---

---

 

 

 

 

Utah (State or other jurisdiction of incorporation or organization)

7389 (Primary Standard Industrial Classification Code Number)

87-0395567 (I.R.S. Employer Identification Number)

 

 

---

 

 

---

 

Reed L. Benson, Esq. 4049 S. Highland Drive Salt Lake City, Utah  84124 (801) 278-9769

Gregory E. Lindley, Esq. N. Aaron Murdock, Esq. Holland & Hart LLP 222 South Main Street, Suite 2200 Salt Lake City, UT 84101 (801) 799-5800

 

---

 

 

 

 

 

 

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company x

 

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)	o
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)	o

(3)

Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended, and computed pursuant to Rule 457(c) and Rule 457(f)(1), based upon the product of (a) 224,213,719, the maximum number of shares of Broadcast common stock that may be issued as part of the exchange offer described herein and (b) $0.08, the average of the high and low sale price for shares of Broadcast common stock as quoted on the OTC Bulletin Board on August 26, 2013.

 

(4)	$1,792.41 of the registration fee was paid in connection with the Registration Statement on Form S-4 (No. 333-189869) filed by Broadcast with the Securities and Exchange Commission on July 9, 2013.

 

 

 

 

 

 

WHERE YOU CAN FIND MORE INFORMATION	1
SUMMARY	2
MARKET PRICE AND DIVIDEND INFORMATION	8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS	10
RISK FACTORS	11
THE EXCHANGE OFFER	29
USE OF PROCEEDS	39
DESCRIPTION OF COMMON STOCK	40
THE MERGER AND RELATED MATTERS	44
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS	81
MATERIAL CONTRACTS WITH ALLDIGITAL	87
BROADCAST CAPITALIZATION	87
SECURITY OWNERSHIP	88
BUSINESS – BROADCAST	90
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS – BROADCAST	96
BUSINESS – ALLDIGITAL	109
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS – ALLDIGITAL	119
MANAGEMENT	124
COMPENSATION DISCUSSION AND ANALYSIS – BROADCAST	129
EXECUTIVE COMPENSATION INFORMATION – ALLDIGITAL	136
RELATED PARTY TRANSACTIONS – BROADCAST	139
RELATED PARTY TRANSACTIONS – ALLDIGITAL	140
LEGAL PROCEEDINGS	141
DESCRIPTION OF BROADCAST CAPITAL STOCK	141
INDEMNIFICATION OF SECURITIES ACT LIABILITIES	143
EXPERTS	143
LEGAL MATTERS	144
INDEX TO FINANCIAL STATEMENTS	BF-1

The Exchange Offer

We are offering, upon the terms and subject to the conditions described in this prospectus and the accompanying letters of transmittal, to exchange up to 224,213,719 shares of our common stock for (i) outstanding warrants to purchase shares of our common stock having exercise periods ending on March 13, 2018 (with enhanced anti-dilution rights) (“March 2018 enhanced warrants”), March 22, 2016 (“March 2016 warrants”), December 27, 2016 (“December 27 warrants”), December 28, 2016 (“December 28 warrants”), July 13, 2017 (“July 2017 warrants”), August 15, 2017 (“August 2017 warrants”), March 13, 2018 (with standard anti-dilution rights) (“March 2018 warrants”), April 5, 2018 (“April 2018 warrants”) and December 23, 2015 (“December 2015 warrants”); (ii) outstanding options to purchase shares of our common stock (“eligible options”); and (iii) our outstanding Senior Secured Convertible Promissory Notes (“12% notes”), 5% Convertible Note Due 2009, as amended (“8% note”) and Promissory Note (“unsecured note”).

 

 

	The March 2018 enhanced warrants, March 2016 warrants, December 27 warrants, December 28 warrants, July 2017 warrants, August 2017 warrants, March 2018 warrants, April 2018 warrants and December 2015 warrants are referred to in this prospectus collectively as the “eligible warrants.”  The 12% notes, 8% note and unsecured note are referred to in this prospectus collectively as the “eligible notes.”  The eligible warrants, eligible options and eligible notes are referred to in this prospectus collectively as the “eligible securities.”   As of August 15, 2013, there were outstanding March 2018 enhanced warrants exercisable for 13,900,000 shares, March 2016 warrants exercisable 653,576 shares, December 27 warrants exercisable for 422,500 shares, December 28 warrants exercisable for 247,500 shares, July 2017 warrants exercisable for 5,150,000 shares, August 2017 warrants exercisable for 1,800,000 shares, March 2018 warrants exercisable for 4,170,000 shares, April 2018 warrants exercisable for 400,400 shares, December 2015 warrants exercisable for 12,499,980 shares and eligible options exercisable for 1,422,033 shares.  As of August 15, 2013 there were outstanding 12% notes having an aggregate principal amount of $4,225,000 and convertible for 16,900,000 shares, the 8% note having an aggregate principal amount of $1,000,000 and convertible for 4,000,000 shares and the unsecured note having an aggregate principal amount of $20,000.   We are offering to exchange the eligible securities for the number of shares of our common stock indicated next to each type of eligible security below:
	Eligible Security	Shares of Common Stock
	March 2018 enhanced warrants	One (1) share of common stock will be issued in exchange for every one (1) share of common stock underlying each March 2018 enhanced warrant.
	March 2016 warrants	One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each March 2016 warrant.
	December 27 warrants	One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each December 27 warrant.
	December 28 warrants	One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each December 28 warrant.
	July 2017 warrants	One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each July 2017 warrant.
	August 2017 warrants	One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each August 2017 warrant.
	March 2018 warrants	One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each March 2018 warrant.
	April 2018 warrants	One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each April 2018 warrant.

 

 

	December 2015 warrants	One (1) share of common stock will be issued in exchange for every four (4) shares of common stock underlying each December 2015 warrant.
	Eligible options	One (1) share of common stock will be issued in exchange for every fifteen (15) shares of common stock underlying each eligible option.
	12% notes	One (1) share of common stock will be issued in exchange for every three cents ($0.03) of principal and interest outstanding under each 12% note on a pre-reverse-stock-split basis (or one (1) share of common stock for every forty-five cents ($0.45) of principal and interest outstanding under each 12% note on a post-reverse-stock-split basis).
	8% note	One (1) share of common stock will be issued in exchange for every three cents ($0.03) of principal and interest outstanding under the 8% note on a pre-reverse-stock-split basis (or one (1) share of common stock for every forty-five cents ($0.45) of principal and interest outstanding under the 8% note on a post-reverse-stock-split basis).
	Unsecured note	One (1) share of common stock will be issued in exchange for every three cents ($0.03) of principal and interest outstanding under the unsecured note on a pre-reverse-stock-split basis (or one (1) share of common stock for every forty-five cents ($0.45) of principal and interest outstanding under the unsecured on a post-reverse-stock-split basis).

 

We are offering to exchange all, but not less than all of the eligible securities that you hold.  If you wish to participate in the exchange offer, you must tender all of the eligible securities that you hold.

 

Reverse Stock Split	The number of shares of our common stock issued upon completion of the exchange offer will reflect a 1:15 reverse stock split that will occur prior to the closing of the merger.  After giving effect to the reverse stock split, each eligible warrant and eligible option will be exercisable for 1/15th the number of shares and at 15 times the exercise price for which it was exercisable before the reverse stock split, and eligible notes will be exchanged at a rate of one (1) share for every forty-five cents ($0.45) of principal and interest outstanding thereunder.   Because we will only be changing the number of outstanding shares of common stock, the reverse stock split should not change our overall valuation.  Assuming our overall valuation does not change, the price per share of our common stock should increase proportionally, though there can be no assurance that it will do so.  The reverse stock split is required by the terms of the merger agreement.
Purpose of the Exchange Offer	The exchange offer is being made in order to satisfy conditions to the merger that are set forth in the merger agreement.  Under the merger agreement, the obligation of AllDigital to effect the merger is conditioned on there being no outstanding indebtedness, other than indebtedness that automatically converts into stock at the effective time of the merger, and on there being no more than 2,000,000 shares of our common stock issuable upon exercise of outstanding eligible warrants and eligible options.  If fewer than all of the eligible notes or in excess of 95% of the eligible warrants and options are exchanged in the exchange offer, we will fail to meet these conditions to closing and the merger may not close.  Given our current financial condition and prospects, if the merger does not close, it is unlikely that we will be able to remain in business.  See “The Exchange Offer – Purpose of the Exchange Offer” on page 29.

Determination of Shares to be Offered in Exchange for Eligible Securities	The number of shares offered in the exchange offer for each type of eligible warrant and for each eligible option was determined after considering several elements, which included primarily the remaining Black-Scholes value (a method of valuing warrants and stock options that considers factors such as the remaining life of the security, the difference between the exercise price and the stock price, and the volatility of the stock price) of the outstanding eligible warrants and eligible options, the risk-adjusted relative value of such eligible warrants and eligible options, the anti-dilution and other contractual rights associated with eligible warrants, and the additional expense to the Company associated with the exchange offer.   The number of shares offered in the exchange offer for the eligible notes was determined after considering several elements, including the volume weighted average of the Company’s stock price and the contractual rights of the holders of eligible notes, including their security interests in the Company’s assets.
Conditions of the Exchange Offer	Our obligation to exchange eligible securities validly tendered and not properly withdrawn at the expiration date is conditioned upon, among other things, the merger, in our reasonable judgment to be determined as of immediately prior to the expiration date, being capable of being consummated contemporaneously with the exchange offer.  We refer to this condition as the merger condition.  In addition, consummation of the exchange offer is subject to certain other conditions, including that the registration statement, of which this prospectus is a part, shall have been declared effective by the SEC and other customary conditions.  We may waive any or all of the conditions to the exchange offer in our sole and absolute discretion, except for the registration statement effectiveness condition and the merger condition.  See “The Exchange Offer – Conditions of the Exchange Offer” on page 32.
Expiration Date	The exchange offer expires at 5:00 p.m., Salt Lake City time, on October 17, 2013 (“expiration date”), unless extended or earlier terminated by us.  We may extend the expiration date for any reason in our sole and absolute discretion.  If we decide to extend the expiration date, we will announce any extensions by press release or other public announcement no later than 9:00 a.m., New York City time, on the business day after the scheduled expiration of the exchange offer.  See “Extension of Offer; Termination; Amendment” on page 31.
Termination of the Exchange Offer	We reserve the right to terminate the exchange offer at any time prior to the completion of the exchange offer if any of the conditions under “The Exchange Offer – Conditions of the Exchange Offer” have not been satisfied, in our sole and absolute discretion.  See “The Exchange Offer – Termination of the Exchange Offer” on page 34.
Procedure for Tendering Eligible Securities	Holders of eligible securities desiring to accept the exchange offer must tender all of their eligible securities by signing and returning the appropriate letter of transmittal, including all other documents required by the letter of transmittal, in person or by mail to Broadcast International, Inc., Attn: James E. Solomon, 6952 S. High Tech Drive, Suite C, Midvale, Utah 84047-3772 no later than 5:00 p.m., Salt Lake City time, on October 17, 2013.  See “The Exchange Offer – Procedures for Tendering” beginning on page 34.  Holders of eligible securities who elect to exchange any of their eligible securities must exchange all of their eligible securities.
Acceptance of Eligible Securities and Delivery of Common Stock	If the conditions to the exchange offer are met, we will, subject to the terms and conditions described in this prospectus, accept all eligible securities validly tendered and not properly withdrawn prior to the expiration date and such securities will be cancelled.  We will issue shares of our common stock in exchange for all such eligible securities promptly after consummation of the merger.   The number of shares of our common stock issued upon completion of the exchange offer will reflect a 1:15 reverse stock split that will occur prior to the closing of the merger.  After giving effect to the reverse stock split, each eligible warrant and eligible option will be exercisable for 1/15th the number of shares and at 15 times the exercise price for which it was exercisable before the reverse stock split, and eligible notes will be exchanged at a rate of one (1) share for every forty-five cents ($0.45) of principal and interest outstanding thereunder.

 

 

	Because we will only be changing the number of outstanding shares of common stock, the reverse stock split should not change our overall valuation.  Assuming our overall valuation does not change, the price per share of our common stock should increase proportionally, though there can be no assurance that it will do so.  The reverse stock split is required by the terms of the merger agreement.
Withdrawal Rights	Holders may withdraw the eligible securities they have tendered at any time prior to 5:00 p.m. Salt Lake City time, on October 17, 2013.  See “The Exchange Offer – Withdrawal Rights” on page 34.
No Recommendation	Neither we nor any of our directors, officers or employees are making any recommendation to you as to whether you should tender or refrain from tendering your eligible securities and we have not authorized any person to make any recommendation on our behalf.  You must make your own decision as to whether to tender all of your eligible securities.  Certain of our directors and executive officers hold eligible securities and are eligible to participate in the exchange offer.  The terms of the exchange offer are equally applicable to such directors and officers.  The exchange offer was unanimously approved by our Board of Directors, upon the recommendation, after due deliberation, of all of those directors who do not hold eligible securities and are therefore disinterested with respect to the exchange offer.  We expect that all of our directors and officers who hold eligible securities will participate in the exchange offer.   You should rely only on the information contained in this prospectus or to which it or we have referred you.  We have not authorized anyone to give you any information or to make any representations in connection with the exchange offer other than the information and representations contained in this prospectus or in the accompanying letters of transmittal.  If anyone makes any recommendation or representation to you or gives you any information, you must not rely upon that recommendation, representation or information as having been authorized by us.
Use of Proceeds	The Company will not receive any proceeds from the exchange offer.
Federal Income Tax Consequences	If you are a U.S. holder (as defined below under the heading “The Exchange Offer – Material United States Federal Income Tax Considerations”), the following will apply: If you tender eligible warrants for shares of our common stock in the exchange offer, you will recognize ordinary income in an amount equal to the fair market value of any of such common stock treated as received as other than consideration for the eligible warrants.  Because the issue is highly factual, the Company is unable to determine what portion, if any, of the common stock will be deemed to be consideration for the U.S. holders’ eligible warrants and what portion, if any, will be deemed to be consideration for other value provided.   If you tender eligible notes for shares of our common stock in the exchange offer, your U.S. federal income taxes will generally be as follows: (i) the common stock received will be treated as interest to the extent of any accrued unpaid “qualified stated interest” on the eligible notes; (ii) to the extent the common stock received has a fair market value in excess of the accrued unpaid interest and is treated as received in exchange for the eligible notes (rather than as consideration for other value provided), you will recognize gain or loss equal to the difference, if any, between the fair market value of such common stock and your adjusted tax basis in the eligible notes, which gain or loss will generally be treated as capital gain or loss, and as long-term capital gain or loss if you have held the eligible notes for more than a year at the time of the exchange; and (iii) to the extent the common stock received with a fair market value in excess of any accrued and unpaid interest is treated as consideration other than for the eligible notes, you will recognize ordinary income in an amount equal to the fair market value of such common stock.  Because the issue is highly factual, the Company is unable to determine what portion, if any, of the common stock will be deemed to be consideration for the U.S. holders’ eligible notes and what portion, if any, will be deemed to be consideration for other value provided.

 

 

	The fair market value of the common stock will generally be determined as the average of the highest and lowest quoted prices of our common stock on the OTC Bulletin Board on the date of the exchange or, if no sales are reported on that date, as the weighted average of the means between the highest and lowest sales on the nearest date before and the nearest date after the date of the exchange, weighting the average inversely by the respective number of trading days between the selling dates and the date of the exchange.   For a more detailed discussion of tax matters, see “The Exchange Offer – Material United States Federal Income Tax Considerations” beginning on page 35. ALL HOLDERS OF ELIGIBLE SECURITIES ARE URGED TO CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF PARTICIPATING IN THE EXCHANGE OFFER.
Accounting Treatment	An extinguishment of liability will result from those eligible warrants exchanged for common stock in the exchange offer that have been accounted for as derivatives.  As such, a gain or loss will be recognized to the extent that the value of the shares exchanged is different than the value of the liability recorded at the time of the exchange.  For eligible warrants exchange for common stock in the exchange offer that were not accounted for as derivatives, no gain or loss will be recognized and the value of the shares exchanged will be recorded to common stock as additional paid in capital.   For eligible options exchanged for common stock in the exchange offer, no gain or loss will be recognized and the value of the shares exchanged will be recorded to common stock and additional paid in capital.   An extinguishment of liability will result from eligible notes exchanged for common stock in the exchange offer.  As such, a gain or loss will be recognized to the extent that the value of the shares exchanged is different than the value of the liability recorded at the time of the exchange.
Fees and Expenses	The Company will pay all fees and expense it incurs in connection with the exchange offer.  See “The Exchange Offer – Fees and Expenses” on page 35.
Regulatory Approvals	We are not aware of any material regulatory approvals necessary to complete this offer.  However, we may not complete this exchange offer until the registration statement, of which this prospectus is a part, is declared effective by the SEC.
Rights of Non-Tendering Holders	If you do not exchange your eligible securities for shares of our common stock in the exchange offer, you will continue to hold your eligible securities, subject to their terms.
The Merger	The exchange offer is being made in connection with the proposed merger.  In the merger, Alta Acquisition Corporation, a wholly owned subsidiary of Broadcast, will merge with and into AllDigital, with AllDigital surviving as a wholly owned subsidiary of Broadcast.  The shares of Broadcast common stock issued to AllDigital stockholders in connection with the merger are expected to represent 58% of the outstanding shares of Broadcast common stock immediately following the consummation of the merger, assuming the exercise or conversion of warrants, options and other derivative securities of AllDigital and Broadcast except for 2,430,980 warrants of Broadcast that are not eligible warrants.  The exchange offer will close immediately prior to the consummation of the merger.  For a more complete description of the merger, please see the section entitled “The Merger and Related Matters” on page 44 of this prospectus.   Because the merger will result in material changes to our capitalization, business and financial condition, this prospectus includes information about the merger, Broadcast and AllDigital and the combined company following the merger in which you will own stock if you participate in the exchange offer. See “The Merger and Related Matters” on page 44, “Unaudited Pro Forma Combined Financial Statements” on page 81, “Security Ownership” on page 88, “Business – Broadcast” on page 90, Management’s Discussion and Analysis of Financial Results of Operations – Broadcast” on page 96, “Business – AllDigital” on page 109, “Management’s Discussion and Analysis of Financial Results of Operations – AllDigital” on page 119, “Management” on page 124 and the financial statements included in this prospectus.

 

 

Questions	We cannot and will not provide you any advice regarding your decision whether to tender your eligible securities.  Any questions concerning this exchange offer or any other document accompanying or referred to in this prospectus, or to request additional copies of any such documents, may be directed to the Company at Broadcast International, Inc., Attn: James E. Solomon, 6952 S. High Tech Drive, Suite C, Midvale, Utah 84047-3772, or by telephone at (801) 562-2252.  See also “Where You Can Find More Information” on page 1.
Risk Factors	For certain risks you should consider in evaluating this exchange offer, see “Risk Factors” beginning on page 11.

Broadcast Common Stock
		High Bid	Low Bid
Year ending December 31, 2011
First Quarter		$1.27	$0.73
Second Quarter		0.84	0.51
Third Quarter		0.58	0.23
Fourth Quarter		0.47	0.13
Year ending December 31, 2012
First Quarter		$0.67	$0.31
Second Quarter		0.50	0.18
Third Quarter		0.25	0.10
Fourth Quarter		0.20	0.05
Year ending December 31, 2013
First Quarter		$0.16	$0.06
Second Quarter		0.12	0.03
Third Quarter (through August 15, 2013)		0.10	0.06

AllDigital Common Stock
		High Bid	Low Bid
Year ending December 31, 2011
First Quarter*		N/A	N/A
Second Quarter*		N/A	N/A
Third Quarter		$5.50	$1.01
Fourth Quarter		3.255	3.255
Year ending December 31, 2012
First Quarter*		$3.255	$1.01
Second Quarter		1.01	0.51
Third Quarter		1.01	1.01
Fourth Quarter		1.00	0.85
Year ending December 31, 2013
First Quarter		$1.01	$0.18
Second Quarter		0.17	0.11
Third Quarter (through August 15, 2013)		0.13	0.10

 

 

 

•

the inability of the combined company to consolidate and rationalize product lines, supply chains, administrative functions, sales and marketing teams and/or research and development efforts to the degree, or within the time period, expected;

•

the inability of the combined company to increase sales;

•

competitive factors, including technological advances attained by competitors and patents granted to or contested by competitors, which would enhance their ability to compete against the combined company;

•

the failure of key markets for the combined company’s products to develop to the extent or as rapidly as currently expected;

•

the impact of the economic and financial downturn and the extent to which the economic conditions and disruptions in the credit and financial markets improve or ameliorate, if at all;

•

changes in technology that increase the number of competitors that the combined company faces after the merger or require the combined company to make significant capital expenditures to develop competitive products;

•

unfavorable reaction to the merger by the combined company’s customers and suppliers; and

•

the failure to retain key employees.

•

demonstrating to the customers of Broadcast and AllDigital that the merger will not result in adverse changes in client service standards or business focus and helping customers conduct business easily with the combined company;

•

consolidating and rationalizing corporate information technology, engineering and administrative infrastructures;

•

integrating product offerings;

•

coordinating  or combining sales and marketing efforts to effectively communicate the capabilities of the combined company;

•

coordinating and rationalizing research and development activities to enhance introduction of new products and technologies with reduced cost; and

•

preserving important relationships of both Broadcast and AllDigital and resolving potential conflicts that may arise.

•

employee redeployment, relocation or severance;

•

conversion of information systems;

•

combining research and development teams and processes;

•

reorganization or closures of redundant or excess facilities; and

•

relocation or disposition of excess equipment.

·

the shareholders of both parties must vote upon, and approve the merger agreement and the merger;

·

the number of shares of AllDigital’s common stock dissenting from the merger must be less than 1.5% of its outstanding common stock and the number of shares of Broadcast common stock dissenting from the merger shall be less than 3% of the of the outstanding Broadcast common stock;

·

the adjusted working capital of Broadcast immediately prior to the closing of the merger must be equal to or greater than $0, which will require the raising of additional capital by Broadcast;

·

the shareholders of Broadcast must approve the reverse stock split;

·

Broadcast must eliminate all indebtedness, other than indebtedness that converts to equity upon closing of the merger;

·

the number of securities convertible into Broadcast common stock, with certain exceptions, must be reduced to 2 million shares or less;

·

Broadcast’s monthly net cash flow for the preceding 30 days must be equal to or greater than negative $10,000;

 

 

·

Broadcast must have secured subscriptions or commitments for the purchase of the combined company’s common stock of no less than the difference between $1.5 million and the principal amount of the combined convertible notes and no more than $3.5 million on terms and with investors acceptable to AllDigital; and

·

no one but Broadcast shall have any ownership interest in any intellectual property or intellectual property rights at any time owned or supplied by Broadcast, as determined by AllDigital in its reasonable discretion..

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

establishing and maintaining broad market acceptance of AllDigital products, technology, services, and platform, and converting that acceptance into direct and indirect sources of revenue;

·

establishing and maintaining adoption of AllDigital products, technology, services, and platform on a wide variety of Devices and Device platforms;

·

timely and successfully developing new products, technology, services, service and platform features, and increasing the functionality and features of our existing products, services, platform and technology;

·

developing products, technology, services, and platforms that result in a high degree of customer satisfaction and a high level of end-customer usage;

·

successfully responding to competition, including competition from emerging technologies and solutions;

·

developing and maintaining strategic relationships to enhance the distribution, features, content and utility of AllDigital products, technology, services, and platform; and

·

identifying, attracting and retaining talented technical services, engineering, and creative services staff at reasonable market compensation rates in the markets in which AllDigital has employees.

 

 

·

the availability and cost of capital generally;

·

AllDigital’s and/or the combined company’s financial results;

·

the experience and reputation of the applicable management team;

·

market interest, or lack of interest, in AllDigital’s or the combined company’s respective industry and business plan, as applicable;

·

the status of development of AllDigital’s products and services, particularly products and services that can scale rapidly;

·

the trading volume of, and volatility in, the market for AllDigital’s or the combined company’s respective common stock, as applicable;

·

AllDigital’s or the combined company’s ongoing success, or failure, in executing its respective business plan;

·

the amount of AllDigital’s or the combined company’s respective capital needs; and

·

the amount of debt, options, warrants, and convertible securities outstanding.

 

 

 

 

 

 

·

adversely impact AllDigital’s relationship with those customers and others, possibly leading to a loss of affected and unaffected customers;

·

lead to billing disputes and related legal fees, and diversion of management resources;

·

increase AllDigital’s costs related to product development; and/or

·

adversely affect AllDigital’s revenues and expenses, either prospectively or retrospectively, potentially requiring restatement of financial statements.

 

·

to develop and deploy new products and services more quickly and effectively than AllDigital;

·

to develop, improve and expand their platforms and related infrastructures more quickly than AllDigital;

·

to reduce costs, particularly transport, storage and processing costs, because of discounts associated with large volume purchases;

 

 

·

to offer less expensive products, technology, platform, and services as a result of a lower cost structure, greater capital reserves or otherwise;

·

to adapt more swiftly and completely to new or emerging technologies and changes in customer requirements;

·

to offer bundles of related services that AllDigital is unable to offer;

·

to take advantage of acquisition and other opportunities more readily; and

·

to devote greater resources to the marketing and sales of their products, technology, platform, and services.

·

AllDigital’s platform, technology, products, and services and underlying infrastructure, or that of its key suppliers, may be damaged or destroyed by events beyond its control, such as fires, earthquakes, floods, power outages or telecommunications failures. AllDigital’s operations are particularly susceptible to interruption from any of the foregoing because many of AllDigital’s servers and much of AllDigital’s infrastructure is located in Southern California, which is prone to the occurrence of the foregoing events.

·

AllDigital and its customers and/or partners may experience interruptions in service as a result of the accidental or malicious actions of Internet users, hackers or current or former employees.

·

AllDigital may face liability for transmitting viruses to third parties that damage or impair their access to computer networks, programs, data or information. Eliminating computer viruses and alleviating other security problems may require interruptions, delays or cessation of service to AllDigital’s customers.

·

Failure of AllDigital’s systems or those of its suppliers may disrupt service to AllDigital’s customers (and from its customers to their customers), which could materially impact AllDigital’s operations (and the operations of its customers), adversely affect AllDigital’s relationships with its customers and lead to lawsuits and contingent liability.

 

·

AllDigital has not applied for a copyright registration or patents with respect to its proprietary rights, and, as a result, AllDigital may have limited legal recourse against others who use its technology or similar technology.

·

AllDigital’s claims of proprietary ownership (and related common law copyright assertions) may be challenged or otherwise fail to provide AllDigital with the ability to prevent others from copying its technology.

·

AllDigital’s existing trademarks or any future trademarks may be canceled or otherwise fail to provide meaningful protection.

·

Counterparties to nondisclosure agreements disclose or use AllDigital’s intellectual property in breach of governing agreements, and AllDigital’s ability to prevent or obtain damages for such breach may be limited by AllDigital’s financial situation, legal restrictions or other issues.

·

If AllDigital uses open source technology, with or without its knowledge, AllDigital may become subject to “copyleft” agreements requiring AllDigital to license proprietary technology to third parties.

·

cease selling, incorporating or using services, technology, platform or products that rely upon the disputed intellectual property;

·

obtain from the holder of the intellectual property a license to sell or use the disputed intellectual property, which license may not be available on terms acceptable to AllDigital or at all;

·

redesign services, technology, products, platform or portions of services, technology or products, that incorporate disputed intellectual property;

·

pay increased license fees for certain implementations of open source or other third party software licenses which were not anticipated under an existing license or agreement; and

·

pay monetary damages to the third party adjudged to be the rightful holder of the intellectual property right.

 

 

 

·

AllDigital’s customers may limit their distribution of digital media and related digital services to devices because of issues related to protection of copyrights, media and entertainment company studio approvals related to content protection, royalty payments to artists and publishers, illegal copying and distribution of data and other intellectual property rights issues.

·

Congestion of data networks, or consumer reluctance to purchase high-speed Internet connectivity for their Device, may limit the growth of the distribution of content and related digital services to devices.

 

 

·

Consumers may determine not to view or access digital services on their devices because of, among other factors, poor reception of the broadcast or other delivery of the services, or the creation or expansion of competing technologies, that provide a similar service at lower cost or with better features.

·

New laws and regulations may negatively affect consumers' and businesses' use of the Internet or devices, thereby reducing demand.

 

 

 

 

 

 

 

Eligible Security

Shares of Common Stock

 

March 2016 warrants

One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each March 2016 warrant.

 

December 27 warrants

One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each December 27 warrant.

 

 

December 28 warrants

One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each December 28 warrant.

 

July 2017 warrants

One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each July 2017 warrant.

 

August 2017 warrants

One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each August 2017 warrant.

 

March 2018 warrants

One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each March 2018 warrant.

 

April 2018 warrants

One (1) share of common stock will be issued in exchange for every three (3) shares of common stock underlying each April 2018 warrant.

 

December 2015 warrants

One (1) share of common stock will be issued in exchange for every four (4) shares of common stock underlying each December 2015 warrant.

 

Eligible options

One (1) share of common stock will be issued in exchange for every fifteen (15) shares of common stock underlying each eligible option.

 

12% notes

One (1) share of common stock will be issued in exchange for every three cents ($0.03) of principal and interest outstanding under each 12% note on a pre-reverse-stock-split basis (or one (1) share of common stock for every forty-five cents ($0.45) of principal and interest outstanding under each 12% note on a post-reverse-stock-split basis).

 

8% note

One (1) share of common stock will be issued in exchange for every three cents ($0.03) of principal and interest outstanding under the 8% note on a pre-reverse-stock-split basis (or one (1) share of common stock for every forty-five cents ($0.45) of principal and interest outstanding under the 8% note on a post-reverse-stock-split basis).

 

Unsecured note

One (1) share of common stock will be issued in exchange for every three cents ($0.03) of principal and interest outstanding under the unsecured on a pre-reverse-stock-split basis (or one (1) share of common stock for every forty-five cents ($0.45) of principal and interest outstanding under the unsecured on a post-reverse-stock-split basis).

 

 

 

 

 

Stock Price Illustration	Before 1:15 reverse stock split	After 1:15 reverse stock split
Shares owned	1,500	100
Multiplied by illustrative price per share	x $1	x $15
Total Value	= $1,500	= $1,500

 

 

 

 

 

 

 

·

we increase or decrease:

-

the amount of consideration offered for the eligible securities; or

-

the number of eligible securities eligible to be elected for exchange in the exchange offer, except that in the case of an increase, it must be by an amount that exceeds 2% of the shares of our common stock issuable upon exercise of the eligible warrants and eligible options that are subject to the exchange offer immediately prior to the increase; and

-

the exchange offer is scheduled to expire at any time earlier than the end of the tenth business day from, and including, the date that notice of such increase or decrease is first published, sent or given in the manner specified above.

 

 

 

·

there has been threatened or instituted or is pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, domestic or foreign, before any court, authority, agency or tribunal that directly or indirectly (1) challenges the making of the exchange offer, the acquisition of some or all of the eligible securities elected for exchange pursuant to the exchange offer, the exchange of our common stock for such eligible securities, or otherwise relates in any manner to the exchange offer or (2) in our reasonable judgment, could materially and adversely affect our business, condition (financial or other), income, operations or prospects, or otherwise materially impair in any way the contemplated future conduct of our business or the business of any of our subsidiaries or materially impair the contemplated benefits of the exchange offer to us;

·

there has been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the exchange offer or us or any of our subsidiaries, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly:

-

make the acceptance for exchange of, or issuance of our common stock for, some or all of the eligible securities elected for exchange illegal or otherwise restrict or prohibit completion of the exchange offer or otherwise relates in any manner to the exchange offer;

-

delay or restrict our ability, or render us unable, to accept for exchange, or issue our common stock for, some or all of the eligible securities elected for exchange;

-

materially impair the contemplated benefits of the exchange offer to us; or

 

 

-

materially and adversely affect our business, condition (financial or other), income, operations or prospects, or otherwise materially impair in any way the contemplated future conduct of our business or the business of any of our subsidiaries or materially impair the contemplated benefits of the exchange offer to us;

·

there has occurred:

 

-

any general suspension of trading in, or limitation on prices for, securities on any national securities exchange or in the over-the-counter market;

-

the declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, whether or not mandatory;

-

the commencement or escalation of a war, armed hostilities or other international or national crisis directly or indirectly involving the United States;

-

any limitation, whether or not mandatory, by any governmental, regulatory or administrative agency or authority on, or any event that in our reasonable judgment might affect, the extension of credit by banks or other lending institutions in  the United States;

-

any significant decrease in the market price of the shares of our common stock or any change in the general political, market, economic or financial conditions in the United States or abroad that could, in our reasonable judgment, have a material adverse effect on our business, condition (financial or other), operations or prospects or on the trading in our common stock;

-

any change in the general political, market, economic or financial conditions in the United States or abroad that could have a material adverse effect on our business, condition (financial or other), operations or prospects or that, in our reasonable judgment, makes it inadvisable to proceed with the exchange offer;

-

in the case of any of the foregoing existing at the time of the commencement of the exchange offer, a material acceleration, escalation or worsening thereof; or

-

any decline in either the Dow Jones Industrial Average or the Standard and Poor’s Index of 500 Companies by an amount in excess of 10% measured during any time period after the commencement of the exchange offer;

·

a tender or exchange offer with respect to some or all of our common stock, or, other than the merger discussed herein,  a merger or acquisition proposal for us, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed, or we shall have learned that:

-

any person, entity or “group,” within the meaning of Section 13(d)(3) of the Exchange Act, (other than any such person, entity or group that has filed a Schedule 13D or Schedule 13G with the SEC prior to the commencement of the exchange offer) shall have acquired or proposed to acquire beneficial ownership of more than 5% of the outstanding shares of our common stock, or any new group shall  have been formed that beneficially owns more than 5% of the outstanding shares of our common stock (other than any such person, entity or group that has filed a Schedule 13D or Schedule 13G with the SEC prior to the commencement of the exchange offer);

-

any such person, entity or group that has filed a Schedule 13D or Schedule 13G with the SEC before expiration of the exchange offer shall have acquired or proposed to acquire beneficial ownership of an additional 2% or more of the outstanding shares of our common stock; or

-

any person, entity or group shall have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or made a public announcement reflecting an intent to acquire us or any of the assets or securities of us; or

-

any change or changes shall have occurred in the business, condition (financial or other), assets, income, operations, prospects or stock ownership of the Company or its subsidiaries that, in our reasonable judgment, is or may be material to the Company or its subsidiaries.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·

Common stock received pursuant to the exchange offer will be treated as interest to the extent of any accrued unpaid “qualified stated interest” on the eligible notes (generally, interest that is unconditionally payable at least annually at a single fixed rate).

·

A U.S. Holder who receives common stock with a fair market value in excess of any accrued unpaid interest will, to the extent the common stock is treated as received in exchange for the eligible notes, recognize gain or loss equal to the difference, if any, between (a) the fair market value of such common stock and (b) the holder’s adjusted tax basis in the eligible notes. This gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if the eligible notes have been held for more than one year on the effective date of the exchange. Preferential tax rates apply to long-term capital gains of a U.S. holder that is an individual, estate, or trust. There are no preferential tax rates for long-term gains of a U.S. holder that is a corporation. Deductions for capital losses are subject to complex limitations under the Code.

·

To the extent that the common stock is treated as received as other than consideration for the eligible notes, a U.S. Holder will recognize ordinary income in an amount equal to the fair market value of such common stock. In this regard, the IRS ruled in Revenue Ruling 73-233 that certain shareholders of an acquired company realized ordinary income upon the receipt of merger consideration in excess of their pro rata shares of the aggregate consideration paid by the acquiring corporation in a circumstance where the excess consideration was paid to such shareholders to induce them to vote for the merger. Similarly, given the terms of the exchange offer, U.S. holders exchanging eligible notes for common stock may be deemed to receive common stock with a fair market value in excess of the fair market value of their eligible notes in order to induce them to exchange their eligible notes for common stock, which exchange is necessary to satisfy certain conditions set forth in the merger agreement. Because the issue is highly factual, the Company is unable to determine what portion, if any, of the common stock will be deemed to be consideration for the U.S. holders’ eligible notes and what portion, if any, will be deemed to be consideration for other value provided. U.S. holders are urged to consult with their tax advisors regarding this matter.

·

U.S. holders will have a basis in the common stock received pursuant to the exchange offer equal to the fair market value of the common stock, regardless of whether the common stock is treated as interest, received in exchange for the eligible notes, or received as other than consideration for the eligible notes. The fair market value of the common stock will generally be determined as the average of the highest and lowest quoted prices of the common stock on the OTC Bulletin Board on the date of the exchange or, if no sales are reported on that date, as the weighted average of the means between the highest and lowest sales on the nearest date before and the nearest date after the date of the exchange, weighting the average inversely by the respective number of trading days between the selling dates and the date of the exchange. The U.S. holder’s holding period for the common stock will begin on the day after the effective date of the exchange.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

•

The complimentary technology of the two companies is expected to provide a unique and revolutionary way to create digital broadcast networks capable of reaching billions of connected devices.

•

Integration of Broadcast’s content management system and AllDigital’s cloud services platform and connected device frameworks is expected to enable the combined company to provide a highly scalable, flexible and secure digital broadcasting platform where virtually any form of digital media can target and reach a global audience across mobile, desktop and digital televisions.

•

It is expected that the combination will result in synergies and upsell opportunities from existing and prospective customers and partners and that the combined operational costs will be significantly reduced from economies of scale and the elimination of redundant cost centers.

•

The management team provided for in the merger agreement is a team with decades of collective experience in digital media distribution.

•

the strategic rationale for the merger and the potential benefits of the contemplated transactions;

•

the possible alternatives to the merger, including the difficulties of continuing to operate as an independent entity given the financial condition and prospects of Broadcast;

	•		management's assessment of the potential competitive advantages and operational and other synergies that potentially could be realized from the merger;
	•		the potential business, operational and financial synergies that may be realized over time by the combined company following the merger;

•

the current financial condition of Broadcast, including its ability to raise needed capital, replace the loss of most of the revenue from its largest customer and continue operations;

	•		its knowledge of the business, operations, financial condition and earnings of AllDigital;
	•		current financial market conditions and historical market prices, volatility and trading information relating to Broadcast’s and AllDigital’s stock;

•

the current and prospective environment in which Broadcast operations, including the competitive environment, loss of revenue from Broadcast’s largest customer, the importance of scale in competitive markets, the potential for the merger to enhance Broadcast’s ability to compete effectively, raise capital, increase value to stockholders and the anticipated effect of the merger on Broadcast’s potential growth, development, productivity, profitability and strategic options;

	•		the terms of the merger agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations;
	•		the exchange ratio resulting in Broadcast stockholders owning 42% of the combined company and the fact that such ownership percentage represents a premium over then-current value implied by the trading price of Broadcast’s common stock; and
	•		the likelihood that the merger will be completed.

	•		the risks, challenges and costs inherent in combining the operations of two public companies and the substantial expenses to be incurred in connection with the merger, including the possibility that delays or difficulties in completing the integration could adversely affect the combined company’s operating results and preclude the achievement of some benefits anticipated from the merger;
	•		the possible volatility, at least in the short term, of the trading price of Broadcast’s common stock resulting from the merger announcement;

•

the possible loss of key management, technical or other personnel of either of the combining companies as a result of the management and other changes that will be implemented in integrating the businesses;

•

the risk of diverting management’s attention from other strategic priorities to implement merger integration efforts;

•

the potential loss of one or more large customers or partners of either company as a result of any such customer’s or partner’s unwillingness to do business with the combined company;

•

the possibility that the reactions of existing and potential competitors to the combination of the two businesses could adversely impact the competitive environment in which the companies operate;

•

the risk that the merger might not be consummated in a timely manner, or that the merger might not be consummated at all;

•

the risk to Broadcast’s business, sales, operations and financial results in the event that the merger is not consummated;

•

the risk that the anticipated benefits of product integration and interoperability and cost savings will not be realized;

•

the potential incompatibility of business cultures; and

•

various other applicable risks associated with the combined company and the merger, including those described in the section of this prospectus entitled “Risk Factors.”

•

•

the strategic rationale for the merger and the potential benefits of the contemplated transactions;

•

management's assessment of the potential competitive advantages and operational and other synergies that potentially could be realized from the merger;

•

the potential business, operational and financial synergies that may be realized over time by the combined company following the merger, including with respect to prospective clients of each of AllDigital and Broadcast;

•

the possible volatility, at least in the short term, of the trading price of AllDigital’s common stock resulting from the merger announcement;

•

the possible loss of key management, technical or other personnel of either of the combining companies as a result of the management and other changes that will be implemented in integrating the businesses;

•

the risk of diverting management’s attention from other strategic priorities to implement merger integration efforts;

•

the potential loss of one or more large customers or partners of either company as a result of any such customer’s or partner’s unwillingness to do business with the combined company;

•

the possibility that the reactions of existing and potential competitors to the combination of the two businesses could adversely impact the competitive environment in which the companies operate;

	•		the risk that the merger might not be consummated in a timely manner, or that the merger might not be consummated at all;
	•		Broadcast’s liquidity situation and conditions to closing related to net cash flow and working capital;
	•		risks associated with the intellectual property ownership identified during due diligence;

•

the risk to AllDigital’s business, sales, operations and financial results in the event that the merger is not consummated;

•

the risk that the anticipated benefits of product integration and interoperability and cost savings will not be realized;

•

the potential incompatibility of business cultures; and

•

various other applicable risks associated with the combined company and the merger, including those described in the section of this prospectus entitled “Risk Factors.”

Company Name	Calculation of Value			Percent of Combined Value
Broadcast	$10,350,000			36.9%
AllDigital	17,700,000			63.1
Combined company	$28,050,000			100.0%

Company Name	Calculation of Value			Percent of Combined Value
Broadcast	$7,300,000			33.95%
AllDigital	14,200,000			66.05
Combined company	$21,500,000			100.00%

 

 

 

 

Expected Case Projection	2013	2014	2015
Broadcast Revenue	$7,779,894	$10,530,404	$14,937,934
Broadcast EBITDA	373,401	2,931,593	4,293,224
Broadcast Net Income (Loss)	373,401	2,931,593	4,293,224

Expected Case Projection	2013	2014	2015
Broadcast Revenue	$5,087,062	$4,328,228	$7,222,813
Broadcast EBITDA	(147,445)	(395,934)	7,632
Broadcast Net Income (Loss)	(1,383,364)	(395,934)	7,632

Low Case Projection	2013	2014	2015
Broadcast Revenue	$2,840,062	$1,396,396	$1,715,376
Broadcast EBITDA	(1,345,262)	(2,058,681)	(2,862,006)
Broadcast Net Income (Loss)	(2,581,182)	(2,058,681)	(2,862,006)

High Case Projection	2013	2014	2015
Broadcast Revenue	$11,421,599	$40,467,935	$45,348,549
Broadcast EBITDA	743,052	10,319,767	11,903,848
Broadcast Net After Tax Benefit	(492,867)	10,319,767	11,903,848

Expected Case Projection	2013	2014	2015
AllDigital Revenue	5,110,992	19,261,709	63,191,532
AllDigital EBITDA	(1,797,479)	6,385,307	11,493,363
AllDigital Net Income (Loss)	(1,797,479)	6,307,154	7,470,686

Expected Case Projection	2013	2014	2015
AllDigital Revenue	5,110,922	19,261,709	63,191,532
AllDigital EBITDA	(1,797,479)	6,463,314	18,269,448
AllDigital Net Income (Loss)	(1,896,229)	6,295,814	11,381,568

Low Case Projection	2013	2014	2015
AllDigital Revenue	3,521,756	10,061,906	20,887,109
AllDigital EBITDA	(1,859,595)	1,986,730	5,493,825
AllDigital Net Income (Loss)	(1,958,345)	1,819,230	4,262,128

 

 

High Case Projection	2013	2014	2015
AllDigital Revenue	7,465,802	22,855,535	75,071,215
AllDigital EBITDA	565,659	9,800,838	31,333,073
AllDigital Net After Tax Benefit	(372,091)	6,298,708	13,795,079