**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

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**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**           |
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| **For the fiscal year ended December 31, 2013**                                                         |
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| [  ]

**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
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| **For the transition period from ______________ to _______________**                                    |

**Commissions file number 001-32438**

**MediaShift, Inc.**

**(Exact name of registrant as specified in its charter)**

| Nevada**(State of other jurisdiction of**

**incorporation or organization)**

 

20-1373949**(I.R.S. Employer Identification No.)**

20062 SW Birch St, #220

Newport Beach, California 92660

**(Address of principal executive offices)**

**Registrant’s telephone number: (**949) 407-8488

**Securities registered pursuant to Section 12(b) of the Act:**

**Not applicable**

**Securities registered pursuant to Section 12(g) of the Act:**

**Common Stock, $.001 par value**

**(Title of Class)**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o No þ

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 þNo o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o                                                                            Accelerated filer o      

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

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

The aggregate worldwide market value of the voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2013 was approximately $26,863,268 based on the closing price of $4.50 per share on June 28, 2013.

The number of shares of the registrant’s Common Stock outstanding as of December 31, 2013 was 22,498,527. 

**DOCUMENTS INCORPORATED BY REFERENCE**

None. 

 

 

  

**Table of Contents**

Business

1

Risk Factors

10

Legal Proceedings

20

Submission of Matters to a Vote of Security Holders

20

Market For Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

21

Management’s Discussion and Analysis of Financial Conditions and Results of Operations

22

Controls And Procedures

33

Other Information

38

Security Ownership of Certain Beneficial Owners and Management  and Related Stockholder Matters

41

Certain Relationships and Related Transactions

42

Exhibits and Financial Statement Schedules

47

Signatures

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**FORWARD LOOKING STATEMENTS**

Certain statements in this Annual Report constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can often be identified by terminology such as may, will, should, expect, plan, intend, expect, anticipate, believe, estimate, predict, potential or continue, the negative of such terms or other comparable terminology. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of MediaShift, Inc. (“MediaShift”, “we”, “us” or the “Company”), or developments in the Company’s industry, to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. For additional factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, please see the risks and uncertainties described under “Business - Risk Factors” in Part I of this Form 10-K. Certain of the forward-looking statements contained in this Report are identified with cross-references to this section and/or to specific risks identified under “Business - Risk Factors.” We undertake no obligation to update any forward-looking statements after the date of this Annual Report, whether as a result of new information, future events or otherwise. 

**PART I**

**Business**

MediaShift, Inc. (“MediaShift”) is an advertising technology company. All operations are being conducted by MediaShift’s wholly owned subsidiaries, Ad-Vantage Networks, Inc. (“AdVantage”) and Travora Networks, Inc. (“Travora”). Travora was acquired in February 2013 thus the financial information presented represents only eleven months of Travora.  AdVantage provides digital advertising software and service solutions that enable access providers and network operators to generate advertising revenues on their free and fee-based networks. Travora operates a leading digital advertising network.  Both AdVantage and Travora operate under the MediaShift name. Our main office is located at 20062 SW Birch St., Suite 220, Newport Beach, California 92660 and our telephone number is (949) 407-8488. 

***Historical Development***

MediaShift is a company originally incorporated under the laws of the state of Nevada in July 2004 as JMG Exploration, Inc. (“JMG”).  On March 4, 2013, at a Special Meeting of Shareholders, shareholders voted to change the name of the Company to MediaShift, Inc. AdVantage’s founder, David S. Grant, filed for the original patents underlying the core AdVantage technology in 2009, and development and filing of additional intellectual property has continued to date. Co-founder Sanjeev Kuwadekar joined David Grant in late 2009. AdVantage was incorporated in Nevada in July 2010. Technology and intellectual property development continued through November 2011, when the first employee outside the co-founders was hired, and pilot projects began implementation. AdVantage moved into its current offices in Glendale, California in February 2012. JMG and AdVantage entered into a merger agreement in July 2012 that was subsequently amended and restated in August 2012. On August 31, 2012 the merger transaction was completed and AdVantage became our wholly owned subsidiary. On February 6, 2013, our wholly owned subsidiary, Travora Networks, Inc. (“Travora”), acquired certain assets and liabilities comprising the advertising network business of Travora Media, Inc. Our AdVantage and Travora subsidiaries operate in complementary sectors of the digital advertising industry. In November 2013 both AdVantage and Travora adopted the DBA MediaShift.

**Industry Overview - Digital Advertising**

The digital advertising industry delivers marketing messages to consumers via the Internet.  Specific types of digital advertising include email, display, search, and mobile.  Specific advertising formats include standard graphical banners, text-based ads, floating ads, expanding ads, pop-ups and pop-unders (all of which attract the consumer’s attention through conspicuous motion on the screen), mobile ads, interstitials (which take over the user’s screen between web pages, and must be clicked to close), and video.  The three most common revenue models are Cost Per Mille (CPM), Cost Per Click (CPC), and Cost Per Acquisition (CPA). CPM generates revenue when a user views an ad impression, CPC when a user clicks on an ad, and CPA when a user clicks on an ad *and* completes a desired action (usually a purchase).

Digital advertising is a large, high growth market.  Research firm eMarketer recently reported that global digital advertising spending topped the $119 billion in 2013 and is expected to maintain double digit growth for the foreseeable future. 

The essential role of the digital advertising industry is to connect advertisers to their customers and potential customers, wherever they happen to be on the Internet.  Key success factors are scale, ad effectiveness, and operational efficiency. Industry participants that have a large footprint (number of viewers), a rich set of customer data (to drive effectiveness), and are more efficient at connecting the major stakeholders in the digital advertising ecosystem are the winners in this market.

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As a result of these factors, we believe there is a significant opportunity for Mediashift to leverage its unique ad technology platform to achieve a dominant position in the digital advertising industry, in conjunction with Travora’s digital ad network.

**Advertising Technology Platform (Formerly Ad-Vantage Networks, Inc. (AdVantage))**

MediaShift operates a leading advertising technology platform marketed as the MediaShift Monetization Platform (“MMP”).  Formerly known as AdVantage but re-branded to MediaShift in 4Q 2013, it generates revenue by deploying digital advertisements on WiFi networks at both sign-in and while surfing the Internet through display ads and interstitial videos. The Company then shares the advertising revenue with the WiFi network partners.

***Business Strategy***

MediaShift’s proprietary and patented technology provides owners and operators of closed internet access networks (“Network Providers”) virtual, or last-mile digital advertising solutions (our technology sits the closest to the viewer) that enable advertisers to better reach consumers on their networks without disrupting the consumers’ browsing or viewing experience.

The Company focuses on deploying its’ technology with regional internet service providers, multiple system operators, hospitality network providers, educational institutions, airports, large aggregate hotspot providers, affiliate networks and OEM partners.  The technology also can be deployed in a wide range of options ranging from large networks, to medium enterprises to small business to mobile devices. The technology can also deploy directly (with affirmative opt-in) to end users’ computers via download from affiliate networks they choose to join.

As a result of our flexible and distributed deployment mode, we can also deliver on the promise of hyper-local digital advertising.  In contrast to very broad coverage provided by radio, TV and newspapers, hyper-local advertising targets customers who are confirmed to be located geographically within a short distance of the advertiser (for example, we would know the airport and specific terminal where our technology is operating and can tailor specific local advertising to that particular location). As consumer demand for ubiquitous access to internet content increases, so too will the costs associated with providing these services.  In order to meet this demand, Network Providers must increase capacity and value to remain competitive.  To offset these added expenses, many Network Providers are charging consumers more for tiered access, or increasing other prices to enable free or low cost access.  We believe that Network Providers are a crucial part of the internet ecosystem and as an aggregate can offer more value to their consumers and advertisers by implementing our technology.  

The Company also expects to provide added value to our advertising partners by delivering more relevant advertising to consumers while operating within industry standard advertising guidelines. We believe that MediaShift’s technology is further positively differentiated by its ability to create highly targeted hyper-local advertising without encroaching on user privacy or security.   

We adhere to established security paradigms and employ the same advertising protocols used by nearly all online advertisers, but with additional data as to specific geographic location and navigation history due to our solutions’ location in the network. As a result, we believe that we are positioned to increase value and related revenues to our customers and advertisers by providing superior targeting, advertising delivery and results within an integrated, bundled solution.

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**Products and Services**

The primary product/service of MediaShift is the MediaShift Monetization Platform (“MMP”). (“MMP”). MMP is a simple addition to any network connecting users to the Internet.  These Network Providers are our direct customers and by virtue of our partnership we are able to serve targeted digital advertising to *their* end-users (“viewers”) when they are on *their*network.  Our technology platform allows for the seamless placement of advertisements which we provide into the traditional ad spaces or other benign locations on a web page on a viewer’s screen   The user experience is in no way affected; the user simply sees different ads in the existing ad spots or unused space on a page.  Advertisers pay MediaShift for the ability to effectively and efficiently reach their target customers.  We share the advertising revenue generated with the Network Provider.

MediaShift utilizes industry standard network appliance technologies supported by Cisco, Linux, Apache, Microsoft Windows and other platforms to enable our patented technology.  Our technology works within the browser and operating system security models to detect third party ads on the viewer’s screen and replace them with our own highly targeted ads after the original ad served by the website publisher is viewed for a predetermined, configurable amount of time.

There are multiple mechanisms by which we implement our ad technology.  We have solution-oriented products for different deployment architectures primarily determined by expected volume and the partner’s existing, installed networking equipment. 

·

Network Appliances that can be horizontally and vertically sized for very small or very large networks. 

·

Embedded Software that can be deployed into various devices such as WiFi Access Points and Mobile Appliances

·

Software SDK (software development kit) that can be included within other software solutions

·

MediaShift also has a host of different products for advertisers.  Our patented technology seamlessly serves advertising into a user’s web browsing experience or other application environments and in the process creates a trusted online digital advertising marketplace for advertisers to more efficiently and effectively place their ads.  Because our technology resides closest to the viewer (the “last mile”), we can determine what the viewer sees as the web page or when the application is rendered on the viewer’s screen.  Our solution enables us to leverage page metadata, actions and content to improve advertising relevancy. As a result, MediaShift has multiple ways in which to segment and target end-users based on our unique set of user data.  Our relevancy engine allows us to target by content and by individual end-users.

·

Content

o

Domain/URL Categorization

o

Vertical category (sports, entertainment, travel, etc.)

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·

User

o

Hyper-local geography

o

Search term

o

Navigation history

o

Technographics (operating system, browser type, device type, etc.)

o

Retargeting

Our understanding and unique proprietary analysis of viewing patterns on the network allows us to predict the most relevant ad to display to viewers, thus optimizing the amount of revenue capable of being generated.  

**Competition**

As an advertising technology company, our products and services compete and overlap, to some degree, with all other industry participants that sell and deliver online digital advertising (e.g., Google, Facebook, Yahoo, MSN, AOL, etc.).  Due to the fragmented nature of the industry and multiplicity of product offerings and business models, we may also partner with any or all of these companies, and act as a vendor or customer to them as well.

We compete directly with a small number of companies such as JiWire and Boingo that employ technology to serve ads to viewers on a network owned by a partner network provider.    Our direct competitors generally serve advertising only on a network provider’s sign-on and landing page (limited ad placement opportunities per viewer browsing session) and/or they negatively affect the viewer experience by serving ads into a persistent toolbar, an intrusive interstitial screen, or a frame around the page, sometimes compressing or otherwise manipulating the content of the web page to serve their advertisements. In contrast, we serve advertising on every web page that a viewer visits, and our ad serving process is seamless and unintrusive, with advertising only served in existing ad spaces and empty space on a page.

**Intellectual Property**

We believe that our success and ability to compete will be enhanced by our internally developed technology and data resources. We also rely on trademark, patent and copyright law, trade secret protection and confidentiality and license agreements with our employees, customers, partners and others to protect our intellectual property.

We may claim trademark rights in, and apply for registrations in the United States for a number of marks in relation to our domain and product names.

We have been issued three patentsby the United States Patent and Trademark Office, with eight additional patents pending. A patent for Methods and Systems for Searching, Selecting, and Displaying Content was issued on July 31, 2012. A second patent for Methods and Systems for Searching and Displaying Content was issued on February 26, 2013.  The most recent patent for Methods and Systems for Processing and Displaying Content was issued on October 8, 2013 expiration date of the patents is March 19, 2030.

We have domestic and international patent applications pending related to a variety of business and transactional processes associated with the display or presentation of advertising technology in different environments, as well as applications related to optimizing and tracking advertisement delivery and more efficient advertising network architectures. We may consolidate some of our current applications and expect to continue to expand our patent portfolio in the future. 

4

**Sales and Marketing**

MediaShift’s sales activities include a direct sales component as well as the sale of our products and services through resellers. Our sales strategy is to provide appropriate products and value propositions to our broad range of potential Network Provider partners by segmenting them into vertical markets. Examples include the ISP market, the hospitality market (selling either directly to hotel owners or through service providers managing WiFi access for multiple hotel clients), and the higher education market. Based on network size and topography, each of these vertical markets entails a unique sales approach, deployment solution, reporting requirements and sales cycle. The sales function is managed from our corporate headquarters by our leadership team and with sales representatives working remotely as well as at our primary office. We pay our sales staff base salaries and commissions, and we compensate our resellers via a limited duration participation in our net revenue from the Network Providers they introduce to us. Our marketing group is based in our corporate headquarters and reports to the President. This group is charged with refining our message to potential partners, creating and maintaining sales collateral, and identifying and defining potential vertical markets and their constituent participants with our sales team. 

**Customers**

Our target market is comprised of Network Providers offering Internet access on a fee-based or free basis to individual and business viewers. This market ranges from Internet Service Providers (“ISPs”), Multiple System Operators (“MSOs”) and higher education venues with a large, relatively fixed end-user base to airports, convention centers, hotels, coffee shops and other venues with a smaller transient base of end-users accessing the internet for single or multiple sessions ranging from minutes to days. In the case of the latter venues, our direct customer may be the venue itself, the owner of multiple venues (e.g. a chain of coffee shops or restaurants), or a service provider managing the WiFi networks of these venues. Each of these customers owns and/or operates a closed internet network which end-users access only after explicitly accepting the terms and conditions of service established by the Network Provider. 

As of December 31, 2013, we had 22 signed agreements with customers in several different vertical markets, including the ISP, hospitality, airport, aggregated hotspot and higher education markets. We are attempting to accelerate our discussions with potential customers but can give no assurance that these will result in additional signed agreements.  As of December 31, 2012 we had 15 live implementations that were generating revenue. 

**Regulatory Environment**

*Self-regulation*

The digital advertising industry largely regulates itself, particularly in the area of Online Behavioral Advertising.  Participating companies in the Digital Advertising Alliance’s (DAA) self-regulatory program for Digital Behavioral Advertising have committed to providing end-users “notice” and “choice” for digital behavioral advertising.  Best practice is to provide clear notice to consumers, obtain their consent, and offer them a choice (e.g., opt-out), all of which MediaShift does. Opting out of MediaShift’s service currently means opting out of all MediaShift ads (not just behavioral targeted ads), as well as any monitoring of their behavior.

The digital advertising industry’s primary self-regulating organization (“SRO”), the Interactive Advertising Bureau (IAB), advocates and promotes the value of the interactive advertising industry to legislators and policymakers. In our view clear notice, consent and choice (Opt-out) are the cornerstones of responsible self-regulation. The “Do Not Track” mechanism has gained significant momentum and would allow the user to opt-out of being tracked online.  There are a variety of potential ways to implement this function, none of which have been universally adopted. Microsoft has announced that its next generation browser, Internet Explorer 9.0, will 

5

have “Do Not Track” turned on as a default setting; given the prevalence of this browser and its inclusion in the Windows operating system, this decision will have an impact on the digital advertising environment, and may cause other browser vendors to follow Microsoft’s lead. The terms of online privacy in the US may shift from industry self-regulation to government legislation in the future, as proposed by the Obama Administration in February, 2012 (see below).

*US Regulation*

The primary US regulatory body governing our business is the Federal Communications Commission (“FCC”). While most of the Company’s current and potential customers are not governed by the FCC’s common carrier regulations under Title II of the Communications Act, and most of them are not regulated by the FCC as Internet access providers, there are FCC policies and decisions which apply to them. These policies and decisions indicate that providers of internet access via closed networks have the ultimate right to decide what content (including advertisements) is displayed on their networks. While not required, this right is clearly strengthened by the ultimate viewer’s opt-in to see the advertisements displayed by MediaShift on their screens.

On February 23, 2012, the Obama Administration published a white paper called The “Consumer Privacy Bill of Rights”, promoted as a comprehensive blueprint for future online privacy legislation. 

Set forth below is a summary of the Consumer Privacy Bill of Rights:  

1.

Individual control:  Consumers have a right to exercise control over what personal information companies collect from them and how they use that information.

2.

Transparency:  Consumers have a right to easily understandable and accessible information about privacy and security practices.

3.

Respect for context:  Consumers have a right to expect that companies will collect, use, and disclose personal data in ways that are consistent with the context in which consumers provide the data.

4.

Security:  Consumers have a right to secure and responsible handling of personal data.

5.

Access and accuracy:  Consumers have a right to access and correct personal data in usable formats, in a manner that is appropriate to the sensitivity of the data and the risk of adverse consequences to consumers if the data is inaccurate.

6.

Focused collection:  Consumers have a right to reasonable limits on the personal data that companies collect and retain.

7.

Accountability:  Consumers have a right to have personal data handled by companies with appropriate measures in place to assure they adhere to the Consumer Privacy Bill of Rights.

The US Congress and Senate have considered various bills to regulate distribution of online data, most recently the Stop Online Piracy Act (“SOPA”) introduced in the House of Representatives and the similar Protect IP Act (“PIPA”) introduced in the US Senate. Following protests in January 2012, both bills were withdrawn, but similar measures to protect IP and regulate data distribution will likely be introduced in the future.

*EU Legislation*

The EU E-Privacy Directive or “Cookie Law” requires member states to ensure that the storage of information, or the gaining of access to information already stored, in the terminal equipment of a subscriber or user is only allowed on condition that the subscriber or user concerned has given his or her consent, having been provided with clear and comprehensive information regarding the purposes of the processing. Under this rule, in the EU websites must obtain visitor consent before they can install most cookies.

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**Advertising Network (Formerly Travora Networks, Inc. (Travora))**

MediaShift operates a leading advertising network comprised of travel related web site publishers and premium advertisers.  Formerly known as Travora but re-branded to MediaShift in 4Q 2013, it generates revenue by placing advertisers’ digital advertisements on publishers’ web sites and then shares that revenue with the publishers.  Travora’s office is located at 989 Sixth Ave, 11th Floor, New York, NY 10018 and the telephone number is (212) 267-0747. 

***Historical Development***

Founded in December 2003, the company grew rapidly over the first seven years in business and became one of the largest vertical ad networks in the industry as measured by comScore. In November 2010 the company acquired TravelMuse, a trip planning website. The Travel Ad Network changed its name to Travora Media in September 2011. To build out an owned and operated business, Travora Media acquired The Nile Project in April 2012, a San Francisco-based company with a portfolio of three well-known websites: NileGuide, 10Best, and Localyte and mobile apps focused on providing local expertise to travelers.  On February 6, 2013 MediaShift, Inc. acquired certain assets of Travora Media, Inc. comprising of its ad network business. Upon the close of the acquisition Travora Media was renamed to Travora Networks, Inc. and has focused on building a premier travel ad network.  On November 22, 2013, Travora sold its 3 owned and operated travel sites Nileguide.com, Localyte.com, and TravelMuse, to Trip Remix, LLC for $100,000.  

***Business Strategy***

MediaShift provides web site owners (“publishers”) with an ad revenue stream by selling their ad space to a variety of advertisers. MediaShift is typically the publisher’s exclusive seller of advertising with some exceptions.  MediaShift sells the publishers’ ad space to advertisers, who in turn pay MediaShift.  The ad revenue generated is shared, or split, between MediaShift and the respective publishers.

MediaShift has an established publishing network of web sites that specialize in travel related content and services.  It is currently ranked #2 in the travel information category (source: comScore January 2013) and includes over 300 established travel brands across desktop, tablet, and mobile platforms.  Some sites are content focused to assist consumers in their travel research and planning, while other sites are more transaction oriented, enabling consumers to book their travel.

MediaShift also has an established list of advertiser and ad agency relationships, cultivated over the10 years it has been in business.  These advertisers and agencies look to MediaShift to deliver their message to their target customers as they enter and pass through the travel purchase funnel.

MediaShift has aggregated both travel related publishers and advertisers into one marketplace, enabling the publishers to monetize their traffic and the advertisers to reach their desired target audience.  An experienced ad operations team optimizes the advertising revenue generated by employing various targeting and segmentation capabilities.

As a result of these factors, we believe there is a significant opportunity for MediaShift to leverage Ad-Vantage Networks unique ad technology and the established network of publishers and advertisers to achieve a dominant position in the digital advertising industry.

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***Products and Services***

MediaShift’s Targeted Travel Audience Platform (TAP) is mostly comprised of travel portals, planning sites, and online travel agencies (OTAs), generating ad impressions across desktop, tablet, and mobile platforms.

MediaShift’s ad serving capability is a combination of 3rd party technology providers and custom built applications.  MediaShift’s ad operations team manages and optimizes the entire ad inventory to yield the most amount of revenue.

MediaShift’s advertiser products include contextual targeting by channel and content, geo-targeting, retargeting (prior interest/intent), demographic targeting, and behavioral and interest-based targeting.  Mediashift also offers standard rich media executions, including video, as well as custom solutions, sponsorships, and premier placements.

MediaShift’s primary product/service is their established network of publishers and advertisers in the Travel vertical.  Advertisers pay MediaShift to deliver their advertisements to their target customers in the most effective and efficient manner.  The advertising revenue generated is shared with the publisher web sites.

***Competition***

As an advertising network, the company’s products and services compete and overlap, to some degree, with all other industry participants that sell and deliver digital advertising (e.g., Google, Facebook, Yahoo, MSN, AOL, etc.).  Due to the fragmented nature of the industry and multiplicity of product offerings and business models, we may also partner with any or all of these companies, and act as a vendor or customer to them as well.

MediaShift competes for both publishers and advertisers.  For publisher contracts, notable competitors fall into two segments: “horizontal networks” and “affluent networks”.  Horizontal networks include Google AdX, Specific Media, and Collective Media.  Affluent networks include Martin Media and RGM.  MediaShift competes for advertising dollars with the top 50 properties (e.g., Facebook, Wall Street Journal, ESPN, and Concierge.com) and portal sites such as Yahoo and AOL.

***Sales and Marketing***

MediaShift employs a sales staff to sell the ad network inventory directly to advertisers.  In addition, the ad operations team works with ad exchanges and ad networks to sell the leftover (“remnant”) advertising inventory.  On the publisher side, a business development team is responsible for recruiting publishers. 

MediaShift’s sales strategy targets premium advertisers interested in reaching travelers in all phases of the travel lifecycle.  The sales function is managed from the New York office, with sales representatives working remotely as well as from MediaShift’s office. The sales staff is compensated on base salaries and commissions.

The marketing group is based in our corporate headquarters and reports to the President of MediaShift.  This group is charged with developing and executing corporate marketing strategy.

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***Customers***

MediaShift has an established publishing network with over 100 publishers across 125web sites.  The publisher sites are categorized as content, commerce, and community.

MediaShift has several hundred advertisers over the course of a given year.  Its advertisers are primarily endemic (travel) vs. non-endemic.

***Travora Networks and Ad-Vantage Networks combination***

The combination of Ad-Vantage Networks and Travora Networks enables advertisers to target the largest and most qualified travel audience throughout the entire travel lifecycle.  Advertisers can now reach this audience in-context (researching and booking) and in-transit (hotels and airports), across on any device.

In addition, Ad-Vantage Networks footprint of private Internet Networks opens up access to primary source data for exceptional audience segmentation at scale.  Unmatched data insights, combined with the company’s qualified travel audience is a powerful and unique value proposition for advertisers.

***Legal Proceedings***

We are not currently party to any material legal proceedings and we are not aware of any pending matters which may give rise to legal proceedings.  From time to time, we may be involved in various legal proceedings in the ordinary course of business.  We are not aware of any threatened litigation and believe that there is no basis for a suit for patent infringement or patent invalidation being successfully asserted against us. A successful claim of patent infringement or patent invalidation against us, however, and our failure or inability to obtain a license for the infringed or similar technology on reasonable terms, or at all, could have a material adverse effect on our business.

**Oil and Gas Properties**

In connection with the Merger, the Company continues to have nominal assets on its books related to the Oil and Gas business.  MediaShift is continuing to pursue spinning off the O&G Operations for the benefit of the Company’s pre-Merger stockholders as soon as may be practicable.  

Effective November 21, 2012, our Board of Directors authorized management to pursue a spin-off of the O&G Operations following management’s determination that the O&G Operations were not material to the Company’s operations, assets or future commercial activity and we expect the following outline of steps to occur in connection with the proposed spin-off: (i) the O&G Operations, including all related assets and liabilities, will be contributed to a new corporation, to be domiciled in Nevada ("JMG  Oil") in exchange for 500,000 shares of JMG Oil, (ii) thereafter JMG Oil intends to issue 4,500,000 of its shares to unrelated accredited investors for $50,000 and certain indemnities relating to the O&G Operations, (iii) the Company proposes to spin off its 500,000 shares of JMG Oil to its stockholders as of immediately before the Merger (the “Pre-Merger Stockholders”).  JMG Oil will bear the costs and expenses of these transactions.  We expect this transaction to occur sometime in 2014. 

**Employees**

As of December 31, 2013, we had 60 full-time employees. We also have various consultants that we retain from time to time to work on specific projects and as otherwise needed.  Currently, none of our employees is represented by a labor union and no employee is part of any collective bargaining agreement.  We believe that we have good relations with our employees.

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**Facilities**

Since February 2012, we have had an office located at 600 Brand Blvd., Suite 230, Glendale, California 91203. In January 2013, we added an office at 20062 SW Birch St, #220, Newport Beach, California 92660 and made this the corporate headquarters. In May 2013, an office at 989 Sixth Ave, 11th Floor, New York, New York 10018 was added.

**Risk Factors**

*Investing in our securities involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this Report before making an investment decision. If any of the possible adverse events described below actually occur, our business, results of operations or financial condition would likely suffer. In such an event, the market price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business, results of operations or financial condition.*

**Risks Relating to our Business**

***We are a company with a limited operating history and our future profitability is uncertain. We anticipate future losses and negative cash flow, which may limit or delay our ability to become profitable.***

We are a company with a limited operating history. We may never generate material revenues. We have incurred losses since our inception and expect to experience operating losses and negative cash flow for the foreseeable future. As of December 31, 2013, we had a total accumulated deficit of $33,784,887. We anticipate our losses will continue to increase from current levels because we expect to incur additional costs and expenses related to development, consulting costs, marketing and other promotional activities, the addition of engineering and other support personnel, and our continued efforts to form relationships with strategic partners. We may never be profitable.

***Our business model is based on generating revenue by displaying advertisements sourced from ad partners and directly from advertisers at prevailing market rates. The mix of advertisements available to us and the rates that advertisers are willing to pay us are based on multiple factors, including some that are outside of our control. If the prices we receive for displaying ads are reduced, our financial results may suffer.***

We source the advertisements we display from advertising networks, and we also plan to source ads directly from advertisers. If the market prices for digital advertisements declines, and we are unable to offset this decline with premium pricing for our targeted access to the demographically attractive viewers we will be able to provide, our advertising revenue would be materially adversely affected. We believe that our ability to provide advertisers unique approaches to viewers will protect our pricing position, but we cannot give assurances that this will be the case. If we are unable to maintain our anticipated advertising pricing over time, our business and financial results may be materially harmed.

***Product defects or software errors could adversely affect our business.***

Our core software is of recent design and constantly evolving, and design defects or software errors may cause delays in product introductions and customer implementations, damage customer satisfaction and may have a material adverse effect on our business, results of operations and financial condition. Our software products are highly complex and may, from time to time, contain design defects or software errors that may be difficult to detect and correct.

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Because our solution is integrated into a customer’s network and data flow, design defects, software errors, misuse of our products, incorrect data from external sources or other potential problems within or outside of our control may arise during implementation or from the use of our solutions, and may result in financial or other damages to our customers, for which we may be held responsible. Although we have license agreements with our customers that contain provisions designed to limit our exposure to potential claims and liabilities arising from customer problems, and we have designed our solutions with industry best practices to ensure reliability and ensure that extended outages in our solutions have minimal or no impact on our customers’ overall networks, these provisions may not effectively protect us against such claims in all cases and in all jurisdictions. In addition, as a result of business and other considerations, we may undertake to compensate our customers for damages caused to them arising from the use of our products, even if our liability is limited by a license or other agreement. Claims and liabilities arising from customer problems could also damage our reputation, adversely affecting our business, results of operations and financial condition and the ability to obtain “Errors and Omissions” insurance.

***We may seek to acquire companies or technologies that could disrupt our ongoing business, divert the attention of our management and employees and adversely affect our results of operations.***

The digital advertising industry is dynamic and opportunities may arise to offer new products or services or otherwise enhance our market position or strategic strengths through acquisition or merger, similar or complementary to our recent acquisition of the ad network business of Travora Media, Inc. In the future, we may acquire other companies that we believe will advance our business strategy. We cannot assure you that suitable future acquisition candidates can be found, that acquisitions can be consummated on favorable terms or that we will be able to complete otherwise favorable acquisitions.

We cannot assure you that our acquisition of the ad network business of Travora, or any future acquisitions that we may make, will enhance our products or services or strengthen our competitive position. We also cannot assure you that we have identified, or will be able to identify, all material adverse issues related to the integration of any proposed acquisitions, such as significant defects in the internal control policies of companies that we may acquire. In addition, acquisitions if completed could lead to difficulties in integrating acquired personnel and operations and in retaining and motivating key personnel from these businesses, particularly in cases, such as Travora, where the acquired assets and employees are located a material distance from our corporate headquarters. Any failure to identify and correct significant defects in the internal control policies of acquired companies or properly to integrate and retain personnel may require significant amounts of time and resources to address. Acquisitions may disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses, cause losses, and harm our results of operations or financial condition.

***The skilled and highly qualified workforce that we need to develop, implement and modify our solutions may be difficult to recruit, train and retain, and we could face increased costs to attract and retain our skilled workforce.***

Our business operations depend in large part on our ability to attract, train, motivate and retain highly skilled information technology professionals, software programmers and network engineers on a worldwide basis, particularly in Southern California and India. In addition, our competitive success will depend on our ability to attract and retain other outstanding, highly qualified personnel such as sales and ad operations personnel at Travora. Our technology offers advertisers and Network Providers a new way to show ads to specific, targeted customers. As a result, we require employees with unique sets of cross-disciplinary skills, which may be difficult to find. Because our products and services are highly complex and are generally used by our customers to perform critical business functions, we depend heavily on skilled technology professionals. Skilled technology professionals are often in high demand and short supply. If we

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 are unable to hire or retain qualified technology professionals to develop, implement and modify our solutions, we may be unable to meet the needs of our customers. Implementing and supporting our solutions at an accelerating rate for a rapidly growing customer base, and particularly executing on several simultaneous large-scale implementations, may require us to attract and train additional IT professionals at a rapid rate. We may face difficulties identifying and hiring qualified personnel. Our inability to hire, train and retain the appropriate personnel could make it difficult for us to manage our operations, meet our commitments and compete for new customer contracts.

***We face competition from larger, more established companies, as well as our own advertising partners, and we may not be able to compete effectively, which could reduce demand for our services.***

The market for digital advertising is built around a model of serving advertisements to one web site at a time, and advertisers, advertising networks, web sites and the other participants in the digital advertising market have built their infrastructure around this historic model. By offering an alternative model in which advertisements are served to specific users and networks, we are competing to some degree with all of the other participants in the digital advertising industry, including those with which we may otherwise be in partnership. Evolution of technology and business models is a factor in many sectors, and the Company’s approach is an evolutionary extension of digital advertising, with technology addressing problems and weaknesses the existing model leaves unsolved. As with many evolutionary or revolutionary technologies, our approach must reach a critical mass in order to survive and be successful. If we are unable to convince a sufficient number of advertisers, advertising networks, and Network Providers that our solutions offer a superior approach, our revenues and our financial results may suffer. If we are successful in our business model, larger, more established competitors in the digital advertising industry may choose to compete with us. Many of these potential competitors are larger, more experienced, and more established than we are, and have significantly greater resources at their disposal. Our Intellectual Property may be insufficient to prevent such competition, or may be infringed by larger competitors with the resources to fight our claims in litigation. 

***We are dependent on third-party products, services and technologies; changes to existing products, services and technologies or the advent of new products, services and technologies could adversely affect our business.***

Our business is dependent upon our ability to use and interact with a number of third-party and open source products, services and technologies, such as browsers, proxies, routers, data and search indices, and privacy software. Any changes made by third parties to the settings, features or functionality of these third-party products, services and technologies or the development of new products, services and technologies that interfere with or disrupt our products, services and technologies could adversely affect our business. 

***We rely on our advertising partners to provide us access to their advertisers, and if they do not, we may be unable to grow our business.***

We currently source the advertisements that we display from digital advertising networks which supply advertisements to many other customers and directly from advertisers via our recently acquired advertising network, Travora. Our agreements with these advertising suppliers and advertisers are short-term and they may discontinue their relationship with us or negotiate new terms that are less favorable to us, at any time, with little or no notice. If a significant number of these networks choose to redirect the ad traffic they currently supply to us to other customers for economic, performance, or other reasons, this could adversely impact our revenue. We actively seek to mitigate this risk by working with several advertising sources and adding new networks on a regular basis. In the future we plan to supplement our network-sourced advertisements by growing the proportion of ads we serve which we directly source via Travora or via other means from advertisers attracted by our ability to give them access to customers with favorable profiles. 

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We cannot provide assurances, however, that we will be able to do so in the near term in a volume sufficient to negate our current dependence on third party advertising networks, or to minimize the effect of those ad networks choosing to restrict their volume of business with us.

***Unfavorable economic conditions may reduce on-line advertising causing our business, operating results, or financial condition to suffer.***

We distribute and are dependent on generating revenue from digital advertising. Consumer spending may decrease during recessions and other periods of economic slowdown. In response, advertisers may reduce their volume of advertising during these periods, and they may choose to redirect some or all of their remaining advertising from the digital advertising market to other advertising venues. The success of our business is tied to the success of the digital advertising market, and if that market is adversely affected by economic conditions, our business, operating results, and financial condition will suffer.

***The loss of the services of our key management and personnel or the failure to attract additional key personnel could adversely affect our ability to operate our business.***

 A loss of one or more of our current officers or key employees could severely and negatively impact our operations. Specifically, the loss of services of David Grant, Chief Executive Officer, Brendon Kensel, President, Rick Baran, Chief Financial Officer, Michael Spalter, Chief Operating Officer and Sanjeev Kuwadekar, Chief Technology Officer, could significantly harm our business. We have no present intention of obtaining key-man life insurance on any of our executive officers or management. Additionally, competition for highly skilled technical, managerial and other personnel is intense. As our business develops, we might not be able to attract, hire, train, retain and motivate the highly skilled managers and employees we need to be successful. If we fail to attract and retain the necessary technical and managerial personnel, our business will suffer and might fail. 

***Management of our Company is within the control of the board of directors and the officers. You should not purchase our common stock unless you are willing to entrust management of our Company to these individuals.***

All decisions with respect to the management of the Company will be made by our board of directors and our officers, who beneficially own 52.3% of our common stock, as calculated in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the ”Exchange Act”). Management will retain the power to elect a majority of the board of directors who, in turn, have the power to appoint the officers of the Company and to determine, in accordance with their fiduciary duties and the business judgment rule, the direction, objectives and policies of the Company including, without limitation, the purchase of businesses or assets; the sale of all or a substantial portion of the assets of the Company; the merger or consolidation of the Company with another corporation; raising additional capital through financing and/or equity sources; the retention of cash reserves for future product development, expansion of our business and/or acquisitions; the filing of registration statements with the Securities and Exchange Commission for offerings of our capital stock; and transactions which may cause or prevent a change in control of the Company or its winding up and dissolution. Accordingly, no investor should purchase the common stock we are offering unless such investor is willing to entrust all aspects of the management of the Company to such individuals.

***We expect that our anticipated future growth may strain our management, administrative, operational and financial infrastructure, which could adversely affect our business.***

We anticipate that significant expansion of our present operations will be required to capitalize on potential growth in market opportunities. This expansion has placed, and is expected to continue to place, a strain on our management, operational and financial resources. In order to manage our growth, we will be required to continue to implement and improve our operational and financial systems, to expand existing operations, to attract and retain superior management, and to train, manage and expand our employee base. We cannot assure you that we will be able to effectively 

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fund or manage the expansion of our operations, that our systems, procedures or controls will be adequate to support our operations or that our management will be able to successfully implement our business plan. If we are unable to manage growth effectively, our business, financial condition and results of operations could be materially adversely affected.

***We may be subject to intellectual property claims that create uncertainty about ownership of technology essential to our business and divert our managerial and other resources.***

There has been a substantial amount of litigation in the technology industry regarding intellectual property rights. We cannot assure you that third parties will not, in the future, claim infringement by us with respect to our current or future services, trademarks or other proprietary rights. Our success depends, in part, on our ability to protect our intellectual property and to operate without infringing on the intellectual property rights of others in the process. There can be no guarantee that any of our intellectual property will be adequately safeguarded, or that it will not be challenged by third parties. We may be subject to patent infringement claims or other intellectual property infringement claims that would be costly to defend and could limit our ability to use certain critical technologies. While our technology does not modify the content on any external website and is executed on the screen of end user computers, third party web publishers may bring action against us for displaying our advertisements on portions of the end user’s screen.

We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions. The defense and prosecution, if necessary, of intellectual property suits, interference proceedings and related legal and administrative proceedings is costly and may divert our technical and management personnel from their normal responsibilities. We may not prevail in any of these suits. An adverse determination of any litigation or defense proceedings could cause us to pay substantial damages, including treble damages if we willfully infringe, and, also, could put our patent applications at risk of not being issued.

To defend our intellectual property underlying our proprietary technology and business model, it may be necessary for us to enter into litigation against third parties which infringe on our intellectual property. Such litigation could be time-consuming and expensive, and require considerable diversion of management’s time. A favorable outcome of such litigation, like any litigation, cannot be guaranteed, and even if a favorable outcome is achieved, the infringement during the interim may have damaged our business irreparably.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. If investors perceive these results to be negative, it could have an adverse effect on the trading price of our common stock.

Any patent litigation could negatively impact our business by diverting resources and management attention away from other aspects of our business and adding uncertainty as to the ownership of technology and services that we view as proprietary and essential to our business. In addition, a successful claim of patent infringement against us and our failure or inability to obtain a license for the infringed or similar technology on reasonable terms, or at all, could have a material adverse effect on our business.

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***If we fail to filter the websites on which we serve advertisements, we could lose the confidence of our advertisers and advertising partners, thereby causing our business to suffer.***

Our advertisers wish to restrict their ad placement to “brand safe” websites, and to prevent their ads from appearing on sites featuring violence, pornography and other content inconsistent with the brand image they wish to convey. Due to the nature of our technology, we are able to place advertisements on computer screens of users visiting a broad array of web sites. We are exposed to the risk of inappropriate placement and advertiser complaints, which may damage our relationships with our advertising suppliers. As a result, advertisers and advertising partners may become dissatisfied with our advertising programs, which could lead to loss of advertisers, advertising partners and revenue. To mitigate this risk, we currently display our ads on end user computers accessing a carefully selected “white list” of web sites which are generally accepted as brand safe, and we constantly monitor and update this white list to balance maximizing advertisement placement and revenue while maintain a brand safe environment for our advertisers.

***Our technology and business model significantly changes the existing relationships between advertisers, web site publishers, and Network Providers. This may lead to public relations concerns for us with consumers and other industry participants, and may lead to litigation from industry participants and to informal pressure placed on our advertising suppliers or Network Provider customers by larger industry participants who do not directly benefit from the market change we are creating.***

By giving Network Providers a way to monetize the Internet access that they offer to end users, MediaShift is introducing a new recipient of advertising revenues into the economic infrastructure underlying the Internet. By displaying site-served ads before displaying our ads into the same screen area, the Company mitigates economic damage to web site publishers, a step which has generally been accepted by the industry participants we have worked with. It is possible, however, that web site publishers; Supply Side Platform (SSP) providers (which allow website publishers to easily work with multiple ad networks and directly with ad exchanges); advertisers; industry organizations, standard setting bodies and regulatory groups; Demand Side Platform providers (which allow advertisers to manage multiple ad exchange and data exchange accounts through a single interface); and other industry participants may perceive that these changes work against their interests, and may seek to restrain our growth via litigation, by individually or collectively choosing not to work with us, or via informal pressure on browser or operating system software vendors; advertisers, ad exchanges or ad networks supplying us with advertising; or on our partner Network Providers to refuse to work with us or to actively work to block our solutions. While the Company has been advised by counsel that both the Company and its Network Provider partners are operating within established legal and regulatory guidelines, we cannot guarantee that such litigation or pressure will not take place, or that the outcome of any such litigation or pressure will not adversely impact our revenues, or our operating results.

By introducing a new model of providing digital advertising, there may be public confusion over our position in the market, our products and services, and our relationship with Network Providers, advertisers, web site publishers and individual users. We cannot guarantee that our employees and our public relations firm will be able to effectively respond to misinformation and confusion in the marketplace, and our business, our revenues and our operating results may suffer.

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***We rely on third-party technology, server and hardware providers, and a failure of service by any of these providers could adversely affect our business and reputation.***

We rely upon third-party data center providers to host our main servers and expect to continue to do so. In the event that these providers experience any interruption in operations or cease operations for any reason or if we are unable to agree on satisfactory terms for continued hosting relationships, we would be forced to enter into a relationship with other service providers or assume hosting responsibilities ourselves. If we are forced to switch hosting facilities, we may not be successful in finding an alternative service provider on acceptable terms or in hosting the computer servers ourselves. We may also be limited in our remedies against these providers in the event of a failure of service. In the past, we have experienced short-term outages in the service maintained by our primary hosting provider. We also rely on third-party providers for components of our technology platform.  While we work to mitigate these risks by leveraging industry standard technologies in many of our solutions and in our infrastructure designed to cause our service to fall out of any offering if the software, network, partner or service were to fail, and we also implement continuous external and internal monitoring and bypass protocols with our customers to prevent single points of failure and automated failover or bypass solutions to minimize any impact we might have on their service offerings, we cannot guarantee that these will completely mitigate the impact of equipment failure. A failure or limitation of service or available capacity by any of these third-party providers could adversely affect our business and reputation.

***If we fail to scale and adapt our existing technology architecture to manage the expansion of our offerings our business could be adversely affected.  ***

We anticipate increasing our volume of advertisements substantially when we go live with our solutions at additional Network Provider partners. Any such increase will require substantial expenditures to scale or adapt our technology infrastructure. As usage increases and products and services expand, change or become more complex in the future, our existing technology architectures utilized for our advertising services may not provide satisfactory support. As a result, we may make additional changes to our architectures and systems to deliver our solutions to Network Provider partners, including moving to completely new technology architectures and systems. Such changes may be challenging to implement and manage, may take time to test and deploy, may cause us to incur substantial costs and may cause us to suffer data loss or delays or interruptions in service. These delays or interruptions in service may cause consumers, advertisers and publishers to become dissatisfied with our offerings and could adversely affect our business.

***Our business is subject to a number of natural and man-made risks, including natural disasters such as fires, floods, and earthquakes and problems such as computer viruses or terrorism.***

Our systems and operations are vulnerable to damage or interruption from natural disaster and man-made problems, including fires, floods, earthquakes, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and similar events. As an example, if we were to experience a significant natural disaster, such as an earthquake, fire or flood, it likely would have a material adverse impact on our business, operating results and financial condition, and our insurance coverage will likely be insufficient to compensate us for all of the losses we incur. Additionally, our servers may be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions, delays, loss of critical data or the unauthorized disclosure of confidential intellectual property or customer data. We may not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting the Southern California area, and our insurance may be insufficient to compensate us for losses that may occur. As we rely heavily on our servers, computer and communications systems and the Internet to conduct our business and provide customer service, such disruptions could negatively impact our ability to run our business, which could have an adverse effect on our operating results and financial condition.

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***Federal, state or international laws or regulations applicable to our business could adversely affect our business.  ***

We may be subject to a variety of existing federal, state and international laws and regulations in the areas of telecommunications, privacy, consumer protection, advertising to and collecting information from children, taxation and billing, among others. These laws and regulations can change, as can the interpretation and enforcement of these laws and regulations. Additionally, new laws and regulations may be enacted at any time. Compliance with laws is often costly and time consuming and may result in the diversion of a significant portion of management’s attention. Our failure to comply with applicable laws and regulations could subject us to significant liabilities which could adversely affect our business. Additionally, there are a number of state laws and pending legislation governing the breach of data security in which sensitive consumer information is released or accessed. If we fail to comply with applicable laws or regulations we could be subject to significant liability which could adversely affect our business.

***Any industry regulation that constrains the use of cookies or similar technologies could adversely affect our business.***

While we do not store, access, or attempt to access personally identifiable end user information, like other industry participants we do use small text files placed in a consumer’s browser, commonly known as cookies, to facilitate authentication, preference management, research and measurement, personalization and advertisement and content delivery. Several Federal, state and international governmental authorities are regularly evaluating the privacy implications inherent in the use of third-party web “cookies” and other tracking technologies for behavioral advertising and other purposes. Any regulation of these tracking technologies and other current digital advertising practices could adversely affect our business. This potential regulation would affect all industry participants equally, however our risk can be mitigated to a degree by leveraging our unique set of implementation data that is not subject to “cookie” technology, assuming that use of such data remains unregulated. For example, we possess user information specific to each of our Networks (e.g., geographic location of a hotel guest). There can be no guarantee that our proprietary data use would be sufficient to completely mitigate the loss of information from government or industry regulation of cookies and/or other tracking technology.

***If we fail to establish and maintain the adequacy of our internal controls, our ability to provide accurate financial statements could be impaired and any failure to maintain our internal controls could have an adverse effect on our stock price.***

The Sarbanes-Oxley Act of 2002 (“SOX”), and rules subsequently implemented by the SEC, the Public Company Accounting Oversight Board and the NASDAQ Capital Market, have required changes in the corporate governance practices of public companies. Monitoring compliance with the existing rules and implementing changes required by new rules may increase our legal and financial compliance costs, divert management attention from operations and strategic opportunities, and make legal, accounting and administrative activities more time-consuming and costly.  We may also retain consultants experienced in SOX that assisted us in the process of instituting changes to our internal procedures to satisfy the requirements of the SOX. 

As a small company with limited capital and human resources, going forward we may need to divert management’s time and attention away from our business in order to ensure continued compliance with these regulatory requirements. We may require new information technologies systems, the auditing of our internal controls, and compliance training for our directors, officers, and personnel. Such efforts may entail a significant expense. If we fail to establish and maintain the adequacy of our internal controls as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the SOX. Any failure to maintain the adequacy of our internal controls could have an adverse effect on timely and accurate financial reporting and the trading price of our common stock. 

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**Risks Relating to our Securities**

***We filed to deregister our common stock which could negatively affect the liquidity and trading prices of our common stock.***

We filed to deregister our common stock under the Exchange Act and become a non-reporting company under the Exchange Act.  One April 7, 2013, the Company filed with the SEC a Form 15, Notice of Termination of Registration and Suspension of Duty to File, to terminate its reporting obligations under the Exchange Act.  With the filing of the Form 15, our obligation to file reports, and other information under the Exchange Act, such as Forms 10-K, 10-Q and 8-K has be suspended.  The deregistration of the Company’s common stock under the Exchange Act will become effective 90 days after the date on which the Form 15 was filed.  The Company is eligible to deregister under the Exchange Act because its common stock was held of record by fewer than 300 persons. Delisting and deregistration of the Company's common stock could negatively affect the liquidity and trading prices of our common stock.

***The market price of our common stock and warrants has been and is likely to continue to be highly volatile, which could cause investment losses for our stockholders and result in stockholder litigation with substantial costs, economic loss and diversion of our resources.***

The trading price of our common stock is likely to be highly volatile and could be subject to wide fluctuations as a result of various factors, many of which are beyond our control, including:

  

•

 

developments concerning proprietary rights, including patents, by us or a competitor;

 

•

 

market acceptance of our new and existing services and technologies;

  

•

 

announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments;

  

•

 

actual or anticipated fluctuations in our operating results;

  

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continued growth in the Internet and the infrastructure for providing Internet access and carrying Internet traffic;

  

•

 

introductions of new services by us or our competitors;

  

•

 

enactment of new government regulations affecting our industry;

  

•

 

changes in the number of our advertising partners or the aggregate amount of advertising dollars spent with us;

 

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seasonal fluctuations in the level of Internet usage;

  

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loss of key employees;

  

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institution of litigation, including intellectual property litigation, by or against us;

  

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publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities analysts;

  

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short selling of our stock;

  

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large volumes of sales of our shares of common stock by existing stockholders;

  

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changes in the market valuations of similar companies; and

  

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changes in our industry and the overall economic environment.

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Due to the short-term nature of our advertising partner agreements, variability in the market price advertisers are willing to pay, variability in the usage of the networks owned by our Network Provider partners and our potential growth, we may not be able to accurately predict our operating results on a quarterly basis, if at all, which may lead to volatility in the trading price of our common stock. In addition, the stock market in general and the market for online commerce companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the listed companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market, securities class action litigation has often been instituted against these companies. Litigation against us, whether or not a judgment is entered against us, could result in substantial costs, and potentially, economic loss, and a diversion of our management’s attention and resources. As a result of these and other factors, you may not be able to resell your shares above the price you paid and may suffer a loss on your investment.

***We have never paid dividends on our common stock.***

Since our inception, we have not paid cash dividends on our common stock and we do not intend to pay cash dividends in the foreseeable future due to our limited funds for operations. Therefore, any return on your investment would likely come only from an increase in the market value of our common stock.

***The exercise of options and warrants and other issuances of shares of common stock will likely have a dilutive effect on our stock price.***

As of December 31, 2013, there were outstanding options to purchase an aggregate of 5,679,374 shares of our common stock at a weighted average exercise price of $2.1476 per share, of which options to purchase approximately 3,590,440, at a weighted average exercise price of $1.16, were fully vested. As of December 31, 2013 there were outstanding warrants to purchase 4,817,533 shares of our common stock, at a weighted average exercise price of $7.00 per share.

The exercise of options and warrants at prices below the market price of our common stock could adversely affect the price of shares of our common stock. In addition, the exercise of options and warrants will cause dilution to our existing shareholders. Additional dilution may result from the issuance of shares of our capital stock in connection with collaborations or commercial agreements or in connection with other financing efforts.

The issuance of additional shares of our common stock could be dilutive to stockholders. Moreover, when we issue options or warrants to purchase, or securities convertible into or exchangeable for, shares of our common stock in the future and those options, warrants or other securities are exercised, converted or exchanged (or if we issue shares of restricted stock), stockholders may experience further dilution. Holders of shares of our common stock have no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of any class or series.

***Nevada law may inhibit a takeover that stockholders consider favorable and could also limit the market price of our stock.***

Nevada Revised Statutes Sections 78.378 to 78.379 provide state regulation over the acquisition of a controlling interest in certain Nevada corporations unless the articles of incorporation or bylaws of the corporation provide that the provisions of these sections do not apply. Our articles of incorporation and bylaws do not state that these provisions do not apply. The statute restricts the ability of a person or entity to acquire control of a Nevada company by setting down certain rules of conduct and voting restrictions in any acquisition attempt, among other things. The statute is limited to corporations that are organized in the State of Nevada and that have 200 or more stockholders, at least 100 of whom are stockholders of record and residents of the State of Nevada; and do business in the State of Nevada directly or through an affiliated corporation. Because of these conditions, we believe that Nevada’s anti-takeover statute currently does not apply to our company.

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Our authorized but unissued shares of common stock and preferred stock are available for our board to issue without stockholder approval. We may use these additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of our authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of our company by means of a proxy contest, tender offer, merger or other transaction. Our authorized but unissued shares may be used to delay, defer or prevent a tender offer or takeover attempt that a stockholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by our stockholders. 

Additionally, Nevada Revised Statutes Sections 78.411 to 78.444 contain provisions that may limit our ability to engage in any business combination with certain persons who own 10% or more of our outstanding voting stock or any of our associates or affiliates who at any time in the past two years have owned 10% or more of our outstanding voting stock.  These provisions may have the effect of entrenching our management team and may deprive you of the opportunity to sell your shares to potential acquirers at a premium over prevailing prices. This potential inability to obtain a control premium could reduce the price of our common stock. 

***A business combination may be consummated without shareholder approval.***

Certain types of business acquisition transactions may be completed without any requirement that we first submit the transaction to the stockholders for their approval. In the event the proposed transaction is structured in such a fashion that stockholder approval is not required, holders of our securities should not anticipate that they will be provided with financial statements or any other documentation prior to the completion of the transaction. 

The authorized but unissued shares of our common stock and our preferred stock are available for future issuance, without stockholder approval, for certain of such types of business transactions, including future public or private offerings to raise additional capital, corporate acquisitions and employee benefit plans. 

**Legal Proceedings**

We are not currently party to any material legal proceedings and we are not aware of any pending matters which may give rise to legal proceedings.  From time to time, we may be involved in various legal proceedings in the ordinary course of business.  We are not aware of any threatened litigation and believe that there is no basis for a suit for patent infringement or patent invalidation being successfully asserted against us. A successful claim of patent infringement or patent invalidation against us, however, and our failure or inability to obtain a license for the infringed or similar technology on reasonable terms, or at all, could have a material adverse effect on our business.  ***See - Risk Factors: We may be subject to intellectual property claims that create uncertainty about ownership of technology essential to our business and divert our managerial and other resources***.

**Mine Safety Disclosure**

     

None.

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**PART II**

**Market For Our Common Equity, Related Stockholder Matters and**

**Issuer Purchases of Equity Securities**

**Price Range of Common Stock**

Our common stock trades over-the-counter under the symbol “MSHF”. The following table sets forth high and low bid information for our common stock for the periods indicated, without retail mark-down or commission and may not represent actual transactions: 

 

**High**

**Low**

**OTC Pink Sheets**

 

 

***Year ended December 31, 2013:***

 

 

Quarter ended December 31, 2013

4.20

1.25

Quarter ended September 30, 2013

4.54

3.00

Quarter ended June 30, 2013

5.10

3.21

Quarter ended March 31, 2013

6.00

2.20

***Year ended December 31, 2012:***

 

 

Quarter ended December 31, 2012

9.30

3.86

Quarter ended September 30, 2012

9.98

5.30

Quarter ended June 30, 2012

6.60

1.14

Quarter ended March 31, 2012

1.44

1.04

**Holders**

As of December 31, 2013 we had approximately 200 holders of record of our common stock. 

**Dividends**

We have never declared or paid a dividend on our common stock. We currently intend to retain all available funds for operations and do not anticipate paying any cash dividends for the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

**Recent Sales of Unregistered Securities**

     

None. 

21

** **

**Management’s Discussion and Analysis of Financial Conditions and Results of Operations**

The following Management’s Discussion and Analysis of financial results should be read in conjunction with our audited financial statements and notes covering the period commencing from January 1, 2013 to December 31, 2013. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of various factors, including those discussed in “Risk Factors” and elsewhere in this prospectus. 

**Forward-Looking Statements**

This report includes forward-looking statements. All statements other than statements of historical facts contained herein, including statements regarding our future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions as described in “Risk Factors.” 

Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors 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. 

Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this Report are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws. The forward-looking statements contained in this Report are expressly qualified by this cautionary statement. 

**Overview**  

We are a company engaged in digital advertising technology services. The Company was formed as a Delaware Limited Liability Corporation (LLC) in February 2010 and in July 2010 was converted to a Delaware Corporation. 

As of December 31, 2013, we had an accumulated deficit of $33,784,887. 

**Results of operations for the years ended December 31, 2013 and 2012**

***Revenue.***The Company earns revenue from ads placed on web pages viewed on internet access providers’ proprietary networks. Revenues are earned when end users view the advertisements. Revenues were $6,952,652and $12,780 for the years ended December 31, 2013 and 2012.  Gross Revenues were $6,918,084 and $12,780 for the years ended December 31, 2013 and 2012, and Net Revenues were $34,568 and $0 for the years ended December 31, 2013 and 2012.

***Cost of Goods Sold.  ***The Company pays publishers and network providers for a share of the advertisements they placed on publisher sites and proprietary networks.  Cost of Goods Sold were $5,187,834 and $9,237 for the years ending December 31, 2013 and 2012.

22

***General and administrative expense.***General and administrative expense relates to compensation and overhead for executive officers and fees for general operational and administrative services. For the years ending December 31, 2013 and 2012, general and administrative expenses were $12,252,906 and $5,394,313, respectively. Expenses consist principally of salaries, consulting fees and office costs. Salaries expense for the years ending December 31, 2013 and 2012 that includes stock based compensation was $9,298,570 and $4,205,730, respectively, as discussed below. 

The Company has a stock option plan under which employees, directors, advisors and consultants are eligible to receive grants. The Company follows the fair value recognition provisions of ASC 718, Share-Based Payment, using the modified-prospective-transition method. Under that method, compensation cost recognized includes all share-based payments granted based on the grant-date fair value estimated in accordance with the provisions of ASC 718.

During the year ending December 31, 2013, the Company granted 2,000,500 stock options under the 2013 Stock Incentive Plan.  During the year ending December 31, 2012, the Company granted 518,837 stock options under the Ad-Vantage Networks Equity Incentive Plan (the “Ad-Vantage Plan”) and 780,000 stock options under the JMG Equity Compensation Plan (the “JMG Plan”) to certain employees, directors, advisors and consultants. In the year ending December 31, 2012, the Company also granted 2,799,999 options (27,999.99 Class M Preferred options) issued outside the Ad-Vantage Plan to Ad-Vantage senior management, all of which vested upon the close of the Merger with the Company. With respect to the issuance of the new stock options, the Company incurred stock based compensation expense of $1,775,687 and $2,865,603 for the years ending December 31, 2013 and 2012, respectively.

***Depreciation and Amortization***.  Depreciation and Amortization expense for the years ending December 31, 2013 and 2012 was $349,259 and $25,729, respectively.  The increase in 2013 was primarily due to the amortization of publisher relationships related to the acquisition and an increase in depreciable property.

***Research and Development.*** Research and development costs are expensed as incurred and were $402,457 and $202,703 for the years ending December 31, 2013 and 2012 respectively.

***Interest income***. Interest for the years ending December 31, 2013 and 2012 was $52 and $0, respectively.  Interest income is from temporary investment of operating cash.

***Interest expense.***Interest expense for the years ending December 31, 2013 and 2012 was $1,583,789 and $83,141, respectively. The increase in 2013 was principally due to the issuance of $1,000,000 of two year 10% convertible notes to five investors in November, 2012, $7,767,344 of 8% convertible notes to multiple investors during the first and second quarter of 2013, $35,000 of 10% convertible notes to one investor in September 2013, $175,000 in 10% convertible notes to four investors in October 2013, $50,000 in 8% convertible notes to one investor in November 2013, $595,000 in promissory notes at various rates to various investors in November and December 2013, and a $2,250,000 loan assumed in the acquisition of TNI and amortization of Note Discount of $814,929 related to the Convertible Notes.

***Fair Value adjustment on derivative liability.*** The fair value adjustment on the derivative liability was $659,787 and $0 for the years ended December 31, 2013 and 2012.  

***Loss on debt extinguishment***.  Loss on extinguishment for the years ending December 31, 2013 and 2012 was $4,991,513 and $0.  The loss in 2013 is related to the conversion of the 8% convertible debt.

23

***Loss on impairment.***  Loss on impairment for the years ending December 31, 2013 and 2012 was $5,408,709 and $0.  The impairment of the goodwill is related to the Travora acquisition. 

***Other (Income) Expense***.  Other expense for the years ending December 31, 2013 and 2012 was $1,378,767 and $0.  The increase in 2013 is mainly related to a gain on contingency of $1,382,828.

***Income taxes.***The Company files income tax returns in the U.S. federal jurisdiction and Florida, Illinois, Georgia, New York and California. There are currently no income tax examinations underway for these jurisdictions, although the tax years ended December 31, 2013 and 2012 are all still open for examination.  

The Company provides for income taxes in accordance with ASC 740 “Income Taxes” (ASC 740). ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of the assets and liabilities. Where it is more likely than not that a tax benefit will not be realized, a valuation allowance is recorded to reduce the deferred tax asset to its realizable value.

A valuation allowance has been provided against the Company’s net deferred tax assets as the Company believes that it is more likely than not that the net deferred tax assets will not be realized. As a result of this valuation allowance, the effective tax rate for the years ended December 31, 2013 and 2012 is zero percent.

***Deemed dividend on warrant extension*.**On July 31, 2013, the Board of Directors authorized and extended the expiration date of the outstanding warrants to July 31, 2014.  Except as so extended all other provisions of each class of warrants have not been altered or otherwise amended.  A deemed dividend of $1,282,795 for this extension of the warrant expiration dates was calculated using the Black-Scholes option-pricing model.  On November 21, 2012, the Board of Directors authorized and extended the expiration date of the outstanding warrants to February 28, 2014. Except as so extended all other provisions of each class of warrants have not been altered or otherwise amended. A deemed dividend of $3,384,730 for this extension of the warrant expiration dates was calculated using the Black-Scholes option-pricing model. 

**Liquidity and capital resources**

***Cash flows and capital expenditures***

At December 31, 2013 and 2012, we had $93,809 and $902,701 in cash and cash equivalents, respectively. Since our incorporation through December 31, 2013, we have financed our operating cash flow needs principally through private offerings of equity securities and convertible debt. 

As of December 31, 2013, we had an accumulated deficit of $33,784,887 and had limited working capital to fund development of our technology. On November 5, 2012, the Company issued an aggregate of $500,000 in two year 10% convertible notes to two investors, and on November 7, 2012 the Company issued an aggregate of $500,000 in two year 10% convertible notes to three additional investors. The notes may be prepaid by the Company with fifteen days’ notice, and may be converted into the Company’s common stock at the lesser of 80% of the Company’s fair market value at the time of conversion or $8.00 per share. The notes were issued with two year warrants to purchase an aggregate of 100,000 common shares at $6.50 per share.

During the first and second quarter of 2013, we have received approximately $7,700,000 pursuant to a private placement of 8% convertible promissory notes to multiple investors. During the third quarter of 2013, we received $466,668 from exercised warrants by two investors associated with the 10% notes, $500,000 from a note placement from two investors, and $35,000 from private placement of 10% convertible promissory note with one investor.  During the fourth quarter of 2013, we received $225,000 in convertible promissory notes to multiple investors, and $595,000 in promissory notes from various investors at various rates.  On March 27, 2013 and April 26, 

24

2013, all convertible notes from the first and second quarter of 2013, including $65,366 of accrued interest, net of discount, from this private placement were converted to common stock.   A total of $2,250,000 of the proceeds was used to finance the Travora acquisition. The balance of the proceeds was used to finance our remaining financial commitments pursuant to the Travora acquisition and for working capital purposes. 

The Company anticipates being active in capital markets in 2014 to increase our working capital position. 

We have the following warrants outstanding as of December 31, 2013:

**Warrant summary**

**Number**

**of warrants**

**outstanding**

**Exercise price**

**Maximum**

**proceeds**

**Expiration Date**

Warrants issued in the preferred stock private placement

184,625

$ 12.00

2,215,500

02/28/2014

Warrants issued upon conversion of preferred stock 

869,750

$   8.50

7,392,875

02/28/2014

Warrants issued our initial public offering

881,901

$ 10.00

8,819,010

02/28/2014

Warrants issued to our underwriters

95,000

$ 14.00

1,330,000

02/28/2014

Warrants issued with convertible notes

100,000

$   6.50

650,000

11/05/2014

Warrants issued with 8% convertible notes

1,294,557

$   4.00

5,178,228

07/31/2014

Warrants issued with 8% convertible notes

1,294,557

$   6.00

7,767,342

07/31/2014

Warrants issued with 10% convertible notes

5,000

$   4.00

20,000

09/16/2014

Warrants issued with 12% promissory notes

60,000

$   4.00

240,000

09/17/2014

Warrants issued with 10% convertible notes

7,500

$   3.50

26,250

10/04/2015

Warrants issued with 10% convertible notes

10,000

$   3.50

35,000

10/14/2015

Warrants issued with 10% convertible notes

7,500

$   3.50

26,250

10/30/2015

Warrants issued with 10% convertible notes

7,143

$   3.50

25,000

11/11/2015

Total

4,817,533

various

33,725,455

various

***Cash flow used in operations.***

Cash utilized by operating activities was $7,499,298 for the year ended December 31, 2013. The use of cash was included in the net loss for the year of $22,508,808, but offset by an increase in accounts payable and accrued liabilities of $1,354,349 and liabilities directly associated with assets held for sale of $1,126. The use of cash was a smaller contributor to net loss than non-cash components: stock based compensation of $1,775,687, depreciation of $349,259, fair value of warrants issued of $270,185, loss on derivative liability of $659,787 loss on debt extinguishment of $4,991,513, gain on contingency of $1,382,828, impairment of goodwill of $5,408,709, sale of Nileguide of $100,000, loss on disposal of fixed assets of $16,865 and note discount amortization of $814,929. Further uses of cash included the following: $792,308 decrease in accounts receivable, $1,471 increase in other assets, $32,908 increase in prepaid expenses, and $108,000 increase in security deposits. 

Cash utilized by operating activities was $2,674,629 for the year ending December 31, 2012. The use of cash was included in the net loss for the period of $5,697,893, but offset by an increase in accounts payable and accrued liabilities of $87,563 and an increase in liabilities directly associated with assets held for sale of $32,210. The use of cash was a smaller contributor to net loss than non-cash components: stock based compensation of $2,865,603, depreciation of $25,729, depletion and accretion of $2,740, and note discount amortization of $68,209. Further uses of cash included the following: $3,658 increase in accounts receivable, $434 increase in other assets, $44,448 increase in prepaid expenses, and $10,250 increase in security deposits.

25

***Cash flow provided by investing activities.***

Cash used by investing activities was $1,223,130 for the year ending December 31, 2013. The use of cash was attributable to capitalized patent costs of $89,703, for purchase of computer equipment, leasehold improvements, and furniture of $328,976, net cash paid in acquisition of Travora of $804,451, for the year ending December 31, 2013.

Cash used by investing activities was $257,374 for the year ending December 31, 2012. The use of cash was attributable to capitalized patent costs of $94,501 and $162,873 for purchase of computer equipment, leasehold improvements, and furniture for the year ending December 31, 2012.

***Cash flow provided by financing activities.***

Cash provided by financing activities was $7,913,536 for the year ended December 31, 2013. The proceeds of cash were principally attributable to the proceeds fromthe exercise of warrants and options totaling $466,668, and issuance of $9,122,344 convertible notes and promissory notes to various investors, line of credit, net of $114,524, payments on notes of $1,790,000.

Cash provided by financing activities was $3,186,233 for the year ended December 31, 2012. The proceeds of cash were principally attributable to the proceeds from the private placement of Ad-Vantage Series C Preferred stock of $602,000, the exercise of warrants and options totaling $74,497, net cash acquired from JMG of $1,509,736 and issuance of $1,000,000 of two year 10% convertible notes to five investors.

**Business Combination - Acquisition of Ad Network Assets of Travora Media**

On February 6, 2013, Travora Networks, Inc. (“TNI”), a wholly owned subsidiary of MediaShift, Inc. executed an asset purchase agreement with Travora Media, Inc. (“Travora” or “Seller”) to acquire Travora’s digital advertising network business, which was effective on February 1, 2013.  Activity from February 1st to February 6th was immaterial. Headquartered in New York City, Travora provides an established publishing network, advertiser and agency relationships, and an experienced ad sales and ad operations team. Travora represents over 300 established travel brands across desktop, tablet, and mobile platforms.  Travora achieved revenues of approximately $13.0 million and $10.9 million in 2011 and 2012 respectively. TNI retained approximately 20 of Travora’s former employees and will continue to operate out of New York City.

The acquisition was accounted for using the acquisition method of accounting.  Accordingly, the assets acquired and liabilities assumed were measured at their estimated fair value at the acquisition date.  Travora’s results of operations will be included in the Company’s consolidated financial statements from February 1, 2013.

The preliminary allocation of the purchase price based on the fair value of the acquired assets, less liabilities assumed, as of February 6, 2013, amounted to $5,782,828. An additional adjustment of $304,451 was made subsequent to February 6, 2013, therefore the total consideration was $6,087,279. 

26

The fair value of the consideration to Seller is as follows:

 

Cash consideration to Seller

 

$     804,451

Payment of Eastward Capital Partners debt 

 

1,750,000

Assumption of Eastward Capital Partners debt

 

2,250,000

Balance of consideration to be paid in MediaShift common stock 

700,000

 

Less allowance for audit expenses

(70,000)

 

Less amount of Aged Accounts Payable

(138,000) 

 

Less estimated reduction for Target Working Capital deficiency 

(592,000)

(100,000)

 

 

 4,704,451

Contingent consideration:

 

 

Earn-out consideration for publisher retention

 

67,747

Earn-out consideration for revenue targets

 

1,315,081

Total consideration

 

$ 6,087,279

As part of the purchase price paid in the transaction, TNI assumed Seller’s $4,000,000 obligations to Eastward Capital Partners.

The significant identifiable tangible assets acquired include primarily accounts receivable and property, plant and equipment.  Intangible assets include contracts, business relationships, trademarks and domain names. 

***Earnout Consideration***

As part of the acquisition, TNI agreed to issue additional cash to the sellers, contingent upon TNI meeting certain operating performance targets: publisher retention goals for 360 days following the acquisition date and revenue goals for the year ending December 31, 2013. As discussed in “Contingent Earnout Liabilities - Travora Earnout Consideration”, the estimated fair value of the contingency was $1,382,828 on the acquisition date and $0 as of December 31, 2013. Changes are recorded as a gain or loss on the Contingent Liability and are included in Other Income on the Income Statement.  The changes were a gain of $1,382,828 for the year ending December 31, 2013.  

The following table summarizes the fair value of the assets acquired and the liabilities assumed in thousands:

Accounts receivable

 $

2,716

 

 

Prepaid expenses & deposits

 

5

 

 

Fixed assets

 

91

 

 

Intangible assets

 

5,727

 

 

Accounts payable

 

(1,856)

 

 

Other accrued expense

 

(596)

 

 

Net assets acquired

$

6,087

 

 

***Intangible Assets***

Mediashift management determined the estimated fair value of intangibles acquired based on the methods described below.    Based on the preliminary assessment, the acquired intangible asset categories, fair value and amortization periods, generally on a straight line basis are as follows:

 

27

 

**Fair**

**Value at**

**2/6/2013**

 

**Amortization**

**Period**

Trademark Portfolio

$   856,890

 

Indefinite

Publisher Relationships

3,573,596

 

15 years

Goodwill

1,296,387

 

N/A

Total Intangible 

$5,726,873

 

 

·

The fair value of the Trademark portfolio was determined based on the “relief from royalty” method, an approach under which fair value is estimated to be the present value of royalties saved because we own the intangible asset and therefore do not have to pay a royalty for its use.  The fair value for the publisher relationships was determined based on the “excess earning method”, of income approach.  Estimated discounted cash flows associated with existing customers and projects were based on historical and market participant data.

·

The Company amortizes the intangible assets over the estimated useful lives noted above. For the publisher relationship assets, as the pattern of consumption of the economic benefits of the intangible assets cannot be reliably determined, the Company amortizes these acquired intangible assets over their estimated useful lives on a straight-line basis. Amortization commences once the asset has been placed in service.

·

After an analysis of the current and forecasted financial future of the Travora subsidiary, it was determined that that asset was impaired and it was necessary to write off the asset.  Expected revenue from Travora is not expected to generate profitability over the foreseeable life of the asset.  While the Company believes that the subsidiary still has strategic value to the overall value of Mediashift, on a standalone basis it cannot achieve the forecasted financial returns required to maintain the anticipated asset value booked at the time of the acquisition.  The Company has written off the asset in accordance with GAAP

The significant identifiable tangible assets acquired include primarily accounts receivable and fixed assets.  The Company determined that the book value of accounts receivable reflected fair value of those assets.  The Company determined the book value of the fixed assets reflected fair value of those assets.

***The following pro forma information for the period ending December 31, 2013 and 2012 presents the results of operations as if the TNI acquisition had occurred January 1, 2012.*** The supplemental pro forma information has been adjusted to include:

 

·

the pro forma impact of amortization of intangible assets and depreciation of property, plant and equipment, based on the purchase price allocation; 

·

the pro forma impact of interest expense on the assumption of the Eastward Debt of $2,250,000 

 

The pro forma results are presented for illustrative purposes only and are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction been completed on January 1, 2012 or that may be achieved in the future.  The pro forma results do not reflect any operating efficiencies and associated cost savings that the Company may, or may not, achieve with respect to the combined companies.

28

** **

**Year ended**

**December 31,**

** **

** **

**2013**

**2012**

** **

Revenues

7,568,147

10,893,929

 

Income (Loss) from continuing operations, before provision for income taxes 

(22,694,661)

(6,677,799)

 

Income (Loss) from continuing operations

(22,698,686)

(6,699,142)

 

Net Income (Loss)

(22,698,686)

(10,077,422)

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

Basic 

18,482,996

4,428,229

 

Diluted 

18,482,996

4,428,229

 

 

 

 

 

Earnings per share:

 

 

 

Basic - Income (Loss) from continuing operations

(1.23)

(1.51)

 

Basic - Net Income (Loss)

(1.23)

(1.51)

 

Diluted - Income (Loss) from continuing operations

(1.23)

(1.51)

 

Diluted - Net Income (Loss)

(1.23)

(1.51)

 

**Contingent Earnout Liabilities - Travora Earnout Consideration******

As part of the Travora Networks, Inc. (“TNI”) acquisition on February 6, 2013, the Company agreed to issue additional cash to the sellers, contingent upon TNI meeting certain publisher retention goals and revenue performance targets.

**Publisher Retention Earnout Payments**

The Seller shall be entitled to receive, in two installments, Publisher Retention Earnout Payments equaling, in the aggregate, up to $1,000,000.   In the event that the number of Publishers retained by TNI for the initial 180 day period following the Closing Date is equal to or exceeds eighty-five percent (85%) of the Baseline Number of Publishers, the Company shall pay to the Seller an amount equal to the product of $500,000 multiplied by a fraction, the numerator of which is the actual number of Publishers retained by the Company and the denominator of which is the Baseline Number of Publishers.

In the event that the number of Publishers retained by the Company for the second 180 day period following the Closing Date is equal to or exceeds the Baseline Number of Publishers, the Company shall pay to the Seller an amount equal to the product of $500,000 multiplied by a fraction, the numerator of which is the actual number of Publishers retained and the denominator of which is Baseline Number of Publishers.

Notwithstanding the foregoing, if any three (3) of the Seller’s Major Publishers, in the aggregate, cease doing business with TNI during the initial publisher retention earnout period, then no initial publisher retention earnout payment or second publisher retention earnout payment shall be paid to the Seller and if during the second publisher retention earnout period, then no second publisher retention earnout payment shall be paid to the Seller.

The estimated fair value of the Publisher Retention Earnout Payments contingent earnout consideration on the acquisition date was $67,747 on the acquisition date and $0 as of December 31, 2013.  Changes are recorded as a gain or loss on the Contingent Liability and are included in Other Income on the Income Statement.  The changes were a gain of $67,747 as of December 31, 2013.  

29

**Revenue Goal Earnout Payments**

The Seller shall be entitled to receive, in two installments, Revenue Goal Earnout Payments equaling, in the aggregate, up to $2,000,000.  In the event that Ad Network Revenue for the period beginning on January 1, 2013 and ending on June 30, 2013 is equal to or exceeds $5,159,700, the Company shall pay to the Seller an amount equal to the lesser of the product of $1,000,000 multiplied by a fraction, the numerator of which is the actual Ad Network Revenue achieved during the Initial Revenue Goal Earnout Period and the denominator of which is $5,733,000 and $1,000,000.

In the event that Ad Network Revenue for the period beginning on July 1, 2013 and ending on December 31, 2013 is equal to or exceeds $6,407,100, the Company shall pay to the Seller an amount equal to the lesser of the product of $1,000,000 multiplied by a fraction, the numerator of which is the actual Ad Network Revenue achieved during the Second Revenue Goal Earnout Period and the denominator of which is $7,119,000 and $1,000,000.

The estimated fair value of the Revenue Goal Earnout Payments contingent consideration on the acquisition date was $1,315,081 on the acquisition date and $0 as of December 31, 2013. Changes are recorded as a gain or loss on the Contingent Liability and are included in Other Income on the Income Statement.  The changes were a gain of $1,315,081 for the year ending December 31, 2013.  

**Operating Leases -** In January 2012, the Company entered into an operating lease agreement that commenced February 2012 for its office facility in Glendale which expires on February 19, 2014. On February 7, 2014, the lease was extended to February 15, 2015.  In April, 2013, the Company entered into an operating lease agreement that commenced on May 16th, 2013 for its offices in New York, New York which expires June 15, 2018.  In April 2013, the Company entered into an operating lease agreement that commenced April, 2013 for its corporate office in Newport Beach, California which expires on April 30, 2014. 

**8% Convertible Promissory Notes**

During March of 2013, we received $6,944,350 pursuant to a private placement of 8% convertible promissory notes (the “8% Notes”). On March 20, 2013, the Company’s Board of Directors authorized an increase from maximum proceeds of $7,000,000 to maximum proceeds of $8,500,000, with a new closing date of April 5, 2013, subject to a ten business day extension at the Company’s option. As of the final closing date of April 19, 2013, a total of $7,767,344 in proceeds had been raised. On March 27, 2013, the Company exercised its option to convert all principal and accrued interest received prior to the end of the quarter to common shares (see below). On April 26, 2013, the Company exercised its option to convert all principal received following the end of the quarter and prior to the final closing date of the financing to common shares.  A total of $2,250,000 of the proceeds was used to finance the Travora acquisition. The Company used the balance of the proceeds to finance the remaining financial commitments pursuant to the Travora acquisition and for working capital purposes. The terms of the 8% Notes are as follows:

·

Bearing interest at 8% per annum,

·

Principal and interest due and payable on or before February 15, 2015,

·

Prepayable by the Company upon 30 days’ notice,

30

·

The 8% Notes are convertible into MediaShift common stock at the rate of $3.00 per share subject to antidilution provisions which provide that if the Company issues securities at a price below the conversion price of the 8% Notes, the conversion price will be reduced to the lower amount, 

·

The 8% Notes may be converted at any time prior to maturity date at the option of the holder or the Company, and

·

8% Note holders received warrants to purchase MediaShift common stock in an amount equal to the number of shares the 8% Notes are convertible into. Half of the warrants are exercisable at $4.00 per share up to July 31, 2013 and half are exercisable at $6.00 per share up to July 31, 2014. 

The maximum number of common shares that may be issued through, as applicable, the conversion of the 8% Notes and accrued interest and the exercise of the warrants which were sold in this private placement, is 5,193,346 shares.  The 8% Notes were offered and sold by officers and directors of the Company who received no remuneration for the sale of the securities, as well as by three placement agents who received commission of 6% of principal raised by those agents. Sales of the 8% Notes were made pursuant to Section 4(a)(5) and Section 4(a)(2) of the Securities Act, and Rule 506 promulgated thereunder, solely to “accredited investors” as defined in Rule 501(a) of Regulation D.  The securities sold in this transaction were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

On July 25, 2013, the Company received consent from the Board of Directors to approve an extension of the $4 warrants of the 8% Convertible Notes from July 31, 2013 to July 31, 2014.  In addition, any warrants exercised on or before September 20, 2013 were granted a new warrant to purchase additional common stock at $4 per share on or before July 31, 2014.  The fair value of the warrants extension of $1,282,795 was calculated using the Black-Scholes option pricing model.  116,667 warrants were exercised and replaced, which resulted in net proceeds of $466,668.  The fair value of the warrant replacement of $270,185 was calculated using the Black-Scholes option pricing model.

In November 2013, the Company issued $50,000 in a two year 8% convertible note to one investor.  The 8% Note was issued with a conversion price of the lesser of $3.50 per share or the product of .90 and the next financing price.  It also included the right to receive an additional 1⁄2 of a Warrant for every 3.50 invested in common shares at $3.50 per share.  The warrants were exercisable immediately after issuance and expire in 2 years. The fair value of the warrants of $15,438 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility of 151%, risk free interest rate of 0.34% and a contractual life of two years. The Company recorded the fair value of the warrants of $15,438 to loan warrant discount as a contra liability offsetting the respective term loan amounts on the Balance Sheet.

 

**10% Convertible Notes**

On November 5, 2012, the Company issued an aggregate of $500,000 in two year 10% convertible notes (the “10% Notes”) to two investors, and on November 7, 2012 the Company issued an aggregate of $500,000 in two year 10% convertible notes to three additional investors. The 10% Notes may be prepaid by the Company with fifteen days’ notice, and may be converted into the Company’s common stock at the lesser of 80% of the Company’s fair market value at the time of conversion or $8.00 per share. The 10% Notes were issued with two year warrants to purchase an aggregate of 100,000 common shares at $6.50 per share. The warrants are 

31

exercisable immediately after issuance and expire in 2 years. The fair value of the warrants of $284,251 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility of 102% and 104%, risk free interest rate of 0.28% and 0.27% and a contractual life of two years. The Company recorded the fair value of the warrants of $284,251 to loan warrant discount as a contra liability offsetting the respective term loan amounts on the Balance Sheet.

The fair value of the conversion feature on December 31, 2012 calculated using the Black Scholes model totaled $534,251 and is reflected as a discount to the 10% Notes. The discount attributable to the issuance date aggregate fair value of the conversion options and warrants, totaling $750,292, was amortized using the straight line interest method over the term of the 10% Notes. The intrinsic value of the conversion option in the 10% Notes totaling $534,251 was calculated in accordance with ASC 470 and recorded, on the issuance date, as additional paid in capital and a corresponding reduction of the carrying value of the 10% Notes.  The discount remaining was $289,386 and $750,292 as of December 31, 2013 and December 31, 2012 respectively.

On September 16, 2013, the Company issued $35,000 in a one year 10% convertible note to one investor. The 10% Notes may be prepaid by the Company with fifteen days’ notice, and may be converted into the Company’s common stock  at $3.50 provided the per share trading price of the Common Stock is at least $6.00 per share for five consecutive trading days prior to such conversion. The 10% Notes were issued with one year warrants to purchase 1⁄2 of a Warrant for every 3.50 invested of common shares at $4.00 per share. The warrants are exercisable immediately after issuance and expire in 1 year. The fair value of the warrants of $5,686 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility of 155%, risk free interest rate of 0.04% and a contractual life of one year. The Company recorded the fair value of the warrants of $5,686 to loan warrant discount as a contra liability offsetting the respective term loan amounts on the Balance Sheet.

In October of 2013, the Company issued $175,000 in a one year 10% convertible notes to four investors.  The 10% Notes may be prepaid by the Company with fifteen days’ notice, and may be converted into the Company’s common stock  at $3.50 provided the per share trading price of the Common Stock is at least $6.00 per share for five consecutive trading days prior to such conversion. The 10% Notes were issued with one year warrants to purchase 1⁄2 of a Warrant for every 3.50 invested of common shares at $3.50 per share. The warrants are exercisable immediately after issuance and expire in 1 year. The fair value of the warrants of $29,080 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility of 134% - 136% , risk free interest rate of 0.10% - 0.16% and a contractual life of one year. The Company recorded the fair value of the warrants of $29,080 to loan warrant discount as a contra liability offsetting the respective term loan amounts on the Balance Sheet.

**10% Promissory Notes**

On November 19, 2013, the Company issued $100,000 in a 10% promissory notes to one investor.  The 10% Notes may be prepaid in whole or in part at any time without premium, penalty or prior written notice. The 10% interest accrues monthly.

32

**12% Promissory Notes**

On September 17, 2013, the Company issued $500,000 in a 90 day 12% promissory notes to two investors.  The 12% Notes may be prepaid in whole or in part at any time without premium, penalty or prior written notice.  The 12% interest is payable monthly.  The principal amount is due and payable December 17, 2013, provided, however, that a payment of $250,000 is due on the date the Company raises $1,000,000 in debt or equity capital; and provided, further, that the balance of the Principal Amount is due on the date the Company raises $2,000,000 in debt or equity capital. 

In the fourth quarter of 2013, the Company issued $495,000 in 12% promissory notes with various investors.  The 12% Notes may be prepaid in whole or in part at any time without premium, penalty or prior written notice.  The 12% interest accrues monthly.

**Line of Credit**

In March 2011, the Company entered into a lending facility that provides for advances of up to $500,000 with interest at 12% per annum payable monthly. The facility was provided by an investor in our preferred stock.  On September 17, 2013, the line of credit expired, and no advances are available. As of December 31, 2013, there was no balance outstanding on the facility.

In June 2013, the Company entered into a loan agreement that provides for advances of up to $250,000 with interest at 10% per annum payable monthly, plus an origination fee of 2.5% added to the principal amount.  As of December 31, 2013, there was no balance outstanding on the agreement.

In November 2013, the Company approved a line of credit against the outstanding Accounts Receivable of up to $2,500,000.  The terms of the line include interest of 1.75% per month on the outstanding balance, and a $1,000 origination fee.  There is no prepayment penalty.  As of December 31, 2013 there was a $114,524 balance outstanding on the agreement.

 

**Patent issuance**

On February 26th, 2013, the Company was awarded a second patent for Methods and Systems for Searching, Selecting, and Displaying Content.  A third patent was awarded on October 8, 2013 for Methods and Systems for Processing and Displaying Content.

**Controls and Procedures**

**Evaluation of Disclosure Controls and Procedures**

As of December 31, 2013, the Company carried out an assessment under the supervision and with the participation of our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(1) and I 5d-15(1)). Our Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 31, 2013. 

33

**Management’s Report on Internal Control Over Financial Reporting**

Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company maintains internal controls over financial reporting to include those policies and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission's ("SEC's") rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 

In designing and evaluating the internal controls over financial reporting, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of management, including the Company's Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included an assessment of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this evaluation, our Chief Financial Officer concluded as of December 31, 2013 that our internal controls over financial reporting were effective at the reasonable assurance level. Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented. 

This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Report.

**Inherent Limitations on the Effectiveness of Controls**

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

34

**Changes in Internal Control over Financial Reporting**

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

In the third quarter of 2012, staffing was increased were to increase internal controls for financial reporting.

**Other Information**

None. 

35

**PART III**

**Directors, Executive Officers and Corporate Governance**

Our directors currently have terms which will end at our next annual meeting of the stockholders or until their successors are elected and qualify, subject to their death, resignation or removal.  Officers serve at the discretion of the board of directors.  There are no family relationships among any of our directors and executive officers.

The following table sets forth certain biographical information with respect to our directors and executive officers as of December 31, 2013:

 **Name**

**Age**

 

**Positions**

David Grant

51

 

Chairman of the Board and Chief Executive Officer 

Brendon Kensel 

43

 

President

Michael Spalter

52

 

Chief Operating Officer

Sanjeev Kuwadekar

55

 

Director and Chief Technology Officer 

Rick Baran

49

 

Chief Financial Officer and Secretary

Robert Burg

57

 

Director

Ed Cerkovnik

56

 

Director

Donald P. Wells

69

 

Director

***David Grant.*** Mr. Grant is a co-founder and has been Chairman of the Board and Chief Executive Officer since 2009. Mr. Grant also served, from February 2007 to February 2012, as the Chief Information Officer of AssistMed, Inc., where he contributed to the expansion of AssistMed’s products and services. Mr. Grant was founder and Chief Architect of iXept, Inc., a mobile payments technology company which has licensed its intellectual property to a global financial institution; he currently serves as a director of iXept. Mr. Grant also helped found MedEfficient Healthcare Solutions in 2004 and has been a managing partner of MedEfficient since then. Mr. Grant was a founder, initial President and initial chief executive officer in September 2004 of UniversCel, Inc., a high speed networking and communications technology firm, and he continues to serve as a director of that company.  In 1998, Mr. Grant also founded Rx-Connect, a startup venture that was acquired by PacifiCare Health Systems in 2001. While at PacifiCare from October 2000 to January 2003, Mr. Grant served as President and CEO of MEDeMORPHUS (formerly Rx-Connect), and as a Vice President with PacifiCare’s E-Solutions.  Mr. Grant holds a B.S. degree in Applied Physics from California State University, Northridge.

***Brendon Kensel.***Mr. Kensel has been President of MediaShift since January 1, 2013. He has over 20 years of experience in leading emerging companies in the media, marketing, and technology sectors. Mr. Kensel is responsible for leading all of our revenue initiatives, and oversees ad sales and operations, advertising product management, and marketing teams. Before joining MediaShift, Mr. Kensel was the Managing Partner of Kensel & Co., an M&A and corporate development advisory firm as well as its predecessor firm from November, 2001; he continues to manage Kensel & Co. Mr. Kensel was EVP and CRM division President at eSynergies, a diversified digital marketing services company from April, 2001, when it acquired Salesmation, a company he founded in August, 1999, through November, 2001. He is an advisor to several companies including JockTalk, a social media platform for professional athletes and fans, and PrimaHealth Credit, a healthcare finance company. Mr. Kensel holds a Bachelor of Science degree from Central Washington University and a M.B.A. from the Graziadio School of Business and Management at Pepperdine University.

36

***Michael Spalter.***  Michael Spalter has served as our Chief Operating Officer since October 2012.  Since 2008, Mr. Spalter has been the owner and operator of a privately held holding company managing various entertainment based businesses. From 2001 to 2007 he was the Senior Vice-President, Infrastructure Services for Washington Mutual Bank. His responsibilities at Washington Mutual Bank included managing data center operations, host systems, mid-range and client server systems, help desk services, voice and data communications, network and data security, systems integration, disaster recovery, print services and project management. From 1991 to 2001 Mr. Spalter was employed at Countrywide Home Loans where he last served as Executive Vice-President, I.T. Infrastructure.   Mr. Spalter holds a B.S. degree in Marketing from California State University, Northridge.

***Sanjeev Kuwadekar.  ***Mr. Kuwadekar is a co-founder and has been Chief Technology Officer since 2009 where he guides the current and future technical architecture for our next generation digital advertising platform. From January 2006 until joining the Company on a part time basis in August 2010, Mr. Kuwadekar served as Chief Executive Officer of Sycamore Solutions Ltd, a software consulting firm, for which he still provides consulting services.  Mr. Kuwadekar also served as the Chief Technology Officer, from September 2010 to November 2011, of GrowBiz Services Inc, a software consulting firm in California with operations in India, which he continues to supervise. Prior to Sycamore, Mr. Kuwadekar founded HeyAnita, Inc in 1999, a speech recognition product company in the wireless field  where he served as Chief Executive Officer for over six years from November, 1999 to December, 2005. While serving at HeyAnita, Mr. Kuwadekar received the Software Entrepreneur of the Year Award from Software Council of Southern California in 2003 for his outstanding contribution to the field of wireless communications software. Prior to HeyAnita, Sanjeev served in various executive roles at Microsoft for over nine years from April 1991 to October 1999.  He holds a Bachelor of Science degree in Electrical Engineering and a Master of Science degree in Computer Science with specialization in artificial intelligence and natural language processing systems from the Indian Institute of Technology (IIT Bombay).

***Rick Baran***. Rick is the Chief Financial Officer, Principal Financial and Accounting Officer, and Secretary at MediaShift, Inc . Previously, Mr. Baran served as the Chief Financial Officer and Executive Vice President of Clear Channel Media and Entertainment since 2010, a $3.5B unit of Clear Channel Communications.  He also served as the Chief Financial Officer and Executive Vice President of CBS Television Stations Group, where he was responsible for the financial performance of its nationwide network of CBS-owned and operated stations. Mr. Baran joined CBS after having spent the past five-and-a-half years with Tyco International Ltd, as Chief Financial Officer of Earth Tech, and also as Corporate Ombudsman of Tyco International Ltd., from 2003 to December 31, 2005.  Prior to that, Mr. Baran spent 12-and-a-half years in a wide range of leadership roles at General Electric, most notably as Global Chief Financial Officer of its Hydro Electric and Power and turbine installation businesses. Mr. Baran has been a licensed Attorney in Connecticut since 1994. Mr. Baran earned his Bachelor's degree in Business Administration from the University of Massachusetts. He then earned his M.B.A. and J.D. from the University of Connecticut.

 

***Robert Burg - Director.***  Mr. Burg was appointed to our Board of Directors in September 2012. Since 2009, Mr. Burg has been the president of CMC Golf, a manufacturer, and distributor of fine golf accessories.  Since 1998, Mr. Burg has been the owner of The Burg Group, a national sales and marketing agency specializing in the golf industry.  From 1992 to 1998, Mr. Burg held several executive level positions, including President from 1995 to 1998, with Royal Grip, Inc., a publicly traded company that designed and distributed golf club grips and athletic headwear. He received a B.A. degree in Business from Great Western University in 1977.   

37

***Ed Cerkovnik - Director.***  Mr. Cerkovnik was appointed to our Board of Directors in September 2012. Mr. Cerkovnik is a founder and President of Breckenridge Holding Company, the owner and operator of the Breckenridge Brewery & Pub concept, as well as other food and beverage concepts. Mr. Cerkovnik has served as an officer and director of Breckenridge Holding Company since its inception in 1994. In addition, Mr. Cerkovnik has been an active principal in other restaurant and commercial real estate projects since 1994.  Prior to 1994 and beginning in 1984, Mr. Cerkovnik was engaged in the private practice of law in Denver, Colorado, concentrating his practice in the areas of business, corporate and securities law, including mergers and acquisitions, private placements and public offerings, corporate structuring and formation, project finance, strategic alliances and joint ventures, and general corporate matters. Since 1994 Mr. Cerkovnik has continued to serve as a legal and business adviser to clients with significant business interests in a range of industries, including investment management and financial services, real estate development and investments, manufacturing, telecommunications, software and services, and branded consumer products.  Mr. Cerkovnik received his undergraduate degree from the University of Montana in 1980 and his law degree from the University of Texas in 1983.  

***Donald P. Wells - Director.***  Mr. Wells was appointed to our Board of Directors in September 2012. Mr. Wells has served since 1997 as Chief Financial Officer for Wetzel’s Pretzels LLC, a private company that operates and franchises over 240 fresh pretzel bakeries in shopping malls in more than 25 states and five other countries (including Canada, Lebanon, Mexico, the Philippines, and South Korea).  Mr. Wells served as Chief Financial Officer and Executive Vice-President of Merchandising Resources, Inc., a manufacturing and marketing company serving the beverage industry with point of sale merchandising equipment and display material via a direct sales force. He also served as Finance Vice President of Nestle Brands, a subsidiary of Nestle USA. From 1989 to 1990, Mr. Wells served as Chief Financial Officer and Vice President of Finance of Superior Brands, Inc., a manufacturer of pet products sold nationally primarily through the grocery channel.  

**Director Compensation**

We reimburse our directors for expenses incurred in connection with attending board meetings but did not pay director's fees or other cash compensation for services rendered as a director in the years ended December 31, 2012 or December 31, 2013. We have no present formal plan for compensating our directors for their service in their capacity as directors, although in the future, we expect to compensate our directors with cash fees and options to purchase shares of common stock as awarded by our board of directors or (as to future options) a compensation committee which may be established in the future. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. No director has received and/or accrued any compensation for his or her services as a director, including committee participation and/or special assignments.  MediaShift has issued 50,000 options for shares of its common stock to each of Donald Wells, Robert Burg and Ed Cerkovnik, after joining our Board of Directors upon compliance with the provisions of Rule 14(f)-1. These options vest in equal monthly installments over a 24 month period and, pursuant to the terms of the Merger Agreement and the transactions related thereto, were exchanged for corresponding options for shares of our Class M Preferred and, upon the Automatic Conversion, options for shares of our common stock.  

**Corporate Governance**

We are committed to having sound corporate governance principles. We believe that such principles are essential to running our business efficiently and to maintaining our integrity in the marketplace. Our Board of Directors has five directors, and an audit committee.

38

**Director Qualifications**

We believe that our directors should have the highest professional and personal ethics and values, consistent with our longstanding values and standards. They should have broad experience at the policy-making level in business or banking. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties for us. Each director must represent the interests of all stockholders. When considering potential director candidates, the Board of Directors also considers the candidate’s character, judgment, diversity, age and skills, including financial literacy and experience in the context of our needs and the needs of the Board of Directors.

**Director Independence**

Mr. Cerkovnik, Mr. Burg and Mr. Wells, current members of our Board of Directors, are considered independent directors in accordance with the definitions and criteria applicable under NASDAQ rules.  

**Committees of the Board of Directors**

The Board of Directors has established an audit committee consisting of Mr. Cerkovnik and Mr. Wells.  All board members are present for all other corporate business.  

**Code of Ethics**

We have adopted a Code of Conduct effective January 1, 2005, which applies to all of our employees, consultants, officers and directors. It establishes standards of conduct for individuals and also individual standards of business conduct and ethics. In addition it sets out our policies in relation to our employees on such issues as discrimination, harassment, privacy, drugs, alcohol, tobacco, and weapons. We will provide such Code of Conduct in print, free of charge, to any investor who requests it by writing to: 20062 SW Birch St., Suite 220, Newport Beach, California 92660 . 

**Section 16(a) Beneficial Ownership Reporting Compliance**

Section 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than 10 percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission (the "SEC") initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended December 31, 2013, all officers, directors and greater than ten percent beneficial owners complied with the Section 16(a) filing requirements**..**

39

**Executive Compensation**

The following table provides a summary of annual compensation for our executive officers for the year ended December 31, 2013. We do not have an employment agreement with any of our executive officers.

 

**Annual compensation**

**Long-term compensation**

**All other compensation**

**Name and**

**principal position**

**Annualized**

**salary  **

**Actual**

**salary**

**Bonus**

**Securities**

**underlying**

**options**

David Grant - Chief Executive Officer 

$ 250,000

$ 250,000

-

-

-

Sanjeev Kuwadekar - Chief Technology Officer 

$ 240,000

$ 240,000

-

-

-

Brendon Kensel - President

$ 210,000

$ 210,000

-

-

-

 

 

 

 

 

 

 

***Stock options granted during the most recently completed financial year***

The Ad-Vantage Board of Directors adopted the Ad-Vantage Plan in September 2010. The Ad-Vantage Plan provided long-term incentives to employees, members of the Board, and advisers and consultants of the Company who were able to contribute towards the creation of or have created stockholder value by providing them stock options and other stock and cash incentives. Provisions such as vesting, repurchase and exercise conditions and limitations were determined by the Ad-Vantage Board of Directors on the grant date. The total number of shares that could be issued pursuant to the Ad-Vantage Plan could not exceed 1,250,000 shares, subject to adjustment in the event of certain recapitalizations, reorganizations, and similar transactions.

As of December 31, 2012, 1,115,521 options were granted under the Ad-Vantage Plan, and 929,917 remained outstanding at the time of the Merger, at which time they were exchanged for 92,991.70 Class M Preferred Options. No options were granted under the Ad-Vantage Plan following the Merger, and no future options will be granted under the Ad-Vantage Plan.

The Mediashift Board of Directors adopted the 2013 Stock Incentive Plan in July 2013. The 2013 Stock Incentive Plan provides long-term incentives to employees, officers, directors, consultants and other service providers upon whose judgment, initiative and efforts the successful conduct and development of the Company’s business largely depends, and to provide additional incentives to such persons to devote their utmost effort and skill to the advancement and betterment of the Company, by providing them an opportunity to participate in the ownership of the Company and thereby have an interest in the success and increased value of the Company.  Provisions such as vesting, repurchase and exercise conditions and limitations were determined by the Mediashift Board of Directors on the adoption date. The total number of shares that could be issued pursuant to the 2013 Stock Incentive Plan could not exceed 2,000,000 shares, subject to adjustment in the event of certain recapitalizations, reorganizations, and similar transactions.

***Option exercises in last fiscal year and fiscal year-end option values*****

On May 29, 2013, 1,864 MediaShift Common Stock Options were exercised in a cashless exercise. 

In October 2012, 42,500 MediaShift Common Stock Options were exercised providing proceeds of $18,700. 

40

**Employment Agreements**

MediaShift has no employment agreements.

**Security Ownership of Certain Beneficial Owners and Management**

**and Related Stockholder Matters**

The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2013, for each of the following persons;  

·

each of our executive officers and directors;

·

all executive officers and directors as a group; and

·

each person who is known by us to beneficially own more than 5% of our outstanding common stock.          

As of December 31, 2013, there were 22,498,527 shares of common stock issued and outstanding. Shares of common stock not outstanding but deemed beneficially owned because an individual has the right to acquire the shares of common stock within 60 days, are treated as outstanding when determining the amount and percentage of common stock owned by that individual and by all directors and executive officers as a group. The address of each executive officer and director is 20062 SW Birch St., Suite 220, Newport Beach, CA 92660. The address of other beneficial owners is set forth below. 

**Name of beneficial owner**

 

**Number of Shares**

**beneficially owned (1)**

 

**Percentage**

**of shares outstanding (1)**

**Executive officers and directors:**

 

 

 

 

David Grant (2)

 

 7,980,474 

 

35.5%

Sanjeev Kuwadekar (3)

 

 3,504,557 

 

15.6%

Brendon Kensel (4)

 

201,000

 

0.90%

Michael Spalter

 

-

 

*

Ed Cerkovnik (5)

 

16,250

 

0.10%

Donald Wells (6)

 

14,000

 

0.10%

Robert Burg (7)

 

20,417

 

0.10%

Richard Baran 

 

20,000

 

0.10%

All executive officers and directors as a group (8 persons)

 

11,756,698

 

52.3%

**Stockholders owning 5% or more:   **

 

 

 

 

Justin Yorke (8)

 

2,536,946

 

11.3%

41

(1)

For each of the persons or groups identified in this table, the percentage is based on the sum of (a) 22,498,527 shares of our common stock issued and outstanding and (b) any shares of common stock underlying stock options beneficially owned by such person or group, including options for our common stock and any warrants for our common stock exercisable within sixty days of the date hereof.

(2)

Includes (a) 6,286,507 shares of our common stock and (b) 1,693,967 shares of our common stock underlying vested options. 

(3)

Includes (a) 2,760,666 shares of our common stock and (b) 743,891 shares of our common stock underlying vested options.

(4)

Includes (a) 50,000 shares of our common stock and (b) 151,000 shares of our common stock underlying vested options held by Kensel and Co. LLC.  Mr. Kensel serves as Managing Partner of Kensel and Co. LLC and, as such, may be deemed to have beneficial ownership of the shares of our common stock and shares of our common stock underlying vested options held by Kensel and Co. LLC.

(5)

Includes (a) 10,000 shares of our common stock, (b) 18,750 shares of our common stock underlying vested options.

(6)

Includes (a) 1,500 shares of our common stock owned prior to the Merger and (b) 25,000 shares of our common stock underlying vested options.

(7)

Includes (a) 10,000 shares of our common stock and (b) 22,917 shares of our common stock underlying vested options. 

(8)         

Includes (a) 2,493,446 shares of our common stock and (b) 42,500 shares of our common stock underlying vested options. 

Mr. Yorke may be deemed to be the beneficial owner of JMW Fund LLC, which owns 1,186,655 shares of our common stock and of San Gabriel Fund LLC which owns 1,232,291 shares of our common stock due to his position as manager of both funds. 

 

As a result, when including the (a) 42,500 shares of our common stock owned personally and (b) 2,494,446 shares of our common stock owned by JMW Fund LLC and San Gabriel Fund LLC, Mr. Yorke may be deemed to be the beneficial owner of 2,536,946 shares of common stock, or approximately 11.3% of our common stock.  The address for Mr. Yorke is 4 Richland Place, Pasadena, CA  91103.

*

Less than one percent.

**Certain Relationships, Related Transactions, and Director Independence**

MediaShift utilizes the programming services of a company managed by its Chief Technology Officer.  Payments to this company were $148,734 and $198,492 for the years ending December 31, 2012, and 2013, respectively.

**Conflicts of Interest Policies**

All transactions between us and any of our officers, directors, or 5% stockholders must be on terms no less favorable than could be obtained from independent third parties. Our bylaws require that a majority of disinterested directors is required to approve any proposal in which any of our officers or directors have a principal or other interest. 

Other than as described in this section, there are no material relationships between us and any of our directors, executive officers, or known holders of more than 5% of our common stock. 

42

**Principal Accounting Fees and Services**

It is the policy of the Company for the Board of Directors to pre-approve all audit, tax and financial advisory services. All services rendered by Hein & Associates LLP were pre-approved by the Board of Directors for the years ended December 31, 2013 and 2012. The aggregate fees billed by Hein & Associates LLP for professional services rendered for the audit of the Company’s financial statements and other services were as follows:

 

 

 

**Year ended December 31,**

**2013**

**2012**

Audit fees

$124,926

$ 68,322

Audit related fees

-

-

Tax fees

15,670

-

All other fees

31,904

-

43

**PART IV**

**Exhibits and Financial Statement Schedules**

**Financial Statements**

The following financial statements of the registrant and the Reports of our Independent Registered Public Accounting Firm thereon are included herewith in Item 8 above. 

 

 

**Page**

 

Report of Hein & Associates LLP, Independent Registered Public Accounting Firm

 

 

F-2

 

Consolidated Balance Sheets as of December 31, 2013 and 2012.

 

 

F-3

 

Consolidated Statements of Operations for the years ended December 31, 2013 and 2012. 

 

 

F-4

 

Consolidated Statements of Cash Flows for the years ended December 31, 2013 and 2012.

 

 

F-5

 

Consolidated Statements of Shareholders’ Equity for the period from December 31, 2012 through December 31, 2013.

 

 

F-6

 

Notes to Consolidated Financial Statements.

 

 

F-7

 

**Financial Statement Schedules**

None

**Exhibits**

2.1

Ad-Vantage - Amended and Restated Agreement and Plan of Merger

2.2

Voting agreement

2.3

Asset Purchase Agreement by and among Travora Networks, Inc. JMG Exploration, Inc. and Travora Media, Inc. dated February 6, 2013.

2.4

Letter Agreement regarding Master Lease Agreement No. 527 dated as of January 13, 2012, by and between Travora Media, Inc. and Eastward Capital Partners V, L.P. and the Rental Schedule and Acceptance Certificate No. 527-01 dated as of January 13, 2012 by and between Travora and Eastward to Master Lease Agreement.

2.5

Master Lease Agreement No. 527 dated as of January 13, 2012, by and between Travora Media, Inc. and Eastward Capital Partners V, L.P.

2.6

IP Assignment Agreement 

2.7

Form of Lock-up Agreement

3.1

Amended and Restated Articles of Incorporation of the registrant 

3.2

Amendment to Articles of Incorporation of the registrant dated March 4, 2013

3.3

By-laws of the registrant 

4.1

Certificate of Designation Class M Preferred Stock 

4.2

Specimen of Common stock Certificate 

4.3

Form of Lockup Agreement 

4.4

Form of $4.25 Warrant 

4.5

Form of $6.00 Warrant

4.6

Form of $5.00 Warrant 

4.7

Form of Underwriter’s Warrant Agreement 

4.8

Form of 8% Convertible Promissory Note

10.1

Equity compensation plan

14.1

Code of Business Conduct

31.1                    

Certification of David Grant, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

44

31.2

Certification of Richard Baran, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*

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

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

31.1

Certification of David Grant, Chief Executive Officer, pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

45

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the *Securities Exchange Act of 1934*, MediaShift, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 

 

 

 

 

 

 

April 15, 2014

 

MediaShift, Inc.

 

 

 

 

 

 

 

 

 

  

 

By: 

 

/s/ David Grant

 

 

  

 

 

 

 David Grant

 

 

  

 

 

 

Chief Executive Officer

 

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on April 15, 2014.

**Signature**

**Title**

 

/s/ David Grant

Chief Executive Officer

David Grant

 

/s/ Brendon Kensel

 

Brendon Kensel

President

 

/s/ Michael Spalter

 

Michael Spalter

Chief Operating Officer

 

/s/ Sanjeev Kuwadekar

 

Sanjeev Kuwadekar 

Chief Technology Officer 

 

/s/Rick Baran

Chief Financial Officer and Secretary

Rick Baran

/s/ Robert Burg

Director 

Robert Burg

 

/s/ Ed Cerkovnik

 

Director

Ed Cerkovnik

 

/s/ Donald P. Wells

 

Donald P. Wells

Director 

46

**MediaShift, Inc.**

**Financial Statements**

**As of December 31, 2013 and 2012**

1

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders 

MediaShift, Inc.

We have audited the accompanying consolidated balance sheets of MediaShift, Inc. as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards established by the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MediaShift, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

/s/

Irvine, California

April 15, 2014

F-2

**MediaShift, Inc.**

***BALANCE SHEETS***

 

**December 31,**

 

**2013**

 

**2012**

**ASSETS**

 

 

 

Current Assets:   

 

 

 

Cash and cash equivalents

$    93,809

 

$ 902,701

Accounts receivable, net

1,929,932

 

6,240

Prepaid expenses

95,533

 

57,625

     Total current assets

2,119,274

 

966,566

Property and equipment, net of depreciation 

446,099

 

163,819

Discontinued operations: assets held for sale

10,542

 

10,542

Patents

296,790

 

215,070

Deposits

118,250

 

10,250

Other assets

1,905

 

434

     **Total Assets**

**$  2,992,860**

 

**$ 1,366,681**

**LIABILITIES AND STOCKHOLDERS’ EQUITY**

 

 

 

Current Liabilities:

 

 

 

Accounts payable and accrued expenses

$    3,895,880

 

$ 294,632

Note Payable, less discount of $222,605 and $0 in 2013 and 2012

2,579,662

 

-

Liabilities directly associated with assets held for sale

379,422

 

378,296

     Total Current Liabilities

6,854,964

 

672,928

Long-Term Liabilities:

 

 

 

Note Payable, less discount of $0 and $750,292 in 2013 and 2012 respectively

1,603,865

 

249,707

      Total Long-Term Liabilities

1,603,865

 

249,707

**     Total Liabilities**

**$8,458,829    **

 

**$  922,635**

Commitments and Contingencies (Note 5)

 

 

 

Stockholders’ equity:

 

 

 

Series A preferred stock, $0.001 par value, 0 and 0 shares issued and outstanding at December 31, 2013 and 2012; liquidation preference of $0 and $0 December 31, 2013 and 2012. 

-

 

-

Series B preferred stock, $0.001 par value, 0 and 0 and shares issued and outstanding at December 31, 2013 and 2012, respectively; liquidation preference of $0 and $0 as of December 31, 2013 and 2012.

-

 

-

Class M preferred stock, $0.01 par value, 0 issued and outstanding at December 31, 2013 and 169,973.88 at December 31, 2012; no liquidation preference as of December 31, 2013 and 2012

-

 

1,700

Common stock - 100,000,000 and 25,000,000 shares authorized, $0.001 par value, 22,498,527 and 2,771,705 shares issued and outstanding at December 31, 2013 and 2012, respectively

22,499

 

5,543

Additional paid-in capital

28,296,419

 

10,430,087

Accumulated deficit 

(33,784,887)

 

(9,993,284)

**     **Total Stockholders’ Equity

(5,465,969)

 

444,046

**     Total Liabilities and Stockholders’ Equity**

**$  2,992,860**

 

**$ 1,366,681**

*The accompanying notes are an integral part of these consolidated financial statements.*

F-3

**MediaShift, Inc.**

***STATEMENTS OF OPERATIONS***

 

**For the years ended December 31,**

 

**2013**

**2012**

**Revenues**

** **6,952,652

 $    12,780

**Cost of goods sold**

(5,187,834)

(9,237)

**Gross profit**

** **1,764,818

 3,543

**Expenses:**

** **

 

General and administrative expenses

 12,252,906

 5,394,313

Depreciation and Amortization

 349,259

 25,729

Research and development expenses

 402,457

 202,703

     Total expenses

13,004,622

5,622,745

     Total operating loss

(11,239,804)

(5,619,202)

**Other Income and Expense**

** **

 

Interest income

 52

 -

Interest expense

(1,583,789)

(83,141)

Fair value adjustment on derivative liability 

(659,787)

 -

Loss on debt extinguishment

(4,991,513)

 -

Loss on impairment

(5,408,709)

 -

Other income

1,378,767

 -

Total other income and expense

(11,264,979)

(83,141)

**Net loss before taxes and discontinued operations**

**(22,504,783)**

**(5,702,343)**

**Taxes**

(4,025)

(2,000)

**Net loss from continuing operations**

**(22,508,808)**

**(5,704,343)**

**Discontinued Operations:**

 

 

Gain from discontinued operations

 -

6,450

**Net loss**

**(22,508,808)**

**(5,697,893)**

Less: deemed dividend on warrant extension 

 -

(3,384,730)

**Net loss applicable to common shareholders**

**$  (22,508,808)**

**$  (9,082,623)**

 

 

 

**Basic and diluted weighted average shares outstanding**

**18,482,996  **

** 4,428,229**

**Per Share Amounts applicable to common shareholders for the period per share, basic and diluted:**

 

 

**(Loss) from continuing operations**

**$ (1.22)**

**$ (1.29)**

**(Loss) from discontinued operations**

**$         -**

**$         -**

**(Net Loss) per share**

**$ (1.22)**

**$ (1.29)**

*The accompanying notes are an integral part of these consolidated financial statements.*

  

F-4

**MediaShift, Inc.**

***STATEMENTS OF CASH FLOWS***

 

**For the years ended December 31,**

 

**2013**

**2012**

**OPERATING**

 

 

Net loss

$   (22,508,808)

$   (5,697,893)

Adjustments to reconcile net loss to cash flows from operating activities:

 

 

Stock based compensation 

1,775,687

2,865,603

Depreciation

349,259

25,729

Fair value of common stock warrants issued

270,185

-

Loss on derivative liability

659,787

-

Loss on debt extinguishment

4,991,513

-

Gain on contingent liability

(1,382,828)

-

Loss on Impairment

5,408,709

-

Sale of Nileguide

100,000

-

Loss on disposal of fixed assets

16,865

-

Depletion and accretion

-

2,740

Amortization of note discount

814,929

68,209

(Increase) in accounts receivable

792,308

(3,658)

(Increase) in other assets

(1,471)

(434)

(Increase) in prepaid expenses

(32,908)

(44,448)

(Increase) in deposits

(108,000)

(10,250)

Increase in accounts payable and accrued expenses

1,354,349

87,563

Increase in liabilities directly associated with assets held for sale

1,126

32,210

**Cash used in operating activities**

**(7,499,298)**

**(2,674,629)**

**INVESTING**

 

 

Purchase of property and equipment

(328,976)

(162,873)

Net Cash paid in acquisition of certain assets of Travora Media Inc.

(804,451)

-

Patent costs

(89,703)

(94,501)

**Cash used in investing activities**

**(1,223,130)**

**(257,374)**

**FINANCING**

 

 

Loan proceeds

9,122,344

1,000,000

Line of credit, net

114,524

-

Payments on note payable

(1,790,000)

-

Net cash from JMG

-

1,509,736

Exercise of warrants and options

466,668

74,497

Net proceeds from issuance of preferred stock

-

602,000

**Cash provided by financing activities**

**7,913,536**

**3,186,233**

Net increase in cash and cash equivalents

(808,892)

254,230

Cash and cash equivalents, beginning of period

902,701

648,471

**Cash and cash equivalents, end of period**

**$         93,809    **

**$    902,701**

 

 

 

Cash paid during the year for:

 

 

Interest

$        319,534

$      14,932

Income taxes

$            4,025

$        2,000

Non Cash Transactions

 

 

Extinguishment of debt via issuance of common stock

$   11,604,760

 

Dividend of affiliated entity

-

$      20,894

Extension of warrant expiration date - deemed dividend

$     1,282,795

$ 3,384,730

*The accompanying notes are an integral part of these consolidated financial statements.*

F-5

**MediaShift, Inc.**

*STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY*

*for the year ended December 31, 2013 and 2012*

 

**Preferred Stock**

**Class M Preferred**

**Common Stock**

**Additional Paid in Capital**

**Accumulated Deficit**

**Total**

 

**Shares**

**$**

**Shares**

**$**

**Shares**

**$**

**$**

**$**

**$**

**Balance at December 31, 2011**

**5,683,899**

**5,684**

**-**

**-**

                        **5,215,583**

**10,431**

**1,642,742**

**(910,661)**

**748,196**

Series C preferred stock

528,070

528

-

-

-

-

601,472

-

602,000

Exercised warrants, Series A preferred stock

168,651

169

-

-

-

-

26,394

-

26,563

Exercised options

-

-

-

-

                           135,302 

271

47,663

-

47,934

Stock based compensation

-

-

-

-

-

-

2,865,603

-

2,865,603

Net equity acquired in JMG Merger

-

-

-

-

                    2,729,205

5,458

1,048,576

-

1,054,034

Conversion of stock to Class M Preferred

(6,380,620)

 (6,381)

169,974

1,700

                     (5,308,385)

(10,617)

15,298

-

-

Dividends

-

-

-

-

-

-

(20,894)

-

(20,894)

Beneficial conversion feature on convertible note

-

-

-

-

-

-

818,503

-

818,503

Extension of warrant expiration dates

-

-

-

-

-

-

3,384,730

(3,384,730)

-

Net loss for the year ended December 31, 2012

-

-

-

-

-

-

-

(5,697,893)

(5,697,893)

**  Balance at December 31, 2012**

**-**

**$         -**

**169,974**

**$ 1,700**

                        **2,771,705**

**$      5,543**

**$ 10,430,087**

**$   (9,993,284)**

**$    444,046**

Conversion of Class M Preferred to Common Stock

-

-

(169,974)

(1,700)

16,997,388

16,997

(15,297)

-

-

Par adjustment stock split

-

-

-

-

-

(2,771)

2,771

-

-

Stock based compensation

-

-

-

-

-

-

1,775,687

-

1,775,687

Issuance of warrant with debt

-

-

-

-

-

-

2,481,493

-

2,481,493

Issuance of shares to extinguish debt

-

-

-

-

2,610,903

2,611

11,602,149

-

11,604,760

Exercised options

-

-

-

-

1,864

2

(2)

-

-

Extension of  Warrant expiration date

-

-

-

-

-

-

1,282,795

(1,282,795)

-

Warrants Exercised

-

-

-

-

116,667

117

466,551

-

466,668

Issuance of Replacement Warrants

-

-

-

-

-

-

270,185

-

270,185

Net loss for the year ended December 31, 2013

-

-

-

-

-

-

-

(22,508,808)

(22,508,808)

**  Balance at December 31, 2013**

**-**

**$         -**

-

-

**22,498,527**

**$    22,499**

**$  28,296,419**

**$(33,784,887)**

**$ (5,465,969)**

*The accompanying notes are an integral part of these consolidated financial statements.*

F-6

**MediaShift, Inc.**

NOTES TO FINANCIAL STATEMENTS

**1.  ****Principal Business Activities:**

**Organization and Business**

MediaShift, Inc. (the "Company") originally incorporated under the laws of the state of Nevada in July 2004 as JMG Exploration, Inc. (“JMG”).  At a Special Meeting of Shareholders (the "Meeting") of JMG Exploration, Inc held on March 4, 2013, JMG shareholders approved the following:

·

An increase in the authorized number of shares of common stock from 25,000,000 to 100,000,000 (the “Authorized Share Increase”); 

·

A change in the name from JMG Exploration, Inc. to MediaShift, Inc. (the “Name Change”); and

·

A reverse stock split of common stock of one share for every two (1-for-2) shares outstanding.

All share and per share information, including earnings per share, in this Form 10-K have been retroactively adjusted to reflect this reverse stock split and certain items in prior period financial statements have been revised to conform to the current presentation. 

All continuing operations are being conducted by MediaShift’s wholly owned subsidiaries, Ad-Vantage Networks, Inc. (“AdVantage”) and Travora Networks, Inc. (“TNI”). AdVantage provides digital advertising software and service solutions that enable access providers and network operators to generate advertising revenues on their free and fee-based networks. TNI operates a leading digital advertising network, where it engages in the marketing and selling of online advertiser ads to travel service providers through a proprietary network of web publishers. 

TNI was formed on January 14, 2013 as a Delaware Corporation. TNI acquired assets from Travora Media., Inc. related to Travora Media’s ad network business in an Asset Purchase Agreement which was effective on February 1, 2013 and which closed February 6, 2013 and therefore the financial information presented as December 31, 2013 represents only eleven months of TNI operations. 

**Liquidity and Going Concern**

The Company faces certain risks and uncertainties which are present in many emerging technology companies regarding product development, future profitability, ability to obtain future capital, protection of patents and property rights, competition, rapid technological change, government regulations, recruiting and retaining key personnel, and third party vendors and manufacturers. 

F-7

The Company's consolidated financial statements for the year ended December 31, 2013 have been prepared on a going-concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has historically reported net losses, including a net loss of $22,508,808 for the year ended December 31, 2013, and negative cash flows from operations of $7,499,298 for the year ended December 31, 2013. The Company believes that it will be able to obtain additional financing from existing related parties through December 31, 2014 if necessary.  However, no assurance can be given that the company will be able to obtain additional financing from existing related parties.  This raises substantial doubt about the Company's ability to continue as a going concern.

As of December 31, 2013, the Company had an accumulated deficit of $33,784,887. The Company anticipates being active in capital markets in 2014 to increase our working capital position.

**2. Summary of Significant Accounting Policies**

These financial statements have been prepared by management in accordance with accounting principles generally accepted in the United States.  

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

**Presentation  **

The accompanying consolidated financial statements include the accounts of MediaShift, Inc. and our subsidiaries Ad-Vantage Networks, Inc and Travora Networks, Inc. Intercompany balances have been eliminated in consolidation. On March 4, 2013, the Company announced the effectiveness of a one-for-two reverse stock split. All share and per share information, including earnings per share, in this Form 10-K have been retroactively adjusted to reflect this reverse stock split and certain items in prior period financial statements have been revised to conform to the current presentation. Our net loss is equivalent to our comprehensive loss so we have not presented a separate statement of comprehensive loss.

**Use of Estimates**

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions by management that affect 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 revenues and expenses during the reporting period. Actual results could differ from these estimates. 

**Cash and Cash Equivalents**

The Company considers all highly liquid investments with a maturity at the date of purchase of three months or less to be cash equivalents. 

**Cash Concentration**

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. The company has not experienced any losses in such accounts and does not believe that it is exposed to any significant credit risk on cash.

F-8

**Fair value of Financial Instruments**

The estimated fair values are determined at discrete points in time based on relevant market information.  These estimates involve uncertainties and cannot be determined with precision. The estimated fair values of all financial instruments on the Company's balance sheets were determined by using available market information and appropriate valuation methodologies.  Fair value is described as the amount at which the instrument could be exchanged in a current transaction between informed willing parties, other than a forced liquidation.  However, considerable judgment is required in interpreting market data to develop the estimates of fair value.  Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.  The Company does not have any off balance sheet financial instruments.

Trade accounts receivable, accounts payable and certain other current assets and liabilities are reported on the balance sheet at carrying value which approximates fair value due to the short-term maturities of these instruments.

The fair value of the Company’s debt is estimated based on current rates offered to the Company for similar debt and approximates carrying value.

**Property and Equipment**

Depreciation of property and equipment is provided for by the straight-line method over the three to seven year estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the assets’ useful lives or the remaining term of the lease. 

**Impairment of Long-Lived Assets**

When assets are placed into service, we make estimates with respect to their useful lives that we believe are reasonable. However, factors such as competition, regulation, or environmental matters could cause us to change our estimates, thus impacting the future calculation of depreciation and depletion. We evaluate long-lived assets for potential impairment by identifying whether indicators of impairment exist and, if so, assessing whether the long-lived assets are recoverable from estimated future undiscounted cash flows. The actual amount of impairment loss, if any, to be recorded is equal to the amount by which a long-lived asset’s carrying value exceeds its fair value. Estimates of future discounted cash flows and fair values of assets require subjective assumptions with regard to future operating results and actual results could differ from those estimates.  

**Intangible Assets**

The Company evaluates intangible assets for impairment, at least on an annual basis and whenever events or changes in circumstances indicate that the carrying value may not be recoverable from its estimated future cash flows. Recoverability of intangible assets and other long-lived assets is measured by comparing their net book value to the related projected undiscounted cash flows from these assets, considering a number of factors including past operating results, budgets, economic projections, market trends, and product development cycles. If the net book value of the asset exceeds the related undiscounted cash flows, the asset is considered impaired, and a second test is performed to measure the amount of impairment loss.

F-9

After an analysis of the current and forecasted financial future of the Travora subsidiary, it was determined that the intangible asset was impaired and it was necessary to write off the asset.  Forecasted revenue from Travora is not expected to generate profitability over the foreseeable life of the asset.  While the Company believes that the subsidiary still has strategic value to the overall value of Mediashift, on a standalone basis it cannot achieve the forecasted financial returns required to maintain the anticipated asset value booked at the time of the acquisition.  In accordance with GAAP, the Company has written off the asset and recorded an Impairment of $5,408,709.

**Patents**

Legal costs, patent registration fees, and models and drawings required for filing patent applications are capitalized if they relate to commercially viable technologies. Commercially viable technologies are those technologies that are projected to generate future positive cash flows in the near term. Legal costs associated with applications that are not determined to be commercially viable are expensed as incurred. All research and development costs incurred in developing the patentable idea are expensed as incurred. Legal fees from the costs incurred in successful defense to the extent of an evident increase in the value of the patents are capitalized.

**Revenue Recognition**

The Company recognizes revenue when persuasive evidence of an arrangement exits, collection of the related receivable is reasonably assured, the fees are fixed or determinable, and as services are provided.  Income is recognized as earned when an ad is either placed for viewing by a visitor to a member network publisher or internet access providers’ proprietary networks or when the customer “clicks through” on the ad, depending on the terms with the individual advertisers.  In certain cases, the Company records revenue based on industry accepted information from third parties.  The Company accrues any revenue sharing percentage with the network provider at the same time. For Wi-Fi Providers, the Company records revenue net of the revenue sharing agreements.

**Concentration of Credit Risk**

The Company conducts business with companies in Canada, New Zealand, England, Europe and Australia as part of its ongoing advertising business. This results in a number of receivables denominated in the currencies of those countries, with about $325,000 in receivables outstanding at any time. The company does not engage in hedging activities to offset the risk of exchange rate fluctuations on these payables. During 2013, the company incurred foreign exchange losses of $31,408.

**Allowance for Doubtful Accounts**

The allowance is established through a provision for bad debts charged to expense. Receivables are charged against the allowance for uncollectible accounts when management believes that collectability is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on an evaluation of the collectability of accounts receivable, overall accounts receivable quality, review of specific problem accounts receivable, and current economic conditions that may affect the customer’s ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. Recoveries of receivables previously written off are recorded when received.  The company has recorded an allowance for doubtful accounts of $119,949 for December 31, 2013.

F-10

The company also estimates an allowance for sales credits based on historical credits.  The allowance for sales credits is the Company’s best estimate of expected future reductions in advertisers’ payment obligations for delivered services.

**Income Taxes**

The Company accounts for income taxes using the asset and liability method of accounting for deferred income taxes. 

The provision for income taxes includes federal and state income taxes currently payable and deferred taxes resulting from temporary differences between the financial statement and tax bases of assets and liabilities.  Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized.

With respect to uncertain tax positions, the Company would recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits to be recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company’s reassessment of its tax positions did not have a material impact on its results of operations and financial position. 

**Advertising**

Advertising costs are charged to expense as incurred and were $370,207 and $64,205 for 2013 and 2012 respectively.

**Research and Development**

Research and development costs are expensed as incurred and were $402,457 and $202,703 for 2013 and 2012 respectively.

**Stock-based compensation**

The Company accounts for the cost of Director/employee/adviser services received in exchange for the award of common stock options or warrants based on the fair value of the award on the date of grant. The fair value of each stock option grant or warrant was estimated on the date of grant using the Black-Scholes option-pricing model. The expected life assumption is based on the expected life assumptions of similar entities. Expected volatility is based on actual share price volatility of the Company’s stock of the preceding twelve months. The risk-free interest rate is the yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating the expected term used as the input to the Black-Scholes model. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods as options vest, if actual forfeitures differ from those estimates. 

The Company recognizes stock-based compensation expense as a component of salary and other compensation expenses in the statements of operations and was $1,775,687 and $4,205,730 for 2013 and 2012 respectively.  

F-11

**Fair Value Measurements**

The fair value hierarchy established by ASC 820 “*Fair Value Measurements and Disclosures*” prioritizes the inputs used in valuation techniques into three levels as follows:

·

Level 1 - Observable inputs - unadjusted quoted prices in active markets for identical assets and liabilities;

·

Level 2 - Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data; and

·

Level 3 - Unobservable inputs - includes amounts derived from valuation models where one or more significant inputs are unobservable.

**Net Loss per Common Share**

Loss per share ("EPS") is computed based on weighted average number of common shares outstanding and excludes any potential dilution. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock, which would then share in the earnings of the Company. The shares issuable upon the exercise of stock options and warrants are excluded from the calculation of net loss per share for the years ended December 31, 2013 and 2012 because their effect would be antidilutive. The following shares were accordingly excluded from the net income/loss per share calculation.

 

**Years ended**

**December 31,**

 

**2013**

**2012**

Stock warrants

4,817,533

 2,131,276 

Stock options

5,679,374

 402,500 

Stock options - Class M

-

 18,650 

Total shares excluded

10,496,907

 2,552,426 

**Business Combination - Acquisition of Ad Network Assets of Travora Media**

On February 6, 2013, Travora Networks, Inc. (“TNI”), a wholly owned subsidiary of MediaShift, Inc. executed an asset purchase agreement with Travora Media, Inc. (“Travora” or “Seller”) to acquire Travora’s digital advertising network business, which was effective on February 1, 2013.  Activity from February 1st to February 6th was immaterial. Headquartered in New York City, Travora provides an established publishing network, advertiser and agency relationships, and an experienced ad sales and ad operations team. Travora represents over 300 established travel brands across desktop, tablet, and mobile platforms.  Travora achieved revenues of approximately $13.0 million and $10.9 million in 2011 and 2012 respectively. TNI retained approximately 20 of Travora’s former employees and will continue to operate out of New York City.

The acquisition was accounted for using the acquisition method of accounting.  Accordingly, the assets acquired and liabilities assumed were measured at their estimated fair value at the acquisition date.  Travora’s results of operations will be included in the Company’s consolidated financial statements from February 1, 2013.

F-12

The preliminary allocation of the purchase price based on the fair value of the acquired assets, less liabilities assumed, as of February 6, 2013, amounted to $5,782,828. An additional adjustment of $304,451 was made subsequent to February 6, 2013, therefore the total consideration was $6,087,279. 

The fair value of the consideration to Seller is as follows:

 

Cash consideration to Seller

 

$     804,451

Payment of Eastward Capital Partners debt 

 

1,750,000

Assumption of Eastward Capital Partners debt

 

2,250,000

Balance of consideration to be paid in MediaShift common stock 

700,000

 

Less allowance for audit expenses

(70,000)

 

Less amount of Aged Accounts Payable

(138,000) 

 

Less estimated reduction for Target Working Capital deficiency 

(592,000)

(100,000)

 

 

 4,704,451

Contingent consideration:

 

 

Earn-out consideration for publisher retention

 

67,747

Earn-out consideration for revenue targets

 

1,315,081

Total consideration

 

$ 6,087,279

As part of the purchase price paid in the transaction, TNI assumed Seller’s $4,000,000 obligations to Eastward Capital Partners.

The significant identifiable tangible assets acquired include primarily accounts receivable and property, plant and equipment.  Intangible assets include contracts, business relationships, trademarks and domain names. 

***Earnout Consideration***

As part of the acquisition, TNI agreed to issue additional cash to the sellers, contingent upon TNI meeting certain operating performance targets: publisher retention goals for 360 days following the acquisition date and revenue goals for the year ending December 31, 2013. As discussed in “Contingent Earnout Liabilities - Travora Earnout Consideration”, the estimated fair value of the contingency was $1,382,828 on the acquisition date and $0 as of December 31, 2013. Changes are recorded as a gain or loss on the Contingent Liability and are included in Other Income on the Income Statement.  The changes were a gain of $1,382,828 for the year ending December 31, 2013.  

The following table summarizes the fair value of the assets acquired and the liabilities assumed in thousands:

Accounts receivable

 $

2,716

 

 

Prepaid expenses & deposits

 

5

 

 

Fixed assets

 

91

 

 

Intangible assets

 

5,727

 

 

Accounts payable

 

(1,856)

 

 

Other accrued expense

 

(596)

 

 

Net assets acquired

$

6,087

 

 

F-13

***Intangible Assets***

Mediashift management determined the estimated fair value of intangibles acquired based on the methods described below.    Based on the preliminary assessment, the acquired intangible asset categories, fair value and amortization periods, generally on a straight line basis are as follows:

 

 

**Fair**

**Value at**

**2/6/2013**

 

**Amortization**

**Period**

Trademark Portfolio

$   856,890

 

Indefinite

Publisher Relationships

3,573,596

 

15 years

Goodwill

1,296,387

 

N/A

Total Intangible 

$5,726,873

 

 

·

The fair value of the Trademark portfolio was determined based on the “relief from royalty” method, an approach under which fair value is estimated to be the present value of royalties saved because we own the intangible asset and therefore do not have to pay a royalty for its use.  The fair value for the publisher relationships was determined based on the “excess earning method”, of income approach.  Estimated discounted cash flows associated with existing customers and projects were based on historical and market participant data.

·

The Company amortizes the intangible assets over the estimated useful lives noted above. For the publisher relationship assets, as the pattern of consumption of the economic benefits of the intangible assets cannot be reliably determined, the Company amortizes these acquired intangible assets over their estimated useful lives on a straight-line basis. Amortization commences once the asset has been placed in service.

·

After an analysis of the current and forecasted financial future of the Travora subsidiary, it was determined that the intangible asset was impaired and it was necessary to write off the asset.  Forecasted revenue from Travora is not expected to generate profitability over the foreseeable life of the asset.  While the Company believes that the subsidiary still has strategic value to the overall value of Mediashift, on a standalone basis it cannot achieve the forecasted financial returns required to maintain the anticipated asset value booked at the time of the acquisition.  In accordance with GAAP, the Company has written off the asset and recorded an Impairment of $5,408,709.

The significant identifiable tangible assets acquired include primarily accounts receivable and fixed assets.  The Company determined that the book value of accounts receivable reflected fair value of those assets.  The Company determined the book value of the fixed assets reflected fair value of those assets.

***The following pro forma information for the period ending December 31, 2013 and 2012 presents the results of operations as if the TNI acquisition had occurred January 1, 2012.*** The supplemental pro forma information has been adjusted to include:

 

·

the pro forma impact of amortization of intangible assets and depreciation of property, plant and equipment, based on the purchase price allocation; 

·

the pro forma impact of interest expense on the assumption of the Eastward Debt of $2,250,000  

F-14

The pro forma results are presented for illustrative purposes only and are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction been completed on January 1, 2012 or that may be achieved in the future.  The pro forma results do not reflect any operating efficiencies and associated cost savings that the Company may, or may not, achieve with respect to the combined companies.

** **

**Year ended**

**December 31,**

** **

** **

**2013**

**2012**

** **

Revenues

7,568,147

10,893,929

 

Income (Loss) from continuing operations, before provision for income taxes 

(22,694,661)

(6,677,799)

 

Income (Loss) from continuing operations

(22,698,686)

(6,699,142)

 

Net Income (Loss)

(22,698,686)

(10,077,422)

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

Basic 

18,482,996

4,428,229

 

Diluted 

18,482,996

4,428,229

 

 

 

 

 

Earnings per share:

 

 

 

Basic - Income (Loss) from continuing operations

(1.23)

(1.51)

 

Basic - Net Income (Loss)

(1.23)

(1.51)

 

Diluted - Income (Loss) from continuing operations

(1.23)

(1.51)

 

Diluted - Net Income (Loss)

(1.23)

(1.51)

 

**Contingent Earnout Liabilities - Travora Earnout Consideration******

As part of the Travora Networks, Inc. (“TNI”) acquisition on February 6, 2013, the Company agreed to issue additional cash to the sellers, contingent upon TNI meeting certain publisher retention goals and revenue performance targets.

**Publisher Retention Earnout Payments**

The Seller shall be entitled to receive, in two installments, Publisher Retention Earnout Payments equaling, in the aggregate, up to $1,000,000.   In the event that the number of Publishers retained by TNI for the initial 180 day period following the Closing Date is equal to or exceeds eighty-five percent (85%) of the Baseline Number of Publishers, the Company shall pay to the Seller an amount equal to the product of $500,000 multiplied by a fraction, the numerator of which is the actual number of Publishers retained by the Company and the denominator of which is the Baseline Number of Publishers.

In the event that the number of Publishers retained by the Company for the second 180 day period following the Closing Date is equal to or exceeds the Baseline Number of Publishers, the Company shall pay to the Seller an amount equal to the product of $500,000 multiplied by a fraction, the numerator of which is the actual number of Publishers retained and the denominator of which is Baseline Number of Publishers.

F-15

Notwithstanding the foregoing, if any three (3) of the Seller’s Major Publishers, in the aggregate, cease doing business with TNI during the initial publisher retention earnout period, then no initial publisher retention earnout payment or second publisher retention earnout payment shall be paid to the Seller and if during the second publisher retention earnout period, then no second publisher retention earnout payment shall be paid to the Seller.

The estimated fair value of the Publisher Retention Earnout Payments contingent earnout consideration on the acquisition date was $67,747  and $0 as of December 31, 2013.  Changes are recorded as a gain or loss on the Contingent Liability and are included in Other Income on the Income Statement.  The changes were a gain of $67,747 as of December 31, 2013.  

**Revenue Goal Earnout Payments**

The Seller shall be entitled to receive, in two installments, Revenue Goal Earnout Payments equaling, in the aggregate, up to $2,000,000.  In the event that Ad Network Revenue for the period beginning on January 1, 2013 and ending on June 30, 2013 is equal to or exceeds $5,159,700, the Company shall pay to the Seller an amount equal to the lesser of the product of $1,000,000 multiplied by a fraction, the numerator of which is the actual Ad Network Revenue achieved during the Initial Revenue Goal Earnout Period and the denominator of which is $5,733,000 and $1,000,000.

In the event that Ad Network Revenue for the period beginning on July 1, 2013 and ending on December 31, 2013 is equal to or exceeds $6,407,100, the Company shall pay to the Seller an amount equal to the lesser of the product of $1,000,000 multiplied by a fraction, the numerator of which is the actual Ad Network Revenue achieved during the Second Revenue Goal Earnout Period and the denominator of which is $7,119,000 and $1,000,000.

The estimated fair value of the Revenue Goal Earnout Payments contingent consideration on the acquisition date was $1,315,081 and $0 as of December 31, 2013. Changes are recorded as a gain or loss on the Contingent Liability and are included in Other Income on the Income Statement.  The changes were a gain of $1,315,081 for the year ending December 31, 2013.  

**New Accounting Pronouncements**

In May 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-04, Fair Value Measurement (“ASU 2011-04”), which amended ASC 820, Fair Value Measurements (“ASC 820”), providing a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the disclosure requirements. ASU 2011-04 will be effective for us beginning January 1, 2012. The adoption of ASU 2011-04 did not have a material effect on our financial statements or disclosures.

Management evaluates events occurring to the date of the financial statements in determining the accounting for and disclosure of transactions and events that affect the financial statements. Subsequent events have been evaluated through April 15, 2014, which is the date financial statements were available to be issued.  Management has determined that the events noted in Note 11 required disclosure.

F-16

**3.  Property and Equipment**

Property and equipment, at cost, consists of the following:

 

**December 31,**

 

**2013**

**2012**

Furniture and fixtures 

179,555

$   16,609

Computer and office equipment

345,968

168,818

Leasehold improvements

66,988

6,396

Accumulated depreciation

(146,412)

(28,004)

Property and equipment, net of depreciation

446,099

$   163,819

**4.  Patents**

The Company has filed for domestic and international patent protection on its technology. In the United States, three patents have been issued and eight are pending. Internationally, no patents have been issued. Patents, at cost, consist of the following: 

 

**December 31,**

 

**2013**

**2012**

Patents

$  301,868

$  215,070

Accumulated amortization

(5,078)

-

Patents, net of amortization

$  296,790

$  215,070

**5. Commitments and Contingencies**

**Operating Leases -** In January 2012, the Company entered into an operating lease agreement that commenced February 2012 for its offices in Glendale, California which expires on February 19, 2014. On February 7, 2014, the lease was extended to February 15, 2015.  On April 3, 2013, the Company entered into an operating lease agreement that commenced on May 16, 2013 for its offices in New York, New York which expires on June 15, 2018.  On April 4, 2013, the Company entered into an operating lease agreement that commenced April, 2013 for its corporate office in Newport Beach, California which expires on April 30, 2014. 

Future minimum lease commitments are as follows:

**Years ending December 31,**

**Amount**

2014

 351,172

2015

240,342

2016

232,640

2017

239,620

2018

 111,038

 

$  1,174,812

F-17

**6.   Note Payable and Convertible Note and Warrants**

**8% Convertible Promissory Notes**

During March of 2013, we received $6,944,350 pursuant to a private placement of 8% convertible promissory notes (the “8% Notes”). On March 20, 2013, the Company’s Board of Directors authorized an increase from maximum proceeds of $7,000,000 to maximum proceeds of $8,500,000, with a new closing date of April 5, 2013, subject to a ten business day extension at the Company’s option. As of the final closing date of April 19, 2013, a total of $7,767,344 in proceeds had been raised. On March 27, 2013, the Company exercised its option to convert all principal and accrued interest received prior to the end of the quarter to common shares (see below). On April 26, 2013, the Company exercised its option to convert all principal received following the end of the quarter and prior to the final closing date of the financing to common shares.  A total of $2,250,000 of the proceeds was used to finance the Travora acquisition. The Company used the balance of the proceeds to finance the remaining financial commitments pursuant to the Travora acquisition and for working capital purposes. The terms of the 8% Notes are as follows:

·

Bearing interest at 8% per annum,

·

Principal and interest due and payable on or before February 15, 2015,

·

Prepayable by the Company upon 30 days’ notice,

·

The 8% Notes are convertible into MediaShift common stock at the rate of $3.00 per share subject to antidilution provisions which provide that if the Company issues securities at a price below the conversion price of the 8% Notes, the conversion price will be reduced to the lower amount, 

·

The 8% Notes may be converted at any time prior to maturity date at the option of the holder or the Company, and

·

8% Note holders received warrants to purchase MediaShift common stock in an amount equal to the number of shares the 8% Notes are convertible into. Half of the warrants are exercisable at $4.00 per share up to July 31, 2013 and half are exercisable at $6.00 per share up to July 31, 2014. 

The maximum number of common shares that may be issued through, as applicable, the conversion of the 8% Notes and accrued interest and the exercise of the warrants which were sold in this private placement, is 5,193,346 shares.  The 8% Notes were offered and sold by officers and directors of the Company who received no remuneration for the sale of the securities, as well as by three placement agents who received commission of 6% of principal raised by those agents. Sales of the 8% Notes were made pursuant to Section 4(a)(5) and Section 4(a)(2) of the Securities Act, and Rule 506 promulgated thereunder, solely to “accredited investors” as defined in Rule 501(a) of Regulation D.  The securities sold in this transaction were not registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

F-18

The 8% Note’s conversion feature was determined to be an embedded derivative liability and therefore was bifurcated from the note and recorded at fair value at issuance and is required to be adjusted to fair value at the end of each reporting period. The collective fair value of the conversion feature at the date of issuance calculated using the Black Scholes model totaled $3,114,596. The Company recorded the fair value of the conversion feature as a contra liability offsetting the respective term loan amounts and a corresponding derivative liability, that will be marked to market at each reporting period. The 8% Notes were issued with two year warrants to purchase an aggregate of 1,294,557 common shares at $4.00 per share and 1,294,557 common shares at $6.00. The warrants are exercisable immediately after issuance and expire in 2 years. The fair value of the warrants of $4,368,649 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility ranging from 173% to 235%, risk free interest rate ranging from 0.09% to 0.20%, and a contractual life of two years. The Company recorded the relative fair value of the warrants of $2,203,761 to loan warrant discount as a contra liability offsetting the respective term loan amounts. The total discount attributable to the issuance of the 8% Notes was $4,928,713.  The debt discount that was amortized was $484,271, and was included as interest expense on the Income Statement. On March 27, 2013, and April 26, 2013, the 8% Notes were extinguished by the company, on those dates the collective fair value of the conversion feature was $3,114,596. Accordingly, the Company recorded the change in fair value of $659,787 as a loss on derivative liabilities for the six month period ended June 30, 2013. The 8% Notes were extinguished via the issuance of 2,610,903 shares of common stock with a fair value of $11,604,760.  The net carry value of the related debt and conversion feature was $6,613,014.  Accordingly the company recorded a $4,991,513 loss on extinguishment of debt. 

On July 25, 2013, the Company received consent from the Board of Directors to approve an extension of the $4 warrants of the 8% Convertible Notes from July 31, 2013 to July 31, 2014.  In addition, any warrants exercised on or before September 20, 2013 were granted a new warrant to purchase additional common stock at $4 per share on or before July 31, 2014.  The fair value of the warrants extension of $1,282,795 was calculated using the Black-Scholes option pricing model.  116,667 warrants were exercised and replaced, which resulted in net proceeds of $466,668.  The fair value of the warrant replacement of $270,185 was calculated using the Black-Scholes option pricing model.

In November 2013, the Company issued $50,000 in a two year 8% convertible note to one investor.  The 8% Note was issued with a conversion price of the lesser of $3.50 per share or the product of .90 and the next financing price.  It also included the right to receive an additional 1⁄2 of a Warrant for every 3.50 invested in common shares at $3.50 per share.  The warrants were exercisable immediately after issuance and expire in 2 years. The fair value of the warrants of $15,438 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility of 151%, risk free interest rate of 0.34% and a contractual life of two years. The Company recorded the fair value of the warrants of $15,438 to loan warrant discount as a contra liability offsetting the respective term loan amounts on the Balance Sheet.

 

F-19

**10% Convertible Notes**

On November 5, 2012, the Company issued an aggregate of $500,000 in two year 10% convertible notes (the “10% Notes”) to two investors, and on November 7, 2012 the Company issued an aggregate of $500,000 in two year 10% convertible notes to three additional investors. The 10% Notes may be prepaid by the Company with fifteen days’ notice, and may be converted into the Company’s common stock at the lesser of 80% of the Company’s fair market value at the time of conversion or $8.00 per share. The 10% Notes were issued with two year warrants to purchase an aggregate of 100,000 common shares at $6.50 per share. The warrants are exercisable immediately after issuance and expire in 2 years. The fair value of the warrants of $284,251 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility of 102% and 104%, risk free interest rate of 0.28% and 0.27% and a contractual life of two years. The Company recorded the fair value of the warrants of $284,251 to loan warrant discount as a contra liability offsetting the respective term loan amounts on the Balance Sheet.

The fair value of the conversion feature on December 31, 2012 calculated using the Black Scholes model totaled $534,251 and is reflected as a discount to the 10% Notes. The discount attributable to the issuance date aggregate fair value of the conversion options and warrants, totaling $750,292, was amortized using the straight line interest method over the term of the 10% Notes. The intrinsic value of the conversion option in the 10% Notes totaling $534,251 was calculated in accordance with ASC 470 and recorded, on the issuance date, as additional paid in capital and a corresponding reduction of the carrying value of the 10% Notes.  The discount remaining was $222,605 and $750,292 as of December 31, 2013 and 2012 respectively.

On September 16, 2013, the Company issued $35,000 in a one year 10% convertible note to one investor. The 10% Notes may be prepaid by the Company with fifteen days’ notice, and may be converted into the Company’s common stock  at $3.50 provided the per share trading price of the Common Stock is at least $6.00 per share for five consecutive trading days prior to such conversion. The 10% Notes were issued with one year warrants to purchase 1⁄2 of a Warrant for every 3.50 invested of common shares at $4.00 per share. The warrants are exercisable immediately after issuance and expire in 1 year. The fair value of the warrants of $5,686 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility of 155%, risk free interest rate of 0.04% and a contractual life of one year. The Company recorded the fair value of the warrants of $5,686 to loan warrant discount as a contra liability offsetting the respective term loan amounts on the Balance Sheet.

In October of 2013, the Company issued $175,000 in a one year 10% convertible notes to four investors.  The 10% Notes may be prepaid by the Company with fifteen days’ notice, and may be converted into the Company’s common stock  at $3.50 provided the per share trading price of the Common Stock is at least $6.00 per share for five consecutive trading days prior to such conversion. The 10% Notes were issued with one year warrants to purchase 1⁄2 of a Warrant for every 3.50 invested of common shares at $3.50 per share. The warrants are exercisable immediately after issuance and expire in 1 year. The fair value of the warrants of $29,080 was calculated using the Black-Scholes option pricing model at the date of issuance using the following assumptions: dividend yield of 0%, expected volatility of 134% - 136% , risk free interest rate of 0.10% - 0.16% and a contractual life of one year. The Company recorded the fair value of the warrants of $29,080 to loan warrant discount as a contra liability offsetting the respective term loan amounts on the Balance Sheet.

F-20

**10% Promissory Notes**

On November 19, 2013, the Company issued $100,000 in a 10% promissory notes to one investor.  The 10% Notes may be prepaid in whole or in part at any time without premium, penalty or prior written notice. The 10% interest accrues monthly.

**12% Promissory Notes**

On September 17, 2013, the Company issued $500,000 in a 90 day 12% promissory notes to two investors.  The 12% Notes may be prepaid in whole or in part at any time without premium, penalty or prior written notice.  The 12% interest is payable monthly.  The principal amount is due and payable December 17, 2013, provided, however, that a payment of $250,000 is due on the date the Company raises $1,000,000 in debt or equity capital; and provided, further, that the balance of the Principal Amount is due on the date the Company raises $2,000,000 in debt or equity capital. 

In November and December of 2013, the Company issued $495,000 in 12% promissory notes with various investors.  The 12% Notes may be prepaid in whole or in part at any time without premium, penalty or prior written notice.  The 12% interest accrues monthly.

The aggregate amount of principal maturities for the next five years follows:

**Years ending December 31,**

**Amount**

2014

 $2,579,662

2015

1,163,639

2016

440,226

 

$  4,183,527

**Line of Credit**

In March 2011, the Company entered into a lending facility that provides for advances of up to $500,000 with interest at 12% per annum payable monthly. The facility was provided by an investor in our preferred stock.  On September 17, 2013, the line of credit expired, and no advances are available. As of December 31, 2012, there was no balance outstanding on the facility.

In June 2013, the Company entered into a loan agreement that provides for advances of up to $250,000 with interest at 10% per annum payable monthly, plus an origination fee of 2.5% added to the principal amount.  As of December 31, 2013, there was no balance outstanding on the agreement.

In November 2013, the Company approved a line of credit against the outstanding Accounts Receivable of up to $2,500,000.  The terms of the line include interest of 1.75% per month on the outstanding balance, and a $1,000 origination fee.  There is no prepayment penalty.  As of December 31, 2013 there was a $114,524 balance outstanding on the agreement.

F-21

**7.   Stockholders’ Equity**

**Common Stock**

The Company is authorized to issue up to 100,000,000 shares of Common Stock (increased to 100,000,000 effective March 4, 2013.)  As of December 31, 2013, there are 22,498,527 shares of Common Stock issued and outstanding. The holders of our Common Stock are entitled to one vote per share. The holders of our Class M Preferred Stock are entitled to 200 votes for each Class M Preferred share they own on all matters to be voted on by the stockholders. All shares of Common Stock and Series M Preferred Stock are entitled to participate in any distributions or dividends that may be declared by the Board of Directors, subject to any preferential dividend rights of outstanding shares of our Preferred Stock. Subject to prior rights of creditors, all shares of Common Stock are entitled, in the event of our liquidation, dissolution or winding up, to participate ratably in the distribution of all our remaining assets. Our Common Stock has no preemptive or conversion rights or other subscription rights. 

**Series M Preferred Stock**

In connection with the AdVantage merger and pursuant to the filing of a Certificate of Designation with the Nevada Secretary of State on August 28, 2012, the Board of Directors of the Company authorized the issuance of Class M Preferred Stock. Pursuant to the Merger Agreement, the Company agreed to issue shares of its Class M Preferred to the AdVantage Owners in exchange for the shares of AdVantage common stock and preferred stock (and to issue new options for shares of AdVantage common stock underlying AdVantage options). 

Holders of the Class M Preferred were entitled, on a post-Automatic Conversion basis, to the same rights and privileges, including voting rights, as holders of our common stock. The holders of our Class M Preferred Stock were entitled to 100 votes per share and one vote per common share on a post-Automatic Conversion and post-Reverse Stock Split basis on all matters to be voted on by the stockholders.  Pursuant to the Merger Agreement, the Company increased the number of shares of common stock that the Company is authorized to issue from 25,000,000 shares to 100,000,000 shares (the “Authorized Share Increase”). The Authorized Share Increase was affected by the Company filing an amendment to its Articles of Incorporation pursuant to a special meeting of shareholders on March 4, 2013.  Upon the effectiveness of the Authorized Share Increase on March 4, 2013, all of the issued and outstanding shares of Class M Preferred automatically converted into shares of the Company’s common stock at the Exchange Ratio of 100:1.

**Warrants and Options**

As of December 31, 2013, we have the following warrants and options outstanding:

F-22

**Common Stock Warrants**

**Warrant summary**

**Number**

**of warrants**

**outstanding**

**Exercise price**

**Maximum**

**proceeds**

**Expiration Date**

Warrants issued in the preferred stock private placement

184,625

$ 12.00

2,215,500

02/28/2014

Warrants issued upon conversion of preferred stock 

869,750

$   8.50

7,392,875

02/28/2014

Warrants issued our initial public offering

881,901

$ 10.00

8,819,010

02/28/2014

Warrants issued to our underwriters

95,000

$ 14.00

1,330,000

02/28/2014

Warrants issued with 10% convertible notes

100,000

$   6.50

650,000

11/05/2014

Warrants issued with 8% convertible notes

1,294,557

$   4.00

5,178,228

07/31/2014

Warrants issued with 8% convertible notes

1,294,557

$   6.00

7,767,342

07/31/2014

Warrants issued with 10% convertible notes

5,000

$   4.00

20,000

09/16/2014

Warrants issued with 12% promissory notes

60,000

$   4.00

240,000

09/17/2014

Warrants issued with 10% convertible notes

7,500

$   3.50

26,250

10/04/2015

Warrants issued with 10% convertible notes

10,000

$   3.50

35,000

10/14/2015

Warrants issued with 10% convertible notes

7,500

$   3.50

26,250

10/30/2015

Warrants issued with 10% convertible notes

7,143

$   3.50

25,000

11/11/2015

Total

4,817,533

various

33,725,455

various

**Options**

The Ad-Vantage Board of Directors adopted the Ad-Vantage Plan in September 2010. The Ad-Vantage Plan provided long-term incentives to employees, members of the Board, and advisers and consultants of the Company who were able to contribute towards the creation of or have created stockholder value by providing them stock options and other stock and cash incentives. Provisions such as vesting, repurchase and exercise conditions and limitations were determined by the Ad-Vantage Board of Directors on the grant date. The total number of shares that could be issued pursuant to the Ad-Vantage Plan could not exceed 1,250,000 shares, subject to adjustment in the event of certain recapitalizations, reorganizations, and similar transactions.

As of December 31, 2012, 1,115,521 options had been granted under the Ad-Vantage Plan, and 929,917 remained outstanding at the time of the Merger, at which time they were exchanged for 92,991.70 Class M Preferred Options. No options will be granted under the Ad-Vantage Plan following the Merger.

**Deemed Dividend**

On July 31, 2013, the Board of Directors authorized and extended the expiration date of the outstanding warrants to July 31, 2014.  Except as so extended all other provisions of each class of warrants have not been altered or otherwise amended.  A deemed dividend of $1,282,795 for this extension of the warrant expiration dates was calculated using the Black-Scholes option-pricing model.  On November 21, 2012, the Board of Directors authorized and extended the expiration date of the outstanding warrants to February 28, 2014. Except as so extended all other provisions of each class of warrants have not been altered or otherwise amended. A deemed dividend of $3,384,730 for this extension of the warrant expiration dates was calculated using the Black-Scholes option-pricing model. 

F-23

**8.   Income Taxes**

MediaShift files income tax returns in the U.S. federal jurisdiction and the states of California, New York, Florida, Georgia and Illinois. There are currently no income tax examinations underway for these jurisdictions.

MediaShift provides deferred income taxes for differences between the tax reporting bases and the financial reporting bases of assets and liabilities. Provision for (benefit from) income taxes from continuing operations consists of the following:

 

 

**2013**

**2012**

**Current:**

 

 

 

Federal

 $                      -   

 $                   -   

 

State

4,025 

2,400 

 

 

                    4,025

              2,400

**Deferred:**

 

 

 

Federal

    (6,132,778) 

(1,870,543) 

 

State

 (466,407) 

(320,837)

 

Valuation allowance

 6,599,185

2,191,380

 

 

                         -   

-   

Total

 $            4,025 

 $            2,400 

The benefit from income taxes differs from the amount computed by applying the federal statutory income tax rate to losses from continuing operations before income taxes. The sources and tax effects of the differences are as follows:

 

**2013**

**2012**

Statutory Rate

34.0%

34.0%

State Income Taxes, Net of Federal Benefit

3.65%

5.8%

Permanent items

0.0%

-15.7%

Change in valuation allowance

-35.03%

-24.1%

Prior year true up

0.0%

-0.1%

Other

-2.62%

0.1%

**Tax Rate**

-0.0%

-0.0%

Deferred income taxes on the balance sheet result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax liability at December 31 are as follows:

F-24

 

 

**2013**

**2012**

**Deferred tax assets:**

 

 

Bad debt allowance

$            62,056

$          14,076

Compensation accruals

54,631

27,577

Accrued expenses

33,120

24,546

Other - Current

1,020

-

Subtotal Current

$          150,827

$          66,199

Stock based compensation

$          155,016

$     1,096,204

Depreciation

33,535

3,248

NOL carryforwards

13,191,864

1,385,620

NOL carryforwards - JMG

-

7,404,603

Property basis difference

416,921

416,917

Intangibles

1,598,809

-

Issuance of convertible debt

2,260,520

-

Other - Noncurrent

37,405

31,277

Subtotal Noncurrent

$    17,694,070

$   10,337,869

**Deferred tax liabilities:**

 

 

Current:

 

 

State tax

(6,248)

-

Other

(1,983)

-

Subtotal Current

$          (8,231)

-

Non-current

 

 

State tax

$      (833,412)

-

Subtotal Noncurrent

(833,412)

-

 

Net deferred tax asset/(liabilities)

$   17,003,254

$    10,404,068

 

Valuation allowance

(17,003,254)

(10,404,068)

 

 

$                     -

$                   -

A full valuation allowance has been provided against the Company's deferred tax assets at December 31, 2013, as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences.

As of December 31, 2013, the Company has net operating losses for federal and state income tax purposes of approximately $12.1M which are available to offset future taxable income and which will begin to expire in 2031.  

The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards as set forth in ASC Topic 740 "Income Taxes" regarding accounting for uncertainty in income taxes.  Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled.  There are no unrecognized benefits related to uncertain income tax positions as of December 31, 2009.  The Company does not anticipate that there will be material change in the balance of unrecognized tax benefits within the next 12 months. 

F-25

Under accounting for uncertainty in income taxes, evaluation of a tax position is a two-step process.  The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based upon the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of the benefit to be recognized in the financial statements.  A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon the ultimate settlement. 

Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met.  Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met.  

Interest and penalties associated with unrecognized tax benefits are recorded in nonoperating income and expenses and selling, general and administrative expenses, respectively. 

As of December 31, 2013, the general statute of limitation is open for tax years begins with tax year ended 2009 and 2010 for federal and state income tax purposes, respectively.

**9.   Related Party Transactions**

The Company utilizes the programming services of a company managed by its Chief Technology Officer. Payments to this company were $148,734 and $198,492 for the years ended December 31, 2013 and 2012, respectively.

**10.  Discontinued Operations**

In connection with the Merger, the Company continues to have nominal assets on its books related to the Oil and Gas business.  MediaShift is continuing to pursue spinning off the O&G Operations for the benefit of the Company’s pre-Merger stockholders as soon as may be practicable.  

Effective November 21, 2012, our Board of Directors authorized management to pursue a spin-off of the O&G Operations following management’s determination that the O&G Operations were not material to the Company’s operations, assets or future commercial activity and we expect the following outline of steps to occur in connection with the proposed spin-off: (i) the O&G Operations, including all related assets and liabilities, will be contributed to a new corporation, to be domiciled in Nevada ("JMG  Oil") in exchange for 500,000 shares of JMG Oil, (ii) thereafter JMG Oil intends to issue 4,500,000 of its shares to unrelated accredited investors for $50,000 and certain indemnities relating to the O&G Operations, (iii) the Company proposes to spin off its 500,000 shares of JMG Oil to its stockholders as of immediately before the Merger (the “Pre-Merger Stockholders”).  JMG Oil will bear the costs and expenses of these transactions.  We expect this transaction to occur sometime in 2014. 

F-26

**11.  Subsequent Events**

We filed April 7, 2014 to deregister our common stock under the Exchange Act and become a non-reporting company under the Exchange Act.  The Company filed with the SEC a Form 15, Notice of Termination of Registration and Suspension of Duty to File, to terminate its reporting obligations under the Exchange Act.  With the filing of the Form 15, our obligation to file reports, and other information under the Exchange Act, such as Forms 10-K, 10-Q and 8-K has be suspended.  The deregistration of the Company’s common stock under the Exchange Act will become effective 90 days after the date on which the Form 15 was filed.  The Company is eligible to deregister under the Exchange Act because its common stock was held of record by fewer than 300 persons. Delisting and deregistration of the Company's common stock could negatively affect the liquidity and trading prices of our common stock.

In the first Quarter of 2014, the Company issued $1,025,000 in 12% debt, and $250,000 in 8% Convertible Notes.  In April, the company issued another $80,000 in 12% debt.

As part of the Companies capital raising plans, the Company has engaged the services of a number of outside firms to generate the necessary working capital requirements. 

F-27 |
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