UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549

==============================================================================

                            FORM 10-Q

[X]   Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934.

          For the Quarterly Period ended March 31, 2006

                                or

[ ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
      Exchange Act of 1934.

       For the transitional period ________ 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    (IRS Employer Identification No.)
incorporation or organization)

      7050 Union Park Ave. #600, Salt Lake City, Utah  84047
      ------------------------------------------------------
       (Address of Principal Executive Offices) (Zip Code)

                          (801) 562-2252
     -------------------------------------------------------
       (Registrant's telephone number, including area code)

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

As of April 26, 2006, there were 24,048,275 shares of the registrant's common
stock, $0.05 par value, outstanding, which is the only class of common or
voting stock the registrant has issued.

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-23 of the Exchange Act. (check
one):

Large accelerated filer ( ) Accelerated Filer ( ) Non-accelerated filer (X)

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

                                1

<PAGE>


                  Broadcast International, Inc.
       Form 10-Q for the three months ended March 31, 2006


                        Table of Contents


Part I - Financial Information                                        Page

         Item 1.  Financial Statements                                  3

         Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations.       17

         Item 3.  Quantitative and Qualitative Disclosures
                  about Market Risk                                    24

         Item 4.  Controls and Procedures                              24

Part II - Other Information

         Item 1.  Legal Proceedings                                    26

         Item 1A. Risk Factors                                         26

         Item 2.  Unregistered Sales of Equity Securities
                  and Use of Proceeds                                  26

         Item 3.  Defaults Upon Senior Securities                      26

         Item 4.  Submission of Matters to a Vote of Security Holders  26

         Item 5.  Other Information                                    26

         Item 6.  Exhibits                                             27

Signatures                                                             31


                                2

<PAGE>


Item 1. Financial Information

          BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES
              CONSOLIDATED CONDENSED BALANCE SHEETS
                           (Unaudited)

                                               December 31,     March 31,
                                                   2005           2006
                                              -------------   -------------
ASSETS:

Current assets
    Cash and cash equivalents                 $    446,491    $    679,245
    Trade accounts receivable, net               1,186,634         923,913
    Finished goods inventory                       235,279         175,329
    Prepaid expense                                589,370       2,466,976
                                              -------------   -------------
Total current assets                             2,457,774       4,245,463
                                              -------------   -------------
Property and equipment, net                        504,162         445,034
                                              -------------   -------------
Other assets
    Patents, net                                   201,565         201,496
    Debt offering costs                            717,721         642,172
    Deposits and other assets                        7,824         108,538
                                              -------------   -------------
Total other assets                                 927,110         952,206
                                              -------------   -------------
Total assets                                  $  3,889,046    $  5,642,703
                                              =============   =============

LIABILITIES AND STOCKHOLDER DEFICIT:

Current liabilities
    Accounts payable                          $  1,176,100    $  1,224,670
    Payroll and related expenses                   185,627         258,156
    Other accrued expenses                         347,400         138,260
    Unearned revenues                              776,941         689,540
    Current portion of long-term obligations        70,187          70,187
    Derivative valuation                         3,012,000       4,256,000
                                              -------------   -------------
Total current liabilities                        5,568,255       6,636,813

Long-term liabilities
    Senior convertible debt (net of
      $2,375,002 and $2,125,003 discount,
      respectively)                                624,998         874,997
    Other long-term obligations                    105,280          87,733
    Deferred bonus payable                         600,000         600,000
                                              -------------   -------------
Total liabilities                                6,898,533       8,199,543
                                              -------------   -------------
Commitments and contingencies

Stockholders' deficit:
    Preferred stock, no par value; 10,000,000
      shares authorized, none issued                     -               -
    Common stock, $.05 par value; 40,000,000
      shares authorized, 21,872,089 and
      24,020,275 shares issued as of
      December 31, 2005 and March 31, 2006,
      respectively                               1,093,604       1,201,014
    Additional paid-in capital                  21,985,011      26,196,911
    Unexercised stock options and warrants               -         486,750
    Accumulated deficit                        (26,088,102)    (30,441,515)
                                              -------------   -------------
Total stockholders' deficit                     (3,009,487)     (2,556,840)
                                              -------------   -------------
Total liabilities and stockholders' deficit   $  3,889,046    $  5,642,703
                                              =============   =============


See accompanying notes to consolidated condensed financial statements

                                3

<PAGE>

          BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES
         CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                           (Unaudited)

                                                   Three Months Ended
                                              -----------------------------
                                                 March 31,       March 31,
                                                   2005            2006
                                              -------------   -------------

Net sales                                     $    977,652    $  2,780,398

Cost of sales                                      994,179       2,851,762
                                              -------------   -------------
Gross loss                                         (16,527)        (71,364)
                                              -------------   -------------
Operating expenses:
     Administrative and general                    278,381       1,133,994
     Selling and marketing                         148,419         148,575
     Research and development in process           104,306       1,608,296
                                              -------------   -------------
Total operating expenses                           531,106       2,890,865
                                              -------------   -------------

Total operating loss                              (547,633)     (2,962,229)
                                              -------------   -------------
Other income (expense)
     Interest income                                   996           5,091
     Interest expense                             (249,914)       (436,548)
     Gain on forgiveness of debt                         -         284,000
     Derivative valuation loss                           -      (1,244,000)
     Other income                                    2,504             273
                                              -------------   -------------
Total other income (loss)                         (246,414)     (1,391,184)

Loss before income taxes                          (794,047)     (4,353,413)
                                              -------------   -------------
Provision for income taxes
     Current tax expense (benefit)                       -               -
     Deferred tax expense (benefit)                      -               -
                                              -------------   -------------
Total provision for income taxes                         -               -
                                              -------------   -------------
Net loss                                      $   (794,047)   $ (4,353,413)
                                              =============   =============

Loss per share, basic and diluted             $      (0.04)   $      (0.19)
                                              =============   =============

Weighted average shares, basic and diluted      20,680,000      22,908,000
                                              =============   =============


See accompanying notes to consolidated condensed financial statements


                                4

<PAGE>


          BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES
         CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                           (Unaudited)

                                                   Three Months Ended
                                              -----------------------------
                                                March 31,       March 31,
                                                  2005            2006
                                              -------------   -------------
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net loss                                    $   (794,047)   $ (4,353,413)
  Adjustments to reconcile net loss to net
  cash used in operating activities:
    Depreciation and amortization                   91,287          70,768
    Beneficial conversion                          249,914               -
    Common stock issued for services                     -         100,000
    Accretion of notes payable                           -         249,999
    Common stock issued for acquisition in
      excess of asset valuation                          -       1,363,126
    Unexercised options and warrant expense              -         486,750
    Derivative liability fair market valuation           -       1,244,000
    Gain on forgiveness of debt                          -        (284,000)
    Provision for losses on accounts receivable      5,000           5,000
  Changes in assets and liabilities:
    Receivables                                    190,340         257,720
    Inventories                                     (2,434)         59,950
    Debt offering costs                                  -          75,549
    Prepaid and other assets                         2,567        (128,321)
    Accounts payable and accrued expenses           19,488         195,960
    Unearned revenue                                  (989)        (87,402)
                                              -------------   -------------
  Net cash used in operating activities           (238,874)       (744,314)
                                              -------------   -------------
CASH FLOWS FROM INVESTING ACTIVITIES:

  Cash provided in acquisition                           -         500,000
  Purchase of equipment                             (8,233)        (11,570)
  Technology patents                                (6,195)              -
                                              -------------   -------------
  Net cash used in investing activities            (14,428)       (488,430)
                                              -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:

  Principal payments on debt                       (17,547)        (17,547)
  Proceeds from the sale of stock                  124,980         506,185
  Loan proceeds                                    249,914               -
                                              -------------   -------------
  Net cash provided by financing activities        357,347         488,638
                                              -------------   -------------

NET INCREASE IN CASH AND CASH EQUIVALENTS          104,045         232,754

CASH AND CASH EQUIVALENTS, BEGINNIG OF PERIOD      173,536         446,491
                                              -------------   -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD      $    277,581    $    679,245
                                              =============   =============


See accompanying notes to consolidated condensed financial statements

                                5

<PAGE>

          BROADCAST INTERNATIONAL, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
                          March 31, 2006

NOTE 1 - BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated
condensed financial statements of Broadcast International, Inc. (the
"Company") contain the adjustments, all of which are of a normal recurring
nature, necessary to present fairly the financial position of the Company at
March 31, 2006 and December 31, 2005 and the results of operations and cash
flows for each of the three month periods ended March 31, 2006 and 2005, in
conformity with U.S. generally accepted accounting principles.  The balance
sheet information at December 31, 2005 is derived from audited consolidated
financial statements; however, certain reclassifications, none of which were
material, have been made to conform to the March 31, 2006 presentation.

These consolidated condensed financial statements should be read in
conjunction with the audited consolidated financial statements and related
notes included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2005.  Operating results for the three months ended March
31, 2006 are not necessarily indicative of the results that may be expected
for the year ending December 31, 2006.


NOTE 2 - GOING CONCERN

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

Our continuation as a going concern is dependent on our ability to generate
sufficient income and cash flow to meet our obligations on a timely basis and
to obtain additional financing as may be required. We are actively seeking
options to obtain additional capital and financing. We have commenced a
private placement of up to $4,500,000 of our common stock, and as of March 31,
2006, we had raised $506,185 (see Note 8). There is no assurance we will be
successful in our efforts. The accompanying statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.

NOTE 3 - RECLASSIFICATIONS

Certain 2005 financial statement amounts have been reclassified to conform to
2006 presentations.

NOTE 4 - WEIGHTED AVERAGE SHARES

The computation of basic earnings (loss) per common share is based on the
weighted average number of shares outstanding during each period.

                                6

<PAGE>



The computation of diluted earnings per common share is based on the weighted
average number of common shares outstanding during the period, plus the common
stock equivalents that would arise from the exercise of stock options and
warrants outstanding, using the treasury stock method and the average market
price per share during the period.  Options and warrants to purchase 5,781,037
and 6,457,317 shares of common stock at prices ranging from $.02 to $45.90 per
share were outstanding at March 31, 2006 and 2005, respectively, but were
excluded for the calculation of diluted earnings per share because the effect
of stock options and warrants was anti-dilutive.

NOTE 5 - STOCK COMPENSATION

Beginning on January 1, 2006, we began accounting for stock-based compensation
 under the provisions of Financial Accounting Standards No. 123 (revised
2004), "Share-Based Payment" (FAS 123R), which requires the recognition of the
fair value of stock-based compensation. We have used the modified prospective
application, under the fair value recognition provisions for FAS 123R,
stock-based compensation cost is estimated at the grant date based on the fair
value of the awards expected to vest and recognized as expense ratably over
the requisite service period of the award.  We have used the Black-Scholes
valuation model to estimate fair value of our stock-based awards, which
requires various judgmental assumptions including estimated stock price
volatility, forfeiture rates, and expected life.  Our computation of expected
volatility is based on a combination of historical and market-based implied
volatility.  Financial statements for periods prior to 2006 have not been
restated. The following table illustrates our interim net income and earnings
per share for the three months ended March 31, 2005 in accordance with FAS
123R.

                                                        Three Months
                                                            2005
                                                        -------------
    Net loss, as reported                               $   (794,047)
    Addback:
      Stock-based employee compensation expense
      determined under intrinsic value based method
      for all awards, net of related tax effects                   -
    Deduct:
      Total stock- based employee compensation
      expense determined under fair value based
      method for all awards, net of related
      tax effects                                           (124,767)
                                                        -------------
    Pro forma net loss                                  $   (918,814)
                                                        =============
    Pro forma (loss) earnings per share:
      Basic and diluted - as reported                   $       (.04)
                                                        =============
      Basic and diluted - pro forma                     $       (.05)
                                                        =============


We calculated the fair market value of each option award on the date of grant
using the Black-Scholes option-pricing model. The following assumptions were
used for the options granted for the quarter ending March 31, 2006.

      Risk-free interest rate                           4.58% - 4.59%
      Expected Lives in years                                10.0
      Dividend yield                                            0
      Expected volatility                                    85.80%


                                7

<PAGE>


Net loss for the 2006 first quarter includes $486,750 of non-cash stock-based
compensation expense, which includes $342,500 resulting from 175,000 options
granted to two outside directors, $10,362 of a total value of $51,808 for
repriced options previously granted to executive management which is being
recognized over the remaining five quarters of the vesting period. The
repricing of previously vested options accounted for $26,048 and finally the
vesting of unexercised options issued prior to January 1, 2006 of $107,840.

The impact on our results of operations for recording stock-based compensation
for the quarter ended March 31, 2006 was as follows:

      General and Administration                          $  424,576
      Research and Development in process                 $   62,174
                                                          ----------
      Total                                               $  486,750
                                                          ==========

No common stock or options to purchase common stock of the company were issued
for compensation during the quarter ended March 31, 2005.

Due to unexercised options granted at March 31, 2006 we will recognize a total
of $1,159,095 of compensation expense over the next three years for employees
and consultants as a result of the adoption of FAS 123R based upon option
award vesting parameters as shown below:


                    2006         $   741,636
                    2007             251,221
                    2008             166,238
                                 ------------
                    Total        $ 1,159,095
                                 ============

NOTE 6- SIGNIFICANT ACCOUNTING POLICIES

Management Estimates
--------------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period.  Actual results could differ from
those estimates.

Cash and Cash Equivalents
-------------------------
We consider all cash on hand and in banks, and highly liquid investments with
maturities of three months or less to be cash equivalents.  At March 31, 2006
and December 31, 2005 we had bank balances in the excess of amounts insured by
the Federal Deposit Insurance Corporation. We have not experienced any losses
in such accounts, and believe it is not exposed to any significant credit risk
on cash and cash equivalents.


                                8

<PAGE>


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

A trade receivable is considered to be past due if any portion of the
receivable balance is outstanding for more than 90 days. After the receivable
becomes past due, it is on non-accrual status and accrual of interest is
suspended.

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

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

Patents
-------
Patents represent initial legal costs incurred to apply for United States and
international patents on the CodecSys technology, and are amortized on a
straight-line basis over their useful life of approximately 20 years.  We have
filed several patents in the United States and foreign countries. As of March
31, 2006 three foreign countries had granted patent rights. While we are
unsure whether we can develop the technology in order to obtain the full
benefits, the patents themselves hold value and could be sold to those with
more resources to complete the development. On-going legal expenses incurred
for patent follow-up have been expensed from July 2005 forward.

Amortization expense recognized on all patents totaled $70 for the three
months ending March 31,2006. There was no amortization for the three months
ended March 31,2005.

Estimated amortization expense, if all patents were issued at April 1, 2006,
for each of the next five years is as follows:


          Year ending December 31:
                  2006                      $  7,580
                  2007                        10,110
                  2008                        10,110
                  2009                        10,110
                  2010                        10,110

Long-Lived Assets
-----------------
We review our long-lived assets, including patents, whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.  Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future un-discounted net cash
flows expected to be generated by the asset.  If such assets are considered to
be impaired, then the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the estimated fair value of
the assets.  Fair value is determined by using cash flow analyses and other
market valuations.

                                9
<PAGE>


Income Taxes
------------
We account for income taxes in accordance with the asset and liability method
of accounting for income taxes prescribed by Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.  Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to the taxable income in the years in which those
temporary differences are expected to be recovered or settled.

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

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

When we enter into a multi-year contract to provide equipment, installation,
network management, satellite transponder, help desk, or combination of these
services, to a customer for the establishment of a new network (or major
upgrade to an existing network) where substantial revenue is earned for
equipment sales and/or installation work performed at the beginning of the
contact, compared to expected on-going future revenue, we normalize revenue
recognition by deferring earned revenue over the contracted period. These
agreements typically provide for additional fees, once the initial
installations are completed, to be charged if on-site visits are required by
the customer in order to ensure that each customer location is able to receive
network communication. As these on-site visits are performed, the associated
revenue and cost are recognized in the period the work is completed.
Additionally, as immaterial numbers of new sites are added to the network the
associated revenue and cost are recorded in the period in which the work is
completed.

                                10

<PAGE>


When we enter into an agreement to perform equipment sales and/or
installation-only services, the revenue and cost are recognized in the period
the work is completed.

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

Our accounts receivable include three customers whose combined balances
represent approximately 83% and 52% of trade receivables as of March 31, 2006
and 2005, respectively and whose related sales revenues account for
approximately 84% and 74% of total revenues for the three months ended March
31, 2006 and 2005,respectively. The three largest customers in 2006 are not
the same as the three largest customers in 2005, as the Company lost one of
those customers and gained a substantial customer. Included in the numbers for
2006 above is our single largest customer for the quarter ended March 31,2006,
which provided no revenue in 2005 however, accounted for 62% of our 2006
revenue and represented 49% of our accounts receivable on March 31, 2006. Any
material reduction in revenues generated from any one of our largest customers
could harm our results of operations, financial condition and liquidity.

Fair Value of Financial Instruments
-----------------------------------
Our financial instruments consist of cash, receivables, notes receivables,
payables, and notes payable.  The carrying amount of cash, receivables and
payables approximates fair value because of the short-term nature of these
items.  The aggregate carrying amount of the notes receivable and notes
payable approximates fair value as the individual notes bear interest at
market interest rates.

NOTE 7- SENIOR CONVERTIBLE PROMISSORY NOTES

On May 16, 2005, we consummated a private placement of $3,000,000 principal
amount of 6% senior secured convertible notes with four institutional funds.
The senior secured convertible notes are due May 16, 2008 and were originally
convertible into 1,200,000 shares of common stock of the Company.
Additionally, we issued to the note holders a total of 600,000 A warrants and
600,000 B warrants to purchase common stock with an exercise price of $2.50
and $4.00, respectively. On March 16, 2006 we entered into a Waiver and
Amendment Agreement (discussed below), which adjusted the conversion rate and
exercise price of the warrants. The warrants and the embedded conversion
feature of the senior secured convertible notes have been accounted for as
derivatives pursuant to EITF 00-19 and SFAS No. 133.

As of March 31, 2006, we recorded an aggregate derivative liability of
$4,256,000 and for the quarter ending March 31, 2006. The $1,244,000 change in
valuation from the December 31, 2005 balance of $3,012,000 and $4,256,000 was
offset by the forgiveness of accrued penalties of $284,000 as part of the
Waiver and Amendment Agreement (see below) resulting in a net derivative
valuation loss of $960,000. The aggregate derivative liability of $4,256,000
included $2,540,000 for the conversion feature and $1,716,000 for the
warrants.  These values were calculated using the Black-Scholes pricing model
with the following assumptions: (i) risk free interest rate of 4.78%; (ii)
expected life (in years) of 2.1 for the conversion feature and 4.1 for the
warrants; (iii) expected volatility of 85.80%; (iv) expected dividend yield of
0.00%; and (v) stock trading price of $2.15.

                                11

<PAGE>


The principal value of $3,000,000 of the senior secured convertible notes are
being accreted over the term of the obligations, for which $249.999 was
included in interest expense for the quarter ending March 31,2006.  The notes
bear a 6% annual interest rate payable semi-annually, and for the quarter
ending March 31, 2006, $45,000 was recorded as interest expense.

The senior secured convertible notes required that we secure an effective
registration statement with the Securities and Exchange Commission within 120
days from May 16, 2005 (September 13, 2005). Section 4(a) of the senior
secured convertible notes enumerates circumstances that are considered an
event of default. The remedies for default provide that if an event of default
occurs and is continuing, the holders may declare all of the then outstanding
principal amount of the notes and any accrued and unpaid interest thereon to
be immediately due and payable in cash.  We were in default under Section
4(a)(viii), related to the effective date of our registration statement,
beginning September 13, 2005 until February 3, 2006, at which time the event
of default was cured and is no longer continuing.  During the default period
we incurred an aggregate amount due the note holders of $284,000 of which
$66,000 was recorded as interest expense in the quarter ended March 31, 2006,
and all of which was forgiven by the note holders per the Waiver and Amendment
Agreement.

On March 16, 2006, we entered into a Waiver and Amendment Agreement with the
four institutional funds regarding our above-mentioned default. Under the
terms of the waiver, the institutional funds waived any and all defaults under
the senior secured convertible notes and related transaction agreements.  In
consideration for the $284,000 owed the funds, we and the funds agreed to
amend the transaction agreements as follows: (i) Section 3.12 of the
securities purchase agreement was deleted, which provision gave the funds a
preemptive right to acquire any new securities issued by us; (ii) Section
3.15(c) of the securities purchase agreement was deleted, which provision
prohibited us from completing a private equity or equity-linked financing;
(iii) the conversion price, at which the notes are convertible into common
shares of the Company, was amended to be $1.50 instead of $2.50; (iv) the
exercise price, at which all warrants (A warrants and B warrants) held by the
funds are exercisable, was changed to $2.00; and (v) the notes were amended by
adding a new event of default, which is that if we fail to raise and receive
at least $3,000,000 in cash net proceeds through one or more private or public
placements of its securities by September 30, 2006, we are in default under
the notes.

On April 21, 2006, two of the institutional funds notified us of their desire
to convert an aggregate of $500,000 of their convertible notes into 333,334
shares of common stock of the company. Upon completion of this conversion, the
principal balance of the senior convertible notes will be reduced from
$3,000,000 to $2,500,000.


NOTE 8- ACQUISITION OF VIDEO PROCESSING TECHNOLOGIES, INC.

On January 27, 2006, we acquired 100% of the common stock of Video Processing
Technologies Inc. (VPTI) in exchange for an aggregate of 944,063 shares of
common stock of the Company valued at $2.00 per share for a total purchase
price of $1,888,720. Prior to the acquisition, VPTI had entered into a license
agreement with the University of California, San Diego, related to certain
patent pending technology which management of Company anticipates
incorporating into the CodecSys technology.

                                12

<PAGE>


The following pro forma condensed combined balance sheets have been prepared
using the historical financial statements of Broadcast International, Inc.
(audited) and Video Processing Technologies, Inc. (unaudited). VPTI was formed
on December 12, 2005 and had no revenues or expenses in 2005 or 2006 prior to
the acquisition. These statements of operations assume the exchange had
occurred on December 31, 2005.


              Consolidated Condensed Balance Sheets

                                           Video
                            Broadcast    Processing
                          International Technologies               Pro Forma
                              as of        as of      Pro Forma    Combined
                          Dec 31, 2005  Dec 31. 2005 Adjustments  BI and VPTI
                         ------------- ------------ ------------ ------------
                                        (Unaudited)

Cash                     $    446,491  $   500,000  $         -  $    946,491
Other current assets        2,011,253       25,000            -     2,036,253
                         ------------- ------------ ------------ ------------

Total current assets        2,457,744      525,000            -     2,982,744
                         ------------- ------------ ------------ ------------

Total non-current assets    1,431,302      100,000            -     1,531,302
                         ------------- ------------ ------------ ------------
Total assets             $  3,889,046  $   625,000  $         -  $  4,514,046
                         ============= ============ ============ ============

Total current
 liabilities             $  5,568,255  $         -  $         -  $  5,568,255

Long term liabilites        1,330,278            -            -     1,330,278
                         ------------- ------------ ------------ ------------

Total liabilities           6,898,533            -            -     6,898,533

STOCKHOLDERS DEFICIT

Owners' equity             23,078,615      625,000    1,263,720    24,967,335
Accumulated deficit       (26,088,102)           -   (1,263,720)  (27,351,822)
                         ------------- ------------ ------------ ------------
Total liabilities and
 stockholders' deficit   $ 3,889,046  $   625,000  $         -  $  4,514,046
                         ============= ============ ============ =============

Pro Forma Adjustments represent retirement of VPTI owners' equity and excess
between the fair value of assets acquired and market value of equity
exchanged.

NOTE 9- SUPPLEMENTAL CASH FLOW INFORMATION

On January 27, 2006, we acquired 100% of the common stock of Video Processing
Technologies Inc. (VPTI) in exchange for an aggregate of 944,063 shares of
common stock of the company. In this transaction, we recognized $1,363,126 as
non-cash research and development in process expense. See Note 8.

On February 27, 2006 the Board of Directors approved a Private Placement
Offering in anticipation of raising up to $4,500,000 by selling 3,000,000
shares of common stock of the Company at a price of $1.50 per share.
Additionally, the holder of each share shall receive a warrant to acquire one
share of common stock of the Company. The warrants have a three-year exercise
period and are exercisable at a $2.00 exercise price. As of March 31, 2006, we
had raised proceeds of $506,185 from the sale of 337,457 shares of stock of
which certificates representing 107,500 shares had been delivered as of March
31, 2006.

                                13

<PAGE>



In March 2006, we issued 766,666 shares of our common stock to two
corporations, which provide investor relations services for the Company. The
value of these shares of $1,724,999 was recorded as a prepaid expense and will
be recognized over the service periods as follows:

              2006           $  1,187,499
              2007                487,500
              2008                 50,000
                             ------------
                             $  1,724,999
                             ============

During the quarter ended March 31, 2005 we entered into private placement
transactions with qualified investors pursuant to which we sold 41,666 shares
of common stock resulting in $124,980 in proceeds, which concluded the funding
provided under this offering. In each of the transactions, each purchased
share included an attached warrant to acquire one share of our common stock
within one year at a purchase price of $.50 per share greater than the
subscription price of the share purchased, all of which expired before March
31, 2006 and were not exercised.

On December 23, 2003, the Company entered into a convertible line of credit
for up to $1,000,000 with Meridel LTD and Pascoe Holdings LTD, both foreign
corporations. The Company may obtain advances as needed to fund operating
expenses. On June 30, 2004, the line of credit was amended to increase the
limit from $1,000,000 to $2,000,000 with the original due date of the line of
credit extended from March 31, 2005 to April 1, 2006. Any portion of the note
under the line of credit is convertible at the lenders sole discretion, for
common shares of the Company at the rate of $1.00 per share. During the
quarter ending March 31, 2005, we borrowed $249,914, increasing the aggregate
amount borrowed to $645,004.

The note bears an annual interest rate of 6%. Accrued interest, however, is
forgiven upon conversion pursuant to the terms of the line of credit. During
the quarter ended March 31, 2005 we recorded $249,914, as convertible
beneficial conversion feature associated with the advances made under the line
of credit. This amount is included in interest expense. On December 30, 2005,
all amounts borrowed on the line of credit were converted to common stock of
the Company.

The Company paid no cash for income taxes or interest expense during the
quarters ended March 31, 2006 and 2005.

NOTE 10- RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued Interpretation No. 46 ("FIN 46R") (revised
December 2003), Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51 ("ARB 51"), which addresses how a
business enterprise should evaluate whether it has a controlling interest in
an entity though means other than voting rights and accordingly should
consolidate the entity. FIN 46R replaces FASB Interpretation No. 46 ("FIN
46"), which was issued in January 2003. Before concluding that it is
appropriate to apply ARB 51 voting interest consolidation model to an entity,
an enterprise must first determine that the entity is not a variable interest
entity. As of the effective date of FIN 46R, an enterprise must evaluate its
involvement with all entities or legal structures created before February 1,
2003, to determine whether consolidation requirements of FIN 46R apply to
those entities. There is no grandfathering of existing entities. Public
companies must apply either FIN 46 or FIN 46R immediately to entities created
after January 31, 2003 and no later than the end of the first reporting period
that ends after March 15, 2004. The adoption of FIN 46 had no effect on the
Company's consolidated financial position, results of operations or cash
flows.

                                14

<PAGE>


In December 2003, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 104, Revenue Recognition. SAB 104 revises or
rescinds portions of the interpretive guidance included in Topic 13 of the
codification of staff accounting bulletins in order to make this interpretive
guidance consistent with current authoritative accounting and auditing
guidance and SEC rules and regulations. The adoption of SAB 104 did not have a
material effect on the Company's results of operations or financial condition.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets, which amends Accounting Principles Board Opinion No. 29, Accounting
for Nonmonetary Transactions.  The guidance in APB Opinion 29 is based on the
principle that exchanges of nonmonetary assets should be measured based on the
fair value of the assets exchanged.  The guidance in APB Opinion 29, however,
included certain exceptions to that principle.  SFAS 153 amends APB Opinion 29
to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance.  A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange.  SFAS 153 is effective for
fiscal periods beginning after June 15, 2005.  We do not expect that the
adoption of SFAS 153 will have a material impact on our financial position or
results of operations.

In December 2004, the FASB issued SFAS No. 123R, Share Based Payment, which
requires companies to measure and recognize compensation expense for all stock
based payments at fair value.  SFAS 123R is effective for small business
issuers for interim periods or the fiscal year beginning after December 15,
2005 and, thus, we have adopted 123R effective January 1, 2006.
As of March 31, 2006 we will recognize $1,114,803 of compensation expense for
employees and consultants a result of the adoption of 123R over the next three
years. See Note E.

In December 2004, the FASB issued FASB Staff Position No. FAS 109-1 ("FAS
109-1"), "Application of FASB Statement No. 109, "Accounting for Income
Taxes," to the Tax Deduction on Qualified Production Activities Provided by
the American Jobs Creation Act of 2004 ("AJCA"). The AJCA introduces a special
9% tax deduction on qualified production activities. FAS 109-1 clarifies that
this tax deduction should be accounted for as a special tax deduction in
accordance with Statement 109. The Company does not expect the adoption of
these new tax provisions to have a material impact on the Company's
consolidated financial position, results of operations, or cash flows.

In May 2005, the FASB issued Statement 154, Accounting Changes and Error
Corrections, which requires retrospective application (the application of the
changed accounting principle to previously issued financial statements as if
that principle had always been used) for voluntary changes in accounting
principle unless it is impracticable to do so.  Previously, the cumulative
effect of such changes was recognized in net income of the period of the
change.  The effective date is for changes made in fiscal years beginning
after December 15, 2005.

                                15

<PAGE>


In June 2005, the Emerging Issues Task Force issued three consensuses that are
subject to later ratification by the FASB:

The first consensus is EITF 04-5 which establishes a framework for evaluating
whether a general partner or a group of general partners controls a limited
partnership and therefore should consolidate it.  Unless the limited partners
have "kick-out rights" allowing them to dissolve or liquidate the partnership
or otherwise remove the general partner "without cause," or "participating
rights" allowing the limited partners to participate in significant decisions
made in the ordinary course of the partnership's business, the general
partner(s) hold effective control and should consolidate the limited
partnership.  This would be effective immediately for newly-formed limited
partnerships and for existing limited partnership agreements that are
modified.  For existing limited partnership agreements that are not modified,
it would be effective for the beginning of the first reporting period after
December 15, 2005.  We do not expect the adoption of EITF 04-5 will have a
material impact on our consolidated financial position, results of operations
or cash flows.

The second consensus is EITF 05-2 which provides guidance for issuers of debt
and preferred stock instruments with conversion features that may need to be
accounted for as derivatives.  We do not expect the adoption of EITF 05-2 will
have a material impact on our consolidated financial position, results of
operations or cash flows.

The third consensus is EITF 05-6, "Determining the Amortization Period for
Leasehold Improvements."  The guidance requires that leasehold improvements
acquired in a business combination or purchased subsequent to the inception of
a lease be amortized over the lesser of the useful life of the assets or a
term that includes renewals that are reasonably assured at the date of the
business combination or purchase.  The guidance is effective for periods
beginning after June 29, 2005.  We do not expect the adoption of EITF 05-6
will have a material impact on our consolidated financial position, results of
operations or cash flows.

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments an amendment of FASB Statements No. 133 and 140."  SFAS
155 amends SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," and SFAS 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities."  SFAS 155 permits fair
value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation; clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS 133; establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation; clarifies that concentrations of credit risk
in the form of subordination are not embedded derivatives; and, amends SFAS
140 to eliminate the prohibition on a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument.  SFAS 155 is
effective for all financial instruments acquired or issued after December 31,
2006.  We are currently evaluating the impact of SFAS 155.

                                16

<PAGE>



Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Opertions

Forward-Looking Information

This quarterly report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.  Any
statements about our expectations, beliefs, plans, objectives, assumptions or
future events or performance are not historical facts and may be
forward-looking.  These statements are often, but not always, made through the
use of words or phrases such as "anticipate," "estimate," "plan," "project,"
"continuing," "ongoing," "expect," "management believes," "we believe," "we
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 in them.  Any forward-looking
statements are qualified in their entirety by reference to the risk factors
discussed in our Annual Report on Form 10-KSB for the year ended December 31,
2005.  Among the key factors that could cause actual results to differ
materially from the forward-looking statements are the following:

     .   competitive factors;

     .   general economic and market conditions;

     .   rapid technological change;

     .   dependence on commercialization of our CodecSys technology;

     .   dependence on significant customers;

     .   our ability to raise sufficient additional capital;

     .   ineffective internal control systems;

     .   restrictions under our senior secured convertible notes;

     .   our ability to execute our business model;

     .   our ability to hire and retain qualified software personnel;

     .   uncertainty of intellectual property protection; and

     .   one-time or non-recurring events.

Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us or on our behalf, you should not place undue reliance on
any forward-looking statements.  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
unanticipated events.  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.

                                17

<PAGE>


Critical Accounting Policies

We prepare our financial statements in conformity with accounting principles
generally accepted in the United States.  As such, we are required to make
certain estimates, judgments and assumptions that we believe are reasonable
based upon the information available.  These estimates and assumptions affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
periods presented.

Our accounting policies that are the most important to the portrayal of our
financial condition and results, and which require the highest degree of
management judgment, relate to the reserves for doubtful accounts receivable
and the valuation of stock and options issued for services.

Reserves for Doubtful Accounts Receivable

Management estimates the amount of required reserves for the potential
non-collectibility of accounts receivable based upon past experience of
collection and consideration of other relevant factors.  Past experience,
however, may not be indicative of future collections and therefore we could
incur additional charges in the future to reflect differences between
estimated and actual collections.

Valuation of stock and options

We value and account for the issuance of equity instruments to acquire goods
and services based on the fair value of the goods and services or the fair
value of the equity instrument at the time of issuance, whichever is more
reliably measurable.

Revenue Recognition

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

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

                                18

<PAGE>


When we enter into a multi-year contract to provide equipment, installation,
network management, satellite transponder, help desk, or combination of these
services, to a customer for the establishment of a new network (or major
upgrade to an existing network) where substantial revenue is earned for
equipment sales and/or installation work performed at the beginning of the
contact, compared to expected on-gong future revenue, we normalize revenue
recognition by deferring earned revenue over the contracted period. These
agreements typically provide for additional fees, once the initial
installations are completed, to be charged if on-site visits are required by
the customer in order to ensure that each customer location is able to receive
network communication. As these on-site visits are performed the associated
revenue and cost are recognized in the period the work is completed.
Additionally, as immaterial numbers of new sites are added to the network the
associated revenue and cost are recorded in the period in which the work is
completed.

When we enter into an agreement to perform equipment sales and/or
installation-only services the revenue and cost are recognized in the period
the work is completed.


Results of Operations for the Three Months ended March 31, 2006 and March 31,
2005

Revenues

The Company generated $ 2,780,398 in revenue during the three months ended
March 31, 2006.  During the same three-month period in 2005, the Company
generated revenue of  $977,652.  The increase in revenue of $1,802,746 or 184%
was due primarily to the Company performing work for a single new customer
that it did not have in the first quarter of 2005. In the first quarter of
2006, the Company recognized revenue of $2,206,259 related to the sale and
installation of equipment, which was an increase of $2,072,800 over the same
period in the prior year.  This increase was partially offset by a decrease of
$201,139 in license fee revenue, which was the result of the Company losing
one customer.

The Company's three largest customers sales revenues account for approximately
84% and 74% of total revenues for the quarters ended March 31, 2006 and 2005,
respectively. The three largest customers in 2006 are not the same as the
three largest customers in 2005, as the Company lost one of those customers
and gained a substantial customer. Any material reduction in revenues
generated from any one of its largest customers could harm the Company's
results of operations, financial condition and liquidity.

Cost of Revenues

Costs of Revenues increased by approximately $1,857,000 to $2,851,762 for the
three months ended March 31, 2006, from $994,179 for the three months ended
March 31, 2005.  The increase was due primarily to increased activity in
installation of equipment for our new customer, which resulted in an increase
in the costs related to such installation services for the Company's customer.
There was not a decrease in the cost of equipment relative to the sales price
of the equipment. In addition the general operations department costs
increased by approximately $151,000 due to the increase in installation
activity. The increases were partially offset by a decrease of approximately
$72,000 in satellite distribution costs and depreciation and amortization.

                                19

<PAGE>

Expenses

General and Administrative expenses for the three months ended March 31, 2006
were $1,133,994 compared to $273,316 for the three months ended March 31,
2005.  The increase of approximately $860,678 resulted from an increase in
expenses incurred for outside consultants of $359,825, expenses of $424,576
for options and warrants granted, outside director fees of $15,500 and an
increase of legal services expense of $22,700. Research and development in
process increased by $1,498,925 for the three months ended March 31, 2005 to
$1,608,296 from $109,371 for the three months ended March 31, 2005.  This
increase resulted primarily from recording an $1,363,126 expense equal to the
excess of cost over book value for the acquisition of Video Processing
Technology, Inc and $62,174 for unexercised option and warrants vesting during
the quarter ended March 31, 2006.

During the first quarter of 2006, we implemented the following new critical
accounting policy related to our stock-based compensation.  Beginning on
January 1, 2006, we began accounting for stock options under the provisions of
Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment"
(FAS 123R), which requires the recognition of the fair value of stock-based
compensation.  Under the fair value recognition provisions for FAS 123R,
stock-based compensation cost is estimated at the grant date based on the fair
value of the awards expected to vest and recognized as expense ratably over
the requisite service period of the award.  We have used the Black-Scholes
valuation model to estimate fair value of our stock-based awards, which
requires various judgmental assumptions including estimated stock price
volatility, forfeiture rates, and expected life.  Our computation of expected
volatility is based on a combination of historical and market-based implied
volatility. The $486,750 of increased expense for options and warrants granted
described above reflects the financial statement impact to us in the first
quarter of 2006 related to this new accounting policy.

Interest Expense

For the three months ended March 31, 2006, the Company incurred interest
expense of $436,548 compared to interest expense for the three months ended
March 31, 2005 of $249,914.  The increase of $186,634 resulted from the
Company recording interest expense related to our senior secured convertible
notes, which were note outstanding during the first quarter of 2005. The
interest expense recorded consisted of interest of $250,000 recorded to
account for the accretion of the note liability on our balance sheet, a
penalty of $66,000 related to a default in the senior notes, which has been
cured, interest payable on the notes of $45,000 and amortization of debt
offering costs of $75,500.

Net Loss

The Company realized a net loss for the three months ending March 31, 2006 of
$4,353,413 compared with a net loss for the three months ended March 31, 2005
of $794,047. The increase in the net loss of $3,559,366 is due primarily to 1)
the increase of $860,678 in general and administrative expenses, and 2) the
increase of $1,498,925 in research and development in process expenses, (3)
the recording of $960,000 of derivative valuation losses, and (4) the increase
of $186,634 in interest expense, all as described above. In addition, because
the margin realized by us for license fee income is greater than the margin
realized for equipment installation revenues, a decrease in license fee income
impacts the profitability of the Company.  Our license fee income decreased by
$201,139 and although the income was replaced by installation service income,
the gross margin was not replaced in the same ratio, which added to our Net
Loss.

                                20

<PAGE>


Liquidity and Capital Resources

At March 31, 2006, the Company had cash of approximately $679,245 and total
current assets of approximately $4,307,963 compared to total current
liabilities of approximately $6,636,814 ($4,256,000 of which is reflected as
the derivative valuation of the embedded derivatives in our senior secured
convertible notes and related warrants) and total stockholder's deficit of
approximately $2,494,341.

For the three months ended March 31, 2006, the Company used approximately
$744,314 of cash for operating activities as compared to cash used for
operating activities for the quarter ended March 31, 2005 of $238,874. The
cash used for operations was provided in both quarters primarily from proceeds
from sales of Company common stock and from loan financing.

The Company's Annual Report filed on Form 10-KSB for the year ended December
31, 2005 contained a "going concern" qualification.  The Company has incurred
losses and has not demonstrated the ability to generate sufficient cash flows
from operations to satisfy its liabilities and sustain operations.  These
factors raise substantial doubt about the Company's ability to continue as a
going concern.

On May 16, 2005, we entered into a securities purchase agreement and completed
a financing with a consortium of four institutional funds.  In the financing,
we received $3,000,000 gross proceeds in cash pursuant to the issuance of
senior secured convertible notes to the funds.  We used the proceeds from this
financing to support our CodecSys research and development and for general
working capital purposes.  The senior secured convertible notes are due May
16, 2008 and bear interest at 6% per annum.  Interest-only payments are due
semi-annually and the first payment of $90,000 was made on November 16, 2005.
The notes were originally convertible into 1,200,000 shares of our common
stock at $2.50 per share, convertible any time during the term of the notes.

We were in default under the terms of the securities purchase agreement
because we did not secure an effective registration statement by the deadline
required in the agreement.  We have cured the default by securing the
effective registration statement and satisfied the liquidated damages arising
due to the default by entering into a waiver agreement. The securities
purchase agreement was amended by the waiver agreement dated March 16, 2006,
in which the notes are now convertible into 2,000,000 shares of our common
stock at $1.50 per share.

In connection with the financing, the funds received A Warrants to acquire
600,000 shares of our common stock exercisable at $2.50 per share and B
Warrants to acquire 600,000 shares of our common stock at $4.00 per share.
The waiver agreement changed the exercise price of the warrants to $2.00 per
share for both the A Warrants and the B Warrants. The warrants are exercisable
any time for a five-year period beginning on the date of grant.  The funds
also received additional investment rights to make an additional loan of
$3,000,000 on the same terms as the senior secured convertible notes and
receive additional warrants with the same terms as the warrants already
received by the funds.  The additional investment rights must be exercised
within 90 days of February 3, 2006.  We paid approximately $345,000 in cash
for commissions, finders fees and expenses in securing this financing,
$240,000 of which was included in prepaid expenses as of December 31, 2005 and
will be amortized over the term of the notes.

                                21

<PAGE>


The $1.50 conversion price of the senior secured convertible notes and the
$2.00 exercise price of the warrants are subject to adjustment pursuant to
standard anti-dilution rights.  These rights include (i) equitable adjustments
in the event we effect a stock split, dividend, combination, reclassification
or similar transaction; (ii) "weighted average" price protection adjustments
in the event we issue new shares of common stock or common stock equivalents
in certain transactions at a price less than the then current market price of
our common stock; and (iii) "full ratchet" price protection adjustments in the
event we issue new shares of common stock or common stock equivalents in
certain transactions at a price less than $1.50 per share.

The securities purchase agreement contains, among other things, covenants that
may restrict our ability to obtain additional capital, to declare or pay a
dividend or to engage in other business activities.  A breach of any of these
covenants could result in a default under our senior secured convertible
notes, in which event holders of the notes could elect to declare all amounts
outstanding to be immediately due and payable, which would require us to
secure additional debt or equity financing to repay the indebtedness or to
seek bankruptcy protection or liquidation.  The securities purchase agreement
provides that we cannot do any of the following without the prior written
consent of the holders of at least 85% of the principal amount of the
outstanding senior secured convertible notes:

      .   issue debt securities or incur, assume, suffer to exist, guarantee
          or otherwise become or remain, directly or indirectly, liable with
          respect to certain indebtedness;

      .   except for those created under the securities purchase agreement,
          create, incur, assume or suffer to exist, directly or indirectly,
          any liens, restrictions, security interests, claims, rights of
          another or other encumbrances on or with respect to any of our
          assets, of any kind, whether now owned or hereafter acquired, or any
          income or profits therefrom;

      .   liquidate, wind up or dissolve (or suffer any liquidation or
          dissolution);

      .   convey, sell, lease, license, assign, transfer or otherwise dispose
          of all or any substantial portion of our properties or assets, other
          than transactions in the ordinary course of business consistent with
          past practices, and transactions by non-material subsidiaries, if
          any;

      .   cause, permit or suffer, directly or indirectly, any change in
          control transaction as defined in the senior secured convertible
          notes;

      .   directly or indirectly enter into or permit to exist any transaction
          with any of our affiliates or any of our subsidiaries, if any,
          except for transactions that are in the ordinary course of our
          business, upon fair and reasonable terms, that are fully approved by
          our Board of Directors, and that are no less favorable to us than
          would be obtained in an arm's length transaction with a
          non-affiliate;

                                22
<PAGE>


      .   declare or pay a dividend or return any equity capital to any holder
          of any of our equity interests or authorize or make any other
          distribution to any holder of our equity interests in such holder's
          capacity as such, or redeem, retire, purchase or otherwise acquire,
          directly or indirectly, for consideration any of our equity
          interests outstanding (or any options or warrants issued to acquire
          any of our equity interests); provided that the foregoing shall not
          prohibit (i) the performance by us of our obligations under the
          warrants related to the senior secured convertible notes or the
          registration rights agreement entered into in connection with the
          securities purchase agreement, or (ii) us and any of our
          subsidiaries, if any, from paying dividends in common stock issued
          by us or such subsidiary that is neither puttable by any holder
          thereof nor redeemable, so long as, in the case of any such common
          stock dividend made by any such subsidiary, the percentage ownership
          (direct or indirect) of us in such subsidiary is not reduced as a
          result thereof; or

      .   directly or indirectly, lend money or credit (by way of guarantee or
          otherwise) or make advances to any person, or purchase or acquire
          any stock, bonds, notes, debentures or other obligations or
          securities of, or any other interest in, or make any capital
          contribution to, any other person, or purchase or own a future
          contract or otherwise become liable for the purchase or sale of
          currency or other commodities at a future date in the nature of a
          futures contract, with very limited exceptions.

Section  4(a)(xi) of the senior secured convertible notes specifies that it is
an event of default if we do not raise at least $3,000,000 by September 30,
2006.  To date we have raised approximately $1,000,000 from the sale of our
securities. The remedies for default provide that if an event of default
occurs and is continuing, the holders may declare all of the then outstanding
principal amount of the notes and any accrued and unpaid interest thereon to
be immediately due and payable in cash.  In the event of an acceleration, the
amount due and owing to the holders is 125% of the outstanding principal
amount of the notes and interest on such amount is calculated using the
default rate of 18% per annum if the full amount is not paid within one
business day after acceleration. We have cured the default by securing an
effective registration statement and satisfied the liquidated damages arising
due to the default by entering into a waiver agreement as noted above.

On April 21, 2006, two of the institutional funds notified us of their desire
to convert an aggregate of $500,000 of their convertible notes into 333,334
shares of common stock of the company. Upon completion of this conversion the
principal balance of the senior convertible notes will be reduced from
$3,000,000 to $2,500,000.

On June 22, 2005, we secured a new customer contract, which has resulted in
revenues of approximately  $1,725,000 in the first quarter of 2006. We
anticipate that revenues from this customer will increase throughout 2006.  We
are continuing to train our existing installation technicians on the new
equipment and procedures required by the new customer.  We anticipate that our
negative cash flow will diminish as the new customer makes projects and
equipment available and as we are able to perform under the contract.


                                23

<PAGE>


Our monthly operating expenses currently exceed our monthly net sales by
approximately $250,000 per month.  This amount could increase significantly.
Given our current level of CodecSys development activity, we expect our
operating expenses will continue to outpace our net sales until we are able to
generate additional revenue.  Our business model contemplates that sources of
additional revenue include (i) sales from our private communication network
services, (ii) sales resulting from the new customer contract described above,
and (iii) sales related to commercial applications of our CodecSys technology.
Notwithstanding any additional revenue that may be realized for these sources,
we will require additional capital in 2006.

Our long-term liquidity is dependent upon execution of our business model and
the realization of additional revenue and working capital, as described above,
and upon capital needed for continued development of the CodecSys technology.
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.  This estimate will increase or
decrease depending on funds available to us.  The availability of funding will
also determine, in large measure, the timing and introduction of new product
applications in the marketplace.  Capital required for CodecSys is expected to
come from internally generated cash flow from operations or from external
financing.

To date, we have met our working capital needs through funds received from
sales of our common stock, borrowings under a convertible line of credit and
the senior secured convertible note financing described above.  There can be
no assurance that the institutional funds will exercise their additional
investment rights or exercise their outstanding warrants, which would provide
additional investment capital for us.  Until our operations become profitable,
we must continue to sell equity or find another source of operating capital.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may impact our financial
position due to adverse changes in financial market prices and rates.  We do
not hold or issue financial instruments for trading purposes or have any
derivative financial instruments.  As discussed above, however, the embedded
conversion feature and prepayment option of our senior secured convertible
notes and our related warrants are deemed to be derivatives and are subject to
quarterly "mark-to-market" valuations.  Our principal exposure to market risk
is currently confined to our cash and cash equivalents.  Because of the
short-term maturities of our cash and cash equivalents, we do not believe that
an increase in market rates would have any significant impact on the realized
value of our investments.  We currently do not hedge interest rate exposure
and are not exposed to the impact of foreign currency fluctuations.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures


                                24
<PAGE>



We maintain disclosure controls and procedures as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act").  Our
disclosure controls and procedures include controls and procedures designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosures.

As required by Rule 13a-15(b) of the Exchange Act, we conducted an evaluation,
under the supervision of our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of March 31, 2005.  Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of March 31, 2005 in
ensuring that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the SEC's rules and forms.

For the quarter ended March 31, 2005, management of the Company, under the
supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, implemented corrective action with respect to a
significant deficiency previously identified regarding new and recent
accounting pronouncements and required disclosures.  This action included
changes to the way we obtain and process required information pursuant to
which we have acquired and implemented a financial statement disclosure and
procedure checklist that will be updated on a regular basis through review of
authoritative information sources and consultation with professional service
providers.

Changes in Internal Control Over Financial Reporting

Except as noted above, there has been no change in our internal control over
financial reporting for the quarter ended March 31, 2006 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.

Important Considerations

The effectiveness of our disclosure controls and procedures and our internal
control over financial reporting is subject to various inherent limitations,
including cost limitations, judgments used in decision making, assumptions
about the likelihood of future events, the soundness of our systems, the
possibility of human error, and the risk of fraud.  Moreover, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions and the risk
that the degree of compliance with policies or procedures may deteriorate over
time.  Because of these limitations, there can be no assurance that any system
of disclosure controls and procedures or internal control over financial
reporting will 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.

                                25

<PAGE>

                   Part II - Other Information

Item 1.    Legal Proceedings

           None.

Item 1A.   Risk Factors

There have been no material changes in risk factors described in our Annual
Report of Form 10-KSB for the year ended December 31, 2005.

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

In January 2006, the we issued a total of 994,063 shares of common stock of
the Company to two corporations in exchange for all of the common stock of a
third company, included in the assets acquired was an exclusive license to
certain patent pending compression technology, which we intend to use in our
business.

In March 2006, we issued 50,000 shares of our common stock to a corporation
pursuant to a consulting agreement related to locating technologies for us,
which could be used by us in our business.  This issuance was related to the
technology acquired pursuant to the January issuance of our shares described
above.

In March 2006, we issued 766,666 shares of our common stock to two
corporations, which provide investor relations services for the Company.

In March 2006, we issued 107,500 shares of our common stock to four
individuals and one corporation as part of a private placement of our stock in
exchange for $161,250.  We also grant warrants to the same purchasers to
acquire 107,500 shares of our common stock at $2.00 per share.

In February, we granted options to acquire 175,000 shares of our stock to two
individuals in consideration of joining our Board of Directors.  The options
are fully vested, have ten-year terms and have exercise prices of $2.15 and
$2.25.

In each of the foregoing transactions, the Company relied on the exemption
from registration under the 1933 Act set forth in Section 4(2) thereof.

Item 3.    Defaults Upon Senior Securities

           None.

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

           None.

Item 5.    Other Information

           (a) On January 27, 2006, we entered into an Agreement and Plan of
Acquisition among the Company, Video Processing Technologies, Inc. (VPTI), and
UTEK Corporation (UTEK), under the terms of which we acquired all of the
issued and outstanding shares of common stock of VPTI in exchange for 994,063
shares of our common stock.

The assets of VPTI consisted of a license agreement between VPTI and the
Regents of the University of California for certain patent pending video
compression technology, $500,000, and a prepaid consulting agreement with the
developer of the technology.

We will file audited financial statements of VPTI as soon as they are
available or with our next periodic report.

          (b) None.


Item 6.   Exhibits



Exhibit
Number     Description of Document
-------    -----------------------

  3.1      Amended and Restated Articles of Incorporation of Broadcast
           International.   (Incorporated by reference to Exhibit No. 3.1 of
           the Company's Quarterly Report on Form 10-QSB for the quarter ended
           June 30, 2005 filed with the SEC on August 12, 2005.)

  3.2      Bylaws of Broadcast International.  (Incorporated by reference to
           Exhibit No. 3.2 of the Company's Quarterly Report on Form 10-QSB
           for the quarter ended June 30, 2005 filed with the SEC on August
           12, 2005.)

  4.1      Specimen Stock Certificate of Common Stock of Broadcast
           International. (Incorporated by reference to Exhibit No. 4.1 of the
           Company's Registration Statement on Form SB-2, filed under cover of
           From S-3, pre-effective Amendment No.3 filed with the SEC on
           October 11, 2005.)

  4.2      Form of 6.0% Senior Secured Convertible Note dated May 16, 2005
           executed by Broadcast International in favor of Gryphon Master
           Fund, L.P., GSSF Master Fund, LP, Bushido Capital Master Fund, LP
           and Gamma Opportunity Capital Partners, LP (the "Institutional
           Funds"). (Incorporated by reference to Exhibit No. 4.2 of the
           Company's Registration Statement on Form SB-2, filed under cover of
           From S-3, pre-effective Amendment No.3 filed with the SEC on
           October 11, 2005.)

  4.3      Form of A Warrant issued by Broadcast International to each of the
           Institutional Funds. (Incorporated by reference to Exhibit No. 4.3
           of the Company's Registration Statement on Form SB-2, filed under
           cover of From S-3, pre-effective Amendment No.3 filed with the SEC
           on October 11, 2005.)


                                27

<PAGE>

  4.4      Form of B Warrant issued by Broadcast International to each of the
           Institutional Funds(Incorporated by reference to Exhibit No. 4.4 of
           the Company's Registration Statement on Form SB-2, filed under
           cover of From S-3, pre-effective Amendment No.3 filed with the SEC
           on October 11, 2005.)

 10.1      Employment Agreement of Rodney M. Tiede dated April 28, 2004.
           (Incorporated by reference to Exhibit No. 10.1 of the Company's
           Quarterly Report on Form 10-QSB for the quarter ended March 31,
           2004 filed with the SEC on May 12, 2004.)

 10.2      Employment Agreement of Randy L.Turner dated April 28, 2004.
           (Incorporated by reference to Exhibit No. 10.2 of the Company's
           Quarterly Report on Form 10-QSB for the quarter ended March 31,
           2004 filed with the SEC on May 12, 2004.)

 10.3      Employment Agreement of Reed L. Benson dated April 28, 2004.
           (Incorporated by reference to Exhibit No. 10.3 of the Company's
           Quarterly Report on Form 10-QSB for the quarter ended March 31,
           2004 filed with the SEC on May 12, 2004.)

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

 10.5      Securities Purchase Agreement dated May 16, 2005 among Broadcast
           International and the Institutional Funds. (Incorporated by
           reference to Exhibit No. 10.5 of the Company's Registration
           Statement on Form SB-2, filed under cover of From S-3,
           pre-effective Amendment No.3 filed with the SEC on October 11,
           2005.)

 10.6      Security Agreement dated May 16, 2005 between Broadcast
           International and Gryphon Master Fund, L.P., as collateral agent
           for the Institutional Funds. (Incorporated by reference to Exhibit
           No. 10.6 of the Company's Registration Statement on Form SB-2,
           filed under cover of From S-3, pre-effective Amendment No.3 filed
           with the SEC on October 11, 2005.)

 10.7      Registration Rights Agreement dated May 16, 2005 among Broadcast
           International and the Institutional Funds. (Incorporated by
           reference to Exhibit No. 10.7 of the Company's Registration
           Statement on Form SB-2, filed under cover of From S-3,
           pre-effective Amendment No.3 filed with the SEC on October 11,
           2005.)

 10.8      Form of Additional Investment Rights dated May 16, 2005 issued by
           Broadcast International to each of the Institutional Funds.
           (Incorporated by reference to Exhibit No. 10.8 of the Company's
           Registration Statement on Form SB-2, filed under cover of From S-3,
           pre-effective Amendment No.3 filed with the SEC on October 11,
           2005.)

                                28
<PAGE>

 10.9      Stock Purchase and Option Grant Agreement dated February 6, 2004
           among Broadcast International and certain principals and
           shareholders of Streamware Solutions AB. (Incorporated by reference
           to Exhibit No. 10.9 of the Company's Registration Statement on Form
           SB-2, filed under cover of From S-3, pre-effective Amendment No.3
           filed with the SEC on October 11, 2005.)

 10.10     Stock Issuance, Stock Transfer and Option Grant Agreement dated
           effective as of February 26, 2004 among Broadcast International and
           certain principals and shareholders of Streamware Solutions AB.
           (Incorporated by reference to Exhibit No. 10.10 of the Company's
           Registration Statement on Form SB-2,filed under cover of From
           S-3,pre-effective Amendment No.3 filed with the SEC on October 11,
           2005.)

 10.11     Engagement Agreement dated October 11, 2005 between Broadcast
           International, Inc. and First Securities ASA.  (Incorporated by
           reference to Exhibit No. 10.1 of the Company's Current Report on
           Form 8-K filed with the SEC on October 17, 2005.)

 10.12     Forbearance Agreement dated November 30, 2005, between Broadcast
           International, Inc. and the Institutional Funds. (Incorporated by
           reference to Exhibit No. 10.13 of the Company's Current Report on
           Form 8-K filed with the SEC on December 6, 2005.)

 10.13     Waiver and Amendment Agreement dated March 16, 2006, between
           Broadcast International, Inc. and the Institutional Funds.
           (Incorporated by reference to Exhibit No. 10.14 of the Company's
           Current Report on Form 8-K filed with the SEC on March 20, 2006.)

 10.14     Agreement and Plan of Acquisition dated January 27, 2006 among
           Broadcast International, Inc., Video Processing Technologies, Inc.
           and UTEK Corporation.

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


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

 31.1      Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
           of the Securities Exchange Act of 1934, as amended, as adopted
           pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 31.2      Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
           of the Securities Exchange Act of 1934, as amended, as adopted
           pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


                                29

<PAGE>



 32.1      Certification of Chief Executive Officer pursuant to 18 U.S.C.
           Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002

 32.2      Certification of Chief Financial Officer pursuant to 18 U.S.C.
           Section 1350, as adopted pursuant to Section 906 of the
           Sarbanes-Oxley Act of 2002



                                30

<PAGE>


                            SIGNATURES

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

                                  Broadcast International, Inc.


Date: May 11, 2006                     /s/ Rodney M. Tiede
                                  By:  Rodney M. Tiede
                                  Its: President and Chief Executive Officer
                                       (Principal Executive Officer)

Date: May 11, 2006                     /s/ Randy Turner
                                  By:  Randy Turner
                                  Its: Chief Financial Officer (Principal
                                       Financial and Accounting Officer)


                                31