process of creating integrated technology solutions, we have developed proprietary software systems such as its content delivery system, incorporating site, user, media and template controls to provide a powerful mechanism to administer content delivery across multiple platforms and to integrate into any web-based system. We use our content delivery system to manage networks of thousands of video receiving locations for enterprise clients.
The percentages of revenues derived from our different services fluctuate depending on the customer contracts entered into and the level of activity required by such contracts in any given period. Of our net sales in 2013 and 2012, approximately 90% were derived from network management related services and approximately 10% were derived from product and content development and all other services.
Our network management and support services are generally provided to customers by our operations personnel located at corporate headquarters. Our production and content development services are generally provided by personnel from our production studio. We generally contract with independent service technicians to perform installation and maintenance services at customer locations throughout the United States.
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Overview of Video Compression
Video compression is the process by which video content is converted into a digital data stream for transmission over satellite, cable, Internet or wireless networks.
Video compression is generally accomplished by using a single technique or computer formula to create a particular data stream. As more and more video content is broadcast and streamed to a rapidly expanding based of new video receivers, such as cell phones, tablets, and notebook computers, the need to stream the video content with the highest possible quality and at the lowest possible bandwidth expands exponentially. At the same time traditional media desires to keep pace with the new media by transmitting higher and higher quality video to enhance the viewing experience of the consumer and we will experience the expansion of “smart televisions”, movies streamed in high definition and 3D, and entertainment streaming services to the home and computer, all of which increase the need to transmit video using the least amount of bandwidth possible without affecting the quality of the experience.
CodecSys Technology
We have patented our video compression technology and have trademarked it as “CodecSys.” Initially, we developed this technology for delivering video content for our network customers. However, this proprietary technology has expanded into a much wider application.
Video compression is generally accomplished by using a single technique or computer formula to create a particular data stream. Our patented CodecSys technology is a software-based video operating system that uses multiple techniques or computer formulas to create a particular data stream. With CodecSys, video content may be transmitted over substantially decreased bandwidth while maintaining media quality. We believe that our CodecSys technology offers significant efficiencies and cost savings over traditional hardware solutions associated with video content transmission and storage.
We have developed a video encoding software product based upon its CodecSys technology that operates on multiple hardware platforms and is easily upgradable. In September 2009, CodecSys video encoding technology was certified by Microsoft as an approved software encoding system for use by IPTV providers that use Microsoft operating platforms. Microsoft was a leading provider of network control software to the IPTV market.
In July 2010, we released CodecSys version 2.0, which was installed in more than 30 large telecoms and labs for evaluation by potential customers. However, we were never able to make any material sales of this product and we have since discontinued making sales presentations and responding to requests for proposals at any potential customers. Because CodecSys is a software encoding and transcoding system, it also supports “cloud-based” initiatives. In October 2011, CodecSys was selected as the compression technology to be used by Fujitsu for its NuVolo cloud based product offering. We continue to believe that the CodecSys technology has value but we have not been able to commercialize it.
In today's market, any video content to be distributed via satellite, cable, the Internet and other methods must be encoded into a digital stream using any one of numerous codecs. The most commonly used codecs are now MPEG2, MPEG4, and H.264. When new codecs are developed that perform functions better than the current standards, all of the video content previously encoded in the old format must be re-encoded to take advantage of the new codec. Our CodecSys technology eliminates obsolescence in the video compression marketplace by integrating new codecs into its library. Using a CodecSys switching system to utilize the particular advantages of each codec, we may utilize any new codec as it becomes available by including it in the application library. Codec switching can happen on a scene-by-scene or even a frame-by-frame basis.
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We believe the CodecSys technology represents an unprecedented shift from currently used technologies for two important reasons. First, CodecSys allows a change from using only a single codec to compress video content to using multiple codecs and algorithms in the compression and transmission of content. The CodecSys system selects dynamically the most suitable codecs available from the various codecs stored in its library and matches the codecs with various video settings to compress a single video stream. As a video frame, or a number of similar frames (a scene), is compressed, CodecSys applies the optimized codec from the library that best compresses that content and matches the codec with the appropriate setting to then perform the compression. CodecSys repeats the selection throughout the video encoding process, resulting in the use of numerous codecs on a best performance basis. The resulting file is typically substantially smaller than when a single codec compression method is used.
The second important distinction is that CodecSys is a software encoding system that can be upgraded and improved without changing the hardware on which it is resident, much as a personal computer can have its application software upgraded and changed without replacing the equipment. In addition, CodecSys software can run equally efficiently on different manufacturers’ equipment. For example, using the Intel chip currently employed by us, the CodecSys encoding system can run equally as well on IBM equipment and HP equipment, which expands our potential market of customers and opens the possibility of different sales channels as our software can be sold by IBM sales people as well as HP sales people. In addition, most video encoders currently utilize an application specific integrated circuit (ASIC) chip as the encoding engine and when new developments are made, the customer must purchase new hardware to take advantage of the changes. Having a software based encoding system means that new changes in technology and encoding algorithms can be downloaded remotely to upgrade the encoding system on the customers already resident hardware. We believe that having a software based encoding product will slow hardware obsolescence for the customer and be a competitive advantage for CodecSys.
CodecSys Products and Services
In November 2007, we entered into a two-year license agreement with IBM pursuant to which Broadcast licensed its patented CodecSys technology for use by IBM in selling video encoding solutions using IBM’s Cell-BE processing chip. The initial version of a video encoder running on the IBM platform was completed in a commercially deployable form for sales in 2009, although additional development work was required. After we had completed substantially all of its development work on the IBM Cell-BE processor chip in the first half of 2009, IBM sales efforts using the Cell-BE processor chip were redirected to products not employing the Cell-BE processor chip. At approximately the same time, Intel released a newly developed operating chip with sufficient processing capacity to perform the multiple functions required by CodecSys to which Broadcast redirected its development efforts. This chip is based on x86 architecture, which is the standard in the industry acceptable to almost all users, and it is easier to program applications to this architecture. The initial version of the CodecSys video encoding system utilizing the Intel chip was first ready for sales presentations and testing in the fourth quarter of 2009, but the CodecSys version 2.0, the first commercial version of the software hardened for sales and deployment was not ready for sales installation until July 1, 2010.
Because we had our CodecSys technology resident on the Intel chip, we were able to market with other manufacturers of computer equipment such as HP. We have made sales presentations to customers of other hardware manufacturers, but in three years were not able to make any significant sales to those customers. In September 2009, our CodecSys encoding system was certified by Microsoft as an approved software encoding system for use by IPTV providers, which use Microsoft Media Room software in their delivery and management of their IPTV systems. However, the certification never resulted in any sales.
In October 2011, Fujitsu North America, after fully testing and evaluating CodecSys and its competitors, selected CodecSys as the compression technology to be employed by Fujitsu in its NuVolo cloud based initiative, which has since been discontinued by Fujitsu. In December 2011, IBM introduced its video encoding and transcoding service that is accomplished through the Internet cloud. The encoding engine for this service is CodecSys. We never derived significant revenue from the service based on the amount of the video encoded by IBM’s customers.
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We have discontinued all development of the CodecSys technology except as it concerns transmission of video for our digital signage customers.
Research and Development
We have spent substantial amounts in connection with its research and development efforts. These efforts have been dedicated to the development and commercialization of the CodecSys technology. We have decreased those expenditures from $1,754,163 for the year ended December 31, 2012 to $546,953 for the year ended December 31, 2013 and have now discontinued all research and development expenditures related to CodecSys as a product. Because of the lack of cash resources we are no longer able to support future research and development activities unless we raise additional capital, succeed in generating revenues from sales of CodecSys products or restructure. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources”.
Intellectual Property Protection
Because much of our future success and value depends on the CodecSys technology, our patent and intellectual property strategy is of critical importance. Two provisional patents describing the technology were filed on September 30, 2001. We have filed for patent protection in the United States and various foreign countries. Broadcast’s initial U.S. patent related to the CodecSys technology was granted by the U.S. Patent and Trademark Office, or PTO, in August 2007. Four additional patents have been issued by the PTO. As of December 31, 2013, we also had eleven patents issued in foreign countries and 20 pending patent applications, including U.S. and foreign counterpart applications and continuations.
We have identified additional applications of the technology, which represent potential patents that further define specific applications of the processes that are covered by the original patents. We intend to continue building our intellectual property portfolio as development continues and resources are available.
We have registered the “CodecSys” trademark with the PTO, and seek to protect our know-how, trade secrets and other intellectual property through a variety of means, including confidentiality agreements with our employees, customers, vendors, and others.
Major Customers
A small number of customers account for a large percentage of our revenue. For the year ended December 31, 2013, 85% of our revenues were from our largest customer compared to 89% from this customer for the year ended December 31, 2012. We lost our largest customer in May 2013.
The material reduction in revenues resulting from the loss of this customer and our inability to replace those revenues has required that we severely curtail operations and has resulted in uncertainty as to our ability to continue as an independent entity.
Competition
The communications industry is extremely competitive. In the private satellite network market, there are many firms that provide some or all of the services we provide. Many of these competitors are larger than we are and have significantly greater financial resources. In the bidding process for potential customers, many of our competitors have a competitive advantage in the satellite delivery of content because many own satellite transponders or otherwise have unused capacity that gives them the ability to submit lower bids than we are able to make. In the satellite network and services segment, we compete with Convergent Media Systems, Globecast, IBM, Cisco, TeleSat Canada and others. With respect to video conferencing, we compete with Sony, Polycom, Tandberg and others.
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There are several additional major market sectors in which we plan to compete with its CodecSys technology, all with active competitors. These sectors include the basic codec technology market, the corporate enterprise and small business streaming media market, and the video conferencing market. These are sectors where we may compete by providing direct services. Competition in these new market areas will also be characterized by intense competition with much larger and more powerful companies, such as Microsoft and Yahoo, which are already in the video compression and transmission business. Many of these competitors already have an established customer base with industry standard technology, which we must overcome to be successful.
The video encoders to be sold by channel partners will compete directly against video encoders manufactured and sold by a number of competitors, including Erickson/Tandberg, Harmonic Scientific Atlanta, Motorola, and Thomson. None of our channel partners have ever produced a video encoder to compete in this market. Our marketing partners have not been successful in entering this new market, and we have not derived the amount of licensing revenue originally anticipated by management.
On a technology basis, CodecSys competition varies by market sector, with codecs and codec suppliers like Microsoft Windows Media Player, Real Networks’ Real Player, Apple, QuickTime, MPEG2, MPEG4, On2, DivX and many others. There are several companies, including Akamai, Inktomi, Activate and Loudeye that utilize different codec systems. These companies specialize in encoding, hosting and streaming content services primarily for news/entertainment clients with large consumer audiences. We compete directly with the two companies in the broadcast media encoding market that have the largest market share, Erickson/Tandberg and Harmonic. In addition, we compete with Cisco, Harris Corporation, and with many other smaller companies. Most are larger than us and most have greater financial resources than we have.
Competition in the digital signage business is extremely widespread with competitors in almost every pricing strata. The industry is fragmented with many providers as there is a relatively low cost of entry into the market with many companies developing a new piece of software and immediately there is another competitor. Large companies such as Harris Corporation and Cisco have digital signage offerings among there many other products. Scala and Fourwinds Interactive are among the many smaller digital signage companies that offer are primarily digital signage software and service to the general business community and with which we most often compete.
Employees
We currently employ 8 full-time personnel at our executive offices in Salt Lake City, Utah. We engage independent contractors and employ the services of independent sales representatives and consultants on an “as needed” basis.
Government Regulation
Broadcast has seven licenses issued by the Federal Communications Commission for satellite uplinks, Ethernet, radio connections and other video links between Broadcast facilities and third-party uplinks. We no longer have, however, a licensed operator to function using the licenses. Notwithstanding these licenses, all of our activities could be performed outside these licenses with third-party vendors. All material business activities are subject to general governmental regulations with the exception of actual transmission of video signals via satellite.
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Properties
Our executive offices are located at 6952 S. High Tech Drive, Suite C, Salt Lake City, Utah 84047. We occupy the space at the executive offices under a month to month lease. The lease covers approximately 7,500 square feet of office and warehouse space leased at a rate of $3,955 per month plus utilities. We have no other properties.
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 permits termination of the Agreement by either party if the Merger is not consummated by October 31, 2013, provided that such failure is 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 triggers 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.
ITEM 1A. RISK FACTORS
You should carefully consider the following risk factors and all other information contained in this report. Our business and our securities involve a high degree of risk.
Our independent auditors have expressed doubt as to our ability to continue as a going concern.
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.
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If we do not successfully commercialize our CodecSys technology, we may never achieve profitability, retire our convertible debt or be able to raise future capital.
It is imperative that we successfully commercialize our CodecSys technology. We continue to develop this technology for a variety of applications. We have never been involved in a development project of the size and breadth that is involved with CodecSys and none of our management has ever been involved with a software development project. Management may lack the expertise and we may not have the financial resources needed for successful development of this technology. Furthermore, commercialization and future applications of the CodecSys technology are expected to require additional capital estimated to be approximately $2.0 million annually for the foreseeable future, although we have spent considerably more than that in past years. This estimate will increase or decrease depending on specific opportunities and available funding. If we are unsuccessful in our CodecSys development and commercialization efforts, it is highly doubtful we will achieve profitable operations, retire our existing convertible indebtedness or be able to raise additional funding in the future.
We need additional capital. If additional capital is required but is not available, we may have to curtail or cease operations.
If we are unable to generate net sales in excess of operating expenses, we will need to obtain additional financing to continue operations. We believe external funding may be difficult to obtain, particularly given the prevailing financial market conditions. If sufficient capital is not available to us, we will be required to pursue one or a combination of the following remedies: significantly reduce development, commercialization or other operating expenses; sell part or all of our assets; or terminate operations. The existing turbulence and illiquidity in the credit and financial markets are continuing challenges that have generally made potential funding sources more difficult to access, less reliable and more expensive. These market conditions have made the management of our liquidity significantly more challenging. A further deterioration in the credit and financial markets or a prolonged period without improvement could adversely affect our ability to raise additional capital.
We have sustained and may continue to sustain substantial losses.
We have sustained operating losses in each of the last seven years. Through December 31, 2013, our accumulated deficit was $111,873,431. We continue to sustain operating losses on a quarterly and annual basis and may continue to do so.
Our success depends on adoption of our CodecSys technology by OEMs and end-users .
The success of our CodecSys technology depends on the adoption of this technology by original equipment manufacturers, or OEMs, like IBM, Fujitsu and HP, as well as end-users. The OEM qualification and adoption process is complex, time-consuming and unpredictable. Furthermore, OEMs may elect to maintain their relationships with incumbent technology providers, even when presented with technology that may be superior to the incumbent technology. Significant delays in the development or OEM adoption of CodecSys will adversely affect our results of operations, financial condition and prospects.
Our continued losses may impact our relationships with OEMs and customers.
Our continued losses may impact our relationships with existing and potential OEMs and customers. OEMs may be reluctant to partner with us or present our technology in conjunction with their product offerings if they believe our financial condition is marginal or in jeopardy. OEMs and prospective customers may delay adoption of our CodecSys technology and other products if they believe we are not financially sound enough to support our technology or other product offerings.
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Adverse economic or other market conditions could reduce the purchase of our services by existing and prospective customers, which would harm our business.
Our business is impacted from time to time by changes in general economic, business and international conditions and other similar factors. Adverse economic or other market conditions negatively affect the business spending of existing and prospective customers. In adverse market times, our network and other services may not be deemed critical for these customers. Therefore, our services are often viewed as discretionary and may be deferred or eliminated in times of limited business spending, thereby harming its business.
The recent recession and market turmoil present considerable risks and challenges. These risks and challenges have reached unprecedented levels and have significantly diminished overall confidence in the national economy, upon which we are dependent. Such factors could have an adverse impact on our business and prospects in ways that are not predictable or that we may fail to anticipate.
Our systems of internal operational and financial controls may not be effective.
We establish and maintain systems of internal operational and financial controls that provide us with critical information. These systems are not foolproof, and are subject to various inherent limitations, including cost, 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 internal controls or procedures 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. We have previously experienced significant deficiencies in our required disclosure controls and procedures regarding the updating of certain accounting pronouncements and the reporting of current information required to be filed with the SEC. We also experienced a significant deficiency and a material weakness in our required disclosure controls and procedures regarding its accounting entries and financial statements, which resulted in the restatement of one accounting period. Any future deficiency, weakness, malfunction or inadequacy related to internal operational or financial control systems or procedures could produce inaccurate and unreliable information that may harm our business.
We may be unable to respond adequately to rapid changes in technology.
The markets for private communication networks and video encoder systems are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The introduction of new technology and products and the emergence of new industry standards not only impacts our ability to compete, but could also render our products, services and CodecSys technology uncompetitive or obsolete. If we are unable to adequately respond to changes in technology and standards, we will not be able to serve its clients effectively. Moreover, the cost to modify our services, products or infrastructure in order to adapt to these changes could be substantial and we may not have the financial resources to fund these expenses.
We face intense competition that could harm our business.
The communications industry is extremely competitive. We compete with numerous competitors who are much larger than we are and have greater financial and other resources. In the satellite network and services segment, including digital signage, we compete with Convergent Media Systems, Globecast, IBM, Cisco, Hughes and others. Our competitors have established distribution channels and significant marketing and sales resources. Competition results in reduced operating margins for our business and may cause us to lose clients and/or prevent us from gaining new clients critical for our success.
There are several additional major market sectors in which we plan to compete with our CodecSys technology, all with active competitors. These sectors include the basic codec technology market, the corporate enterprise network market and small business streaming media market. These are sectors where we may compete by providing direct services. Competition in these new market areas will also be characterized by intense competition with much larger and more powerful companies, such as Microsoft and Yahoo, which are already in the video compression and transmission business. Many of these competitors already have established customer bases with industry standard technology, which we must overcome to be successful.
13
On a technology basis, CodecSys competition varies by market sector, with codecs and codec suppliers like Microsoft Windows Media Player, Real Networks’ Real Player, Apple QuickTime, MPEG2, MPEG4, On2, DivX and many others. There are several companies, including Akamai, Inktomi, Activate and Loudeye, which utilize different codec systems. These companies specialize in encoding, hosting and streaming content services primarily for news/entertainment clients with large consumer audiences. All are larger and have greater financial resources than we have. Tandberg/Erickson and Harmonic are two of the largest suppliers of high end video encoders to the broadcast industry and are the incumbent suppliers to many of the customers to which we are selling.
If we fail to hire additional specialized personnel or retain are key personnel in the future, we will not have the ability to successfully commercialize our technology or manage our business.
We still need to hire additional specialized personnel to successfully commercialize our CodecSys technology. If we are unable to hire or retain qualified software engineers and project managers, our ability to complete further development and commercialization efforts will be significantly impaired. Our success is also dependent upon the efforts and abilities of its management team. If we lose the services of certain of our current management team members, we may not be able to find qualified replacements, which would harm the continuation and management of our business.
Our revenue is dependent upon the sales efforts of others.
We are dependent upon the sales and marketing efforts of IBM, HP, Fujitsu and other third-party businesses in order to derive licensing revenue from its CodecSys technology. Such businesses may not continue their sales efforts which would adversely affect our potential licensing fees. We are not able to control the sales and marketing efforts of these third parties. Limited revenues from our historical sources make it even more dependent upon the sales efforts of others. Given the current recession and market developments, third-party businesses may scale back on sales efforts which could significantly harm our business and prospects.
BCST News out! Merger for real! PPS will fly $RNIN $BCST Patented Codecsys!!
Biggest gamble haha that's OTC! Did you already hear back from the company?
Well i was able to grab more shares today at these prices this could be my biggest gain ever. long BCST
I believe we are in for a big week(s)! BCST only has one direction to go!
BCST .36!!! WAY UNDERVALUED! Get on board
Glad to have you here looks like you got in at the rite time. long bcst
Imo the same! value when merger strikes PPS $ .36ct!!! $BCST $RNIN adding the cheapies as well!!
BCST seems undervalued. Just bought in today. Looks like big things are in the works, and this baby has bottomed out!
Jan Wood emailed me back today and said she foreword my email to the company president and I would get a reply in a day or two. Meanwhile long BCST
Company can better promote and then sell some :-/
Thanks! Perhaps they are selling the float now? But why not @.36
I talked with the receptionist at bcst today and I got the email address and emailed janw@brin.com with some good questions I should get a response in next day or to I'll keep u updated. But they are very enthusiastic so we are down now but things going to turn.
bcst I should of but been out all day. But I will be adding.
Added some more 2day! Worth the gamble ) .36!! Value
Number 1 for u welcome aboard
Agreed as well. It must! $BCST $RNIN
I agree hope it comes to life soon. I'm not giving up.
w. a .$.36 value should be in the $.20ct range now! Wtf
Looks like we still consolidating in the .02 range.
Thanks bro! Have little time only watching BCST and TSLA Will also add Some more cheapies 2 morrow. Slap it $BCST
Number 19 for you. Agree .026 now .36 soon.
It's gonna be fast when she goes, bcst been consolidating nice in this range next leg up soon.
Nice spread! Will blow soon $BCST
Merger with RNIN
New pps course / value pps .36 !!!
Place Your bets!! $BCST
Ive been out all day looks like we are consolidating around .002 I dont no why people would dump now this could be huge i hope we get some news soon and they get corrent. meanwhile ill keep adding but I didnt get a chance today but maybe tomorrow.
Who's dumping??
Things ready to turn around for bcst we could be over a dime in no time.
BCST has a Codec-diverter patent w CodecSys. .36 will make my day! I will add some more at this level
Only problem is the $6,000,000 in debt.
How are they going to convert that?
If they don't clean the debt up there may be NO merger!!!
everyone on bcst board have a great weekend and maybe the merger news will get out more over weekend then off we go.
good volume now we head north
This will go higher theres always a low time before take off i dont mind waiting I will at lease tripple my money once people relize the potential here.
Thats hugh !!! The only is if RNIN dilutes its stock beforehand to reach the same level w. BCST. Is that allowed by SEC?
Well I got more anything in this range is great .
ready to bounce! Great forecast with the both of the companies
CodecSys is a worldwide patented Codec product!! f.i. what about? CodecSys powered by Fujitsu
Customers from BCST are IBM Microsoft Google etc.
Get the cheapies!! Only fools sell at this level!
Hope the bounce is higher than we would expect. Bouncing time
With current BCST holders getting 36% of RNIN. For every 2.78 shares of BCST you own you get 1 share of RNIN on a fully diluted basis. RNIN is currently traded at $1 so that values BCST at around .36. People dont do research anymore they just buy on the momo.
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For the three months ended | For the nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2012 | 2013 | 2012 | 2013 | |||||||||||||
Net sales | $ | 2,045,278 | $ | 460,309 | $ | 5,790,363 | $ | 2,915,535 | ||||||||
Cost of sales | 1,266,224 | 97,550 | 3,857,682 | 1,671,452 | ||||||||||||
Gross profit | 779,054 | 362,759 | 1,932,681 | 1,244,083 | ||||||||||||
Contact our corporate offices by phone at:
Toll Free: (800) 722-0400
Phone: (801) 562-2252
Fax: (801) 562-1773
6952 Hightech Drive
Salt Lake City, UT 84047
> Map
Contact our production facilities by phone at:
Toll Free: (800) 369-8343
Phone (801) 567-3275
Fax: (801) 566-2208 or toll free (800) 369-8340
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