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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): November 18, 2005
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BROADCAST INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
UTAH 0-13316 87-0395567
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
7050 UNION PARK AVENUE, SUITE 600
SALT LAKE CITY, UTAH 84047
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 562-2252
Former name or former address, if changed since last report: Not Applicable
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
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BROADCAST INTERNATIONAL, INC.
FORM 8-K
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review.
On November 18, 2005, the management of Broadcast International, Inc.
(the "Company") and the Audit Committee of the Board of Directors concluded
that the previously filed interim financial statements as of June 30, 2005 and
for the three and six months ended June 30, 2005 should no longer be relied
upon as a result of a change in accounting treatment related to securities
issued by the Company in its financing transaction effected on May 16, 2005,
as described below. The Company has filed an amendment on Form 10-QSB/A for
the quarterly period ended June 30, 2005 restating the financial statements
included therein.
On May 16, 2005, the Company raised $3,000,000 pursuant to the private
placement of senior secured convertible notes and related warrants with four
institutional funds. The terms of the senior secured convertible notes and
related warrants were previously disclosed in the Company's Quarterly Report
on Form 10-QSB for the quarterly period ended June 30, 2005 and were accounted
for as equity under the provisions of Emerging Issues Task Force ("EITF")
00-27. Based on comments received from the SEC and after further research and
consideration by management and the Audit Committee, together with an
evaluation and discussions with the Company's auditors, the Company has
determined that the proper treatment is to account for the embedded conversion
feature in the senior secured convertible notes and for the related warrants
as derivatives in accordance with EITF 00-19 and SFAS No. 133, which require
liability recognition on the transaction date and marking the aggregate
derivative liability to its fair value as of each subsequent reporting date,
which is the last day of each calendar quarter. This change in accounting
treatment became known to the Company in connection with its responding to SEC
comments and preparing its interim financial statements for the quarter ended
September 30, 2005. The Company filed an extension under Rule 12b-25 to allow
time to complete the review and consideration discussed above before filing
its Form 10-QSB for the quarterly period ended September 30, 2005.
As of June 30, 2005, the Company recorded an adjustment recognizing an
aggregate derivative liability of $5,974,027 and an other expense of
$2,974,027. As of September 30, 2005, the Company has reported other income
of $1,759,134 to reflect the change in value of the derivative liability for
the three months ended September 30, 2005. The Company will make a similar
adjustment each quarter reflecting the changing value of the derivatives.
The guidance set forth in Auditing Standard No. 2 of the Public Company
Accounting Oversight Board states that restatement of previously-issued
financial statements to reflect the correction of a misstatement should be
regarded as at least a significant control deficiency and as a strong
indicator that a material weakness in internal control over financial
reporting exists. In connection with the filing of the Form 10-QSB/A for the
quarter ended June 30, 2005, the Company concluded and disclosed that a
material weakness existed as of June 30, 2005. The Company had previously
reported a significant deficiency as of such date regarding beneficial
conversion features of a convertible note and associated accounting entries.
Notwithstanding efforts to remedy such deficiency, the Company concluded that
such efforts were insufficient and that the deficiency extended to a broader
category regarding the interpretation and
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application of accounting pronouncements related to derivative securities and
required accounting entries. The material weakness precludes the Company from
concluding that its disclosure controls and procedures were effective as of
June 30, 2005. This material weakness also precluded the Company from
concluding that its disclosure controls and procedures were effective as of
September 30, 2005.
In order to correct this material weakness, management of the Company,
in consultation with the Audit Committee, has adopted procedures to be
performed each quarter to help ensure that any financing transaction and any
other transaction out of the ordinary course of the Company's business will be
reviewed and evaluated to select the proper accounting treatment for such
transactions. The Company has also instituted a policy of reviewing all new
accounting pronouncements by both the Chief Financial Officer and the General
Counsel.
The Company's management and Audit Committee have discussed the matters
disclosed in this Form 8-K with the Company's independent registered public
accounting firm, Tanner LC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 23, 2005.
BROADCAST INTERNATIONAL, INC.
a Utah corporation
By: /s/ Rodney M. Tiede
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Name: Rodney M. Tiede
Title: President and Chief Executive Officer
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