UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

~~x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~ ☒

~~For~~ ANNUAL ~~the~~REPORT ~~fiscal~~UNDER ~~year~~SECTION ~~ended~~13 ~~December~~OR ~~31,~~15(d) ~~2015~~OF THE SECURITIES EXCHANGE ACT OF 1934

~~o TRANSITION~~ For ~~REPORT~~the ~~UNDER~~fiscal ~~SECTION~~year 13ended ORDecember ~~15(d)~~31, ~~OF THE SECURITIES EXCHANGE ACT OF 1934~~2016

☐

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to _______________.

Commission file number: 000-27145

SPENDSMART NETWORKS, INC.

(f/k/a The SpendSmart Payments Company)

(Exact Name of Registrant as Specified in its Charter)

Delaware			33-0756798
(State or jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

805 Aerovista Pkwy, Suite 205
San Luis Obispo California			93401
(Address and of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (877) 541-8398

Common Stock, par value $0.001 per share

(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x~~ ☐ No ☒

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

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. ~~YesxNoo~~ Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ~~Yesx Noo~~Yes ☒ No ☐

Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K or any amendment to this Form 10-K.o ☐

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b(2) of the Exchange Act. (Check one).

Large accelerated ~~filero~~filer ☐ Accelerated ~~filero~~filer ☐ Non-accelerated ~~filero~~filer ☐(1) Smaller reporting ~~companyx~~company ☒

(1) Do not check if a smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~Yeso Nox~~ Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity on June 30, ~~2015~~2016 held by non-affiliates of the registrant (based on the average bid and asked price of such stock on such date of $0.6609) was approximately $123,~~347~~244,~~658~~891. Shares of common stock held by each officer of the Company (or of its wholly-owned subsidiary) and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.

At ~~April~~May 811, ~~2016~~2017, there were 3942,~~354~~575,~~620~~571 shares outstanding of the issuer’s common stock, par value $0.001 per share.

SPENDSMART NETWORKS, INC.

TABLE OF CONTENTS

		PAGE
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	5
Item 1B.	Unresolved Staff Comments	1518
Item 2.	Properties	1518
Item 3.	Legal Proceedings	1518
Item 4.	Mine Safety Disclosures	1518
PART II
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1619
Item 6.	Selected Financial Data	1720
Item 7.	Management's Discussion and Analysis of Financial Condition And Results of Operations	1720
Item 7A.	~~Quantitative~~Qualitive and ~~Qualitative~~Quantitative Disclosures About Market Risk	2224
Item 8.	Financial Statements and Supplementary Data	2326
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	5358
Item 9A.	Controls and Procedures	5358
Item 9B.	Other Information	58
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	5459
Item 11.	Executive Compensation	5864
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	5870
Item 13.	Certain Relationships and Related Transactions, and Director Independence	5972
Item 14.	Principal Accounting Fees and Services	6174
PART IV
Item 15.	Exhibits and Financial Statement Schedules	62
SIGNATURES		64
		75
SIGNATURES		78

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K may contain statements relating to future results of SpendSmart Networks, Inc. (including certain projections and business trends) that are “forward-looking statements.” Our actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, without limitation, statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of the Company to be materially different from any future results or achievements of the Company expressed or implied by such forward-looking statements. Such factors include, among others, those set forth herein and those detailed from time to time in our other Securities and Exchange Commission (“SEC”) filings. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Also, there can be no assurance that the Company will be able to raise sufficient capital to continue as a going concern.

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PART I

Item 1 - Business

As used in this Annual Report on Form 10-K, the terms "we", "us", "our", “SpendSmart”, “SpendSmart Networks, Inc.”, and the "Company" means SpendSmart Networks, Inc., a Delaware corporation, its wholly-owned subsidiary SpendSmart Networks, Inc., a California corporation or their management.

Current Business & Strategy

We are a national full-service mobile and loyalty marketing agency that offers a means for small and large business owners alike to better connect with their consumers and generate sales. We do business under the name “SMS Masterminds.” The core of our business involves two licenses which include, among other things, a proprietary SaaS (software as a service) system, proprietary marketing and sales training materials and mobile-responsive website building software.

With our mobile and loyalty marketing programs and proprietary responsive website building software, we provide proprietary loyalty systems and a suite of digital engagement and marketing services that help local merchants build relationships with consumers and drive revenues. These services are sold, implemented and supported both internally and by a vast network of certified digital marketing specialists, aka “Certified Masterminds,” who drive revenue and consumer relationships for merchants via loyalty programs, custom mobile-responsive websites, review generation and management, social media engagement, mobile marketing, mobile commerce and financial tools, such as reward systems. We enter into licensing agreements for our proprietary loyalty and mobile marketing solutions and custom mobile-responsive website building tools with “Certified Masterminds” which sell and support the technology in their respective exclusive markets. We provide ~~training~~extensive training materials, best practice guides and other resources to our licensees, including access to a “Mentor,” who is an existing successful “Mastermind.” In addition to our introductory training program, our licensees have access to an online forum and knowledge base, and the ability to interface with various in house resources for needs related to merchant account management and support, as well as sales and business development.

The licensees also utilize digital loyalty tablets provided to their merchants. The loyalty tablets are proprietary tablet devices set up in physical retail locations where consumers can enter their mobile phone number to “opt-in” to receive notifications from the merchant and participate in the merchant’s loyalty program.

Our business strategy consists of delivering and managing:

(i) ~~Loyalty platforms~~

a. Loyalty ~~Merchant funded rewards~~platforms

b a. ~~Loyalty rewards tablet/kiosk~~

c.Merchant ~~Proprietary~~ funded rewards ~~management system~~

~~(ii) Mobile marketing technology~~ b.

a.Loyalty ~~Text and email messaging~~rewards tablet/kiosk

b c. ~~Customer analytics and propensity marketing~~

c.Proprietary ~~Patent~~rewards management ~~pending ‘automated engagement’ engine~~system

~~d. Text2Win sweepstakes features~~ (ii)

~~(iii)~~ Mobile ~~Enterprise level loyalty and mobile~~ marketing ~~consulting~~technology

a. ~~Monthly hands on reviews by our “Certified Masterminds”~~

b.Text ~~Campaign creation~~ and ~~optimization~~email messaging

c b. ~~Localized support~~

Customer analytics and propensity marketing

Patent pending ‘automated engagement’ engine

Text2Win sweepstakes features

(iii)

Enterprise level loyalty and mobile marketing consulting

Monthly hands on reviews by our “Certified Masterminds”

Campaign creation and optimization

Localized support

(iv) Proprietary mobile-responsive website building platform

a. ~~Software allowing licensees and merchants to create and administer their websites~~

Software allowing licensees and merchants to create and administer their websites

b. Audits of existing merchant websites

c. Integration of social media streams and consumer reviews into websites

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We plan to pursue these strategies across a broad range of consumer, business, for-profit and non-profit organization, and government/municipal sectors. In addition, we have partnered with various groups to develop strategic affinity/co-brand opportunities. We expect to continue such partnership programs with various global for-profit and non-profit organizations.

Advertising and Marketing Strategies

SpendSmart develops the loyalty and mobile marketing license through the acquisition of interested ‘prospects’ or leads generated through various advertisements placed on web portals throughout the internet, as well as through referrals from existing licensees. These lead sources have proven to be a consistent and reliable channel for interested potential licensees. We intend to continue to look for new sources of licensee leads, as well as increase our budget to increase our volume of leads generated. All other aspects of the business will be promoted through our network of licensees in North America.

Financial Model

Our Mobile and Loyalty Marketing and website development programs provide for multiple revenue components including set up fees and recurring license fees, messaging, equipment and marketing services fees and value added mobile marketing and mobile commerce services.

We generate revenues primarily in the form of set up fees, recurring license fees, messaging, equipment and marketing services fees and value added mobile marketing and mobile commerce services. License fees are charged monthly for our support services. Business development and set-up fees primarily consist of fees for website development services (including support and unspecified upgrades and enhancements when and if they are available), training and professional services that are not essential to functionality.

We employ outside consultants to handle overflow development work on our proprietary software platforms, marketing services, legal and other specific business functions when needed. While we intend to restrict the number of new employees we add to our Company’s workforce, we believe that new personnel will be necessary in the future in the areas of project management, software programming, operations, accounting, sales and administration.

Barriers to Entry

Our Company has applied for patents in connection with our Mobile and Loyalty Marketing program and its related uses and planned future features. We believe that the business processes in connection with our Mobile and Loyalty Marketing program are original to our Company; however we may discover that others have patent claims of which we are currently unaware. Should we be successful in obtaining the grant of the patents under application and should we be successful in countering any challenges to their validity that might emerge, the lifetime of the granted patents would be twenty years. Should the patent applications in question be approved, it could give us a cost advantage from the license fees that future potential competitors would be required to pay as well as revenues from said license fees. There can be no assurance however that we will be successful in receiving such a patent or successful in countering any challenges thereto.

Competitive Business Conditions

The market for loyalty and mobile marketing services is large, growing and highly competitive. We have identified a ~~number~~few of providers of loyalty and mobile marketing related products and services.

Spot On is a provider of a loyalty rewards platform that utilizes a touchscreen tablet to digitize a punch card type loyalty program. At this time Spot appears to be privately held, but well financed. They are based in California. They do not appear at this time to have any kind of text based marketing component to their offering, but instead focus on digitizing the punch card experience and delivering messaging to consumers via email. Spot On does not at this time have any localized representation or support, instead they rely on selling and supporting nationally over the phone and via their website.

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BellyCard is a provider of loyalty rewards platforms directly to merchants utilizing a touchscreen tablet to digitize the punch card type loyalty program. They claim to have a total of ten thousand merchants located in the US. They utilize an iPad device as their touchscreen interface and have robust customer analytics engine that the merchant can utilize to understand trends in their business. They do not at this time provide any texting capability and do not have localized support or sales teams. They instead rely on national support and an outsourced phone sales team.

In summary, while we face potential future competition in our target market for our products, we currently believe our products offer distinct features that respond to market needs not well served by the identified competitors mentioned above. However, many of these firms have longer operating histories, greater name recognition and greater financial, technical, and marketing resources than us. Increased competition from any of these sources could result in our failure to achieve and maintain an adequate level of customer demand and market share to support the cost of our operations.

Pre-Paid Credit Card

On November 26, 2014, in an effort to reduce expenses as well as focus its resources on its mobile and loyalty marketing solutions, the Company decided to begin a wind down of the operations of its pre-paid credit card product. All credit card related operations ceased on or about January 26, 2015. The Company will maintain certain card customer data for five (5) years. The pre-paid card program included our general-purpose card and our SpendSmart MasterCard Teen Prepaid Card.

Corporate History

Our Company was originally incorporated in the State of Colorado on May 14, 1990 as “Snow Eagle Investments, Inc.” and was inactive from 1990 until 1997. In April 1997, the Company acquired the assets of 1st Net Technologies, LLC, a California limited liability company, and the Company changed its name to “1st Net Technologies, Inc.” and operated as an Internet commerce and services business. In August 2001, the Company suspended its operations. In September of 2005, the Company acquired VOS Systems, Inc. (the “VOS Subsidiary”) as its wholly owned subsidiary and the Company changed its name to “VOS International, Inc.” and traded under the symbol “VOSI.OB”. The VOS Subsidiary operated as a technology company involved in the design, development, manufacturing, and marketing of consumer electronic products.

On October 16, 2007, we sold the VOS Subsidiary and acquired BillMyParents-CA (at the time both our Colorado parent and California subsidiary were named IdeaEdge, Inc.). On May 1, 2009, our Company changed our name from IdeaEdge, Inc. to Socialwise, Inc., and our stock traded under the symbol “SCLW.OB”. On May 25, 2011, we changed our name to BillMyParents, Inc. and beginning June 13, 2011, our stock traded under the symbol “BMPI.OB.” On February, 15, 2013, we changed our name to The SpendSmart Payments Company and beginning February 28, 2013, our stock traded under the symbol “SSPC.OB.” Effective as of June 20, 2014, the Company was re-domiciled from Colorado to Delaware. Effective as of June 20, 2014, we filed an amendment to our Certificate of Incorporation changing our name to “SpendSmart Networks, Inc.”

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Cautionary Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in news releases or reports, on its Internet web site or otherwise. All statements other than statements of historical facts included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements including, in particular, the statements about our plans, objectives, strategies and prospects regarding, among other things, our business, operating results and financial condition. We have identified some of these forward-looking statements with words like “believe,” “may,” “could,” “would,” “might,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate,” “contemplate” and “continue,” the negative of these words, other words and terms of similar meaning and the use of future dates. These forward-looking statements may be contained in this section, the notes to our financial statements and elsewhere in this report, including under the heading “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our forward-looking statements generally relate to:

● ~~the status of our development of product and services;~~

● the status of our ~~future~~development ~~operating~~of ~~expenses,~~product ~~anticipated burn rate~~ and ~~whether and how long our existing cash and cash equivalents will be sufficient to fund our operations~~services;

● ~~the market size and market acceptance of our products and services;~~

● our future ~~the~~operating ~~effect~~expenses, ofanticipated ~~new~~burn ~~accounting~~rate ~~pronouncements~~and whether and how ~~other~~long ~~legislation;~~our existing cash and cash equivalents will be sufficient to fund our operations;

● ~~our continuing losses.~~

the market size and market acceptance of our products and services;

●

the effect of new accounting pronouncements and other legislation; and

●

our continuing losses.

Forward-looking statements involve risks and uncertainties. These uncertainties include factors that affect all businesses as well as matters specific to us. Some of the factors known to us that could cause our actual results to differ materially from what we have anticipated in our forward-looking statements are described under the heading “Part I. Item 1A. Risk Factors” below. We caution readers not to place undue reliance on any forward-looking statement that speaks only as of the date made and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described under the heading “Part I. Item 1A. Risk Factors” below, as well as others that we may consider immaterial or do not anticipate at this time. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not know whether our expectations will prove correct. Our expectations reflected in our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including those described below under the heading “Part I. Item 1A. Risk Factors.” The risks and uncertainties described under the heading “Item 1A. Risk Factors” below are not exclusive and further information concerning us and our business, including factors that potentially could materially affect our operating results or financial condition, may emerge from time to time. We assume no obligation to update our forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K that we file with or furnish to the Securities and Exchange Commission

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Item 1A – Risk Factors

Investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this herein before making an investment decision. If any of the following risks actually occur, our business, financial condition or results of operations could suffer. In that case, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

OUR FAILURE TO OBTAIN ADDITIONAL ADEQUATE FINANCING WOULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS.

We cannot be certain that we will ever generate sufficient revenues and gross margin to achieve profitability in the future. Our failure to significantly increase revenues or to raise additional adequate and necessary financing would seriously harm our business and operating results. We have incurred significant costs in building, launching and marketing our Products as well as in our acquisition of substantially all of the assets of SMS Masterminds. We anticipate incurring additional expenses relating to customer account acquisitions, marketing, and building our infrastructure. If we fail to achieve sufficient revenues and gross margin with our Products, or our revenues grow more slowly than anticipated, or if our operating or capital expenses increased more than is expected or cannot be reduced in the event of lower revenues, our business will be materially and adversely affected and an investor could suffer the loss of a significant portion or all of his investment in our Company.

THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION OF SMS MASTERMINDS.

An integral part of our current, proposed growth strategy was the consummation of the acquisition of substantially all of the assets of SMS Masterminds. The SMS Masterminds transaction involved a number of risks and presented financial, managerial and operational challenges, including: diversion of management’s attention from running the existing business; increased expenses, including legal, administrative and compensation expenses resulting from newly hired employees; increased costs to integrate personnel, customer base and business practices of the acquired assets; adverse effects on reported operating results due to possible write-down of goodwill associated with the acquisition; and dilution to stockholders due to the issuance of securities.

THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION OF THE TECHXPRESS WEB BUSINESS.

Part of our growth strategy was the consummation of the acquisition of substantially all of the web assets of TechXpress. The TechXpress transaction involved a number of risks and presented financial, managerial and operational challenges, including: diversion of management’s attention from running the existing business; increased expenses, including legal, administrative and compensation expenses resulting from newly hired employees; increased costs to integrate personnel, customer base and business practices of the acquired assets; adverse effects on reported operating results due to possible write-down of goodwill associated with the acquisition; and dilution to stockholders due to the issuance of securities.

WE FACE COMPETITION FROM OTHER MOBILE AND LOYALTY SYSTEMS.

We will face competition from other companies with similar product offerings. Many of these companies have longer operating histories, greater name recognition and substantially greater financial, technical and marketing resources than us. Many of these companies also have more extensive customer bases, broader customer relationships and broader industry alliances than us, including relationships with many of our potential customers. Increased competition from any of these sources could result in our failure to achieve and maintain an adequate level of customers and market share to support the cost of our operations.

WE HAVE LIMITED RESOURCES TO DEVELOP OUR PRODUCT OFFERINGS.

Our ability to successfully access the capital markets at the same time that our Company has required funding for the development and marketing of our product offerings is challenging. This has caused and will likely continue to cause us to restrict funding of the development of our products and to favor the development of one product offering over the other based on their relative estimated potentials for commercial success as evaluated by our management. We may require additional debt and/or equity financing to pursue our growth strategy. Given our limited operating history and existing losses, there can be no assurance that we will be successful in obtaining additional financing. Furthermore, the issuance by us of any additional securities pursuant to any future fundraising activities undertaken by us would dilute the ownership of existing shareholders and may reduce the price of our common stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our current focus is our Mobile and Loyalty Marketing program. The failure of this program to be commercially successful would substantially harm our business and results of operations. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations. Furthermore, in the future we may determine that it is in the best interest of our Company to severely curtail, license, jointly develop with a third party or sell one of our product offerings, which may be on terms which limit the revenue potential of the product offering to our Company.

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WE RELY ON THIRD-PARTY SUPPLIERS AND DISTRIBUTORS THAT ARE SPECIFIC TO OUR BUSINESS SUCH AS CELLULAR SERVICE PROVIDERS, INTERNET SERVICE PROVIDERS, PROGRAMMERS, AND SOCIAL NETWORKS.

We will be dependent on other companies to provide necessary products and services in connection with key elements of our business. Any interruption in our ability to utilize these services, or comparable quality replacements would severely harm our business and results of operations. Should any of these adverse contingencies result, they could substantially harm our business and results of operations and an investor could suffer the loss of a significant portion or all of his investment in our Company.

CHANGES IN LAWS AND REGULATIONS TO WHICH WE ARE SUBJECT, OR TO WHICH WE MAY BECOME SUBJECT, MAY INCREASE OUR COSTS OF OPERATION, DECREASE OUR OPERATING REVENUES AND DISRUPT OUR BUSINESS.

Changes in laws and regulations or the interpretation or enforcement thereof may occur that could increase our compliance and other costs of doing business, require significant systems redevelopment, or render our products or services less profitable or obsolete, any of which could have an adverse effect on our results of operations. We could face more stringent Telephone Consumer Protection Act regulations, as well as more stringent compliance with which could be expensive and time consuming. Changes in laws and regulations governing the way our products and services are sold or in the way those laws and regulations are interpreted or enforced could adversely affect our ability to distribute our products and the cost of providing those products and services. If onerous regulatory requirements were imposed on the sale of our products and services, the requirements could lead to a loss of merchants and subscribers, which in turn could materially and adversely impact our operations. We also face the risk that our text messaging system will be found to be in violation of or used in a manner that is a violation of the Telephone Consumer Protection Act.

THE DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT MAY HAVE A SIGNIFICANT ADVERSE IMPACT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

In July 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (“DFA”). The DFA, as well as regulations promulgated thereunder, could have a significant adverse impact on the Company’s business, results of operations and financial condition.

The DFA has resulted in increased scrutiny and oversight of consumer financial services and products, primarily through the establishment of the Consumer Financial Protection Bureau (“CFPB”) within the Federal Reserve. The CFPB has broad rulemaking and enforcement authority over providers of pre-paid cards, among other credit providers. The CFPB has the authority to write regulations under federal consumer financial protection laws, and to enforce those laws. The CFPB regulations have yet to be fully promulgated and depending on how the CFPB functions, it could have a material adverse impact on our business. The impact this new regulatory regime will have on the Company’s business is uncertain at this time.

Many provisions of the DFA require the adoption of rules to implement. In addition, the DFA mandates multiple studies, which could result in additional legislative or regulatory action. Therefore, the ultimate consequences of the DFA and its impact on our Company’s business, results of operations and financial condition remain uncertain.

WE ARE SUBJECT TO VARIOUS PRIVACY RELATED REGULATIONS, INCLUDING THE GRAMM-LEACH-BLILEY ACT WHICH MAY INCLUDE AN INCREASED COST OF COMPLIANCE.

We are subject to various laws, rules and regulations related to privacy, information security and data protection, including the Gramm-Leach-Bliley Act, and we could be negatively impacted by these laws, rules and regulations. The Gramm-Leach-Bliley Act guidelines require, among other things, that each financial institution develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate to the financial institution’s size and complexity, the nature and scope of the financial institution’s activities and the sensitivity of any customer information at issue. Our management believes that we are currently operating in compliance with these regulations. However, continued compliance with these laws, rules and regulations regarding the privacy, security and protection of customer and employee data, or the implementation of any additional privacy rules and regulations, could result in higher compliance and technology costs for our Company.

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WE ARE SUBJECT TO VARIOUS PRIVACY RELATED REGULATIONS, INCLUDING THE GRAMM-LEACH-BLILEY ACT WHICH MAY INCLUDE AN INCREASED COST OF COMPLIANCE.

OUR BUSINESS COULD SUFFER IF THERE IS A DECLINE IN THE USE OF SMS SERVICES OR THERE ARE ADVERSE DEVELOPMENTS WITH RESPECT TO THE SMS SERVICES INDUSTRY IN GENERAL.

As the mobile services industry evolves, consumers may find SMS services to be less attractive than other mobile messaging and communication services. Consumers might not use SMS services if less expensive services and technologies are offered. If consumer acceptance of SMS services as a form of communication does not continue to develop or develops more slowly than expected or if there is a shift form of mobile communications it could have a material adverse effect on our financial position and results of operations.

A DATA SECURITY BREACH COULD EXPOSE US TO LIABILITY AND PROTRACTED AND COSTLY LITIGATION, AND COULD ADVERSELY AFFECT OUR REPUTATION AND OPERATING REVENUES.

We, ~~as part of~~ the ~~processing of payment from our licensees, and the~~ banks that ~~previously~~issue ~~issued~~ our cards, network acceptance members and/or third-party processors receive, transmit and store confidential customer ~~and other~~ information in connection with ~~payments related to our licensees as well as~~ the ~~previous~~sale ~~sales~~ and use ~~uses~~ of our prepaid cards. Encryption software and the other technologies used to provide security for storage, processing and transmission of confidential customer and other information may not be effective to protect against data security breaches by third parties. The risk of unauthorized circumvention of such security measures has been heightened by advances in computer capabilities and the increasing sophistication of hackers. Improper access to our or these third parties’ systems or databases could result in the theft, publication, deletion or modification of confidential customer and other information. A data security breach of the systems on which sensitive cardholder data and account information are stored could lead to fraudulent activity involving our products and services, reputational damage and claims or regulatory actions against us. If we are sued in connection with any data security breach, we could be involved in protracted and costly litigation. If unsuccessful in defending that litigation, we might be forced to pay damages and/or change our business practices or pricing structure, any of which could have a material adverse effect on our operating revenues and profitability. We would also likely have to pay (or indemnify the banks that issue our cards for) fines, penalties and/or other assessments imposed as a result of any data security breach. Further, a significant data security breach could lead to additional regulation, which could impose new and costly compliance obligations. In addition, a data security breach at the bank that issues our cards, network acceptance members or third-party processors could result in significant reputational harm to us and cause the use and acceptance of our cards to decline, either of which could have a significant adverse impact on our operating revenues and future growth prospects.

OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY SURROUNDING OUR SMS MESSAGING, WEB TOOLS, WEBSITE BUILDING TOOLS AND PREPAID CARDS IS UNCERTAIN.

Our future success may depend significantly on our ability to protect our proprietary rights to the intellectual property upon which our products and services will be based. Any patents we obtain in the future may be challenged by re-examination or otherwise invalidated or eventually be found unenforceable. Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Competitors may attempt to challenge or invalidate our patents, or may be able to design alternative techniques or devices that avoid infringement of our patents, or develop products with functionalities that are comparable to ours. In the event a competitor infringes upon our patent or other intellectual property rights, litigation to enforce our intellectual property rights or to defend our patents against challenge, even if successful, could be expensive and time consuming and could require significant time and attention from our management. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against challenges from others.

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OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY SURROUNDING OUR SMS MESSAGING, WEB TOOLS, WEBSITE BUILDING TOOLS AND PREPAID CARDS IS UNCERTAIN.

WE ARE DEPENDENT UPON CONSUMER TASTES WITH RESPECT TO PREFERRED METHODS OF MOBILE COMMUNICATION FOR THE SUCCESS OF OUR PRODUCTS AND SERVICES.

Our product offerings’ acceptance by consumers and their consequent generation of revenues will depend upon a variety of unpredictable factors, including:

● ~~Public taste, which is always subject to change;~~

● Public ~~The~~taste, ~~quantity~~which ~~and~~is ~~popularity~~always subject ofto ~~other communication platforms~~change; ~~and~~

● ~~The fact that the sales methods chosen for the products and services we market may be ineffective.~~

The quantity and popularity of other communication platforms; and

●

The fact that the sales methods chosen for the products and services we market may be ineffective.

For any of these reasons, our programs may be commercially unsuccessful. If we are unable to market products which are commercially successful, we may not be able to recoup our expenses and/or generate sufficient revenues. In the event that we are unable to generate sufficient revenues, we may not be able to continue operating as a viable business and an investor could suffer the loss of a significant portion or all of his investment in our Company.

THE MOBILE ADVERTISING MARKET MAY DETERIORATE OR DEVELOP MORE SLOWLY THAN EXPECTED, WHICH COULD HARM OUR BUSINESS.

Advertising on mobile connected devices is an emerging industry sector. Advertisers have historically spent a smaller portion of their advertising budgets on mobile media as compared to traditional advertising methods, such as television, newspapers, radio and billboards, or internet advertising such banner ads. Future demand and market acceptance for mobile advertising is uncertain. Many advertisers still have limited experience with mobile advertising and may continue to devote larger portions of their advertising budgets to more traditional offline or online personal computer-based advertising, instead of shifting additional advertising resources to mobile advertising. In addition, our current and potential advertiser clients may ultimately find mobile advertising to be less effective than traditional advertising media or marketing methods or other technologies for promoting their products and services, and they may even reduce their spending on mobile advertising from current levels as a result. If the market for mobile advertising deteriorates, or develops more slowly than expected, we may not be able to increase our revenue.

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SMS MASTERMINDS IS ONE OF THE DEFENDANTS NAMED IN A POTENTIAL CLASS-ACTION LAWSUIT FILED IN THE UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK RELATING TO ALLEGED VIOLATIONS OF THE TELEPHONE CONSUMER PROTECTION ACT.

From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of any ultimate liability from such claims cannot be determined. On ~~January~~July 18, ~~2014~~2015, Intellectual Capital Management, LLC ~~dba~~d/b/a SMS Masterminds ~~was~~and SpendSmart Networks, Inc. were named in a potential class-action lawsuit ~~titled~~entitled ~~Telford~~Peter Marchelos, et al v. Intellectual Capital Management, et al, filed in the United States District Court Eastern District of New York relating to alleged violations of the Telephone Consumer Protection Act of 1991 ~~(the “TCPA”)~~. ~~The~~ ~~Company~~This ~~believed~~litigation involves the ~~Plaintiff’s~~same ~~allegations~~licensee ~~had~~and nomerchant ~~merit~~as ~~but based upon~~ the ~~economics~~now ofresolved ~~continued~~and ~~litigation,~~previously disclosed ~~the~~Telford ~~Company resolved the~~ lawsuit inand ~~May 2015 for~~ the ~~sum~~same ofattorneys ~~$34,612,~~represent ~~and~~ the plaintiffs ~~action~~in isthis ~~no longer pending~~action. OnThe ~~July~~complaint 8,alleges ~~2015,~~that ~~Intellectual~~SMS Masterminds ~~Capital~~sent ~~Management,~~unsolicited ~~LLC~~text ~~dba~~messages ~~SMS~~to ~~Masterminds~~the plaintiff and other ~~SpendSmart~~recipients ~~Networks,~~without ~~Inc.~~the ~~were~~prior ~~named~~express ininvitation aor ~~potential~~permission of ~~class-action~~the ~~lawsuit~~recipients ~~entitled~~and ~~Peter~~such ~~Marchelos,~~plaintiff etis alnow v.seeking ~~Intellectual~~unspecified monetary ~~Capital Management~~damages, etinjunctive alrelief, ~~filed~~costs inand ~~the~~attorneys’ fees. The ~~United~~case ~~States~~is ~~District~~currently ~~Court~~stayed. ~~Eastern~~We ~~District~~believe Plaintiff’s ofallegations ~~New~~have ~~York~~no ~~relating~~merit toand ~~alleged~~will ~~violations~~vigorously defend ofagainst ~~the~~Plaintiff’s ~~Telephone Consumer Protection Act of 1991~~claims. Litigation ~~This~~is subject ~~litigation~~to ~~involves~~numerous ~~the~~uncertainties ~~same licensee~~ and ~~merchant~~we asare ~~the~~unable ~~Telford~~to ~~lawsuit~~predict ~~and~~ the ultimate ~~same~~outcome ~~attorneys~~of ~~represent~~this ~~the~~or ~~plaintiffs~~any inother ~~this action~~matter. ~~The~~Moreover, ~~claim~~the amount of ~~one~~any ofpotential ~~the~~liability ~~two~~in ~~plaintiffs~~connection ~~was~~with ~~resolved~~this ~~for~~lawsuit $1will depend,~~701.~~ ~~The~~to ~~Company~~a ~~believes~~large ~~the~~extent, ~~Plaintiffs’~~on ~~allegations~~whether ~~have~~a noclass ~~merit~~in ~~and~~a isclass ~~vigorously defending the~~ action~~. Because this~~ lawsuit is incertified ~~an early stage~~and, weif ~~are~~one ~~unable~~is tocertified, ~~predict~~on the ~~outcome~~scope of the class, ~~lawsuit~~neither ~~and~~of ~~the~~which ~~possible~~we ~~loss~~can orpredict ~~range~~at ofthis ~~loss,~~time. ifThese and any, future ~~associated~~lawsuits ~~with~~that ~~its~~we ~~resolution~~may orface ~~any~~regarding ~~potential~~these ~~effect~~issues ~~the~~could materially ~~lawsuit~~and ~~may~~adversely ~~have~~affect on our ~~operations. There~~results ~~are~~of nooperations, ~~other~~cash flows ~~legal~~and ~~claims~~financial ~~currently~~condition, ~~pending~~cause orus ~~threatened~~to ~~against~~incur ussignificant expenses ~~that~~and indivert the ~~opinion~~attention of our management ~~would~~and bekey personnel ~~likely~~from ~~to have a material adverse effect on~~ our ~~financial~~business ~~position, results of~~ operations ~~or cash flows~~.

IF MOBILE CONNECTED DEVICES, THEIR OPERATING SYSTEMS OR CONTENT DISTRIBUTION CHANNELS, INCLUDING THOSE CONTROLLED BY OUR PRIMARY COMPETITORS, DEVELOP IN WAYS THAT PREVENT OUR ADVERTISING FROM BEING DELIVERED TO OUR USERS, OUR ABILITY TO GROW OUR BUSINESS WILL BE IMPAIRED.

Our mobile marketing business model depends upon the continued compatibility of our mobile advertising platform with most mobile connected devices, as well as the major operating systems that run on them. The design of mobile devices and operating systems is controlled by third parties with whom we do not have any formal relationships. These parties frequently introduce new devices, and from time to time they may introduce new operating systems or modify existing ones.

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OUR MOBILE MARKETING SERVICES ARE PROVIDED ON MOBILE COMMUNICATIONS NETWORKS THAT ARE OWNED AND OPERATED BY THIRD PARTIES WHO WE DO NOT CONTROL AND THE FAILURE OF ANY OF THESE NETWORKS WOULD ADVERSELY AFFECT OUR ABILITY TO DELIVER OUR SERVICES TO OUR CUSTOMERS.

Our mobile marketing and advertising platform is dependent on the reliability of mobile operators who maintain sophisticated and complex mobile networks. Such mobile networks have historically, and particularly in recent years, been subject to both rapid growth and technological change. If the network of a mobile operator with which we are integrated should fail, including because of new technology incompatibility, the degradation of network performance under the strain of too many mobile consumers using it, or a general failure from natural disaster or political or regulatory shut-down, we will not be able provide our services to customers through such mobile network. This in turn, would impair our reputation and business, potentially resulting in a material, adverse effect on our financial results.

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THE SUCCESS OF OUR MOBILE MARKETING BUSINESS DEPENDS, IN PART, ON WIRELESS CARRIERS CONTINUING TO ACCEPT OUR CUSTOMERS' MESSAGES FOR DELIVERY TO THEIR SUBSCRIBER BASE.

We depend on wireless carriers to deliver our customers' messages to their subscriber base. Wireless carriers often impose standards of conduct or practice that significantly exceed current legal requirements and potentially classify our messages as "spam," even where we do not agree with that conclusion. In addition, the wireless carriers use technical and other measures to attempt to block non-compliant senders from transmitting messages to their customers; for example, wireless carriers block short codes or Internet Protocol addresses associated with those senders. There can be no guarantee that our, or short codes registered to us, will not be blocked or blacklisted or that we will be able to successfully remove ourselves from those lists. Although our services typically require customers to opt-in to a campaign, minimizing the risk that its customers' messages will be characterized as spam, blocking of this type could interfere with its ability to market products and services of its customers and communicate with end users and could undermine the effectiveness of our customers' marketing campaigns. To date we have not experienced any material blocking of our messages by wireless carriers, but any such blocking could have an adverse effect on our business and results of operations.

MOBILE CONNECTED DEVICE USERS MAY CHOOSE NOT TO ALLOW ADVERTISING ON THEIR DEVICES.

The success of our mobile marketing business model depends on our ability to deliver targeted, highly relevant ads to consumers on their mobile connected devices. Targeted advertising is done primarily through analysis of data, much of which is collected on the basis of user-provided permissions. This data might include a device's location or data collected when device users view an advertisement or video or when they click on or otherwise engage with an advertisement. Users may elect not to allow data sharing for targeted advertising for a number of reasons, such as privacy concerns, or pricing mechanisms that may charge the user based upon the amount or types of data consumed on the device. Users may also elect to opt out of receiving targeted advertising from our platform. In addition, the designers of mobile device operating systems are increasingly promoting features that allow device users to disable some of the functionality, which may impair or disable the delivery of ads on their devices, and device manufacturers may include these features as part of their standard device specifications. Although we are not aware of any such products that are widely used in the market today, as has occurred in the online advertising industry, companies may develop products that enable users to prevent ads from appearing on their mobile device screens. If any of these developments were to occur, our ability to deliver effective advertising campaigns on behalf of our advertiser clients would suffer, which could hurt our ability to generate revenue.

WE MAY NOT BE ABLE TO ENHANCE OUR MOBILE MARKETING AND ADVERTISING PLATFORM TO KEEP PACE WITH TECHNOLOGICAL AND MARKET DEVELOPMENTS, OR TO REMAIN COMPETITIVE AGAINST POTENTIAL NEW ENTRANTS IN OUR MARKETS.

The market for mobile marketing and advertising services is emerging and is characterized by rapid technological change, evolving industry standards, frequent new product introductions and short product life cycles. Our current platform or platforms we may offer in the future may not be acceptable to marketers and advertisers. To keep pace with technological developments, satisfy increasing customer requirements and achieve acceptance of our marketing and advertising campaigns, we will need to enhance our current mobile marketing solutions and continue to develop and introduce on a timely basis new, innovative mobile marketing services offering compatibility, enhanced features and functionality on a timely basis at competitive prices. Our inability, for technological or other reasons, to enhance, develop, introduce and deliver compelling mobile marketing services in a timely manner, or at all, in response to changing market conditions, technologies or customer expectations could have a material adverse effect on our operating results or could result in our mobile marketing services platform becoming obsolete. Our ability to compete successfully will depend in large measure on our ability to maintain a technically skilled development and engineering staff and to adapt to technological changes and advances in the industry, including providing for the continued compatibility of our mobile marketing services platform with evolving industry standards and protocols. In addition, as we believe the mobile marketing market is likely to grow substantially, other companies which are larger and have significantly more capital to invest than us may emerge as competitors. New entrants could seek to gain market share by introducing new technology or reducing pricing. This may make it more difficult for us to sell our products and services, and could result in increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

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OUR SALES EFFORTS WITH LICENSEES REQUIRES SIGNIFICANT TIME AND EXPENSE.

Attracting new licensees requires substantial time and expense, and we may not be successful in establishing new relationships or in maintaining or advancing current relationships. Further, it may be difficult for our licensees to identify, engage and market to potential merchant clients who do not currently spend on mobile advertising or are unfamiliar with our current services or platform. Furthermore, many merchant’s purchasing and design decisions typically require input from multiple internal constituencies.

The novelty of our services and our business model often requires us to spend substantial time and effort educating potential licensees about our offerings, including providing demonstrations and comparisons against other available services. This process can be costly and time-consuming. If we are not successful in streamlining our sales processes with licensees or successfully assisting licensees in selling to merchants, our ability to grow our business may be adversely affected.

IF WE CANNOT INCREASE THE CAPACITY OF OUR MOBILE ADVERTISING TECHNOLOGY PLATFORM TO MEET MERCHANT OR DEVICE USER DEMAND, OUR BUSINESS WILL BE HARMED.

We must be able to continue to increase the capacity of our technology platform in order to support substantial increases in the number of merchants and device users, to support an increasing variety of advertising formats and to maintain a stable service infrastructure and reliable service delivery for our mobile advertising campaigns. If we are unable to efficiently and effectively increase the scale of our mobile advertising platform to support and manage a substantial increase in the number of merchants and mobile device users, while also maintaining a high level of performance, the quality of our services could decline and our reputation and business could be seriously harmed. In addition, if we are not able to support emerging mobile advertising formats or services preferred by advertisers, we may be unable to obtain new advertising clients or may lose existing advertising clients, and in either case our revenue could decline.

SYSTEM FAILURES COULD SIGNIFICANTLY DISRUPT OUR OPERATIONS AND CAUSE US TO LOSE ADVERTISER CLIENTS OR ADVERTISING INVENTORY.

Our success depends on the continuing and uninterrupted performance of our own internal systems, which are utilized to send messages, and monitor the performance of advertising campaigns. Our revenue depends on the technological ability of our platform to deliver ads. Sustained or repeated system failures that interrupt our ability to provide services to clients, including technological failures affecting our ability to deliver ads quickly and accurately and to process mobile device users' responses to ads, could significantly reduce the attractiveness of our services to advertisers and reduce our revenue. Our systems are vulnerable to damage from a variety of sources, including telecommunications failures, power outages, malicious human acts and natural disasters. In addition, any steps we take to increase the reliability and redundancy of our systems may be expensive and may not be successful in preventing system failures.

ACTIVITIES OF LICENSEES OR MERCHANTS COULD DAMAGE OUR REPUTATION OR GIVE RISE TO LEGAL CLAIMS AGAINST US.

A merchant’s promotion of their products and services may not comply with federal, state and local laws, including, but not limited to, laws and regulations relating to mobile communications. Failure of a licensee or merchant to comply with federal, state or local laws or our policies could damage our reputation and expose us to liability under these laws. We may also be liable to third parties for content in the ads it delivers if the artwork, text or other content involved violates copyrights, trademarks or other intellectual property rights of third parties or if the content is defamatory, unfair and deceptive, or otherwise in violation of applicable laws. Although we generally receive assurance from licensees that ads are lawful and that they have the right to use any copyrights, trademarks or other intellectual property included in a communication, and although we are normally indemnified by the licensees, a third party or regulatory authority may still file a claim against us. Any such claims could be costly and time-consuming to defend and could also hurt our reputation within the mobile advertising industry. Further, if we are exposed to legal liability, we could be required to pay substantial fines or penalties, redesign our business methods, discontinue some of its services or otherwise expend significant resources.

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SOFTWARE AND COMPONENTS THAT WE INCORPORATE INTO OUR MOBILE ADVERTISING PLATFORM MAY CONTAIN ERRORS OR DEFECTS, WHICH COULD HARM OUR REPUTATION AND HURT ITS BUSINESS.

We use a combination of custom and third-party software, including open source software, in building our mobile advertising platform. Although we test software before incorporating it into our platform, we cannot guarantee that all of the third-party technology that we incorporate will not contain errors, bugs or other defects. We continue to launch enhancements to our mobile advertising platform, and cannot guarantee any such enhancements will be free from these kinds of defects. If errors or other defects occur in technology that we utilize in our mobile advertising platform, it could result in damage to our reputation and losses in revenue, and we could be required to spend significant amounts of additional resources to fix any problems.

OUR INABILITY TO USE SOFTWARE LICENSED FROM THIRD PARTIES, OR OUR USE OF OPEN SOURCE SOFTWARE UNDER LICENSE TERMS THAT INTERFERE WITH OUR PROPRIETARY RIGHTS, COULD DISRUPT OUR BUSINESS.

Our technology platform incorporates software licensed from third parties, including some software, known as open source software, which we use without charge. Although we monitor our use of open source software, U.S. or foreign courts have not interpreted the terms of many open source licenses to which we are subject, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our platform to our clients. In the future, we could be required to seek licenses from third parties in order to continue offering our platform, which licenses may not be available on terms that are acceptable to us, or at all. Alternatively, we may need to re-engineer our platform or discontinue use of portions of the functionality provided by our platform. In addition, the terms of open source software licenses may require us to provide software that we develop to others on unfavorable license terms. Our inability to use third-party software could result in disruptions to our business, or delays in the development of future offerings or enhancements of existing offerings, which could impair our business.

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IF OUR MOBILE MARKETING AND ADVERTISING SERVICES PLATFORM DOES NOT SCALE AS ANTICIPATED, OUR BUSINESS WILL BE HARMED.

We must be able to continue to scale to support potential ongoing substantial increases in the number of users in our actual commercial environment, and maintain a stable service infrastructure and reliable service delivery for our mobile marketing and advertising campaigns. In addition, we must continue to expand our service infrastructure to handle growth in customers and usage. If our mobile marketing services platform does not efficiently and effectively scale to support and manage a substantial increase in the number of users while maintaining a high level of performance, the quality of our services could decline and our business will be seriously harmed. In addition, if we are unable to secure data center space with appropriate power, cooling and bandwidth capacity, we may not be able to efficiently and effectively scale our business to manage the addition of new customers and overall mobile marketing campaigns.

IF A PORTION OF OUR BUSINESS MODEL IS DEEMED TO BE A FRANCHISE OUR BUSINESS COULD BE INTERUPTED.

Although our business model related to the Mobile and Loyalty Program is based upon a license, we cannot guarantee that any state’s franchise department will not find our model to be a franchise and require a transition to said model with possible associated penalties, fees, costs, and business delays and interruptions.

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OUR BUSINESS PRACTICES WITH RESPECT TO DATA MAY GIVE RISE TO LIABILITIES OR REPUTATIONAL HARM AS A RESULT OF GOVERNMENTAL REGULATION, LEGAL REQUIREMENTS OR INDUSTRY STANDARDS RELATING TO CONSUMER PRIVACY AND DATA PROTECTION.

In the course of providing services, we transmit and store information related to mobile devices and the ads we place with that user's consent. Federal, state and international laws and regulations govern the collection, use, retention, sharing and security of data that we collect across our mobile marketing platform. We strive to comply with all applicable laws, regulations, policies and legal obligations relating to privacy and data protection. However, it is possible that these requirements may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure, or perceived failure, by us to comply with U.S. federal, state, or international laws, including laws and regulations regulating privacy or consumer protection, could result in proceedings or actions against us by governmental entities or others. From time to time, there are several ongoing lawsuits filed against companies in our industry alleging various violations of privacy-related laws. These proceedings could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, adversely affect the demand for our services and ultimately result in the imposition of monetary liability.

The regulatory framework for privacy issues worldwide is evolving, and various government and consumer agencies and public advocacy groups have called for new regulation and changes in industry practices, including some directed at the mobile industry in particular. It is possible that new laws and regulations will be adopted in the United States and internationally, or existing laws and regulations may be interpreted in new ways, that would affect our business, particularly with regard to location-based services, collection or use of data to target ads and communication with consumers via mobile devices.

The U.S. government, including the Federal Trade Commission, or FTC, and the Department of Commerce, has announced that it is reviewing the need for greater regulation of the collection of consumer information, including regulation aimed at restricting some targeted advertising practices. The FTC has also proposed revisions to the Children's Online Privacy Protection Act, or COPPA, that could, if adopted, create greater compliance burdens on us. COPPA imposes a number of obligations, such as obtaining parental permission on website operators to the extent they collect certain information from children who are under 13 years old. The proposed changes would broaden the applicability of COPPA, including the types of information that would be subject to these regulations, and could apply to information that we or our clients collect through mobile devices or apps that is not currently subject to COPPA.

As If we expand our operations globally, compliance with regulations that differ from country to country may also impose substantial burdens on its business. In particular, the European Union has traditionally taken a broader view as to what is considered personal information and has imposed greater obligations under data privacy regulations. In addition, individual EU member countries have had discretion with respect to their interpretation and implementation of the regulations, which has resulted in variation of privacy standards from country to country. In January 2012, the European Commission announced significant proposed reforms to its existing data protection legal framework, including changes in obligations of data controllers and processors, the rights of data subjects and data security and breach notification requirements. The EU proposals, if implemented, may result in a greater compliance burden if SMS Masterminds delivers ads to mobile device users in Europe. Complying with any new regulatory requirements could force us to incur substantial costs or require us to change our business practices in a manner that could compromise our ability to effectively pursue its growth strategy.

In addition to compliance with government regulations, we voluntarily participate in several trade associations and industry self-regulatory groups that promulgate best practices or codes of conduct addressing the provision of location-based services, delivery of promotional content to mobile devices, and tracking of device users or devices for the purpose of delivering targeted advertising. We could be adversely affected by changes to these guidelines and codes in ways that are inconsistent with our practices or in conflict with the laws and regulations of U.S. or international regulatory authorities. If we are perceived as not operating in accordance with industry best practices or any such guidelines or codes with regard to privacy, our reputation may suffer and we could lose relationships with advertiser or developer partners.

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WE DEPEND ON THIRD PARTY PROVIDERS FOR A RELIABLE INTERNET INFRASTRUCTURE AND THE FAILURE OF THESE THIRD PARTIES, OR THE INTERNET IN GENERAL, FOR ANY REASON WOULD SIGNIFICANTLY IMPAIR OUR ABILITY TO CONDUCT OUR BUSINESS.

We outsource all of our data center facility management to third parties who host the actual servers and provide power and security in multiple data centers in each geographic location. These third party facilities require uninterrupted access to the Internet. If the operation of our servers are interrupted for any reason, including natural disaster, financial insolvency of a third party provider, or malicious electronic intrusion into the data center, our business would be significantly damaged. As has occurred with many Internet-based businesses, on occasion in the past, we have been subject to "denial-of-service" attacks in which unknown individuals bombarded its computer servers with requests for data, thereby degrading the servers' performance. While we have historically been successful in relatively quickly identifying and neutralizing these attacks, we cannot be certain that we will be able to do so in the future. If either a third party facility failed, or our ability to access the Internet was interfered with because of the failure of Internet equipment in general or we become subject to malicious attacks of computer intruders, our business and operating results will be materially adversely affected.

Financial Risks

OUR FINANCIAL STATEMENTS HAVE BEEN PREPARED ASSUMING THAT OUR COMPANY WILL CONTINUE AS A GOING CONCERN.

The factors described herein raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty. The report of our independent registered public accounting firm ~~includes~~included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern in their audit report for the years ended December 31, 2016 and 2015. If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital on acceptable terms, we will need to substantially revise our business plan or cease operations and an investor could suffer the loss of a significant portion or all of his investment in our Company.

CURRENT MACRO-ECONOMIC CONDITIONS COULD ADVERSELY AFFECT THE FINANCIAL VIABILITY OF OUR COMPANY.

Continuing recessionary conditions in the global economy threaten to cause further tightening of the credit and equity markets and more stringent lending and investing standards. The persistence of these conditions could have a material adverse effect on our access to further needed capital. In addition, further deterioration in the economy could adversely affect our corporate results, which could adversely affect our financial condition and operations.

WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE, AND WE MAY NEVER PAY DIVIDENDS AND, CONSEQUENTLY, THE ONLY OPPORTUNITY FOR INVESTORS TO ACHIEVE A RETURN ON THEIR INVESTMENT IS IF A TRADING MARKET DEVELOPS AND INVESTORS ARE ABLE TO SELL THEIR SHARES FOR A PROFIT OR IF OUR BUSINESS IS SOLD AT A PRICE THAT ENABLES INVESTORS TO RECOGNIZE A PROFIT.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends for the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of our business. At the present time there is a limited trading market for our shares. Therefore, holders of our securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any third party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize a profit.

~~OUR NET OPERATING LOSS (“NOL”) CARRY~~-~~FORWARD IS LIMITED.~~14-

We have recorded a valuation allowance amounting to our entire net deferred tax asset balance due to our lack of a history of earnings, possible statutory limitations on the use of tax loss carry-forwards generated in the past and the future expiration of our NOL. This gives rise to uncertainty as to whether the net deferred tax asset is realizable. Internal Revenue Code Section 382, and similar California rules, place a limitation on the amount of taxable income that can be offset by carry-forwards after a change in control (generally greater than a 50% change in ownership). As a result of these provisions, it is likely that given our acquisition of The SpendSmart Payments Company-CA, SMS Masterminds, and TechXpress, future utilization of the NOL will be severely limited. Our inability to use our Company’s historical NOL, or the full amount of the NOL, would limit our ability to offset any future tax liabilities with its NOL.

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OUR NET OPERATING LOSS (“NOL”) CARRY-FORWARD MAY BE LIMITED.

We have recorded a valuation allowance amounting to our entire net deferred tax asset balance due to our lack of a history of earnings, possible statutory limitations on the use of tax loss carry-forwards generated in the past and the future expiration of our NOL. This gives rise to uncertainty as to whether the net deferred tax asset is realizable. Internal Revenue Code Section 382, and similar California rules, place a limitation on the amount of taxable income that can be offset by carry-forwards after a change in control (generally greater than a 50% change in ownership). As a result of these provisions, it is likely that given our acquisition of The SpendSmart Payments Company-CA, future utilization of the NOL will be severely limited. Our inability to use our Company’s historical NOL, or the full amount of the NOL, would limit our ability to offset any future tax liabilities with our NOL.

Corporate and Other Risks

LIMITATIONS ON DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION OF OUR COMPANY’S OFFICERS AND DIRECTORS BY US MAY DISCOURAGE STOCKHOLDERS FROM BRINGING SUIT AGAINST AN OFFICER OR DIRECTOR.

Our Company’s articles of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director.

WE ARE RESPONSIBLE FOR THE INDEMNIFICATION OF OUR OFFICERS AND DIRECTORS.

Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our articles of incorporation and bylaws as well as an indemnification agreement also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.

OUR EMPLOYEES, EXECUTIVE OFFICERS, DIRECTORS AND INSIDER STOCKHOLDERS BENEFICIALLY OWN OR CONTROL A SUBSTANTIAL PORTION OF OUR OUTSTANDING COMMON STOCK, WHICH MAY LIMIT YOUR ABILITY AND THE ABILITY OF OUR OTHER STOCKHOLDERS, WHETHER ACTING ALONE OR TOGETHER, TO PROPOSE OR DIRECT THE MANAGEMENT OR OVERALL DIRECTION OF OUR COMPANY.

Additionally, this concentration of ownership could discourage or prevent a potential takeover of our Company that might otherwise result in an investor receiving a premium over the market price for his shares. ~~Approximately~~A ~~half~~substantial number of our outstanding shares of common stock is beneficially owned and controlled by a group of insiders, including our employees, directors and executive officers. Accordingly, our employees, directors, executive officers and insider shareholders may have the power to control the election of our directors and the approval of actions for which the approval of our stockholders is required. If you acquire shares of our common stock, you may have no effective voice in the management of our Company. Such concentrated control of our Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

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WE ARE DEPENDENT FOR OUR SUCCESS ON A FEW KEY EMPLOYEES.

Our inability to retain those employees would impede our business plan and growth strategies, which would have a negative impact on our business and the value of your investment. Our success depends on the skills, experience and performance of key members of our Company. Each of those individuals may voluntarily terminate his employment with our Company at any time. Were we to lose one or more of these key employees, we would be forced to expend significant time and money in the pursuit of a replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We do not maintain a key man insurance policy on any of our key employees.

SHOULD WE BE SUCCESSFUL IN TRANSITIONING TO A COMPANY GENERATING SIGNIFICANT REVENUES, WE MAY NOT BE ABLE TO MANAGE OUR GROWTH EFFECTIVELY, WHICH COULD ADVERSELY AFFECT OUR OPERATIONS AND FINANCIAL PERFORMANCE.

The ability to manage and operate our business as we execute our growth strategy will require effective planning. Significant rapid growth could strain our internal resources, leading to a lower quality of customer service, reporting problems and delays in meeting important deadlines resulting in loss of market share and other problems that could adversely affect our financial performance. Our efforts to grow could place a significant strain on our personnel, management systems, infrastructure and other resources. If we do not manage our growth effectively, our operations could be adversely affected, resulting in slower growth and a failure to achieve or sustain profitability.

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Capital Market Risks

OUR COMMON STOCK IS THINLY TRADED, SO YOU MAY BE UNABLE TO SELL AT OR NEAR ASK PRICES OR AT ALL IF YOU NEED TO SELL YOUR SHARES TO RAISE MONEY OR OTHERWISE DESIRE TO LIQUIDATE YOUR SHARES.

There is limited market activity in our stock and we may be too small to attract the interest of many brokerage firms and analysts. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained. While we are trading on OTCQB, the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in over-the-counter stocks and certain major brokerage firms restrict their brokers from recommending over-the-counter stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not accurately reflect the underlying value of our Company. The market price of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

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THE APPLICATION OF THE “PENNY STOCK” RULES TO OUR COMMON STOCK COULD LIMIT THE TRADING AND LIQUIDITY OF THE COMMON STOCK, ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE SHARES.

As long as the trading price of our common stock is below $5 per share, our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder's ability to buy and sell our stock. In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include 1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; 2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; 3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; 4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and 5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices as well as the regulatory disclosure requirements set forth above could increase the volatility of our share price, may limit investors’ ability to buy and sell our securities and have an adverse effect on the market price for our shares of common stock.

WE MAY NOT BE ABLE TO ATTRACT THE ATTENTION OF MAJOR BROKERAGE FIRMS, WHICH COULD HAVE A MATERIAL ADVERSE IMPACT ON THE MARKET VALUE OF OUR COMMON STOCK.

Security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It will also likely make it more difficult to attract new investors at times when we require additional capital.

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WE MAY BE UNABLE TO LIST OUR COMMON STOCK ON NASDAQ OR ON ANY SECURITIES EXCHANGE.

Although we intend to apply to list our common stock on NASDAQ in the future, we cannot assure you that we will be able to meet the initial listing standards, including the minimum per share price and minimum capitalization requirements, or that we will be able to maintain a listing of our common stock on this trading. Until such time as we qualify for listing on NASDAQ or another national securities exchange, our common stock will continue to trade on OTCQB or another over-the-counter quotation system where an investor may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, rules promulgated by the SEC impose various practice requirements on broker-dealers who sell securities that fail to meet certain criteria set forth in those rules to persons other than established customers and accredited investors. Consequently, these rules may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. It would also make it more difficult for us to raise additional capital.

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FUTURE SALES OF OUR EQUITY SECURITIES COULD PUT DOWNWARD SELLING PRESSURE ON OUR SECURITIES, AND ADVERSELY AFFECT THE STOCK PRICE.

There is a risk that this downward pressure may make it impossible for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.

WE HAVE IDENTIED A MATERIAL WEAKNESS IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING. IF WE FAIL TO DEVELOP OR MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD. AS A RESULT, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH WOULD HARM OUR BUSINESS AND THE TRADING PRICE OF OUR STOCK.

During the preparation of our consolidated financial statements for the year ended December 31, 2015, we and our independent registered public accounting firm identified deficiencies in our internal control over financial reporting, as defined in the standards established by the Public Company Accounting Oversight Board. See “Report of Management on Internal Control over Financial Reporting.” Management determined the control deficiencies constitute a material weakness in our internal control over financial reporting.

The existence of a material weakness could result in errors in our financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in the trading price of our stock.

Item 1B. – Unresolved Staff Comments.

Not applicable.

Item 2 –Properties

Our corporate offices are located in San Luis Obispo, CA, where we lease approximately 7,500 square feet of office space in two locations. The building that we lease at 805 Aerovista Parkway is owned by Alexander P Minicucci Trust, which iswas a related party transaction due to the trust being controlled by the Company's former chief executive officer. The total monthly payment for both locations is approximately, $15,678 including association and common area maintenance charges. We also had offices in Des Moines, IA, where we leased approximately 500 square feet of office space. The monthly payments for the facility were approximately $600, including common area maintenance charges. We closed our Des Moines offices on June 30, 2015. We believe our facilities are in good condition and adequate to meet our current and anticipated requirements.

Item 3 – Legal Proceedings

Item 4 – Mine Safety Disclosures

Not applicable.

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Part II

Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock trades publicly on the OTCQB under the symbol "SSPC.OB" The OTCQB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The OTCQB securities are traded by a community of market makers that enter quotes and trade reports. This market is extremely limited and any prices quoted may not be a reliable indication of the value of our common stock. ~~The~~ The following table sets forth the high and low bid prices per share of our common stock by the OTCQB for the periods indicated as reported on the OTCQB.

	High	~~High~~Low		~~Low~~
Year ended December 31, 2015
Year ended December 31, 2016
First Quarter	$0.16	$0.10	~~1.17~~	$	~~0.71~~
Second Quarter	$0.20	$0.07	~~0.80~~	$	~~0.55~~
Third Quarter	$0.11	$0.04	~~0.70~~	$	~~0.43~~
Fourth Quarter	$0.06	$0.01	~~0.50~~	$	~~0.14~~
Year ended December 31, 2014
Year ended December 31, 2015
First Quarter	$1.17	$0.71	~~1.59~~	$	~~0.71~~
Second Quarter	$0.80	$0.55	~~3.34~~	$	~~1.00~~
Third Quarter	$0.70	$0.43	~~1.65~~	$	~~1.01~~
Fourth Quarter	$0.50	$0.14	~~1.20~~	$	~~0.73~~

On July 23, 2012 our stock was moved from the OTC Bulletin Board to the OTCQB. The quotes represent inter-dealer prices, without adjustment for retail mark-up, markdown or commission and may not represent actual transactions. The trading volume of our securities fluctuates and may be limited during certain periods. As a result of these volume fluctuations, the liquidity of an investment in our securities may be adversely affected.

Holders of Record

As of May ~~April 8~~5, ~~2016~~2017, 3942,~~354~~075,~~620~~571 shares of our common stock were issued and outstanding, and held by approximately 2,000 stockholders.

Transfer Agent

Our transfer agent is TranShare Corporation, 4626 South Broadway, Englewood, CO 80113, Telephone (303) 662-1112.

Dividends

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our Board of Directors.

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Securities Authorized for Issuance under Equity Compensation Plans

The table below sets forth information as of December 31, ~~2015~~2016 with respect to compensation plans under which our common stock is authorized for issuance.

On January 8, 2013, our Board of Directors approved the adoption of our 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan was approved by our shareholders on February 15, 2013. The 2013 Plan provides for granting of stock-based awards including: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. The total number of shares of common stock that may be issued pursuant to stock awards under the 2013 Plan shall not exceed in the aggregate 10,000,000 shares of the common stock of our Company. On August 4, 2011, our Board of Directors approved the adoption of the SpendSmart Networks, Inc. 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan has been approved by our shareholders. The 2011 Plan provides for granting of stock-based awards including: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. ~~The~~ The total number of shares of common stock that may be issued pursuant to stock awards under the 2011 Plan shall not exceed in the aggregate 1,666,667 shares of the common stock of our Company. We We also have a stockholder-approved Plan (the IdeaEdge, Inc. 2007 Equity Incentive Plan - the “2007 Plan”, previously approved by our shareholders). The 2007 Plan has similar provisions and purposes as the 2011 Plan. The total number of shares of common stock that may be issued pursuant to stock awards under the 2007 Plan shall not exceed in the aggregate 266.,666 shares of the common stock of our Company. The table below sets forth information as of December 31, ~~2015~~2016 with respect to our 2007 Plan, 2011 Plan, and 2013 Plan: ~~Upon shareholder approval of the 2013 Plan, our Board has expressed its intentions to issue no more shares under the 2011 and 2007 Plans.~~

Plan Category		Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by shareholders (2007 Plan)	-	-	266,666
Equity compensation plans approved by shareholders (2007 Plan)			-		-		266,666
Equity compensation plans subject to approval by shareholders (2011 Plan)	333,333	7.35	1,333,334
Equity compensation plans approved by shareholders (2011 Plan)			533,333		7.29		1,133,334
Equity compensation plan approved by shareholders (2013 Plan)	1,557,750	1.16	8,442,250
Equity compensation plan approved by shareholders (2013 Plan)			1,963,000		1.16		8,037,000
Total	1,891,083	2.25	10,042,250
Total			2,496,333		2.47		9,437,000

Item 6 – Selected Consolidated Financial Data

Disclosure not required as a result of our Company’s status as a smaller reporting company.

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this report. See “FORWARD LOOKING STATEMENTS” paragraph above and Part I. Item 1. Business-Cautionary Note Regarding Forward-Looking Statements.

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Overview and Financial Condition

Discussions with respect to our Company’s operations included herein refer to our operating subsidiary, SpendSmart Networks, Inc.-CA and the consolidated results of the company. The Company purchased SpendSmart Networks, Inc.-CA on October 16, 2007. On February 11, 2014, we acquired substantially all of the assets of Intellectual Capital Management, LC, dba “SMS Masterminds”. As a result of the SMS Masterminds asset acquisition, the company is a national full-service mobile and loyalty marketing agency that offers a means for small and large business owners alike to better connect with their consumers. Through our mobile and loyalty marketing programs and proprietary website building software, the company provides proprietary loyalty systems and a suite of digital engagement and marketing services that help local merchants build relationships with consumers and drive revenues. These services are sold, implemented and supported both internally and by a vast network of certified digital marketing specialists, aka “Certified Masterminds,” who drive revenue and consumer relationships for merchants via loyalty programs, custom websites, social media engagement, mobile marketing, mobile commerce and financial tools, such as reward systems. We enter into licensing agreements for our proprietary loyalty and mobile marketing solutions and custom website building tools with “Certified Masterminds” which sell and support the technology in their respective markets. We provide training materials, best practice guides and other resources to our licensees. The licensees also utilize loyalty kiosks provided to their merchants. The loyalty kiosks are tablet devices set up in physical retail locations where Consumers can enter their mobile phone number to “opt-in” to receive notifications from the merchant.

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We generate revenues primarily in the form of set up fees, recurring license fees, messaging, equipment and marketing services fees and value added mobile marketing and mobile commerce services. License fees are charged monthly for our support services. Set-up fees primarily consist of fees for website development services (including support and unspecified upgrades and enhancements when and if they are available), training and professional services that are not essential to functionality.

In November 2014, we began winding down our prepaid card product offerings and completed that process in January 2015.

Comparison of Results of Operations for the Years Ended December 31, ~~2015~~2016 and December 31, ~~2014~~2015

The Company had total revenues of $5,~~588~~795,~~002~~604 for the year ended December 31, ~~2015~~2016 and $45,~~036~~588,~~196~~002 for the year ended December 31, ~~2014~~ 2015.

Our revenues increased $1207,~~551,806~~602 or 383.47% over the prior year due to a ~~our~~slight ~~acquisition~~increase ~~of SMS and TechXpress (which happened~~ in ~~third~~licensing ~~quarter 2014)~~sales. This was the result of expanding into more markets throughout the country in 2015 with our Engage license. In 2015, we expanded our product line to offer the Thrive license to licensees, which increased their ability to market directly to merchants.

Comparison of Operating Expenses for the Years Ended December 31, 2016 ~~2015~~ and December 31, ~~2014~~2015

In order to better represent our financial results and to make them comparable to leading companies in the mobile marketing industry, we have classified our operating expenses into four major categories: (1) selling and marketing; (2) personnel related; (3) operations; and (4) general and administrative expenses. We do not allocate common expenses to any of these expense categories.

Selling and marketing expenses

Selling and marketing expenses for the ~~years~~year ended December 31, ~~2015~~2016 totaled $595,031 and ~~2014 totaled~~ $582,042 ~~and~~for ~~$753~~the year ended December 31,~~466,~~ ~~respectively~~2015. This was aan ~~decrease~~increase of $~~171~~12,~~424. In~~989 from 2015, weto ~~focused~~2016. ~~our~~Our ~~marketing~~increased costs ~~efforts~~were onthe ~~those~~result of increasing our market presence in new territories ~~where~~as wewell ~~had~~as aincreasing ~~better~~marketing ~~opportunity~~spend to ~~expand~~bring ~~into~~more brand ~~immediately~~awareness to our products.

Personnel related expenses

Personnel related expenses totaled $64,~~426~~729,~~273~~399 during the year ended December 31, ~~2015~~2016 and $76,~~316~~426,~~885~~273 for the year ended December 31, ~~2014~~ 2015. This amounted to a decrease of $~~890~~1,~~612~~696,874 or a 1226.24% decrease from ~~2014~~2015 to ~~2015~~2016. Overall ~~increases~~decreases in ~~wage~~personnel ~~and salary~~ related expenses reflected the ~~acquisition~~10% ofdecrease ~~SMS~~in ~~during~~salaries ~~the~~along ~~first~~with ~~quarter and TechXpress during the third quarter of 2014 offset by~~ lower stock based compensation expense (lower option and warrant grants made to directors and executive officers). Other personnel related expenses include employer taxes, employee benefits and other employee related costs.

Processing expenses

Processing expenses totaled $1,~~465~~140,~~576~~ 068 for the year ended December 31, ~~2015~~2016 (and $1,~~048~~465,~~377~~576 for the year ended December 31, ~~2014)~~2015. This resulted in ana ~~increase~~decrease of $~~417~~325,~~199~~508 ~~compared~~or a ~~to 2014~~22.2% ~~This~~decrease ~~increase was related to our increased number of licensees~~ compared to ~~2014 and the infrastructure costs needed to handle them~~2015. ~~This~~ ~~related~~Decreases ~~to the increase~~ in ~~our~~processing expenses ~~licensees~~were ~~from 123 at~~ the ~~end~~result of ~~2014~~our ~~and~~lower ~~190~~subscription ~~at the end of 2015~~server costs.

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Amortization of intangible assets

Amortization of intangible assets totaled $~~337~~192,~~879~~503 for the year ended December 31, ~~2015~~2016 and $~~288~~337,~~700~~879 for the year ended December 31, ~~2014~~2015, respectively. This resulted in ana ~~increase~~decrease of $49145,~~179~~376 from ~~2014~~2015 to ~~2015~~ 2016. ~~The amount for our SMS acquisition was $324,290 and $283,754 for 2015 and 2014, respectively and the TechXpress acquisition was $13,589 and $4,946 for 2015 and 2014, respectively.~~

General and administrative expenses

General and administrative expenses totaled $32,~~467~~126,~~554~~631 for the year ended December 31, ~~2015~~2016 and $23,~~144~~463,~~740~~405 for the year ended December 31, ~~2014~~2015. This resulted in ana ~~increase~~decrease of $1,~~322~~336,~~814~~774 or 6138.76% from 2015 ~~2014~~ to ~~2015~~2016. We had ~~increases~~decreases in investor relations consulting, depreciation, legal and ~~insurance~~travel expense during the year offset by ~~decreases~~increases in ~~legal~~insurance ~~and accounting~~ expenses. ~~In 2015, the Company accelerated depreciation on our kiosks, which have seven inch screens, to reduce their net book value to zero due to technological obsolescence.~~

Bad debt expense

Bad debt expenses totaled $1552,~~417,952~~725 for the year ended December 31, ~~2015~~ 2016 and $~~686~~1,~~641~~417,952 for the year ended December 31, ~~2014~~2015. We recorded bad debt write offs due to non-performing accounts in our receivables as well as our ~~third~~notes ~~party~~receivable. ~~Notes~~The ~~Receivable~~Company is no longer entering into notes with its customers.

Impairment on intangible assets and software development costs

Impairment expenses totaled $1,697,188 for the year ended December 31, 2016 and $1,189,246 for the year ended December 31, 2015. We recorded impairment expense on our intangible assets of $922,688 related to our SMS technology assets, $718,116 related to our SMS software development, $38,853 related to trademarks, and $017,531 related to our TechXpress technology assets for the year ended December 31, ~~2014~~ 2016. We recorded impairment expense on our intangible assets of $1,083,875 related to our SMS customer base and $105,371 related to our TechXpress customer base for the year ended December 31, 2015.

Impairment on goodwill

Impairment expenses related to our goodwill totaled $3,202,276 for the year ended December 31, 2015 ~~and $0 for the year ended December 31, 2014~~. As part of our annual impairment assessment at year end, we noted that our future cashflow will be lower than originally anticipated and as a result, our goodwill has been fully impaired as of December 31, 2015. We recorded impairment expense due to the goodwill impairment analysis that was done at December 31, 2015. As of December 31, 2015, goodwill was $0.

Earn-out liability expense

The change in fair value of Earn-out liability expenses totaled $~~594,216~~0 for the year ended December 31, ~~2015~~2016 and $13594,~~582~~216 for the year ended December 31, ~~2014~~2015. We recorded the change in earn-out liability due to our updated operating assumptions in the underlying valuation related to the SMS acquisition.

Comparison of Non-operating Income and Expense for the Years Ended December 31, ~~2015~~2016 and December 31, ~~2014~~2015

For the years ended December 31, ~~2015~~2016 and ~~2014~~2015, net interest income totaled $~~140~~38,~~276~~782 and $1140,~~805~~276, respectively. This was andue ~~increase of $138,471. This related~~ to the lowered ~~increase~~remaining inbalances on our ~~financings~~financed ~~related to new licensees from 45 at the end of 2014 and 120 at the end of 2015~~accounts.

For the years ended December 31, ~~2015~~2016 and ~~2014~~2015, interest expense totaled $~~143~~180,~~663~~704 and $3143,~~271~~663, respectively. This related to our convertible notes and our notes payable ~~serviced~~financings during ~~2015.~~ 2016.

For the years ended December 31, ~~2015~~2016 and ~~2014~~2015, ~~other~~amortization ~~income~~of debt discount totaled $4399,~~149~~367 and $0456,475, respectively. The decrease was due to the convertible notes financings during the year ended December 31, 2016.

For the years ended December 31, 2015 and 2014, amortization of debt discount totaled ($456,475) and $0, respectively. The increase was due to the convertible notes financings during the year ended December 31, 2015.-22-

During the year ended December 31, 2015, we recognized a gain from the change in the fair value of derivative liabilities of $457,811 (and a loss of $14,759 in 2014). These derivative liabilities are the fair value of warrants issued in fiscal 2010 with anti-dilution privileges and warrants issued in fiscal 2012 with certain registration privileges and the fair value of the bifurcated conversion options in convertible notes.

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~~Comparison~~ For ~~of Discontinued Operations for~~ the ~~Years~~years ~~Ended~~ended December 31, ~~2015~~2016 and ~~December~~2015, 31we recognized a loss on extinguishment of debt of $473,721 ~~2014~~and $0, respectively. This increase was due to the convertible notes modifications completed in 2016.

On For ~~November~~the ~~26,~~year ~~2014,~~ended asDecember ~~part~~31, of2016 ~~SpendSmart~~and ~~Networks~~2015, ~~Inc.'s~~tender ~~(the~~offer ~~"Company")~~expense totaled ~~efforts~~$3,560,958 ~~to reduce expenses as well as focus its resources on its Mobile~~ and ~~Loyalty Marketing Division~~$0, ~~the Company decided to begin a wind down of the operations of its Card Division~~respectively. We ~~have~~This ~~classified~~increase ~~this~~was asdue ~~discontinued operations. For~~ to the ~~years~~inducement ~~ended~~given ~~December~~to ~~31,~~exercise ~~2015~~warrants ~~and~~in ~~2014, the net loss from discontinued operations totaled $0 and $3,983,107, respectively~~2016.

~~Comparison~~ During the year ended December 31, 2016, we recognized a gain from the change in the fair value of derivative ~~Net~~liabilities ~~Loss~~of $2,975,316 and ~~Net~~a ~~Loss~~gain ~~per~~of ~~Share~~$457,811 ~~for~~in 2015. These derivative liabilities are the ~~Years~~fair ~~Ended~~value ~~December~~of 31warrants issued in fiscal 2010 with anti-dilution privileges, ~~2015~~warrants issued ~~and~~in ~~December~~fiscal 312012 with certain registration privileges, warrants ~~2014~~issued in 2016 with provisions that adjust conversion or exercise price, and the fair value of the bifurcated conversion options in convertible notes issued in 2015.

~~For~~ Comparison ~~the~~of ~~years~~Net ~~ended~~Loss ~~December 31, 2015~~ and ~~2014,~~Net ~~our~~Loss ~~net loss was $11,904,482 and $8,205,256, respectively. Our basic and diluted net loss~~ per ~~share~~Share ~~was $.63 and $.51~~ for the ~~years~~Years ~~ended~~ Ended December 31, ~~2015~~2016 and December 31, ~~2014, respectively. Common stock equivalents and outstanding options and warrants were not included in the calculations due to their effect being anti-dilutive.~~2015

~~Liquidity~~ For the years ended December 31, 2016 and ~~Capital~~2015, ~~Resources~~our net loss was $6,838,593 and $11,904,482, respectively. Our basic and diluted net loss per share was $0.18 and $0.63 for the ~~Years~~twelve ~~Ended~~months ended December 31, ~~2015~~2016 and December 31, ~~2014~~2015, respectively. Common stock equivalents and outstanding options and warrants were not included in the calculations due to their effect being anti-dilutive.

We Comparison ~~have~~of ~~primarily~~Liquidity ~~financed~~and ~~our~~Capital ~~operations~~Resources tofor ~~date through~~ the ~~sale~~Years ~~of unregistered equity. At~~ Ended December 31, ~~2015,~~2016 ~~our total current assets were $899,439. Total current liabilities were $5,071,215, long-term liabilities were $0,~~ and ~~our~~December ~~stockholders’ deficiency totaled ($1~~31,~~948,272).~~ 2015

We ~~may~~have ~~raise~~primarily ~~additional~~financed ~~funding through the sale of unregistered common stock and warrants although there can be no assurance that we will be successful in raising such funds. This description of~~ our ~~recent~~operations ~~financing and our future plans does not constitute an offer~~ to ~~sell~~date orthrough the ~~solicitation~~ sale of anunregistered offer to buy our securities, nor shall such securities be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the sameequity. AsAt of December 31, ~~2015~~2016, weour ~~had~~total ~~raised~~current assets were $~~661~~418,~~424 related to our Tender Offer financing~~642. ~~During~~ ~~the~~Total ~~year,~~current weliabilities ~~raised~~were ~~approximately~~ $25,~~160~~826,~~000~~997, long-term ~~from~~liabilities ~~our~~were ~~convertible~~$0, ~~notes financings~~ and ~~raised~~our anstockholders’ ~~additional~~deficit totaled $24,~~023~~975,~~000 in 2016 related to our Tender Offer financing~~818.

We ~~had~~may raise aadditional ~~decrease~~funding inthrough ~~cash for~~ the ~~year~~sale of ~~$771,814. We~~unregistered ~~had~~common stock ~~significant~~and ~~cash~~warrants ~~outlays~~although ~~relating~~there tocan ~~ramping~~be upno ~~staffing~~assurance ~~during~~that ~~the~~we ~~year~~will be tosuccessful ~~handle~~in raising such funds. This description of our ~~increased~~recent financing ~~licensee~~and ~~base,~~our ~~increased~~future ~~software~~plans ~~development~~does ~~costs~~not constitute an offer to ~~improve~~sell or ~~our~~the ~~technology~~solicitation ~~related~~of an offer to ~~new~~buy ~~product~~our ~~offerings~~securities, ~~and~~nor anshall such ~~increase~~securities be offered or sold in ~~licensee~~the ~~financings,~~United ~~offset~~States byabsent registration ~~financings. Our~~or ~~cash~~an applicable exemption from the registration requirements and ~~cash~~certificates ~~equivalents~~evidencing ~~balance~~such atshares ~~December~~contain ~~31,~~a legend ~~2015~~stating ~~totaled~~the ~~$470,341~~same.

We had a decrease in cash for the year of $395,818. During the year, we raised approximately $380,000 from our convertible notes financings and raised an additional $1,179,000 in 2016 related to our Tender Offer financing. We had significant cash outlays relating to repayment of debt, costs to handle our increased licensee base, and increased software development costs to improve our technology related to new product offerings. Our cash and cash equivalents balance at December 31, 2016 totaled $74,523.

Going Concern

As noted above (and by our independent registered public accounting firm in their report on our consolidated financial statements as of and for the two-year period ended December 31, 2016), there exists substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not contain any adjustments related to the outcome of this uncertainty.

~~Our~~ As ~~recurring~~of ~~losses~~December 31, ~~negative~~2016, ~~working~~the ~~capital,~~Company’s ~~and~~audited ~~accumulated~~consolidated financial ~~deficit~~statements ~~balances~~included ~~increase~~an opinion containing an explanatory paragraph as to the ~~risks~~uncertainty of ~~our~~the Company’s toability to continue ~~operations~~as a going concern. We ~~currently~~The Company has continued to incur net losses through December 31, 2016 and have ~~remediation~~yet ~~plans~~to ~~focused~~establish profitable onoperations. ~~reducing~~These factors among others create a substantial doubt about our ~~workforce~~ability to continue as a going concern. The Company’s audited consolidated financial statements as of and ~~overall~~for ~~overhead~~the ~~expenses~~periods ended December 31, 2016 do not contain any adjustments for this uncertainty.

We The Company currently ~~plan~~plans to raise ~~capital~~additional required capital through the sale of shares of the Company’s preferred or common stock. All additional ~~financings~~amounts raised will be used for our future investing and operating cash flow needs. However, there can be no assurance that we will be successful in ~~order~~consummating such financing. This description of our future plans for financing does not constitute an offer to ~~fund~~sell or the solicitation of an offer to buy our ~~operations~~securities.

Contractual Obligations

With the exception of employment agreements, lease agreements, and the endorsement agreement described elsewhere herein, we have no outstanding contractual obligations through the date of this report that are not cancellable at our Company’s option.

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Critical Accounting Policies Involving Management Estimates and Assumptions

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments and we base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.

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In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we must make a variety of estimates that affect the reported amounts and related disclosures. We have identified the following accounting policies that we believe require application of management’s most subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are described in more detail in the notes to consolidated financial statements included elsewhere in this filing. If actual results differ significantly from our estimates and projections, there could be a material effect on our financial statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our 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 reporting period. Actual results could differ materially from those estimates.

Revenue Recognition

We The ~~generate~~Company generates revenues primarily in the form of set up fees, ~~recurring~~ license fees, messaging, equipment and marketing services fees and value added mobile marketing and mobile commerce services. License fees are charged monthly for ~~our~~ support services. ~~Business development and set~~Set-up fees primarily consist of fees for website development services (including support and unspecified upgrades and enhancements when and if they are available), training and professional services that are not essential to functionality. ~~Our~~ The ~~2015~~Company ~~revenue~~offers oftwo ~~$5,588,002~~licenses isconsisting ~~net~~ of ~~$95,284~~our inEngage ~~reserves~~license and ~~associated~~our ~~with~~Thrive ~~initial~~license. The ~~package~~Company ~~fee~~now ~~that~~offers ~~hadn’t~~both licenses ~~been~~in ~~realized~~a ~~per~~combined ~~our~~package ~~revenue~~known ~~recognition policy~~ as ofthe ~~December~~Customer ~~31,~~Loyalty ~~2015~~System License (“CLS”).

We recognize revenues when all of the following conditions are met:

● there is persuasive evidence of an arrangement; ● the products or services have been delivered to the customer; ● the amount of fees to be paid by the customer is fixed or determinable; and ● the collection of the related fees is probable.

~~Signed~~ there is ~~agreements~~persuasive ~~are used as~~ evidence of an arrangement. Electronic delivery occurs when we provide the customer with access to the software via a username and password. We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. We do offer extended payment terms with regards to the setup fee with typical terms of payment due between one and three years from delivery of license. We assess collectability of the set-up fee based on a number of factors such as collection history and creditworthiness of the customer. If we determine that collectability is not probable, revenue is deferred until collectability becomes probable, generally upon receipt of cash.;

License arrangements may also include set-up fees such as website development, delivery of tablets, professional services and training services, which are typically delivered within 30 days of the contract term. In determining whether set-up fee revenues should be accounted for separately from license revenues, we evaluate whether the set-up fees are considered essential to the functionality of the license using factors such as the nature of our products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code; the availability of services from other vendors; whether the timing of payments for license revenues is coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the license fee. Substantially all of our set-up fee arrangements are recognized as the services are performed. Payments received in advance of services performed are deferred and recognized when the related services are performed. ●

We the products door ~~not~~services ~~offer refunds and therefore~~ have ~~not~~been ~~recorded~~delivered ~~any sales return allowance for any of the years presented. Upon a periodic review of outstanding accounts receivable under the extended payment terms, amounts that are not being paid timely are deemed~~ to ~~be uncollectible and are written off against~~ the ~~allowance for doubtful accounts.~~ customer;

~~-21-~~ ●

the amount of fees to be paid by the customer is fixed or determinable; and

●

the collection of the related fees is probable.

Signed agreements are used as evidence of an arrangement. Electronic delivery occurs when we provide the customer with access to the software via a username and password. We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. The Company offered extended payment terms in 2014 and 2015 with regards to the setup fee with typical terms of payment due between one and three years from delivery of license. The Company no longer offers extended payment terms. We assess collectability of the set-up fee based on a number of factors such as collection history and creditworthiness of the customer. If we determine that collectability is not probable, revenue is deferred until collectability becomes probable, generally upon receipt of cash.

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License arrangements may also include set-up fees such as website development, delivery of tablets, professional services and training services, which are typically delivered within 30-60 days of the contract term. In determining whether set-up fee revenues should be accounted for separately from license revenues, we evaluate whether the set-up fees are considered essential to the functionality of the license using factors such as the nature of our products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code; the availability of services from other vendors; whether the timing of payments for license revenues is coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the license fee. Substantially all of our set-up fee arrangements are recognized as the services are performed. Payments received in advance of services performed are deferred and recognized when the related services are performed.

We do not offer refunds and therefore have not recorded any sales return allowance for any of the periods presented. Upon a periodic review of outstanding accounts receivable under the extended payment terms, amounts that are not being paid timely are deemed to be uncollectible and are written off against the allowance for doubtful accounts.

Deferred revenue consists substantially of amounts invoiced in advance of revenue recognition for our products and services described above. We recognize deferred revenue as revenue only when the revenue recognition criteria are met.

Stock Based Compensation

We account for stock based compensation arrangements through the measurement and recognition of compensation expense for all stock based payment awards to employees and directors based on estimated fair values. We use the Black-Scholes option valuation model to estimate the fair value of our stock options and warrants at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of options and warrants. We use historical company data among other information to estimate the expected price volatility and the expected forfeiture rate and not comparable company information, due to the lack of comparable publicly traded companies that exist in our industry.

Derivatives

We account for certain of our outstanding warrants as derivative liabilities. These derivative liabilities are ineligible for equity classification due to provisions of the instruments that may result in an adjustment to their conversion or exercise prices. The fair value of these liabilities is estimated using option pricing models that are based on the individual characteristics of our warrants, preferred and common stock, the derivative liability on the valuation date as well as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread.

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Recent Accounting Pronouncements

On May 28, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as amended, (Topic 606), with an effective date for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016. The Company is evaluating the impact, if any, the pronouncement will have on both historical and future financial positions and results of operations, with an expected completion date of June 30, 2017.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (“ASU 2014-15), which states management should evaluate whether there are conditions or events, considered in the aggregate, that raise a substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Management’s evaluation should be based on relevant conditions and events that are known and likely to occur at the date that the financial statements are issued. ASU 2014-15 as required was adopted in the fourth quarter of 2016.

In February 2016, the FASB issued ASU 2016-02, Leases which amended guidance for lease arrangements in order to increase transparency and comparability by providing additional information to users of financial statements regarding an entity's leasing activities. The revised guidance seeks to achieve this objective by requiring reporting entities to recognize lease assets and lease liabilities on the balance sheet for substantially all lease arrangements. The guidance, which is required to be adopted in the first quarter of 2019, will be applied on a modified retrospective basis beginning with the earliest period presented. Early adoption is permitted. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.

In ~~April 2015~~March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2015~~2016-~~03,~~09 ~~Interest~~-~~Imputation~~ ofCompensation ~~Interest~~- ~~(Subtopic~~Stock ~~835-30)~~Compensation, which ~~Simplifying~~simplifies the ~~Presentation~~accounting offor ~~Debt~~the ~~Issuance~~tax ~~Costs,~~effects ~~which requires that debt issuance costs~~ related to stock abased ~~recognized~~compensation, ~~debt~~including ~~liability~~adjustments beto ~~presented~~how inexcess ~~the~~tax benefits ~~balance~~and ~~sheet as~~ a ~~direct~~company’s ~~deduction~~payments ~~from~~for ~~the~~tax ~~carrying~~withholdings ~~amount~~should be ~~of that debt liability~~classified, ~~consistent~~amongst ~~with~~other ~~debt discounts~~items. ~~The~~ ASU 2016-09 is effective for financial statements issued for fiscal years beginning after December 15, ~~2015~~2016, and interim periods within ~~that~~those fiscal ~~year~~ years. ~~Since~~Early weadoption ~~did~~is ~~not~~permitted. ~~previously~~We ~~have~~do ~~any debt issuance costs, there was~~ not aexpect ~~need~~this ~~for~~to ~~retrospective application. The guidance was adopted for the year ended December 31, 2015. The adoption did not~~ have a material ~~impact~~effect on ~~the~~our ~~financial~~consolidated financial statements.

On In ~~May~~June 282016, ~~2014,~~ the FASB issued ASU ~~2014~~2016-0913, ~~Revenue~~"Financial ~~from~~Instruments – ~~Contracts~~Credit ~~with~~Losses ~~Customers~~ (Topic ~~606~~326),: ~~with~~Measurement anof ~~effective~~Credit ~~date~~Losses ~~for~~on Financial ~~annual~~Instruments" ~~reporting~~(ASU ~~periods beginning after December 15,~~ 2016-13), ~~including interim periods within~~ that ~~reporting~~requires ~~period, for public business~~ entities, ~~certain~~to ~~not-for-profit~~use a ~~entities,~~new ~~and~~impairment ~~certain~~model ~~employee~~based ~~benefit~~on ~~plans~~expected losses. ~~The~~Under ~~effective~~this ~~date~~new model ~~for~~an ~~ASU~~entity ~~2014-09~~would ~~was~~recognize ~~deferred~~an byimpairment ~~one~~allowance ~~year~~equal ~~through~~to its ~~the~~current ~~issuance~~estimate of ~~ASU~~credit ~~2015-14,~~losses ~~Revenue~~on ~~from~~financial ~~Contracts~~assets ~~with~~measured at ~~Customers~~amortized –cost. ~~Deferral~~ASU of2016-13 ~~the~~is ~~Effective~~effective ~~Date,~~for tous ~~annual reporting periods~~ beginning January ~~after December 15~~1, ~~2017,~~2020 ~~including~~with ~~interim~~early ~~reporting~~adoption ~~periods~~permitted ~~within~~January ~~that~~1, ~~reporting period~~2019. Credit ~~Earlier~~losses ~~application~~under isthe ~~permitted~~new ~~only~~model aswill ofconsider ~~annual~~relevant information ~~reporting~~about ~~periods~~past ~~beginning~~events, ~~after~~current ~~December~~conditions ~~15,~~and ~~2016,~~reasonable and ~~including~~supportable ~~interim~~forecasts, ~~reporting~~resulting ~~periods~~in ~~within~~recognition ~~that~~of ~~reporting~~lifetime expected ~~period~~credit losses. ~~The~~We ~~Company~~are iscurrently evaluating the impact, ifof adopting ~~any,~~this ~~the~~guidance ~~pronouncement will have~~ on ~~both~~our ~~historical~~consolidated ~~and future~~ financial ~~positions and results of operations~~ statements.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, ~~2015~~2016.

~~Item 7A – Quantitative and Qualitative Disclosures About Market Risk~~-26-

Not applicable to smaller reporting companies.

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SPENDSMART NETWORKS, INC.

Index

Item 8 – Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	2428
Consolidated Balance Sheets at December 31, 2015 and 2014	25
Consolidated Balance Sheets at December 31, 2016 and 2015	29
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014	26
Consolidated Statements of Operations for the years ended December 31, 2016 and 2015	30
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2015 and 2014	27
Consolidated Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2016 and 2015	31
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014	28
Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015	32
Notes to Consolidated Financial Statements	2933

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of

SpendSmart Networks, Inc.

We have audited the accompanying consolidated balance sheets of SpendSmart Networks, Inc. (the “Company") as of December 31, 2016 ~~2015~~ and ~~2014,~~2015 and the related consolidated statements of operations, changes in stockholders’ ~~equity (~~deficit), and cash flows for each of the years then ended. The financial statements are the responsibility of the Company’s management. ~~Our~~ Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of 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 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SpendSmart Networks, Inc. as of December 31, ~~2015~~2016 and ~~2014~~ 2015, and the consolidated results of their operations and their cash flows for each of 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 recurring net losses since inception and has yet to establish a profitable operation ~~and at December 31, 2015 has negative working capital and stockholders’ deficit~~. These factors among others 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.

/s/ EisnerAmper LLP

Iselin, New Jersey

~~April~~ May 1416, ~~2016~~2017

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SPENDSMART NETWORKS, INC. Consolidated Balance Sheets

	December 31,	December 31,			~~December 31,~~
		2015			2014
	2016	2015
ASSETS
Current assets:
Cash and cash equivalents	$74,523	$470,341	~~470,341~~		$	~~1,242,155~~
Accounts receivable, net of allowance for doubtful accounts of $295,759 at December 31, 2015 and $188,527 at December 31, 2014			141,830			155,786
Accounts receivable, net of allowance for doubtful accounts of $629,461 at December 31, 2016 and $295,759 at December 31, 2015	292,368	141,830
Customer short-term notes receivable, net of allowance for doubtful accounts of $632,422 at December 31, 2015, and $286,571 at December 31, 2014			276,168			473,846
Customer short-term notes receivable, net of allowance for doubtful accounts of $767,138 at December 31, 2016, and $632,422 at December 31, 2015	26,850	276,168
Third party short-term notes receivable, net of allowance for doubtful accounts of $0 at December 31, 2015 and 2014			-			416,133
Other current assets	24,901	11,100
Prepaid expenses			11,100			6,090
Total current assets	418,642	899,439
Total current assets			899,439			2,294,010
Long-term assets:
Long-term assets:
Customer long-term notes receivable, net of allowance for doubtful accounts of $399,401 at December 31, 2016, and $461,702 at December 31, 2015	15,264	199,669
Customer long-term notes receivable, net of allowance for doubtful accounts of $461,702 at December 31, 2015, and $349,954 at December 31, 2014			199,669			678,851
Property and equipment, net of accumulated depreciation of $1,396,223 on December 31, 2016 and $1,035,960 on December 31, 2015	-	896,146
Property and equipment, net of accumulated depreciation of $1,035,960 on December 31, 2015 and $83,854 on December 31, 2014			896,146			581,124
Intangible assets, net of accumulated amortization of $819,082 on December 31, 2016 and $626,579 on December 31, 2015	399,000	1,570,575
Intangible assets, net of accumulated amortization of $626,579 on December 31, 2015 and $288,700 on December 31, 2014			1,570,575			3,097,700
Other assets	18,273	18,274
Goodwill			-			3,202,276
TOTAL ASSETS	$851,179	$3,584,103
Other assets			18,274			30,000
LIABILITIES AND STOCKHOLDERS' DEFICIT
Total long-term assets			2,684,664			7,589,951
Current liabilities:
Other assets of discontinued operations			-			145,903
Convertible notes	$1,494,174	$1,817,320
TOTAL ASSETS		$	3,584,103		$	10,029,864
Notes payable	-	70,262
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable, former CEO	65,000	100,000
Current liabilities:
Accounts payable and accrued liabilities	1,997,667	1,867,233
Convertible notes		$	1,817,320		$	-
Accrued interest payable	66,242	23,090
Notes payable			70,262			-
Deferred revenue	748,774	751,912
Due to related party			100,000			-
Deferred acquisition related payable	-	10,000
Accounts payable and accrued liabilities			1,491,282			337,673
Cash received in connection with tender offer	-	661,424
Accrued interest payable			23,090			-
Derivative liabilities - conversion option	88,242	179
Deferred revenue			751,912			791,704
Derivative liabilities - warrants	1,366,898	-
Deferred acquisition related payable			10,000			20,000
Total current liabilities	5,826,997	5,301,420
Cash received in connection with tender offer			661,424			-
Stockholders' deficit:
Derivative liabilities - convertible options			179			-
Series C Preferred; $0.001 par value; 4,299,081 shares authorized; 3,443,061 and 3,700,729 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively	3,444	3,701
Derivative liabilities - warrants			-			47,209
Common stock; $0.001 par value; 300,000,000 shares authorized; 41,975,571 and 20,458,761 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively	41,976	20,459
Total current liabilities			4,925,469			1,196,586
Additional paid-in capital	94,438,312	90,879,480
Long-term liabilities:
Accumulated deficit	(99,459,550)	(92,620,957)
Earn-out liablity			-			594,216
Total stockholders' deficit	(4,975,818)	(1,717,317)
Total long-term liabilities			-			594,216
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$851,179	$3,584,103
Other liabilities of discontinued operations			375,951			869,140
Total liabilities			5,301,420			2,659,942
Stockholders equity:
Series C Preferred; $0.001 par value; 4,299,081 shares authorized; 3,700,729 and 3,757,229 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively			3,701			3,757
Common stock; $0.001 par value; 300,000,000 shares authorized; 20,458,761 and 18,435,239 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively			20,459			18,435
Additional paid-in capital			90,879,480			88,064,205
Accumulated deficit			(92,620,957	)		(80,716,475	)
Total stockholders' equity			(1,717,317	)		7,369,922
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,584,103		$	10,029,864

See accompanying notes to ~~the~~ consolidated financial statements.

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SPENDSMART NETWORKS, INC.
Consolidated Statements of Operations
Consolidated Statements of Operations
	For the years ended December 31,
		For the years ended December 31,
	2016	2015
		2015			2014
Revenues:
Revenues:
Mobile Marketing / Licensing	$5,795,604	$5,588,002
Mobile Marketing / Licensing		$	5,588,002		$	4,036,196
Total revenues	5,795,604	5,588,002
Total revenues			5,588,002			4,036,196
Operating expenses:
Operating expenses:
Selling and marketing	595,031	582,042
Selling and marketing			582,042			753,466
Personnel related	1,140,068	6,426,273
Personnel related			6,426,273			7,316,885
Mobile Platform Processing	1,211,284	1,465,576
Mobile Platform Processing			1,465,576			1,048,377
Amortization of intangible assets	192,503	337,879
Amortization of intangible assets			337,879			288,700
General and administrative	2,126,631	3,463,405
General and administrative			3,467,554			2,144,740
Bad debt	552,725	1,417,952
Bad debt			1,417,952			686,641
Impairment on software development assets	718,116	-
Impairment on intangible assets	979,072	1,189,246	~~1,189,246~~			-
Impairment on goodwill	-	3,202,276	~~3,202,276~~			-
Change in fair value of earn-out liability	-	(594,216)	~~(594,216~~	)		~~(13,582~~	)
Total operating expenses	11,033,545	17,490,433	~~17,494,582~~			~~12,225,227~~
Loss from operations	(5,237,941)	(11,902,431)	~~(11,906,580~~	)		~~(8,189,031~~	)
Non-operating income (expense):
Interest income	38,782	140,276	~~140,276~~			~~1,805~~
Amortization of debt discount			(456,475)			(3,271	)
Interest expense	(180,704)	(143,663)
Interest expense			(143,663	)
Amortization of debt discount	(399,367)	(456,475)
Other income (expense)			4,149			-
Loss on extinguishment of debt	(473,721)	-
Change in fair value of financial instruments			457,811			(14,759	)
Inducement for exercise of warrants	(3,560,958)	-
Total non-operating income (loss)			2,098			(16,225	)
Change in fair value of derivatives	2,975,316	457,811
Net loss from continuing operations			(11,904,482	)		(8,205,256	)
Total non-operating income (loss)	(1,600,652)	(2,051)
Discontinued operations:
Net loss	$(6,838,593)	$(11,904,482)
Loss from discontinued operations			-			(3,983,107	)
Basic and diluted net loss per share	$(0.18)	$(0.63)
Net loss		$	(11,904,482	)	$	(12,188,363	)
Basic and diluted weighted average common shares outstanding used in computing net loss per share	37,765,036	18,972,053
Basic and diluted net loss per share
Net loss from continuing operations		$	(0.63	)	$	(0.51	)
Loss from discontinued operations		$	-		$	(0.25	)
Basic and diluted net loss per share		$	(0.63	)	$	(0.76	)
Basic and diluted weighted average common shares outstanding used in computing net loss per share			18,972,053			16,052,990

See accompanying notes to the consolidated financial statements.

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SPENDSMART NETWORKS, INC.
Statements of Changes in Stockholders' Deficit and Redeemable Preferred and Common Stock (not classified as equity)
For the years ended December 31, 2015 and December 31, 2014
	Series C										Additional						Total
	Preferred Stock						Common Stock				Paid-In			Accumulated			Stockholders'
	Shares			Par Value			Shares		Par Value		Capital			Deficit			Equity (deficit)
Balance as of December 31, 2013		-			-			10,398,527		10,398		67,905,486			(68,528,112	)		(612,228	)
SMS acquisition		-			-			5,250,000		5,250		3,308,348			-			3,313,598
TechXpress acquisition		-			-			596,315		596		437,922			-			438,518
Issuance of Series C Preferredredeemable common and preferred stock and warrants for cash, net		4,072,426			4,072			-		-		10,467,931			-			10,472,003
Conversions of notes payable to preferred stock		226,655			227			-		-		141,862			-			142,089
Conversions of preferred stock to common stock		(541,852	)		(542	)		2,167,408		2,168		(1,626	)		-			-
Issuance of common stock for services		-			-			22,989		23		19,977			-			20,000
Stock based compensation from stock options and warrants		-			-			-		-		5,784,305			-			5,784,305
Net loss		-			-			-		-		-			(12,188,363	)		(12,188,363	)
Balance as of December 31, 2014		3,757,229		$	3,757			18,435,239	$	18,435	$	88,064,205		$	(80,716,475	)	$	7,369,922
Conversions of preferred stock to common stock		(56,500	)		(56	)		226,000		226		(170	)		-			-
Warrant conversions		-			-			750,000		750		126,750			-			127,500
Warrants issued in conjunction with convertible notes		-			-			-		-		386,118			-			386,118
Issuance of common stock for services		-			-			1,047,522		1,048		495,240			-			496,288
Stock based compensation from stock options and warrants		-			-			-		-		1,807,337			-			1,807,337
Net loss		-			-			-		-		-			(11,904,482	)		(11,904,482	)
Balance as of December 31, 2015		3,700,729		$	3,701			20,458,761	$	20,459	$	90,879,480		$	(92,620,957	)	$	(1,717,317	)

See accompanying notes to consolidated financial statements.

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SPENDSMART NETWORKS, INC.
Consolidated Statements of Cash Flows
	For the years ended
	December 31,
	2015			2014
Cash flows from operating activities:
Net loss	$	(11,904,482	)	$	(12,188,363	)
Less: Loss from discontinued operations		-			(3,983,107	)
Net loss from continuing operations		(11,904,482	)		(8,205,256	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation expense		902,517			83,854
Amortization of intangible asset		337,879			288,700
Amortization of debt discount		456,475			-
Stock-based compensation		1,807,337			5,784,305
Issuance of common stock for services		496,288			20,000
Change in fair value of financial instruments		(457,811	)		14,759
Accrued interest income on notes receivable from third party		(27,339	)		(6,133	)
Accrued interest expenses on notes payable		35,000			-
Impairment of goodwill		3,202,276			-
Impairment of intangible assets		1,189,246			-
Change in fair value of earn-out liability		(594,216	)		(13,582	)
Provision for bad debt		2,111,418			686,641
Changes in operating assets and liabilities:
Accounts receivable		(427,671	)		(19,847	)
Customer short-term notes receivable		(598,385	)		(698,103	)
Customer long-term notes receivable		(72,074	)		(952,708	)
Deferred revenue		(39,792	)		541,907
Prepaid insurance		(5,010	)		(2,023	)
Other assets		11,726			(30,000	)
Accounts payable and accrued liabilities		1,141,699			53,947
Net cash used in operating activities from continuing operations		(2,434,919	)		(2,453,539	)
Net cash used in discontinued operations		(347,286	)		(4,137,481	)
Net cash used in operating activities		(2,782,205	)		(6,591,020	)
Cash flows from investing activities:
Acquisition of TechXpress web business		-			(454,641	)
Acquisition of Intellectual Capital Management LLC ("SMS")		-			(1,000,000	)
Issuance of notes receivable to third party		-			(410,000	)
Repayment of note receiveable		121,000			-
Payment of deferred acquisition payable-Intellectual Capital Mgmt, LLC		(10,000	)		(380,000	)
Sale of property and equipment		-			251
Payment on long-term liabilities (SBA Loans)		-			(226,522	)
Software development costs		(912,212	)		(283,080	)
Purchase of property and equipment		(305,326	)		(382,149	)
Net cash used in investing activities from continuing operations		(1,106,538	)		(3,136,141	)
Net cash used in discontinued operations		-			-
Net cash used in investing activities		(1,106,538	)		(3,136,141	)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock, common stock, and warrants		-			10,472,003
Net proceeds from warrant conversions		127,500			-
Proceeds from issuance of notes		200,000			-
Cash received in connection with tender offer		661,424			-
Repayment of notes		(129,738	)		-
Proceeds from issuance of related party financing		100,000			-
Proceeds from issuance of convertible debt		2,157,743			-
Net cash provided by financing activities from continuing operations		3,116,929			10,472,003
Net cash used in discontinued operations		-			-
Net cash provided by financing activities		3,116,929			10,472,003
Net (decrease) increase in cash and cash equivalents		(771,814	)		744,842
Cash and cash equivalents at beginning of the year		1,242,155			497,313
Cash and cash equivalents at end of the period	$	470,341		$	1,242,155
Non-cash Investing and Financing Activities:
The Company had conversion of 56,500 shares of Series C preferred stock into 226,000 shares of common stock during the year ended December 31, 2015.
The Company recorded a debt discount of $786,988 during the year ended December 31, 2015, of which $386,118 was the value of the 1,983,340 warrants issued and $410,780 was the fair value of the bifurcated conversion option.
The Company had conversion of two notes payable into 226,655 shares of Series C preferred stock during the year ended December 31, 2014.
The Company issued 5,250,000 shares of common stock as part of of the SMS acquisition and 596,315 shares of common stock as part of the TechXpress acquisition during the year ended December 31, 2014.
The Company had conversion of 541,852 shares of Series C preferred stock into 1,333,736 shares of common stock during the year ended December 31, 2014.

SPENDSMART NETWORKS, INC.

Statements of Changes in Stockholders' Deficit

For the years ended December 31, 2016 and 2015


	Series C Preferred Stock		Series A Preferred Stock		Common Stock		Additional Paid-In	Accumulated	Total Stockholders'
	Shares	Par Value	Shares	Par Value	Shares	Par Value	Capital	Deficit	Deficit
Balance as of December 31, 2014	3,757,229	$3,757	-	$-	18,435,239	$18,435	$88,064,205	$(80,716,475)	$7,369,922
Conversions of preferred stock to common stock	(56,500)	(56)	-	-	226,000	226	(170)	-	-
Warrant conversions	-	-	-	-	750,000	750	126,750	-	127,500
Warrants issued in conjunction with convertible notes	-	-			-	-	386,118	-	386,118
Issuance of common stock for services	-	-	-	-	1,047,522	1,048	495,240	-	496,288
Stock based compensation from stock options and warrants	-	-	-	-	-	-	1,807,337	-	1,807,337
Net loss	-	-	-	-	-	-	-	(11,904,482)	(11,904,482)
Balance as of December 31, 2015	3,700,729	$3,701	-	$-	20,458,761	$20,459	$90,879,480	$(92,620,957)	$(1,717,317)
Conversions of preferred stock to common stock	(257,668)	(257)	-	-	1,546,008	1,546	(1,289)	-	-
Warrant exercises	-	-	-	-	17,895,859	17,896	2,308,566		2,326,462
Notes converted	-	-	-	-	1,563,677	1,564	102,346	-	103,910
Issuance of common stock for interest	-	-	-	-	511,266	511	20,989		21,500
Warrant modification	-	-	-	-	-	-	43,897	-	43,897
Stock based compensation from stock options and warrants	-	-	-	-	-	-	1,084,323	-	1,084,323
Net loss	-	-	-	-	-	-	-	(6,838,593)	(6,838,593)
Balance as of December 31, 2016	3,443,061	$3,444	-	$-	41,975,571	$41,976	$94,438,312	$(99,459,550)	$(4,975,818)

See accompanying notes to unaudited condensed consolidated financial statements.

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SPENDSMART NETWORKS, INC.
Consolidated Statements of Cash Flows

	For the years ended
	December 31,
	2016	2015
Cash flows from operating activities:
Net loss	$(6,838,593)	$(11,904,482)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation expense	469,987	902,517
Amortization of intangible asset	192,503	337,879
Amortization of debt discount	399,367	456,475
Stock-based compensation	1,084,323	1,807,337
Issuance of common stock for services and interest	125,410	496,288
Change in fair value of derivatives	(2,975,316)	(457,811)
Accrued interest income on notes receivable from third party	-	(27,339)
Accrued interest expenses on notes payable	50,087	23,090
Impairment of software development assets	718,116	-
Impairment of goodwill	-	3,202,276
Impairment of intangible assets	979,072	1,189,246
Change in earn-out liability	-	(594,216)
Inducement for exercise of warrants	3,560,958	-
Loss on extinguishment of debt	473,721	-
Provision for bad debt	592,914	2,111,418
Changes in operating assets and liabilities:
Accounts receivable	(565,735)	(427,671)
Customer short-term notes receivable	72,002	(598,385)
Customer long-term notes receivable	184,004	(72,074)
Deferred revenue	(3,138)	(39,792)
Prepaid insurance	(13,801)	(5,010)
Other assets	-	11,726
Accounts payable and accrued liabilities	(146,268)	806,323
Net cash used in operating activities	(1,347,851)	(2,782,205)

Cash flows from investing activities:
Proceeds from short-term notes receivable from third party	-	121,000
Software development costs	(291,957)	(912,212)
Purchase of property and equipment	-	(305,326)
Net cash used in investing activities	(291,957)	(1,096,538)

Cash flows from financing activities:
Net proceeds from warrant exercises related to tender offer	1,179,252	-
Net proceeds from liabilities related to tender offer	-	661,424
Payment of deferred acquisition payable-Intellectual Capital Mgmt, LLC	(10,000)	(10,000)
Net proceeds from warrant conversions	-	127,500
Proceeds from issuance of notes	-	200,000
Proceeds from issuance of related party financing	-	100,000
Repayment of notes payable	(70,262)	(129,738)
Repayment of notes to former CFO	(35,000)	-
Repayment of convertible notes	(200,000)	-
Proceeds from issuance of convertible debt	380,000	2,157,743
Net cash provided by financing activities	1,243,990	3,106,929

Net decrease in cash and cash equivalents	(395,818)	(771,814)

Cash and cash equivalents at beginning of the period	470,341	1,242,155
Cash and cash equivalents at end of the period	$74,523	$470,341

Non-cash Investing and Financing Activities:

The Company had conversions of 56,500 shares of Series C preferred stock into 226,000 shares of common stock during the year ended December 31, 2015.
The Company issued 1,438,340 warrants in connection with convertible debt during the year ended December 31, 2015.
The Company issued 26,479,217 warrants in connection with the exercise of tender offer warrants during the year ended December 31, 2016.
The Company had a debt discount of $730,520 in connection with convertible debt during the year ended December 31, 2015.
The Company had a debt discount of $81,527 in connection with convertible debt during the year ended December 31, 2016.
The Company issued 17,895,859 shares of Common Stock in connection with the exercise of tender offer warrants during the year ended December 31, 2016.
The Company had conversions of 257,668 shares of Series C preferred stock into 1,546,008 shares of common stock during the year ended December 31, 2016.

See accompanying notes to the consolidated financial statements.

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SPENDSMART NETWORKS, INC.

Notes to Consolidated Financial Statements

1. Basis of Presentation and Going Concern

The Company is a Delaware corporation. Through the subsidiary incorporated in the state of California, SpendSmart Networks, Inc. (“SpendSmart-CA”), the Company provides proprietary loyalty systems and a suite of digital engagement and marketing servers through our Mobile and Loyalty Marketing programs and proprietary website building software that help local merchants build relationships with consumers and drive revenues. The Company is a publicly traded company trading on the OTC Bulletin Board under the symbol “SSPC.” The accompanying audited consolidated financial statements include the accounts of the Company and SpendSmart-CA as of December 31, ~~2015~~ 2016 and ~~2014~~2015 and for the years ~~ended~~then ~~December 31~~ended, ~~2015~~ and ~~2014, and~~ have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated.

As of December 31, ~~2015~~2016, the Company’s audited consolidated financial statements included an opinion containing an explanatory paragraph as to the uncertainty of the Company’s ability to continue as a going concern. The Company has continued to incur net losses through December 31, ~~2015~~2016 and have yet to establish profitable operations. ~~At December 31, 2015, the company has a working capital deficiency of $4,026,030 and a stockholders deficiency of ($1,717,317).~~ These factors among others create a substantial doubt about our ability to continue as a going concern. The Company’s audited consolidated financial statements as of and for the periods ended December 31, ~~2015~~2016 do not contain any adjustments for this uncertainty.

The Company currently plans to ~~attempt to~~ raise additional required capital through the sale of ~~unregistered~~ shares of the Company’s preferred or common stock. All additional amounts raised will be used for our future investing and operating cash flow needs. However there can be no assurance that we will be successful in consummating such financing. This description of our ~~recent financing and~~ future plans for financing does not constitute an offer to sell or the solicitation of an offer to buy our securities, nor shall such securities be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the same.

The Company’s Offer to Amend and Exercise Warrants Tender Offer closed on February 8, 2016. Pursuant to the Offer to Amend and Exercise, an aggregate of 16,172,144 Original Warrants were tendered by their holders and were amended and exercised in connection therewith for an aggregate exercise price of approximately $ 2~~,425,822~~. Reclassification

2 Certain reclassifications were made to the 2015 financial statement presentation to conform to the 2016 financial statement presentation. ~~Discontinued~~ ~~Operations~~These reclassifications relate to balances from discontinued operations.

On November 26, 2014, as part of SpendSmart Networks, Inc.'s (the "Company") efforts to reduce expenses as well as focus its resources on its Mobile and Loyalty Marketing Division, the Company decided to begin a wind down of the operations of its pre-paid credit card. All pre-paid card related operations ceased on January 26, 2015. The Company corresponded with its customers to affect an orderly wind down of its operations.

As a result of the wind-down, the Consolidated Financial Statements and related Notes for the periods presented herein reflect the pre-paid credit card operations as a discontinued operation. Currently, the Company is only satisfying liabilities related to the pre-paid card operations.

Operating results of discontinued operations were as follows:

	For the years ended December 31,
	2015		2014
Revenues:		-		770,890
Selling and Marketing		-		196,646
Personnel		-		2,910,284
Processing		-		1,647,067
Total operating expenses		-		4,753,997
Net loss from discontinued operations		-		3.983,107

	December 31,		December 31,
	2015		2014
Other assets of discontinued operations:
Amounts due from credit cards:	$	-	$	145,903
Total assets		-		145,903
Other liabilities of discontinued operations:
Accrued personnel comp:	$	10,000	$	284,231
Accounts Payable	$	365,951	$	584,909
Total liabilities		375,951		869,140
Net liabilities of discontinued operations:	$	375,951	$	723,237

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3. Summary of Significant Accounting Policies

Loans Receivable and Accounts Receivable

The Company ~~extends~~extended credit to its customers in the normal course of business and performs ongoing credit evaluations of its customers. Loans and accounts receivable are stated at amounts due from customers net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time loan and accounts receivable are past due and the customer's current ability to pay its obligation to the Company. The Company writes off loans and accounts receivable when they become uncollectible. The Company is no longer entering into notes with its customers.

Use of Estimates

The preparation of the consolidated financial statements in conformity with ~~accounting~~US ~~principles~~GAAP ~~generally accepted in the United States of America~~ requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, fair value of financial instruments, at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include recoverability and useful lives of intangible assets, the valuation allowance related to the Company's deferred tax assets, the allowance for doubtful accounts related and notes and accounts receivable and the fair value of stock options and warrants granted to employees, consultants, directors, investors and placement agents.

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Revenue Recognition

The Company generates revenues primarily in the form of set up fees, license fees, messaging, equipment and marketing services fees and value added mobile marketing and mobile commerce services. License fees are charged monthly for support services. ~~Business development and set~~Set-up fees primarily consist of fees for website development services (including support and unspecified upgrades and enhancements when and if they are available), training and professional services that are not essential to functionality. The Company offers two licenses consisting of our Engage license and our Thrive license. The ~~revenues~~Company ~~for~~now ~~Engage~~offers ~~and~~both ~~Thrive~~licenses in ~~license~~a ~~set-up~~combined ~~fees~~package ~~are~~known ~~recognized~~as ~~over~~ the ~~training~~Customer ~~and~~Loyalty ~~implementation~~System ~~periods of one month, respectively~~License (“CLS”).

We recognize revenues when all of the following conditions are met:

● ~~there is persuasive evidence of an arrangement;~~

~~● the~~there is ~~products~~persuasive orevidence ~~services~~of ~~have~~an ~~been delivered to the customer~~arrangement;

● ~~the amount of fees to be paid by the customer is fixed or determinable; and~~

● the products ~~collection~~or ofservices ~~the~~have ~~related~~been ~~fees~~delivered isto ~~probable.~~the customer;

Signed agreements are used as evidence of an arrangement. Electronic delivery occurs when we provide the customer with access to the software. We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. We do offer extended payment terms with regards to the setup fee with typical terms of payment due between one and three years from delivery of license. We assess collectability of the set-up fee based on a number of factors such as collection history and creditworthiness of the customer. If we determine that collectability is not probable, revenue is deferred until collectability becomes probable, generally upon receipt of cash. ●

~~-30-~~the amount of fees to be paid by the customer is fixed or determinable; and

~~Table of Contents~~ ●

~~License~~the collection ~~arrangements may also include set-up fees such as website development, delivery~~ of ~~tablets, professional services and training services, which are typically delivered within 90 days of~~ the ~~contract~~related ~~term. In determining whether set-up fee revenues should be accounted for separately from license revenues, we evaluate whether the set-up~~ fees are considered essential to the functionality of the license using factors such as the nature of our products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code; the availability of services from other vendors; whether the timing of payments for license revenues is ~~coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the license fee~~probable. Substantially all of our set-up fee arrangements are recognized as the services are performed. Payments received in advance of services performed are deferred and recognized when the related services are performed.

Signed agreements are used as evidence of an arrangement. Electronic delivery occurs when we provide the customer with access to the software. We assess whether a fee is fixed or determinable at the outset of the arrangement, primarily based on the payment terms associated with the transaction. The Company offered extended payment terms in 2014 and 2015 with regards to the setup fee with typical terms of payment due between one and three years from delivery of license. The Company no longer offers extended payment terms. We assess collectability of the set-up fee based on a number of factors such as collection history and creditworthiness of the customer. If we determine that collectability is not probable, revenue is deferred until collectability becomes probable, generally upon receipt of cash.

License arrangements may also include set-up fees such as website development, delivery of tablets, professional services and training services, which are typically delivered within 30-60 days of the contract term. In determining whether set-up fee revenues should be accounted for separately from license revenues, we evaluate whether the set-up fees are considered essential to the functionality of the license using factors such as the nature of our products; whether they are ready for use by the customer upon receipt; the nature of our implementation services, which typically do not involve significant customization to or development of the underlying software code; the availability of services from other vendors; whether the timing of payments for license revenues is coincident with performance of services; and whether milestones or acceptance criteria exist that affect the realizability of the license fee. Substantially all of our set-up fee arrangements are recognized as the services are performed. Payments received in advance of services performed are deferred and recognized when the related services are performed.

We do not offer refunds and therefore have not recorded any sales return allowance for any of the periods presented. Upon a periodic review of outstanding accounts and notes receivable, amounts that are deemed to be uncollectible are written off against the allowance for doubtful accounts.

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Debt discount and issuance costs

Debt issuance costs, including the value of warrants issued in connection with debt financing and fees or costs paid to lender, are presented in the consolidated balance sheets as a direct deduction from the carrying amount of that debt.

The Company amortizes the discount to interest expense over the term of the respective debt using the effective interest method.

Cash and cash equivalents

The Company considers all investments with an original maturity of three months or less to be cash equivalents. Cash equivalents primarily represent funds invested in money market funds, bank certificates of deposit and U.S. government debt securities whose cost equals fair market value.

From time to time, the Company has maintained bank balances in excess of insurance limits established by the Federal Deposit Insurance Corporation. The Company has not experienced any losses with respect to cash. Management believes the Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.

Property and Equipment

Property and equipment (including kiosks) had been recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to five years). Costs incurred for maintenance and repairs are expensed as incurred and expenditures for major replacements and improvements are capitalized and depreciated over their estimated remaining useful lives. Depreciation expense for the years ended December 31, ~~2015~~2016 ~~and 2014~~ and2015 was $~~628,999~~0 and $28628,~~250~~999, respectively. The Company accelerated the depreciation in the amount of approximately $496,000 on the kiosks, which have seven inch screens, to reduce their net book value to zero due to technological obsolescence in 2015. In the fourth quarter 2015, they were replaced by new ten inch screens and some new seven inch screens which will be able to run offline from wifi, have faster processors and ultra-sharp screens, and have licensee reporting tools. Currently the Company sells the equipment to the customer. Therefore the cost of equipment is included in operating expenses and not capitalized as property and equipment.

Software Capitalization

The Company accounts for computer software used in the business in accordance with ASC 350 “Intangibles-Goodwill and Other”. ASC 350 requires computer software costs associated with internal use software to be charged to operations as incurred until certain capitalization criteria are met. Costs incurred during the preliminary project stage and the post-implementation stages are expensed as incurred. Certain qualifying costs incurred during the application development stage are capitalized as property, equipment and software. These costs generally consist of internal labor during configuration, coding, and testing activities. Capitalization begins when (i) the preliminary project stage is complete, (ii) management with the relevant authority authorizes and commits to the funding of the software project, and (iii) it is probable both that the project will be completed and that the software will be used to perform the function intended. We We capitalized $~~912~~291,~~212~~957 and $~~283~~912,~~080~~212 in software for the years ended December 31, ~~2015~~2016 and ~~2014~~2015, respectively. Software depreciation expense for the years ended December 31, ~~2015~~2016 and ~~2014~~2015 was $469,987 and $273,517, ~~and~~respectively. We recorded impairment expense of $25718,~~629~~116 related to our SMS software for the year ended December 31, ~~respectively~~2016.

Valuation of Long-Lived Assets

The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the estimated fair value of the assets. We ~~conducted~~recorded impairment expense on our intangible assets of $922,688 related to our SMS technology assets, $38,853 related to trademarks, and $17,531 related to our TechXpress technology assets for the year ended December 31, 2016. We conducted an impairment analysis on our intangible assets and goodwill and determined that we had an impairment related to our intangible assets of $1,189,246 and on our goodwill of $3,202,276 at December 31, 2015.

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Income Tax Expense Estimates and Policies

As part of the income tax provision process of preparing the Company’s financial statements, the Company is required to estimate the Company’s provision for income taxes. This process involves estimating our current tax liabilities together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Management then assesses the likelihood that the Company deferred tax assets will be recovered from future taxable income and to the extent believed that recovery is not likely, a valuation allowance is established. Further, to the extent a valuation allowance is established and changes occur to this allowance in a financial accounting period, such changes are recognized in the Company’s tax provision in the Company’s consolidated statement of operations. The Company’s use of judgment in making estimates to determine the Company’s provision for income taxes, deferred tax assets and liabilities and any valuation allowance is recorded against our net deferred tax assets.

There are various factors that may cause these tax assumptions to change in the near term, and the Company may have to record a future valuation allowance against our deferred tax assets. The Company recognizes the benefit of an uncertain tax position taken or expected to be taken on the Company’s income tax returns if it is “more likely than not” that such tax position will be sustained based on its technical merits.

The Company recognizes the benefit of an uncertain tax position taken or expected to be taken on the Company’s income tax returns if it is “more likely than not” that such tax position will be sustained based on its technical merits. The Company does not have any unrecognized tax benefits or accrued penalties and interest. If such matters were to arise, the Company would recognize interest and penalties related to income tax matters in income tax expense.

Stock Based Compensation

The Company accounts for stock based compensation arrangements through the measurement and recognition of compensation expense for all stock based payment awards to employees and directors based on estimated fair values. The Company uses the Black-Scholes option valuation model to estimate the fair value of the Company’s stock options and warrants at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of options and warrants. The Company uses historical company data among other information to estimate the expected price volatility and the expected forfeiture rate ~~and does not use comparable company information~~.

Derivatives -– ~~Warrants~~Warrant Liability

The Company accounts for the common stock warrants granted and still outstanding as of December 31, ~~2015~~2016 in connection with certain financing transactions (“Transactions”) in accordance with the guidance contained in ASC 815-40-15-7D, "Contracts in Entity's Own Equity" whereby under that provision they do not meet the criteria for equity treatment and must be recorded as a liability. Accordingly, the Company classifies the warrant instrument as a liability at its fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company's statements of operations. The fair value of the warrants issued by the Company in connection with the ~~Transactions~~transactions has been estimated using a Monte Carlo simulation.

The Company accounts for certain of its outstanding warrants issued in fiscal 2010, 2012 and 2013 (“2010 Warrants,” “2012 Warrants” and “2013 Warrants, respectively) as derivative liabilities. ~~The~~These ~~2010~~warrants ~~Warrants~~ were determined to be ineligible for equity classification due to provisions of the respective instruments that may result in an adjustment to their conversion or exercise prices. The Company recognized ~~gains~~a gain of $~~47,209~~ 0 and $2647,~~505~~209 in the fair value of derivatives for the years ended December 31, ~~2015~~2016 and ~~2014~~2015, respectively. These derivative liabilities which arose from the issuance of ~~the~~these ~~2010 Warrants~~ warrants resulted in an ending balance of derivative liabilities of $0 ~~and $47,209 as of~~ at December 31, 2015, and ~~2014,~~expired ~~respectively~~in 2016.

The Company accounts for certain of its outstanding warrants issued in fiscal 2016 (“2016 Warrants”) as derivative liabilities. The 2016 Warrants were determined to be ineligible for equity classification due to provisions of the respective instruments that may result in an adjustment to their conversion or exercise prices. The Company recognized a gain of $2,732,444 in the fair value of these derivatives for the year ended December 31, 2016. These derivative liabilities which arose from the issuance of the 2016 Warrants resulted in an ending balance of derivative liabilities of $1,366,898 as of December 31, 2016.

Derivatives - Bifurcated Conversion Option in Convertible Notes

The Company ~~does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has~~ issued Convertible Notes with features that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC 815, Accounting for Derivative Financial Instruments and Hedging Activities, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements.

~~The Convertible Notes issued during the year ended December 31, 2015 are subject to anti~~-dilution adjustments that allow for the reduction in the Conversion Price, as defined in the agreement, in the event the Company subsequently issues equity securities including Common Stock or any security convertible or exchangeable for shares of Common Stock for a price less than the current conversion price. The Company bifurcated and accounted for the conversion option in accordance with ASC 815 as a derivative liability, since this conversion feature is not considered to be indexed to the Company’s own stock.36-

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The ~~Company’s~~Convertible ~~derivative~~Notes ~~liability~~issued ~~has~~during ~~been~~the ~~measured~~years atended ~~fair value at~~ December 31, 2016 and 2015 ~~using~~are asubject ~~Monte~~to anti-~~Carlo~~dilution ~~Simulation.~~adjustments ~~Inputs~~that ~~into~~allow for the ~~model~~reduction ~~require~~in ~~estimates~~the Conversion Price, ~~including~~as ~~such~~defined ~~items~~in asthe agreement, ~~estimated~~in ~~volatility~~the ofevent the Company’s ~~stock,~~subsequently ~~estimated~~issues ~~probabilities~~equity securities ofincluding ~~additional~~Common ~~financing,~~Stock ~~risk-free~~or ~~interest~~any ~~rate,~~security ~~and~~convertible ~~the~~or exchangeable ~~estimated~~for ~~life~~shares of ~~the~~Common ~~financial~~Stock ~~instruments~~for ~~being~~a ~~fair~~price ~~valued.~~less Inthan ~~addition, since~~ the current conversion price. ~~contains~~The anCompany ~~anti-dilution~~bifurcated ~~adjustment,~~and accounted for the ~~probability~~conversion ~~that~~option ~~the~~in ~~Conversion~~accordance ~~Price~~with ofASC ~~the~~815 ~~Notes~~as ~~would~~a ~~decrease~~derivative liability, since asthis ~~the~~conversion ~~share~~feature ~~price~~is ~~decreased~~not ~~was~~considered ~~also~~to be ~~incorporated~~indexed ~~into~~to the ~~valuation~~Company’s ~~calculation~~own stock.

The Company’s ~~recognized~~derivative aliability ~~gain~~has ofbeen ~~$410,602~~measured ~~and~~at ~~a gain of $0 in the~~ fair value ofat ~~derivatives for the year ended~~ December 31, ~~2015~~2016 ~~and~~using ~~2014,~~a ~~respectively~~Monte-Carlo Simulation. ~~These~~Inputs into ~~derivative liabilities which arose from~~ the ~~issuance~~model ofrequire ~~the~~estimates, ~~convertible~~including ~~notes~~such ~~resulted~~items inas anestimated volatility ~~ending balance~~ of ~~derivative~~the ~~liabilities~~Company’s ofstock, ~~$179~~estimated ~~and~~probabilities ~~$0 as~~ of additional ~~December 31~~financing, ~~2015~~risk-free ~~and~~interest ~~December 31~~rate, ~~2014,~~and ~~respectively. Subsequent changes to~~ the ~~fair~~estimated life ~~value~~ of the ~~derivative~~financial ~~liabilities~~instruments ~~will~~being ~~continue~~fair tovalued. ~~require~~In ~~adjustments~~addition, since ~~to their carrying value that will be recorded as other income (in~~ the ~~event~~conversion ~~that~~price ~~their~~contains ~~value~~an ~~decreases)~~anti-dilution ~~or as other expense (in~~ adjustment, the ~~event~~probability that ~~their value increases). The fair value of these liabilities is estimated using Monte Carlo pricing models that are based on~~ the ~~individual~~Conversion ~~characteristics~~Price of the ~~Company’s~~Notes ~~warrants,~~would decrease ~~preferred and common stock,~~ as ~~well~~the asshare ~~assumptions~~price ~~for~~decreased ~~volatility,~~was ~~remaining~~also ~~expected~~incorporated ~~life,~~into the ~~risk-free~~valuation ~~interest rate and, in some cases, credit spread~~calculation.

The Company recognized a gain of $242,231 and a gain of $410,602 in the fair value of conversion option derivatives for the year ended December 31, 2016 and 2015, respectively. These derivative liabilities resulted in an ending balance of conversion option derivative liabilities of $88,242 and $179 as of December 31, 2016 and December 31, 2015, respectively.

Subsequent changes to the fair value of the derivative liabilities will continue to require adjustments to their carrying value that will be recorded as other income (in the event that their value decreases) or as other expense (in the event that their value increases). In general (all other factors being equal), the Company will record income when the market value of the Company’s common stock decreases and will record expense when the value of the Company’s stock increases. The fair value of these liabilities is estimated using Monte Carlo pricing models that are based on the individual characteristics of the Company’s warrants, preferred and common stock, as well as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread.

Net Loss per Share

The Company calculates basic earnings per share (“EPS”) by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net income or net loss applicable to common shareholders by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive.

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Fair value of assets and liabilities

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value for applicable assets and liabilities, we consider the principal or most advantageous market in which we would transact and we consider assumptions market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:

●

Level 1: Observable inputs such as quoted prices in active markets;

●

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

●

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company’s financial instruments are cash and cash equivalents, accounts payable, ~~accounts receivable, notes receivable, earn-out liability,~~ and derivative liabilities. The recorded values of cash equivalents and accounts payable approximate their fair values based on their short-term nature. The fair value of derivative liabilities is estimated using option pricing models that are based on the individual characteristics of our warrants, preferred and common stock, the derivative liability on the valuation date as well as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread. The derivative liabilities are the only Level 3 fair value measures.

~~-33-~~ A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s warrant derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of December 31, 2016 and 2015 is as follows:

Date of Valuation	December 31, 2016	December 31, 2015
Stock Price	0.02	0.15
Volatility (Annual)	140%	66%
Number of assumed financings	1	1
Total shares outstanding	41,975,571	20,458,761
Strike Price	0.01	0.75
Risk-free Rate	1.34%	0.96%
Maturity Date	7/15/2019	7/15/2019
Expected Life	N/A	N/A

A summary of quantitative information with respect to valuation methodology and significant unobservable inputs used for the Company’s conversion option derivative that are categorized within Level 3 of the fair value hierarchy as of December 31, 2016 is as follows:

Date of Valuation	December 31, 2016	December 31, 2015
Stock Price	0.02	0.15
Volatility (Annual)	140%	66%
Strike Price	N/A	0.75
Risk-free Rate	1.40%	1.40%
Maturity Date	5/5/2017	6/26/2016

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A At ~~summary~~December of31, ~~quantitative~~2016 ~~information with respect to valuation methodology~~ and ~~significant~~2015, ~~unobservable inputs used for~~ the ~~Company’s~~estimated ~~derivative~~fair ~~warrant~~values ~~liabilities that are categorized within Level 3~~ of the liabilities ~~fair~~measured ~~value~~on ~~hierarchy~~a asrecurring ofbasis ~~December~~are ~~31, 2015 and 2014 is~~ as follows:

Date of Valuation		December 31, 2014
		Fair Value Measurements at
Stock Price			1.00
	Carrying	December 31, 2016:
Volatility (Annual)		66% to 67		%
	Value	Level 1	Level 2	Level 3
Number of assumed financings			1
Financial Assets
Number of anti-dilutive warrants			129,167
Earn-out liability	$-	$-	$-	$-
Total warrants outstanding			23,933,927
Warrant derivative liability	1,366,898	-	-	1,366,898
Total shares outstanding			18,435,239
Conversion option derivative liability	88,242	-	-	88,242
Strike Price			0.75
Total	$1,455,140	$-	$-	$1,455,140
Risk-free Rate			0.21	%
Maturity Date		8/13/15 to 11/24/15
Expected Life		.62 to .90 years

All of the derivative warrant liabilities expired in 2015 and as a result no further remeasurement was required.

		Fair Value Measurements at
	Carrying	December 31, 2015:
	Value	Level 1	Level 2	Level 3
Financial Assets
Earn-out liability	$-	$-	$-	$-
Conversion option derivative liability	179	-	-	179
Total	$179	$-	$-	$179

A The following ~~summary~~tables ofpresent ~~quantitative~~the ~~information~~activity ~~with respect to valuation methodology and significant unobservable inputs used~~ for ~~the Company’s conversion options that are categorized within~~ Level 3 ofliabilities for the ~~fair~~years ~~value~~ended ~~hierarchy as of~~ December 31, ~~2015~~2016 isand ~~as follows~~2015:

Date of Valuation		December 31, 2015
	Fair Value Measurement Using
Stock Price		$	0.15
	Significant Unobservable Inputs
Volatility (Annual)		66%
	(Level 3)
Strike Price		$	0.75
	Warrant Derivative Liability	Conversion Option Derivative Liability
Risk-free Rate			1.4	%
Beginning balance at December 31, 2015	$-	$179
Maturity Date		6/26/16
Additions during the year	4,099,344	330,933
Total (gains) or losses included in net loss	(2,732,446)	(242,870)
Transfers in and/or out of Level 3	-	-
Ending balance at December 31, 2016	$1,366,898	$88,242

At December 31, 2015 and 2014, the estimated fair values of the liabilities measured on a recurring basis are as follows:

	Fair Value Measurement Using
	Significant Unobservable Inputs
	(Level 3)
	Warrant Derivative Liability	Conversion Option Derivative Liability
Beginning balance at December 31, 2014	$47,209	$-
Additions during the year	-	410,781
Total (gains) or losses included in net loss	(47,209)	(410,602)
Transfers in and/or out of Level 3	-	-
Ending balance at December 31, 2015	$-	$179

			Fair Value Measurements at
			December 31, 2015:
	Carrying Value		Level 1		Level 2		Level 3
Financial Assets
Earn-out liability	$	-	$	-	$	-	$	-
Derivative liabilities-convertible options	$	179	$	-	$	-	$	179
Total securities	$	179	$	-	$	-	$	179
			Fair Value Measurements at
			December 31, 2014:
	Carrying Value		Level 1		Level 2		Level 3
Financial Assets
Earn-out liability	$	594,216	$	-	$	-	$	594,216
Derivative liability - warrants	$	47,209	$	-	$	-	$	47,209
Total securities	$	641,425	$	-	$	-	$	641,425

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~~The~~ Changes in ~~following~~fair ~~tables~~value ~~present~~of ~~the~~our ~~activity for~~ Level 3 ~~liabilities~~earn-out liability for the years ended December 31, ~~2015~~2016 and ~~2014~~2015 were as follows:

	Fair Value Measurement Using
Fair Value Measurements Using Level 3 Inputs
	Significant Unobservable Inputs
	Warrant	Conversion	Earn-out
	(Level 3)
	Derivative Liability	Option Derivative Liability	Liability	Total
	Warrant Derivative Liabilities				Conversion Notes				Earn Out Liability
Balance - December 31, 2015	$-	179	-	$179
Beginning balance at December 31, 2014		$	47,209			$	-		$	594.216
Additions during the period	4,099,344	330,933	-	4,430,277
Additions during the year			-				410,781			-
Total (gains) or losses include in net loss	(2,732,446)	(242,870)	-	(2,975,316)
Total unrealized (gains) or losses included in net loss			(47,209	)			(410,602	)		(594,216	)
Balance - December 31, 2016	$1,366,898	88,242	-	$1,455,140
Transfers in and/or out of Level 3			-				-			-
Ending balance at December 31, 2015		$	-			$	179		$	0
	Fair Value Measurement Using
	Significant Unobservable Inputs
	(Level 3)
	Warrant Derivative Liabilities				Conversion Notes				Earn Out Liability
Beginning balance at December 31, 2013		$	26,505			$	142,089		$	607,898
Additions during the year			-				-			(13,682	)
Total unrealized (gains) or losses included in net loss			20,704				(5,945	)
Transfers in and/or out of Level 3			-				(136,144	)		-
Ending balance at December 31, 2014		$	47,209			$	-		$	594,216

~~The Company expenses advertising costs as incurred. The Company has no existing arrangements under which we provide or receive advertising services from others for any consideration other than cash.~~ Advertising ~~expenses from continuing operation (primarily in the form of Internet direct marketing) totaled $320,044 and $227,349 for the years ended December 31, 2015 and 2014, respectively.~~

The Company expenses advertising costs as incurred. The Company has no existing arrangements under which we provide or receive advertising services from others for any consideration other than cash. Advertising expenses totaled $208,530 and $320,044 for the years ended December 31, 2016 and 2015, respectively.

Litigation

From time to time, the Company may become involved in litigation and other legal actions. The Company estimates the range of liability related to any pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated ~~losses~~loss with no best estimate in the range, the Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.

On July 8, 2015, Intellectual Capital Management, LLC dba SMS Masterminds and SpendSmart Networks, Inc. were named in a potential class-~~35-~~action lawsuit entitled Peter Marchelos, et al v. Intellectual Capital Management, et al, filed in the United States District Court Eastern District of New York relating to alleged violations of the Telephone Consumer Protection Act of 1991. This litigation involves the same licensee and merchant as a previous lawsuit and the same attorneys represent the plaintiffs in this action. The claim of one of the two plaintiffs was resolved for $1,701. The Company believes the Plaintiff’s allegations have no merit. There are no other legal claims currently pending or threatened against us that in the opinion of our management would be likely to have a material adverse effect on our financial position, results of operations or cash flows.

~~Table~~ Earn ~~of Contents~~Out

The Company agreed to pay the sellers an earn-out payment relating to fifteen percent of the earnings generated by SMS Masterminds after the acquisition and an additional earn-out payment tied to the EBITDA of the Company after the acquisition of SMS Masterminds, of up to $2,000,000 in aggregate. The Company paid $0 during the years ended December 31, 2016 and 2015 related to this earn-out agreement.

The change in fair value of Earn-out liability expenses totaled $0 for the year ended December 31, 2016 and $594,216 for the year ended December 31, 2015. We recorded the change in earn-out liability due to our updated operating assumptions in the underlying valuation related to the SMS acquisition.

The Company agreed to pay the sellers a guaranteed payment of $400,000 of which $390,000 had been paid as of December 31, 2015 and $10,000 was paid in January, 2016. As of December 31, 2016, the remaining balance was $0.

Goodwill

The Company ~~accounts~~accounted for goodwill ~~and other intangible assets~~ under ASC 350 “Intangibles – Goodwill and Other” (“ASC 350”). ASC 350 requires an evaluation of impairment by assessing qualitative factors, and if necessary, applying a fair-value based test. The goodwill impairment test requires qualitative analysis to determine whether is it more likely than not that the fair value of a reporting unit is less than the carrying amount, including goodwill. An indication of impairment through analysis of these qualitative factors initiates a two-step process, which requires management to make judgments in determining what assumptions to use in the calculation. The first step of the process consists of estimating the fair value of the Company’s reporting units based on discounted cash flow models using revenue and profit forecasts and comparing the estimated fair values with the carrying values of the Company’s reporting units which include the goodwill. If the estimated fair values are less than the carrying values, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill. The determination of the Company’s “implied fair value” requires the Company to allocate the estimated fair value to the assets and liabilities of the reporting unit. Any unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value. The Company tested goodwill impairment at December 31, 2015 and concluded that goodwill was fully impaired. Goodwill was written down in the amount of $3,202,276 in 2015.

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Intangible assets

Intangible assets consist of intellectual property/technology, customer lists, and trade-name/marks acquired in business combinations under the purchase method of accounting are recorded at fair value net of accumulated amortization since the acquisition date. Amortization is calculated using the straight line method over the estimated useful lives at the following annual rates:

	Useful Lives	~~Useful Lives~~
IP/technology	10		10
Customer lists			10
Trade-name/marks	10
Trade-name/marks			10

	December 31, 2016	December 31, 2015
Intangible assets beginning balance	1,570,575	3,097,700
Amortization	(192,503)	(337,879)
Impairment	(979,072)	(1,189,246)
Intangible assets ending balance	399,000	1,570,575

The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of finite-lived intangible asset may not be recoverable. Recoverability of a finite-lived intangible asset is measured by a comparison of its carrying amount to the undiscounted future cash flows expected to be generated by the asset. If the asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset, which is determined based on discounted cash flows.

~~According~~ The Company toevaluates the ~~Financial~~recoverability ~~Accounting~~of ~~Standards~~identifiable ~~Board~~intangible assets ~~Accounting~~whenever ~~Standards~~events ~~Codification~~or ~~(“ASC”)~~changes ~~360~~in ~~(“ASC~~circumstances ~~360”)~~indicate that an intangible asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant ~~long-lived~~decrease in the market value of an asset, (~~group~~2) ~~that~~a significant isadverse ~~held~~change ~~and~~in ~~used~~the ~~should~~extent beor ~~reviewed~~manner ~~for~~in ~~impairment~~which ~~whenever~~an asset ~~events~~is used, or ~~changes~~(3) an accumulation of costs significantly in excess ~~circumstances~~of ~~indicate~~the ~~that~~amount originally expected for the acquisition of an asset. The Company measures the carrying amount ~~(book~~of ~~value)~~the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the ~~long-lived~~expected ~~asset~~future ~~(group)~~net ~~might~~cash ~~not~~flows be less ~~recoverable~~than ~~(i.e.~~the ~~information~~carrying ~~indicates~~value ~~that~~of anthe asset being evaluated, an impairment ~~might~~loss ~~exist)~~would be recognized. AsThe aimpairment ~~result,~~loss ~~companies~~would ~~are~~be calculated ~~not~~as ~~required~~the toamount ~~perform~~by anwhich ~~impairment~~the ~~analysis~~carrying ~~(i.e.~~value ~~test~~of the asset exceeds ~~(group)~~its ~~for~~fair ~~recoverability~~value. ~~and~~The ~~potentially~~fair ~~measure~~value anis ~~impairment~~measured ~~loss)~~based on quoted market prices, if ~~indicators~~available. ofIf ~~impairment~~quoted market prices are not available, ~~present.~~the ~~Instead,~~estimate ~~entities~~of ~~would~~fair ~~assess~~value ~~the~~is ~~need~~based on various valuation techniques, including the ~~need~~discounted ~~for~~value anof estimated future cash flows. The evaluation of asset impairment ~~write-down~~requires ~~only~~the ifCompany anto make ~~indicator~~assumptions about future cash flows over the life of ~~impairment~~the isasset being ~~present~~evaluated. ~~Companies~~These ~~are~~assumptions ~~responsible~~require ~~for~~significant ~~routinely~~judgment ~~assessing~~and actual ~~whether~~results may differ from assumed and estimated amounts. During the year ended December 31, 2016, the Company recorded an impairment ~~indicators~~loss ~~are~~of ~~present~~$979,072 related to an intangible asset.

Based on the impairment analysis completed, it was determined that our Customer lists were fully impaired. This resulted in the write down of these intangible assets of $1,189,246.

Recently Issued Accounting Pronouncements

~~In April 2015, the FASB issued ASU 2015~~-~~03, Interest~~41-Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within that fiscal year. Since we did not previously have any debt issuance costs, there was not a need for retrospective application. The guidance was adopted for the year ended December 31, 2015. The adoption did not have a material impact on the financial statements.

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On In ~~May 28~~March 2016, ~~2014,~~ the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~2014~~2016-09, ~~Revenue~~- ~~from~~Compensation ~~Contracts~~- ~~with~~Stock ~~Customers (Topic 606)~~Compensation, which ~~with~~simplifies anthe ~~effective~~accounting ~~date~~ for ~~annual~~the ~~reporting~~tax ~~periods~~effects ~~beginning~~related ~~after~~to stock ~~December~~based 15compensation, ~~2016,~~ including ~~interim~~adjustments ~~periods~~to ~~within~~how ~~that~~excess ~~reporting~~tax benefits ~~period,~~and ~~for~~a ~~public~~company’s ~~business~~payments ~~entities, certain not-~~for~~-profit~~ ~~entities,~~tax ~~and~~withholdings ~~certain~~should be ~~employee~~classified, ~~benefit~~amongst ~~plans.~~other ~~The effective date for~~ items. ASU ~~2014~~2016-09 ~~was~~is ~~deferred~~effective for byfinancial ~~one~~statements ~~year~~issued ~~through~~for ~~the~~fiscal ~~issuance~~years ~~of ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, to annual reporting periods~~ beginning after December 15, ~~2017~~2016, ~~including~~and interim ~~reporting~~ periods within ~~that~~those ~~reporting period~~fiscal years. ~~Earlier~~Early ~~application~~adoption is permitted. ~~only~~We asdo ofnot ~~annual~~expect ~~reporting~~this ~~periods~~to ~~beginning~~have ~~after~~a material ~~December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the~~ impact, ~~if any, the pronouncement will have~~ on ~~both~~our ~~historical~~consolidated ~~and future~~ financial ~~positions and results of operations~~ statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" (ASU 2016-13), that requires entities to use a new impairment model based on expected losses. Under this new model an entity would recognize an impairment allowance equal to its current estimate of credit losses on financial assets measured at amortized cost. ASU 2016-13 is effective for us beginning January 1, 2020 with early adoption permitted January 1, 2019. Credit losses under the new model will consider relevant information about past events, current conditions and reasonable and supportable forecasts, resulting in recognition of lifetime expected credit losses. We are currently evaluating the impact of adopting this guidance on our consolidated financial statements.

Segments

The Company operates in one reportable segment ~~now due to the discontinuance of our Card Division~~. On November 26, 2014, the Company decided to wind down the operations of the Card Division and focus on its Mobile and Loyalty Marketing Division in an effort to reduce expenses and focus its resources elsewhere. Accordingly, no segment disclosures have been presented herein.

4. Accounts Receivable, Short-Term and Long-Term Notes Receivable

Management reviews accounts receivable, short-term and long-term notes receivable on a monthly basis to determine if any receivables are potentially uncollectible. An allowance for doubtful accounts is determined based on a combination of historical experience, length of time outstanding, customer credit worthiness, and current economic trends. As of December 31, ~~2014~~2016, the Company had recorded an allowance for doubtful accounts of $~~825~~1,~~052~~796,000. We recorded a bad debt ~~reserve~~expense of $1552,~~788,946~~725 during the year ended December 31, ~~2015~~ 2016 and wrote off uncollectable accounts during the year ended December 31, ~~2015~~2016 in the amount of $1147,~~224~~408,~~115,~~ all of which were fully reserved. As of December 31, 2015, the Company ~~has~~had recorded an allowance for doubtful accounts of $1,389,883.

~~Long~~ Notes receivable aged over 60 days past due are considered delinquent and notes receivable aged over 90 days past due with known collection issues are placed on non-~~term~~accrual ~~receivables~~status. ~~relate~~Interest torevenue is not recognized on notes receivable ~~from~~while ~~the~~on ~~financing~~non-accrual ofstatus. ~~set~~Cash payments received on non-upaccrual ~~and~~receivables ~~license~~are ~~fees~~applied towards the principal. ~~Initial~~ ~~set~~When upnotes ~~and~~receivable ~~licensing~~on ~~fees~~non-accrual ~~were~~status ~~$22,500~~are again ~~and~~less ~~clients~~than ~~typically~~60 ~~contributed~~days ~~cash~~past updue, ~~front~~recognition of ~~20%~~interest ~~and~~revenue for ~~the~~notes ~~remaining~~receivable ~~80%~~ is ~~financed~~resumed. ~~over~~We charge interest rates on our notes receivable averaging 13% which approximates a 3fair value. We recorded approximately $38,782 in interest income for the year ended ~~term~~December 31, 2016.

~~Notes receivable aged over 60 days past due are considered delinquent and notes receivable aged over 90 days past due with known collection issues are placed on non~~-~~accrual status. Interest revenue is not recognized on notes receivable while on non~~42-accrual status. Cash payments received on non-accrual receivables are applied towards the principal. When notes receivable on non-accrual status are again less than 60 days past due, recognition of interest revenue for notes receivable is resumed. We charge interest rates on our notes receivable averaging 13% which approximates a fair value. We recorded approximately $140,276 in interest for the year ended December 31, 2015.

The allowance for doubtful accounts on long-term receivables is the Company's best estimate of the amount of probable credit losses related to the Company's existing note receivables. The allowance for doubtful accounts is the Company's best estimate of probable credit losses related to trade receivables and notes receivable based upon the aging of the receivables, historical collection data, internal assessments of credit quality and the economic conditions in the business subprime industry, as well as in the economy as a whole. The Company charges off uncollectable amounts against the reserve in the period in which it determines they are uncollectable. Unearned income on notes receivable is amortized using the effective interest method. The Company determines the allowance for doubtful accounts related to notes receivable based upon a reserve for known collection issues, as well as a reserve based upon aging, both of which are based upon history of such losses and current economic conditions. Based upon the Company's methodology, the notes receivable balances with reserves and the reserves associated with those balances are as follows:

	December 31, 2015
	Gross				Reserve				Net
	Current		Long-Term		Current		Long-Term		Current		Long-Term
Customer Notes Receivable		908,590		661,371		632,422		461,702		276,168		199,669
Accounts Receivable		437,589		-		295,759		-		141,830		-

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Based upon the Company's methodology, the notes receivable balances with reserves and the reserves associated with those balances are as follows:

	December 31, 2015
	Gross		Reserve		Net
	Current	Long-Term	Current	Long-Term	Current	Long-Term
Customer Notes Receivable	908,590	661,371	632,422	461,702	276,168	199,669
Accounts Receivable	437,589	-	295,759	-	141,830	-

	December 31, 2016
	Gross		Reserve		Net
	Current	Long-Term	Current	Long-Term	Current	Long-Term
Customer Notes Receivable	793,988	414,665	767,138	399,401	26,850	15,264
Accounts Receivable	921,829	-	529,461	-	292,368	-

The roll forward of the allowance for doubtful accounts related to notes receivable and accounts receivable is as follows:

		Notes Receivable						Accounts Receivable
	Notes Receivable Reserve		Accounts
	Current	~~Current~~Long-Term	Receivable Reserve		~~Long-Term~~
Balance at December 31, 2013			-			-			-
Balance at December 31, 2014	286,571	349,954	188,527
Incremental Provision	796,063	551,256	~~286~~441,~~571~~627			~~349,954~~			~~188,527~~
Recoveries	-	-	-			-			-
Charge offs	(450,212)	(439,508)	-(334,395)			-			-
Balance at December 31, 2014			286,571			349,954			188,527
Balance at December 31, 2015	632,422	461,702	295,759
		Notes Receivable						Accounts Receivable
		Current			Long-Term
Balance at December 31, 2014			286,571			349,954			188,527
Incremental Provision			796,063			551,256			441,627
Recoveries			-			-			-
Charge offs			(450,212	)		(439,508	)		(334,395	)
Balance at December 31, 2015			632,422			461,702			295,759

5. Business Combinations

	Notes Receivable Reserve		Accounts
	Current	Long-Term	Receivable Reserve
Balance at December 31, 2015	$632,422	$461,702	$295,759
Incremental Provision	177,316	401	415,197
Recoveries	-	-	-
Charge offs	(42,600)	(62,702)	(81,495)
Balance at December 31, 2016	$767,138	$399,401	$629,461

~~SMS~~ 5. ~~Acquisition~~Short Term Note Receivable

On The Company ~~February~~issued ~~11,~~a ~~2014,~~Secured Convertible Promissory Note (the “Note”) ~~Company,~~in ~~through~~the ~~its~~principal ~~wholly-owned~~amount ~~subsidiary~~of $410,000 ~~SpendSmart~~to ~~Networks,~~a ~~Inc~~third party in September 2014.~~, acquired~~ ~~substantially~~The ~~all~~Note ofbears interest at the ~~assets~~rate of 5.25% ~~Intellectual~~per ~~Capital~~annum ~~Management,~~and ~~Inc.,~~matured ~~d/b/a~~in ~~SMS~~four ~~Masterminds~~months. ~~(“SMS~~For ~~Masterminds”)~~the ayears ~~Nevada~~ended December ~~corporation~~31, ~~including~~2016 ~~but~~and ~~not~~December ~~limited~~31, to2015, ~~certain~~the ~~intellectual~~Company ~~property~~has recorded $0 and ~~accounts receivable~~$27,380 ~~pursuant~~of tointerest income from this Note. $130,000 of the principal ~~terms~~amount was paid in 2015. The remaining balance of $322,430 anwas ~~Asset~~written ~~Purchase~~off ~~Agreement~~during (the ~~“Asset~~year ~~Purchase~~ended ~~Agreement”)~~December 31, 2015, which was made up of $280,000 in principal and $42,430 in interest.

Pursuant to the Asset Purchase Agreement, the Company acquired substantially all of the assets of SMS Masterminds. In consideration of the purchased assets, the Company agreed to issue to SMS Masterminds five million two hundred and fifty thousand shares of the Company’s common stock and a cash payment of $1.4 million, of which $400,000 has been deferred. The Company paid $10,000 and $380,000 during the years ended December 31, 2015 and 2014, respectively, to the sellers related to this deferment. $10,000 of this deferment remains outstanding as of December 31, 2015 and was paid out during the first quarter 2016.-43-

The Company also agreed to pay the sellers an earn-out payment relating to fifteen percent of the earnings generated by SMS Masterminds after the acquisition and an additional earn-out payment tied to the EBITDA of the Company after the acquisition of SMS Masterminds, of up to $2,000,000 in aggregate. The Company paid $0 during the years ended December 31, 2015 and 2014 related to this earn-out agreement.

Consideration Paid
Cash Paid and to be paid - to sellers	$	1,400,000
5,250,000 Common Stock issued to SMS		3,313,598
Fair value of earn-out at acquisition date		607,798
Total Consideration Paid	$	5,321,396

The transaction was accounted for using the acquisition method required by Topic 805, Business Combinations. Accordingly, goodwill was measured as the excess of the total consideration including the fair value of any non-controlling interest on acquisition date over the amounts assigned to the identifiable assets acquired and liabilities assumed.

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~~On the acquisition date, the fair value of net assets acquired was $5,321,396~~ 6. ~~The~~Convertible ~~fair~~Promissory value of stock issued to the seller as part of the consideration was based on reference to quoted market values of SSPC stock as of the date of acquisition. We had originally estimated the fair value of the earn-out liability to be $846,785 and then revised the amount to $607,798 upon review of additional information during the measurement period. The final allocation of the total consideration to the fair value of the assets acquired and liabilities assumed as of the date of the acquisition is as follows:Notes

Accounts receivable	$	318,708
Identifiable intangible assets		3,242,900
Goodwill		2,458,375
Total assets		6,019,983
Accounts payable and accrued expenses		222,268
Deferred Revenue		249,797
Long-term liabilities (SBA loan)		226,522
Total liabilities		698,587
Net assets acquired	$	5,321,396

On November 30, 2016, the Company issued a Convertible Promissory Note to the Daniel Jonathan Blech Trust DTD 9/01/2005 in the amount of $100,000. Mr. Blech, a member of the Company’s board of directors, is the trustee. The Convertible Promissory Note bears interest at the rate of 9% has six-month maturity date, and a voluntary conversion into an upcoming financing in the event the Company closes the financing and receives gross proceeds totaling at least $200,000. The conversion rate will be at the same terms of the financing. We recorded $2,250 in interest expense for the year ended December 31, 2016.

~~Fair~~ On November ~~valuation~~7, ~~methods~~2016, ~~used~~the ~~for~~Company ~~the~~issued ~~identifiable~~a ~~net~~Convertible ~~assets~~Promissory ~~acquired~~Note to inthe ~~that~~Daniel ~~acquisition~~Jonathan ~~make~~Blech ~~use~~Trust ofDTD ~~projected~~9/01/2005 ~~and~~in ~~discounted~~the ~~cash~~amount ~~flows~~of $100,000. ~~using~~Mr. ~~company~~Blech, ~~specific~~a ~~interest~~member ~~rates.~~of ~~IP/Technology,~~the ~~Customer~~board ~~Base~~of directors, ~~and~~is ~~Trademarks~~the trustee. ~~are~~The ~~being~~Convertible ~~amortized~~Promissory ~~over~~Note ~~ten~~bears ~~years~~an ~~using~~interest at the rate ~~straight-line~~of ~~method.~~9%, ~~Amortization~~has ~~expense~~a ~~related~~six tomonth ~~intangible~~maturity ~~assets~~date, ~~was~~and ~~$283,754~~a ~~for~~voluntary conversion ~~the~~into ~~year~~an ~~ended~~upcoming ~~December~~financing ~~31,~~in ~~2014,~~the ~~was~~event ~~$324,290~~the ~~for~~Company closes the ~~year~~financing ~~ended~~and ~~December~~receives ~~31,~~gross ~~2015,~~proceeds ~~and~~totaling ~~will be~~at least $~~190~~200,~~890~~000. ~~for~~The ~~each~~conversion ofrate ~~the~~will ~~years~~be ~~ended~~at ~~December~~the ~~31,~~same ~~2016~~terms ~~through~~of ~~2023~~the financing. ~~and~~We recorded $232,~~861~~817 in interest expense for the year ended December 31, ~~2024~~2016.

~~TechXpress~~ On ~~Web~~July 19, ~~Acquisition~~ 2016, the Company issued the following Convertible Promissory Notes: Joe Proto ($40,000), John Eyler ($40,000), Francis J. Liddy ($20,000), Isaac Blech ($40,000), and Transpac Investments Ltd. ($40,000). All of the individuals listed are members of the board of directors. The Convertible Promissory Notes bear interest at the rate of 9%, have a six month maturity date, and a mandatory conversion into an upcoming financing in the event the Company closes the financing and receives gross proceeds totaling at least $200,000. The conversion rate will be at the same terms of the financing. We recorded $7,283 in interest expense for the year ended December 31, 2016.

On During ~~September~~the 18year ended December 31, ~~2014~~2015, the Company ~~through~~closed ~~its~~on ~~wholly-owned~~a private ~~subsidiary~~offering ~~SpendSmart~~and ~~Networks~~issued and six 9% Convertible Promissory Notes with principal amounts of $300,000, CA$262,500, ~~purchased~~$275,000, ~~substantially~~$75,000, 50,000, ~~all~~and of$150,0000 (the ~~web~~“Notes”) ~~related~~and ~~assets~~warrants ofto purchase ~~TechXpress~~400,002, ~~Inc.~~350,002, 366,667, 66,667, 100,001, and 200,001 shares of the Company’s common stock (the “~~TechXpress~~Warrant”), respectively. The Company also agreed to provide piggy-back registration rights to the holders of the Units. The Notes have a ~~California corporation~~term of twelve (12) months, ~~pursuant~~pay interest semi-annually at 9% per annum and can be voluntarily converted by the holder into shares of common stock at an exercise price of $0.75 per share, subject to adjustments for stock dividends, splits, combinations and similar events as described in the ~~terms~~Notes. In addition, if the Company issues or sells common stock at a price below the conversion price then in effect, the conversion price of the Notes shall be adjusted downward to such price but in no event shall the conversion price be reduced to a price less than $0.50 per share. The Warrants have an ~~Asset~~exercise ~~Purchase~~price ~~Agreement~~of ($0.75 per share and have a term of four years. The holders of the ~~“Asset~~Warrants ~~Purchase~~may exercise ~~Agreement”)~~the Warrants on a cashless basis for as long as the shares of common stock underlying the Warrants are not registered on an effective registration statement. The relative fair value ascribed to the 1,483,340 warrants issued was approximately $337,118 and was recorded to additional paid-in capital. The embedded conversion feature was bifurcated and accounted for as a derivative liability at approximately $393,000 on the day of issuance. The remaining proceeds were allocated based on the relative fair value of the debt and the warrant, and accordingly, approximately $730,520 of debt discount was recorded and was amortized over the initial term of the debt using the effective interest method. These notes were modified in second quarter 2016 and again in fourth quarter 2016. See below for further discussion.

~~The final fair value assigned to the total consideration is as follows:~~-44-

Consideration Paid:
Cash consideration	$	454,641
596,315 common stock issued to TechXpress		438,518
Total consideration paid	$	893,159

The transaction was accounted for using the acquisition method required by Topic 805, Business Combinations. Accordingly, goodwill has been measured as the excess of the total consideration including the fair value of any non-controlling interest on acquisition date over the amounts assigned to the identifiable assets acquired and liabilities assumed.

On the acquisition date, the fair value of net assets acquired was $893,159. The fair value of stock issued to the seller as part of the consideration was based on reference to quoted market values of SSPC stock as of the date of acquisition. The final allocation of the total consideration to the fair value of the assets acquired as of the date of the acquisition is as follows:

Accounts receivable, net	$	5,758
Identifiable intangible assets		143,500
Goodwill		743,901
Net assets acquired	$	893,159

Fair valuation methods used for the identifiable net assets acquired in that acquisition make use of projected and discounted cash flows using company specific interest rates. Amortization expense related to intangible assets was $4,947 for the year ended December 31, 2014, was $13,589 for the year ended December 31, 2015, and will be $2,250 for each of the years ended December 31, 2016 through 2023 and $281 in the year ended December 31, 2024.

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~~Pro~~ During ~~forma~~the second quarter 2016, the Company amended four of the outstanding 9% Convertible Promissory Notes with principal amounts of $275,000, $75,000, 50,000, and $150,000 as follows: the maturity dates were extended to November 5, 2016, September 2, 2016, November 22, 2016, and September 26, 2016, respectively; the conversion price was lowered to $0.15 per share, the provision limiting the conversion price adjustment to that of the Series C Preferred Stock was removed, and an option to be repaid prior to the maturity date in the event the Company raises capital in excess of three million dollars was added. The Company also amended the warrant issued in conjunction with the Convertible Promissory Note reducing the exercise price to $0.15 and issued new warrants to purchase 666,669 shares of the Company's common stock with a $0.15 exercise price and a three year expiration. According to FASB ASC 470-50, the modification is accounted for as a debt extinguishment, whereby the new debt instrument is initially recorded at fair value, and that amount is used to determine the debt extinguishment gain or loss to be recognized and the effective rate of the new instrument. We recognized a loss on the extinguishment of debt of $415,689 for the year ended December 31, 2016.

~~The~~ During the ~~following~~fourth ~~unaudited~~quarter ~~pro~~2016, ~~forma~~the ~~financial~~Company ~~information~~amended ~~presents~~six ~~results~~of the outstanding 9% Convertible Promissory Notes with principal amounts of $300,000, $262,500, $275,000, $75,000, $50,000, and $150,000 as iffollows: the maturity ~~acquisition~~dates were extended to May 5, 2017; the interest rate for the extension period was increased to 15%; the conversion price was changed to the per share price at the time of ~~SMS~~the ~~Masterminds~~next financing of $2,000,000 or greater. According to FASB ASC 470-50, the modification is accounted for as a debt extinguishment, whereby the new debt instrument is initially recorded at fair value, and that amount is used to determine the ~~TechXpress~~debt ~~Web~~extinguishment ~~business~~gain ~~had~~or ~~occurred~~loss to be recognized and the effective rate of the new instrument. We recognized a loss on ~~January~~the 1extinguishment of debt of $58,032 ~~2013~~for ~~(in~~the year ~~thousands):~~ended December 31, 2016.

	Year Ended December 31,
(Unaudited)	2014
Total revenue	$	3,695
Net loss	$	(8,174	)

On July 15, 2015, the Company issued a Convertible Promissory Note in the principal amount of $400,000 inclusive of interest. The Note is for a term of six months. The Note bears interest at twelve percent per annum. The Note is secured by the assets of the Company. The Note may be converted into shares of the Company’s common stock at $0.75 per share. The Company also issued the holder warrants to purchase 500,000 shares of the Company’s common stock. The proceeds were allocated based on the relative fair value of the debt and the warrant. The warrants have an exercise price of $0.75 per share and have a term of two years. The relative fair value ascribed to the 500,000 warrants issued was approximately $49,000 and was recorded to additional paid-in capital. This amount will be amortized over the term of the debt using the effective interest rate method. As part of the closing of the Tender Offer, $200,000 of these notes converted into 1,333,334 shares of common stock and the investor received common stock and 1,333,333 warrants with a three year term at an exercise price of $0.15. The remaining $200,000 of notes was paid in February 2016.

~~For~~ During ~~purposes~~the ofyear ended December 31, 2015, the ~~pro~~Company ~~forma~~issued Convertible ~~disclosures~~Promissory ~~above~~Notes to investors in the principal amount of $150,000, $150,000, $287,333, and $48,000. The Notes feature a mandatory conversion feature obligating the ~~primary~~holder ~~adjustments~~to ~~for~~participate and apply the ~~year~~principal ~~ended~~and ~~December~~interest into a “Qualified Financing” meaning a financing taking place prior to January 31, ~~2014~~2016, ~~include~~wherein the ~~amortization~~Company receives gross proceeds totaling at least $1,000,000. In the event the entire principal plus accrued interest under this Note is not eligible for conversion into a Qualified Financing, then any remaining balance of this Note shall be converted into restricted common stock at the ~~intangible~~price ~~assets~~of ~~purchased~~the Qualified Financing and Holder shall receive three (3) times any warrant coverage provided for in the ~~acquisition~~Qualified Financing. The Notes bear interest at nine percent per annum and has a maturity date of six months. The embedded conversion feature of the note was bifurcated and accounted for as a derivative liability at approximately $17,379 on the day of issuance. As part of the closing of the Tender Offer, these notes converted into 4,291,679 shares of common stock and the investors received 12,875,037 warrants with a three year term at an exercise price of $0.15.

~~6. Short Term Note Receivable~~-45-

The Company issued a Convertible Promissory Note (the “Note”) for a principal amount of $410,000 to a third party in September 2014. The Note bears interest at the rate of 5.25% per annum. For the years ended December 31, 2014 and December 31, 2015, the Company has recorded $6,133 and $27,380 of interest income from this Note. $90,000 of the principal amount was paid during first quarter of 2015, $20,000 was paid during the second quarter of 2015, and $11,000 was paid during the third quarter of 2015. The remaining balance of $322,513 was written off during the year ended December 31, 2015.

7. Redeemable Preferred Stock and Warrants

In 2012, the Company issued a total of 10,165 shares of our Series B Preferred Stock (convertible into 1,694,167 shares of the Company’s Common Stock), and five year warrants to purchase up to an additional 1,111,042 shares of our Common Stock at exercise prices ranging between $7.50 and $9.00 per share. The Series B Convertible Preferred Stock automatically converted to common stock on January 19, 2013.

8. Convertible Promissory Notes

During the year ended December 31, 2015, the Company closed on a private offering and sold 22.25 units (the “Units”) to accredited investors with each such Unit consisting of a 9% Convertible Promissory Note with the principal face value of $50,000 (the “Notes”) and a warrant to purchase 66,667 shares of the Company’s common stock (the “Warrant”). The Company also agreed to provide piggy-back registration rights to the holders of the Units. The Notes have a term of twelve (12) months, pay interest semi-annually at 9% per annum and can be voluntarily converted by the holder into shares of common stock at an exercise price of $0.75 per share, subject to adjustments for stock dividends, splits, combinations and similar events. In addition, if the Company issues or sells common stock at a price below the conversion price then in effect, the conversion price of the Notes shall be adjusted downward to such price but in no event shall the conversion price be reduced to a price less than $0.50 per share. The Warrants have an exercise price of $.75 per share and have a term of four years. The holders of the Warrants may exercise the Warrants on a cashless basis for as long as the shares of common stock underlying the Warrants are not registered on an effective registration statement. The relative fair value ascribed to the 1,483,340 warrants issued was approximately $337,118 and was recorded to additional paid-in capital. The Company raised gross proceeds of $1,112,500 and issued warrants to acquire 1,483,340 shares of common stock. The Company used the net proceeds from the sale of the Units for general working capital.

The embedded conversion feature of the notes was bifurcated and accounted for as a derivative liability at approximately $393,000 on the day of issuance. The remaining proceeds were allocated based on the relative fair value of the debt and the warrant, and accordingly, approximately $730,520 of debt discount was recorded and will be amortized over the term of the debt using the effective interest method. As of December 31, 2015, the balance of the discount had been amortized down to $242,396.

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~~On July 15, 2015, the Company issued a Convertible Promissory Note in the principal amount of $400,000 inclusive of interest~~ 7. ~~The~~Notes Note is for a term of six months. The Note bears interest at twelve percent per annum. The Note is secured by the assets of the Company. The Note may be converted into shares of the Company’s common stock at $0.75 per share. The Company also issued the holder warrants to purchase 500,000 shares of the Company’s common stock. The proceeds were allocated based on the relative fair value of the debt and the warrant. The warrants have an exercise price of $0.75 per share and have a term of two years. The relative fair value ascribed to the 500,000 warrants issued was approximately $49,000 and was recorded to additional paid-in capital. This amount which was recorded as a debt discount will be amortized over the term of the debt using the effective interest method.Payable

On ~~October~~ August 526, 2015, the Company ~~issued~~entered into a ~~Convertible~~Business Promissory Note toand anSecurity ~~investor~~Agreement inwith ~~the~~Bank of Lake Mills for the principal ~~amount~~sum of $~~150~~200,000. ~~The~~and ~~Note features~~ a ~~mandatory~~daily ~~conversion~~interest ~~feature~~rate ~~obligating~~of ~~the~~0.22%. ~~holder~~The Note tois ~~participate~~for ~~and~~a ~~apply~~term ~~the~~of ~~principal~~six ~~and~~months ~~interest~~with ~~into~~ a ~~“Qualified~~weekly ~~Financing”~~repayment ~~meaning~~schedule ending aFebruary ~~financing taking place prior to January 31~~22, 2016,. ~~wherein~~The ~~the~~Note ~~Company~~included ~~receives~~standard representations ~~gross~~and ~~proceeds~~warranties. ~~totaling~~The atNote ~~least~~was ~~$1,000,000.~~secured Inby ~~the~~certain assets ~~event~~of the ~~entire~~Company ~~principal~~as ~~plus~~well ~~accrued~~as ~~interest~~a ~~under~~personal ~~this~~guarantee ~~Note~~by isAlex Minicucci, ~~not~~our ~~eligible~~then ~~for~~CEO. ~~conversion~~The ~~into~~total arepayment ~~Qualified~~amount ~~Financing,~~including interest ~~then~~and ~~any~~principal ~~remaining~~is ~~balance~~$244,637 ofand ~~this~~was ~~Note~~to ~~shall~~ be ~~converted~~paid ~~into~~pro-rata weekly ~~restricted~~ending ~~common~~February ~~stock~~22, at2016. ~~the~~For ~~price of~~ the ~~Qualified~~year ~~Financing~~ended ~~and~~December ~~Holder~~31, 2015, ~~shall~~we ~~receive~~recorded ~~three~~interest ~~(3)~~expense ~~times~~related ~~any~~to ~~warrant~~the ~~coverage~~note ~~provided~~of ~~for~~$39,585. For in the ~~Qualified~~year ~~Financing. The~~ended ~~Note~~December ~~bears~~31, ~~interest~~2015, atwe ~~nine~~have ~~percent~~paid ~~per~~approximately $129,738 ~~annum~~in ~~and~~principal ~~has~~repayments arelated ~~maturity~~to ~~date~~the ~~of six months~~Note. ~~The~~ ~~embedded~~For ~~conversion feature of~~ the ~~note~~year ended ~~was~~December ~~bifurcated~~31, ~~and~~2016, ~~accounted~~we ~~for~~paid ~~as a derivative liability at~~ approximately $1770,~~127~~262 onin ~~the~~principal repayments ~~day~~related ofto ~~issuance~~the Note. As ~~part~~ of ~~the~~February ~~closing~~25, ~~of the Tender Offer~~2016, ~~these notes converted and~~ the ~~investor~~note has ~~received~~been ~~3,089,754~~fully ~~warrants with a three year exercise and an exercise price of $0~~repaid.~~15.~~

~~On November 12, 2015, the Company issued a Convertible Promissory Note to an investor in the principal amount of $150,000~~ 8. ~~The~~Due ~~Note features a mandatory conversion feature obligating the holder~~ to ~~participate~~Related and apply the principal and interest into a “Qualified Financing” meaning a financing taking place prior to January 31, 2016, wherein the Company receives gross proceeds totaling at least $1,000,000. In the event the entire principal plus accrued interest under this Note is not eligible for conversion into a Qualified Financing, then any remaining balance of this Note shall be converted into restricted common stock at the price of the Qualified Financing and Holder shall receive three (3) times any warrant coverage provided for in the Qualified Financing. The Note bears interest at nine percent per annum and has a maturity date of six months. The embedded conversion feature of the note was bifurcated and accounted for as a derivative liability at approximately $50 on the day of issuance. As part of the closing of the Tender Offer, these notes converted and the investor received 3,002,961 warrants with a three year exercise and an exercise price of $0.15.Party

On ~~November~~ 13August 14, 2015 and September 28, 2015, the Company ~~issued~~entered ~~Convertible~~into Loan ~~Promissory~~Agreements ~~Notes~~with toAlex ~~five~~Minicucci ~~investors~~for in the principal ~~amount~~sum of $65,000 and $~~287~~35,~~333~~000, respectively. The ~~Notes~~Loans ~~feature~~were ato ~~mandatory~~be ~~conversion~~paid ~~feature~~off ~~obligating~~by December ~~the~~31, ~~holder~~2016 ~~to participate~~ and ~~apply~~include ~~the~~an ~~principal and~~ interest ~~into~~rate aof ~~“Qualified~~7%. ~~Financing”~~For ~~meaning~~the ayears ended ~~financing~~December ~~taking place prior to January~~ 31, 2016, ~~wherein~~and ~~the Company receives gross proceeds totaling at least $1~~2015,~~000,000. In~~ ~~the~~we ~~event~~recorded ~~the entire principal plus accrued~~ interest ~~under~~expense related ~~this~~to ~~Note is not eligible for conversion into a Qualified Financing, then any remaining balance of this Note shall be converted into restricted common stock at~~ the ~~price~~loans of ~~the~~$4,756 ~~Qualified Financing~~ and ~~Holder shall receive three (~~$3~~) times any warrant coverage provided for in the Qualified Financing~~,034. The ~~Notes~~$35,000 ~~bears~~loan ~~interest at nine percent per annum and~~ has been arepaid ~~maturity~~during ~~date~~2016 ~~of six months. The embedded conversion feature of the notes was bifurcated~~ and ~~accounted for as a derivative liability at approximately $172 on~~ the ~~day~~Company ofextended ~~issuance. As part of~~ the ~~closing~~terms ofrelated to ~~into~~ the ~~Tender Offer~~$65,000 ~~these~~loan ~~notes~~to ~~converted~~May ~~and the investors received 5~~10,~~811,315~~ ~~warrants with a three year exercise and an exercise price of $0~~2017.~~15.~~

~~On November 16, 2015, the Company issued a Convertible Promissory Note to an investor in the principal amount of $48,000~~ 9. ~~The~~Common ~~Note~~Stock ~~features a mandatory conversion feature obligating the holder to participate~~ and apply the principal and interest into a “Qualified Financing” meaning a financing taking place prior to January 31, 2016, wherein the Company receives gross proceeds totaling at least $1,000,000. In the event the entire principal plus accrued interest under this Note is not eligible for conversion into a Qualified Financing, then any remaining balance of this Note shall be converted into restricted common stock at the price of the Qualified Financing and Holder shall receive three (3) times any warrant coverage provided for in the Qualified Financing. The Note bears interest at nine percent per annum and has a maturity date of six months. The embedded conversion feature of the note was bifurcated and accounted for as a derivative liability at approximately $30 on the day of issuance. As part of the closing of the Tender Offer, these notes converted and the investor received 971,007 warrants with a three year exercise and an exercise price of $0.15.Warrants

9. Notes Payable

On August 26, 2015, the Company entered into a Business Promissory Note and Security Agreement with Bank of Lake Mills for the principal sum of $200,000 and a daily interest rate of .22%. The Note is for a term of six months with a weekly repayment schedule ending February 22, 2016. The Note includes standard representations and warranties. The Note is secured by certain assets of the Company as well as a personal guarantee by Alex Minicucci. The total repayment amount including interest and principal is $244,637 to be paid pro-rata weekly ending February 22, 2016. For the year ended December 31, 2015, we recorded interest expense related to the note of $39,585. For the year ended December 31, 2015, we have paid approximately $129,738 in principal repayments related to the Note with a remaining balance of $70,262 at December 31, 2015. As of February 25, 2016, the note has been fully repaid.

10. Due to Related Party

On August 14, 2015 and September 28, 2015, the Company entered into Loan Agreements with Alex Minicucci for the principal sum of $65,000 and $35,000, respectively. The Loans were to be paid by December 31, 2015 and include an interest rate of 7%. For the year ended December 31, 2015, we recorded interest expense related to the loans of $271. The $35,000 loan has been paid in 2016 and the Company is negotiating terms related to the $65,000 loan.

11. Common Stock and Warrants

Common stock

During the year ended December 31, ~~2015~~2016, the company issued 1 17,~~047~~895,~~522~~859 shares of common stock, atupon $0warrant exercises related to the tender offer.47 ~~per~~The ~~share~~Company issued 1,563,677 shares of common stock related to services rendered and ~~the~~recognized ~~Company~~expense of $103,910 and issued 511,266 shares of common stock related to interest due and recognized expense of $~~496~~21,~~288~~500. ~~for~~257,668 ~~services~~shares ~~rendered~~of Series C Stock converted to 1,546,008 shares of common shares during the year ended December 31, 2016.

~~During the year ended December 31, 2014, the company issued 22,989 shares of common stock, at $0.87 per share, and the Company recognized expense of $20,000 for services rendered.~~-46-

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~~Warrants~~ During the year ended December 31, 2015, the company issued 1,047,522 shares of common stock and the Company recognized expense of $496,288 for services rendered and interest.

~~On December 4, 2015, SpendSmart Networks, Inc. (the “Company“) commenced its offer (the “Warrant~~ Tender Offer“) ~~to amend certain of its outstanding warrants to purchase an aggregate of 21,634,695 shares of common stock (the “ Offer to Amend~~ and ~~Exercise “),~~Debt including: (i) outstanding warrants to purchase an aggregate of 17,918,675 shares of the Company’s common stock issued to investors who participated in the Company’s private placement financing closed on February 11, 2014, February 21, 2014, March 6, 2014, and March 14, 2014 (the “ 2014 Warrants “), of which 16,289,704 are exercisable at an exercise price of $1.10 per share, as well as warrants issued to the placement agent in connection with such financing (the “ $1.10 2014 Warrants “) and 1,628,971 are exercisable at an exercise price of $1.27 per share (the “$1.27 2014 Warrants “); (ii) outstanding warrants to purchase an aggregate of 1,711,106 shares of the Company’s common stock issued to investors who participated in the Company’s private placement financings closed on November 30, 2012, July 19, 2012, June 20, 2012, May 24, 2012 and March 31, 2012, as well as warrants issued to the placement agent in connection with such financings (the “ 2012 Warrants “), of which 1,417,799 are exercisable at an exercise price of $7.50 per share (the “ $7.50 2012 Warrants “) and 244,640 are exercisable at an exercise price of $9.00 per share (the “ $9.00 2012 Warrants “) and 48,667 are exercisable at an exercise price of $12.00 per share (the “ $12.00 2012 Warrants “); (iii) outstanding warrants to purchase an aggregate of 1,569,935 shares of the Company’s common stock issued to investors who participated in the Company’s private placement financing completed on January 19, 2011, May 20, 2011, October 21, 2011, and November 21, 2011, as well as warrants issued to the placement agent in connection with such financing (the “2011 Warrants “) of which 1,083,333 are exercisable at an exercise price of $6.00 per share (the “ $6.00 2011 Warrants“), 250,001 are exercisable at an exercise price of $7.50 per share (the “ $7.50 2011 Warrants “) and 236,601 are exercisable at an exercise price of $9.00 per share (the “ $9.00 2011 Warrants “); and (iv) outstanding warrants to purchase an aggregate of 434,979 shares of the Company’s common stock issued to investors who participated in the Company’s private placement financings closed on November 16, 2010 (the “ 2010 Warrants “), of which 125,000 are exercisable at an exercise price of $6.00 per share (the “ $6.00 2010 Warrants “) 222,479 are exercisable at an exercise price of $9.00 per share (the “ $9.00 2010 Warrants “) and 87,500 are exercisable at an exercise price of $7.50 per share (the “$7.50 2010 Warrants“ ). The 2014 Warrants, the 2012 Warrants, the 2011 Warrants, and the 2010 Warrants are collectively referred to as the “Original Warrants “.Conversion

~~The~~ Between ~~Offer~~December to11, ~~Amend~~2015 and ~~Exercise expired on~~ February 53, 2016., ~~Pursuant~~the toCompany ~~the~~entered into ~~Offer~~agreements with investors, pursuant to ~~Amend~~which ~~and~~on ~~Exercise~~February 3, 2016, anwarrant holders exercised 12,270,846 Warrants to purchase an aggregate of 1612,~~172~~270,~~144~~846 ~~Original~~shares ~~Warrants~~of ~~were~~our ~~tendered~~common bystock ~~their~~for ~~holders~~gross proceeds ~~and~~of ~~were~~$1.84 ~~amended~~million. ~~and~~The ~~exercised~~Company inissued ~~connection~~new ~~therewith~~warrants ~~for~~to purchase an aggregate of 26,479,217 shares of common stock at an exercise price of ~~approximately~~ $20.15 per share,~~425,822~~ ~~following~~in ~~the~~consideration ~~amendment~~for ~~and~~the immediate exercise of the 16warrants. In August,~~172~~ 2016,~~144~~ ~~Original~~the ~~Warrants. Subsequent~~exercise price toon ~~yearend~~13,209,609 weof ~~issued~~these 26warrants was reduced to $0.01,~~479,217~~ ~~warrants~~as the Company had not met its six-month targets related to ~~the~~these warrants. ~~tender~~In ~~offer~~January, at2017, anthe exercise price on 13,209,608 of these warrants was reduced to $0.1501, as the Company had not met its twelve-month target related to these warrants. The following paragraph discusses the accounting treatment related to this reduction.

~~Effective~~ The ~~October~~Warrants 1,have ~~2015,~~a ~~the~~cash ~~Company~~settlement ~~entered~~feature; ~~into~~as a ~~strategic~~result, ~~consulting~~they ~~agreement~~were classified ~~with~~as ~~Siskey~~a ~~Capital,~~derivative ~~LLC. Siskey~~liability ~~Capital,~~and ~~LLC~~recorded ~~will~~at ~~provide~~fair ~~strategic~~value. Fair ~~guidance~~value inof the ~~overall~~Warrants, ~~operations~~in of the ~~company~~total ~~including~~amount ~~without~~of ~~limitation product development~~$3, ~~engineering~~918,924 ~~sales,~~was calculated ~~personnel~~using ~~and business development. The retention is for nine months. In connection with~~ the ~~retention~~Monte-Carlo ~~the Company agreed to grant Siskey Capital (1) 750~~model,~~000~~ ~~shares~~using of the ~~Company's~~following assumptions: ~~restricted~~68.7% ~~common~~expected ~~stock~~volatility, ~~375,000~~a ofrisk-free ~~which~~interest ~~shall~~rate of ~~be issued immediately and the remaining 375~~0.91%,~~000~~ ~~after~~estimated ~~completion~~life of ~~the~~3 ~~first~~years ~~phase of the consulting project,~~ and ~~(2)~~no ~~750,000~~dividend ~~options~~yield. toThe ~~purchase~~fair value ~~shares~~ of the ~~Company's restricted~~ common stock ~~with~~was ~~an exercise price of~~ $0.75148. toThe betransaction ~~paid~~was ~~quarterly~~accounted for ~~and~~as ~~subject~~an toinducement. ~~the~~ASC ~~completion~~470-20-40 ofaddresses ~~certain~~the ~~goals.~~accounting ~~Siskey~~for altered ~~Capital~~conversion ~~will~~privileges, ~~also~~including ~~receive~~the aissuance ~~monthly per diem~~ of ~~$9,800.~~warrants or ~~For~~other ~~services~~securities ~~performed~~(not onprovided ~~our~~for ~~behalf,~~in wethe ~~issued~~original ~~warrants~~conversion terms) to ~~purchase~~induce upconversion. toAs ~~750,000~~a ~~shares~~result of ~~our~~this ~~common~~transaction, ~~stock~~the Company ~~during~~recognized ~~the~~an ~~year~~inducement ~~ended~~expense ~~December~~of 31$3, ~~2015~~560,958 equal to ~~Siskey~~the fair ~~Capital~~value atof anall ~~exercise~~securities ~~price~~and ofother ~~$.75. On~~consideration ~~December~~transferred 1,in the ~~2015,~~transaction ~~these~~in ~~warrants~~excess ~~were~~of ~~repriced~~the tofair anvalue ~~exercise price~~ of ~~$.17~~securities ~~and~~issuable pursuant ~~exercised~~to onthe ~~December~~original 2,conversion ~~2015~~terms, ~~resulting~~as inof ~~gross proceeds to~~ the ~~company~~date of ~~$127,500.~~the conversion.

On In ~~December~~connection 1with the tender offer, ~~2015~~investors converted $843,751 in weConvertible ~~issued~~Notes ~~warrants~~at toa ~~purchase~~conversion upprice toof ~~750~~$0.15 per share into 5,~~000~~625,013 shares of our common stock toduring ~~Siskey Capital at an exercise price of $0~~2016.~~25.~~

~~Through~~10. ~~December~~Convertible ~~31,~~Preferred 2015, we have also issued warrants to purchase up to 22,835,951 shares of our common stock to investors (and as compensation to third parties in connection with investments) related to the sale of our common stock, 26,397,410 of which remain outstanding net of exercises, cancellations and expirations (all of which are fully vested).Stock

12. Convertible Preferred Stock

Series A Preferred Stock

At December 31, ~~2015~~2016 and ~~2014~~2015 we had 0 shares of Series A Cumulative Convertible Preferred Stock (the “Series A Stock”) outstanding.

Series B Preferred Stock

At December 31, ~~2015~~2016 and ~~2014~~2015 we had 0 shares of Series B convertible preferred stock (“Series B Stock”) outstanding.

Series C Convertible Preferred Stock

At December 31, ~~2015~~2016 and ~~2014~~2015, we had 3,~~700~~443,~~729~~061 and 3,~~757~~700,~~229~~ 729 shares, respectively, of Series C convertible preferred stock (“Series C Stock”) outstanding that were issued to investors for $3.00 per share. We issued 4,299,081 shares of Series C Stock and had conversions of ~~541~~56,~~852~~500 shares for the year ended December 31, ~~2014~~2015. For the year ended December 31, ~~2015~~2016, we had conversions of 56257,~~500~~668 shares.

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Number of Shares: The number of shares of Series C Preferred Stock designated as Series C Preferred Stock is 4,299,081 (which shall not be subject to increase without the written consent of all of the holders of the Series C Preferred Stock or as otherwise set forth in the Certificate of Designation.

Stated Value: The initial Stated Value of each share of Series C Preferred Stock is $3.00 (as adjusted pursuant to the Certificate of Designation).

Voluntary Conversion: The Series C Preferred Stock shall be convertible at the option of the holder, into common stock at the applicable conversion price of $0.75 per share, subject to adjustments for stock dividends, splits, combinations and similar events as described in the form of Certificate of Designations. In addition, the Company has the right to require the holders to convert to common stock under certain enumerated circumstances.

Mandatory Conversion: At the Company’s sole option, each outstanding share of Series C Preferred Stock may be converted into shares of Common Stock at the applicable conversion price immediately prior to the close of business on the date that the volume weighted average price of the Common Stock, based on the closing price on the or any other market or exchange where the same is traded, shall exceed $4.00 per share for any 30 consecutive trading days anytime from the Original Issue Date with an average daily trading volume of 100,000 shares (such numbers shall be proportionally adjusted for dividends, stock splits, Common Stock combinations and recapitalizations involving the Common Stock).

Voting Rights: Except as described in the Certificate of Designations, holders of the Series C Preferred Stock will vote together with holders of the Company common stock on all matters, on an as-converted to common stock basis, and not as a separate class or series (subject to limited exceptions).

Liquidation Preferences: In the event of any liquidation or winding up of the Company prior to and in preference to any Junior Securities (including common stock), the holders of the Series C Preferred Stock will be entitled to receive in preference to the holders of the Company common stock a per share amount equal to the Stated Value (as adjusted pursuant to the Certificate of Designations).

13 11. Net ~~Agreements~~Loss ~~for~~per ~~services,~~Share Applicable ~~officer~~to ~~and~~Common ~~Board of Directors’ compensation~~Stockholders

~~Effective October 1~~ Options, ~~2015~~ warrants, ~~Jerold~~and ~~Rubinstein,~~convertible ~~currently~~debt aoutstanding ~~member~~were ofall ~~the~~considered anti-dilutive ~~Board~~for ~~of Directors, has been appointed Chairman of~~ the ~~Board.~~year ~~Mr.~~ended ~~Rubinstein~~December ~~has~~31, ~~served~~2016 ~~as a member of the Board of Directors~~ and ~~the~~2015 ~~Chairman~~due ofto net ~~the Company's Audit Committee since October 1, 2013~~losses.

In The following ~~connection~~securities ~~with~~were ~~Mr.~~not ~~Rubinstein's~~included ~~appointment~~in to the ~~Board,~~diluted ~~the~~net ~~Company~~loss ~~agreed~~per share tocalculation ~~grant~~because ~~Mr.~~their ~~Rubinstein~~effect awas ~~stock~~anti-dilutive ~~option~~as ~~to purchase up to 1,358,696 shares~~ of ~~common~~the periods ~~stock at an exercise price of $0.17 per share and having a term of 5 years.~~presented:

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14. Agreements with former officers

	For the year ended
	December 31,
	2016	2015
Common stock options	26,865,017	10,337,113
Investor warrants	37,836,680	23,752,410
Compensation warrants	1,981,667	2,645,000
Excluded potentially dilutive securities	66,683,364	36,734,523

~~Effective December 31, 2014, William Hernandez-Ellsworth resigned from his position as a director of SpendSmart Networks, Inc~~12. ~~(the~~Stockholder’s ~~“Company”).~~ equity

Effective as of January 26, 2015 (the “Effective Date”), William Hernandez-Ellsworth resigned from his position as President of SpendSmart Networks, Inc. (the “Company”).

In conjunction with Mr. Hernandez-Ellsworth’s resignation, on January 29, 2015 the Company entered into an Agreement with Mr. Hernandez-Ellsworth (the “Agreement”). Pursuant to the Agreement, and in conjunction with the closing of the Company’s card business, Mr. Hernandez-Ellsworth remained employed by the Company, on an as needed basis, for a one year term commencing on the Effective Date and was paid an annual salary of $120,000. This agreement ended in January 2016. Additionally, Mr. Hernandez-Ellsworth was: (i) permitted to participate in any group life, hospitalization or disability insurance plans, health programs, retirement plans, fringe benefit programs and other benefits that may be available to employees of the Company; (ii) provided 50,000 unvested shares of Non-Qualified Stock Options issued on March 19, 2014, and 112,500 unvested shares of Incentive Stock Options issued on March 21, 2014 (the “Incentive Stock Option”), become fully vested; and (iii) the provisions in Mr. Hernandez-Ellsworth Incentive Option that required he exercise all vested and unexercised options within ninety (90) days of his departure from the Company was deleted and shall no longer apply. The Agreement also contained customary confidentiality and non-solicitation provisions. The Company expensed all options in 2014. The Company accrued $120,000 of salary in 2014, of which $10,000 remained accrued at December 31, 2015 and paid out in 2016.

Effective February 24, 2016, Bruce Neuschwander resigned from his position as Chief Financial Officer. Mr. Neuschwander and the Company entered into a Severance Agreement and General Release wherein the Company paid Mr. Neuschwander the equivalent of one month’s salary ($12,500) and five months of health care premiums in exchange for a general release of liability. $12,500 of severance was paid out during 2016.

15. Net Loss per Share Applicable to Common Stockholders

Options, warrants, and convertible debt outstanding were all considered anti-dilutive for the year ended December 31, 2015 and 2014 due to net losses.

The following securities were not included in the diluted net income (loss) per share calculation because their effect was anti-dilutive as of the periods presented:

	For the year ended
	December 31,
	2015		2014
Common stock options		10,337,113		8,807,667
Investor warrants		23,752,410		21,920,064
Compensation warrants		2,645,000		2,013,858
Excluded potentially dilutive securities		36,734,523		32,741,589

16. Stockholder’s equity

Stock options

On In ~~January~~March 82016, ~~2013,~~our ~~the~~ Company’s ~~Board~~granted of Directors approved the adoption of the SpendSmart Networks, Inc. 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan provides for granting of stock-based awards including: incentive stock options, ~~non-statutory stock options, stock bonuses and rights~~ to ~~acquire~~purchase ~~restricted~~up ~~stock. The total number of shares of common stock that may be issued pursuant~~ to stock awards under the 2013 Plan (as approved by the Board of Directors but subject to future shareholder approval solicited by a Proxy Statement filed in January 2013) shall not exceed in the aggregate 3,~~000~~517,~~000~~067 shares of ~~the~~our common stock ofto ~~the~~members ~~Company.~~of Onour ~~August 4, 2011, the~~ Board of Directors ~~approved the adoption of the SpendSmart Networks, Inc~~. ~~2011 Equity Incentive Plan (the “2011 Plan”).~~ The ~~2011 Plan provides for granting of stock-based awards including: incentive stock~~ options, ~~non-statutory~~vest ~~stock~~immediately; ~~options,~~have ~~stock~~an ~~bonuses~~exercise ~~and~~price ~~rights to acquire restricted stock~~of $0.12 ~~The~~per ~~total~~share; ~~number~~and ofexpire ~~shares~~five ofyears ~~common~~after ~~stock that may be issued pursuant to stock awards under~~ the ~~Plan~~date ~~shall not exceed in the aggregate 1,666,667 shares~~ of ~~the common stock of the Company~~ grant. The ~~Company~~fair ~~also~~value ~~have~~at agrant ~~stockholder-approved~~date ~~Plan~~of ~~(the~~these ~~IdeaEdge,~~options ~~Inc. 2007 Equity Incentive Plan - the “2007 Plan”~~was $246,141 ~~previously approved by our shareholders). The 2007 Plan has similar provisions~~ and ~~purposes as~~ the ~~2011~~entire ~~Plan.~~amount ~~The~~was ~~total~~expensed ~~number of shares of common stock that may be issued pursuant to stock awards under the 2007 Plan (as amended) shall not exceed~~ in ~~the aggregate 4,000,000 shares of the common stock of our Company~~2016. ~~Upon shareholder approval of the 2013 Plan, our Board has expressed its intentions to issue no more shares under the 2011 and 2007 Plans.~~

~~-44-~~ In March 2016, our Company granted options to purchase up to 1,459,326 shares of our common stock to four employees. The options vest over four years; have an exercise price of $0.12 per share; and expire five years after the date of grant. The fair value at grant date of these options was $112,147 and $48,145 was expensed in 2016.

In March 2016, our Company granted options to purchase up to 1,859,623 shares of our common stock to thirty-three employees. The options vest immediately; have an exercise price of $0.11 per share; and expire five years after the date of grant. The fair value at grant date of these options was $142,006 and the entire amount was expensed in 2016.

In May 2016, our Company granted options to purchase up to 264,000 shares of our common stock to Frank Liddy. The options vest immediately; have an exercise price of $0.08 per share; and expire five years after the date of grant. The fair value at grant date of these options was $20,256 and the entire amount was expensed in 2016.

In May 2016, our Company granted options to purchase up to 450,000 shares of our common stock to two employees. The options vest over two years; have an exercise price of $0.06 per share; and expire five years after the date of grant. The fair value at grant date of these options was $17,979 and $8,088 was expensed in 2016.

In June 2016, our Company granted options to purchase up to 2,104,751 shares of our common stock to thirty-two employees. The options vest immediately; have an exercise price of $0.09 per share; and expire five years after the date of grant. The fair value at grant date of these options was $151,431 and the entire amount was expensed in 2016.

Effective July 22, 2016, the Company cancelled the following stock and stock options granted to its board of directors on March 21, 2016: (a) Joseph Proto, 350,000 restricted shares of common stock; (b) John Eyler, options to purchase 464,331 shares of common stock; (c) Pat Kolenik 350,000 restricted shares of common stock; (d) Chris Leong, options to purchase 464,331 shares of common stock, and (e) Isaac Blech, options to purchase 663,330 shares of common stock.

In September 2016, our Company granted options to purchase up to 2,674,940 shares of our common stock to twenty-five employees. The options vest immediately; have an exercise price of $0.06 per share; and expire five years after the date of grant. The fair value at grant date of these options was $139,316 and the entire amount was expensed in 2016.

In December 2016, our Company granted options to purchase up to 7,371,357 shares of our common stock to twenty-two employees. The options vest immediately; have an exercise price of $0.02 per share; and expire five years after the date of grant. The fair value at grant date of these options was $131,947 and the entire amount was expensed in 2016.

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At In ~~December 31~~2016, ~~2015 and 2014,~~ we ~~have~~expensed ~~outstanding a total of 10~~$222,~~337~~357,~~113~~ ~~and~~related ~~8,807,667,~~to ~~respectively,~~the issuance of ~~incentive and nonqualified stock~~ options from ~~granted~~2014 ~~under the 2013 Plan, 2011 Plan,~~ and ~~the 2007 Plan~~2015, ~~all~~that ofcontinued ~~which~~to ~~(for the purpose of computing stock based compensation) we have estimated will eventually~~ vest. ~~All~~in ~~of the options have terms of five years with expiration dates ranging from July~~ 2016 ~~to November 2019~~.

~~The~~ For the year ended December 31, 2015, we issued 3,666,476 options, as follows. During first quarter, 2015, our Company’s granted options to purchase up to 165,000 shares of our common stock ~~option~~to ~~plans~~five ~~are~~employees. ~~administered~~The byoptions ~~the~~vest ~~Board~~over four years; have exercise prices of ~~Directors,~~$.90 ~~which~~to ~~determines~~$.95 ~~the~~per ~~terms~~share; and ~~conditions~~expire offive years after the ~~options~~date ~~granted,~~of ~~including~~grant. The ~~exercise~~fair ~~price,~~value ~~number~~at grant date of these options ~~granted~~was $101,759. The amount expensed in 2015 was $21,564 and ~~vesting~~the ~~period~~amount ofexpensed ~~such~~in ~~options~~2016 was 16,142.

~~For the year ended December 31, 2014, we issued 8,541,000 options, as follows.~~ On March 195, ~~2014~~2015, our Company granted options to purchase up to ~~405~~ 360,000 shares of our common stock to members of our Board of Directors. The options vest immediately; have an exercise price of $0.8792 per share; and expire five years after the date of grant. Each of the following Board members received 45,000 options each related to this issuance: Joe Proto, Isaac Blech, Alex Minicucci, Cary Sucoff, Patrick Kolenik, Chris Leong, Jerold Rubinstein, and Mike McCoy. The fair value at grant date of these options was $~~247~~208,~~939~~974 and the entire amount was expensed in 2015.

In ~~addition~~May 2015, ~~the~~our Company granted options to purchase up to 175,~~850,~~000 shares of our common stock to ~~members~~Bruce ~~of our Board of Directors on March 19, 2014~~Neuschwander. ~~One~~ ~~half~~The ~~of the~~ options vest over ~~immediately~~four ~~with the remaining options vesting on the one year anniversary of the grant date~~years; have an exercise price of $0.~~87 per share~~65; and expire five years after the date of grant. The fair value at grant date of ~~these~~this ~~options~~option was $131,~~068~~622. The amount expensed in 2015 was $10,~~350~~794 and the amount expensed in 2016 was $3,763.

In On ~~March~~October ~~2014~~1, 2015, our Company granted options to purchase up to ~~350~~ 1,~~000~~358,696 shares of our common stock to ~~Alex Minicucci~~Jerold Rubinstein. The ~~One fourth of the~~ options vest immediately ~~with the remaining options vesting over the next three years~~; have an exercise price of $1.1546 per share; and expire five years after the date of grant. The fair value at grant date of these options was $~~193~~410,~~925~~559 and the entire amount was expensed in 2015.

In ~~March~~November ~~2014~~2015, ~~our~~the Company ~~granted~~repriced ~~options~~the ~~to purchase up to 400~~1,~~000~~358,696 ~~shares~~previously issued ofoptions ~~our common stock~~ to ~~William~~Jerold ~~Hernandez~~Rubinstein. ~~One~~ ~~fourth~~The ofreplacement ~~the~~stock options have an ~~vest~~exercise ~~immediately~~price ~~with~~equal ~~the~~to ~~remaining~~$0.17 ~~options~~and ~~vesting~~a ~~over~~term ~~the~~of ~~next~~4.8 ~~three~~ years;. The ~~have~~cancellation anand ~~exercise~~reissuance ~~price~~ of ~~$1.15~~these ~~per~~stock ~~share;~~options ~~and~~was ~~expire~~treated as ~~five~~a ~~years~~modification ~~after~~under ~~the~~ASC ~~date~~718 ofand, ~~grant. The~~accordingly, ~~fair~~total ~~value~~stock-based compensation atexpense ~~grant~~related ~~date~~to of these ~~options~~awards ~~was~~increased $~~221~~35,~~629~~713, which was recognized in 2015.

In ~~March~~December, ~~2014~~2015, our Company granted options to purchase up to 1 278,~~410,000~~500 shares of our common stock, ~~of which 892,500 remain outstanding,~~ to ~~sixteen~~four employees. The options vest ~~over three years~~immediately; have an exercise price of $1.1514 per share; and expire five years after the date of grant. The fair value at grant date of these options was $~~781~~26,~~243~~792 and the entire amount was expensed in 2015.

On In ~~August 1~~December, ~~2014~~2015, our Company granted options to purchase up to ~~900~~ 70,~~000~~584 shares of our common stock to ~~our~~five ~~Board of Directors and Chord Advisors~~employees. The options vest immediately; have an exercise price of $1.1475 per share; and expire five years after the date of grant. ~~Each~~The offair value ~~the~~at ~~following~~grant ~~Board~~date ~~members~~of ~~received~~these options ~~as follows: Joe Proto~~ was ~~issued 200~~$3,~~000~~876 ~~shares, Isaac Blech was issued 225,000 shares, Cary Sucoff was issued 175,000 shares, Patrick Kolenik was issued 175,000 shares,~~ and ~~Jerold~~the ~~Rubinstein~~entire amount was ~~issued~~expensed ~~100,000~~in ~~shares, and Chord Advisors was issued 25,000 shares~~2015. ~~The fair value at grant date of these options was $617,760.~~

In November 2014, the Company canceled 1,000,000 in outstanding Director stock options (and 1,695,374 in warrants) and issued the Directors 1,828,000 in replacement stock options. The replacement stock options have an exercise price equal to $1.15, a term of 5 years and a provision that allows for the exercise of these options only if the stock trades above $1.75 for 5 business days or upon a change of control. The cancellation and reissuance of these stock options was treated as a modification under ASC 718 and, accordingly, total stock-based compensation expense related to these awards increased $562,936, which is being recognized over the new vesting period.

For the year ended December 31, 2015, we issued 3,666,476 options, as follows. During first quarter, 2015, our Company granted options to purchase up to 165,000 shares of our common stock to five employees. The options vest over four years; have exercise prices of $.90 to $.95 per share; and expire five years after the date of grant. The fair value at grant date of these options was $81,061.

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In May 2015, our Company granted options to purchase up to 75,000 shares of our common stock to Bruce Neuschwander. The options vest over four years; have an exercise price of $.65; and expire five years after the date of grant. The fair value at grant date of this option was $31,622.

On October 1, 2015, our Company granted options to purchase up to 1,358,696 shares of our common stock to Jerold Rubinstein. The options vest immediately; have an exercise price of $.46 per share; and expire five years after the date of grant. The fair value at grant date of these options was $410,559.

In November 2015, the Company repriced the 1,358,696 previously issued options to Jerold Rubinstein. The replacement stock options have an exercise price equal to $.17 and a term of 4.8 years. The cancellation and reissuance of these stock options was treated as a modification under ASC 718 and, accordingly, total stock-based compensation expense related to these awards increased $35,713, which was recognized in 2015.

In December, 2015, our Company granted options to purchase up to 278,500 shares of our common stock to four employees. The options vest immediately; have an exercise price of $.14 per share; and expire five years after the date of grant. The fair value at grant date of these options was $26,792.

In December, 2015, our Company granted options to purchase up to 70,584 shares of our common stock to five employees. The options vest immediately; have an exercise price of $.75 per share; and expire five years after the date of grant. The fair value at grant date of these options was $3,876.

Stock option activity during the following periods was as follows:

		For the twelve months ended
	For the year ended
	December 31,	~~December 31,~~
		2015			2014
	2016	2015
Beginning balance outstanding	10,337,113	8,807,667	~~8,807,667~~			~~1,566,667~~
Options issued during the year	19,701,064	2,307,780	~~2,307,780~~			~~8,541,000~~
Options expired during the year			(778,334	)		(1,300,000	)
Options forfeited during the year	(1,011,800)	-
Ending balance outstanding			10,337,113			8,807,667
Options cancelled during the year	(1,591,992)	-
Options expired during the year	(569,368)	(778,334)
Ending balance outstanding	26,865,017	10,337,113

Warrants

The Company issued warrants to purchase shares of the Company’s common stock to investors in connection with the issuances of restricted shares of common stock during the years ended December 31, ~~2015~~2016 and ~~2014~~2015 (the value of which was offset against the proceeds of the issuance of common stock and not charged to operations). Outstanding warrants from all sources have terms ranging from two to five and a half years.

For the year ended December 31, 2014, we did not issue any warrants to advisors, consultants and in connection with the purchase of intellectual property. Warrants to purchase up to 267,369 shares of common stock have expired and warrants to purchase up to 1,695,374 to Directors have been cancelled (and replaced with 1,828,000 in replacement stock options, as noted above). Warrants to purchase up to 2,013,858 shares of common stock remain outstanding at December 31, 2014, of which 1,962,007 have vested.-50-

For the year ended December 31, 2014, we issued 17,918,675 warrants to new investors.

On October 1, 2015, we issued 750,000 warrants to Siskey Capital for consulting services. Effective October 1, 2015, the Company entered into a strategic consulting agreement with Siskey Capital, LLC. Siskey Capital, LLC will provide strategic guidance in the overall operations of the company including without limitation product development, engineering, sales, personnel and business development. 187,500 of those warrants vested immediately. Those 187,500 warrants were repriced on December 1, 2015 and the remaining 562,500 warrants vested on December 1, 2015, with the full 750,000 warrants exercised on December 2, 2015.

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~~Warrant~~ For ~~activity~~the ~~(including~~year ~~warrants~~ended ~~issued~~December to31, ~~investors~~2016, ~~and~~we ~~for~~did ~~consulting~~not issue any warrants to advisors, consultants and ~~advisory~~in ~~services)~~connection ~~for~~with the ~~years~~purchase ~~ended~~of intellectual property. Warrants to purchase up to 2,204,100 shares of common stock have expired. Warrants to purchase up to 1,981,667 shares of common stock remain outstanding at December 31, ~~2015~~2016, ~~and~~of ~~2014~~which ~~was~~1,981,667 ~~as follows:~~have vested.

	For the twelve months ended
	December 31,
	2015			2014
Beginning balance outstanding		23,933,922			7,977,990
Warrants issued during the year
For consulting and advisory services		1,500,000			-
In connection with sales of common, preferred stock, and notes		1,983,340			17,918,675
Warrants expired		(269,852	)		(1,962,743	)
Warrants exercised		(750,000	)		-
Ending balance outstanding		26,397,410			23,933,922

For the year ended December 31, 2016, we issued 27,895,890 warrants to investors, of which 26,479,217 related to the Tender Offer above and 1,416,673 related to the Convertible Notes amendments above. 1,540,767 warrants expired and 12,270,853 warrants were exercised for the year ended December 31, 2016.

~~The~~ In recompense ~~numbers~~for ~~and~~services performed on our behalf, we issued warrants to purchase up to 750,000 shares of our common stock during the year ended December 31, 2015, to Siskey Capital at an exercise price ~~prices~~of $.75. 187,500 of ~~all~~those ~~options~~warrants ~~and~~vested immediately. On December 1, 2015, these warrants ~~outstanding~~were atrepriced to an exercise price of $.17 and exercised on December 312, 2015, ~~was~~resulting asin ~~follows:~~gross proceeds to the company of $127,500.

Shares Outstanding	Weighted Average Exercise Price	Expiration Fiscal Period
669,354	6.83	1st Qtr, 2016
1,465,833	6.75	2nd Qtr, 2016
625	9.00	3rd Qtr, 2016
666,811	7.55	4th Qtr, 2016
34,749	7.99	1st Qtr, 2017
1,709,810	7.05	2nd Qtr, 2017
576,430	1.53	3rd Qtr, 2017
1,542,338	6.71	4th Qtr, 2017
10,000	6.60	1st Qtr, 2018
22,238,123	1.09	1st Qtr, 2019
893,336	0.92	2nd Qtr, 2019
1,113,000	1.16	3rd Qtr, 2019
3,373,000	0.95	4th Qtr, 2019
525,000	0.92	1st Qtr, 2020
1,707,780	0.19	2nd Qtr, 2019
75,000	0.65	2nd Qtr, 2020
133,334	7.05	4th Qtr, 2022
36,734,523

Through December 31, 2015, we have also issued warrants to purchase up to 22,835,951 shares of our common stock to investors (and as compensation to third parties in connection with investments) related to the sale of our common stock, 26,397,410 of which remain outstanding net of exercises, cancellations and expirations (all of which are fully vested).

On October 1, 2015, we issued 750,000 warrants to Siskey Capital for consulting services as noted above. 187,500 of those warrants vested immediately. Those 187,500 warrants were repriced on December 1, 2015 and the remaining 562,500 warrants were vested on December 1, 2015, with the full 750,000 warrants exercised on December 2, 2015. Warrants to purchase up to 118,858 shares of common stock have expired. Warrants to purchase up to 2,645,000 shares of common stock remain outstanding at December 31, 2015, of which 2,645,000 have vested.

For the year ended December 31, 2015, we issued 1,983,340 warrants to new investors and 150,994 warrants had expired.

Warrant activity (including warrants issued to investors and for consulting and advisory services) for the years ended December 31, 2016 and 2015 was as follows:

	For the twelve months ended
	December 31,
	2016	2015
Beginning balance outstanding	26,397,410	23,933,922
Warrants issued during the year
For consulting and advisory services	-	1,500,000
In connection with sales of common, preferred stock, and notes	27,895,890	1,983,340
Warrants expired or cancelled during the year	(2,204,100)	(269,852)
Warrants exercised	(12,270,853)	(750,000)
Ending balance outstanding	39,818,347	26,397,410

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The numbers and exercise prices of all options and warrants outstanding at December 31, 2016 was as follows:

Shares Issuable	Weighted Average Exercise Price	Expiration Fiscal Period
34,749	7.99	1st Qtr, 2017
1,349,183	6.90	2nd Qtr, 2017
536,500	1.14	3rd Qtr, 2017
1,162,088	6.45	4th Qtr, 2017
10,000	6.60	1st Qtr, 2018
750,000	0.25	4th Qtr, 2018
37,504,567	0.37	1st Qtr, 2019
1,850,007	0.44	2nd Qtr, 2019
1,309,002	0.92	3rd Qtr, 2019
2,603,000	1.15	4th Qtr, 2019
480,000	0.92	1st Qtr, 2020
1,704,446	0.19	4th Qtr, 2020
4,785,376	0.12	1st Qtr, 2021
2,469,995	0.09	2nd Qtr, 2021
2,629,760	0.06	3rd Qtr, 2021
7,371,357	0.02	4th Qtr, 2021
133,334	7.05	4th Qtr, 2022
66,683,364	0.59

Stock based compensation

Results of operations for the years ended December 31, ~~2015~~2016 and 2015 ~~2014~~ include stock based compensation costs totaling $1,~~807~~084,~~337~~323 and $~~5,784,306, respectively, of which $~~1,807,337 ~~and $4~~,~~856,638,~~ respectively, was charged to personnel related expenses in connection with the issuance of stock options and warrants issued to employees, directors, advisors and consultants (not including shares of stock issued directly for services). ~~$0 and $964,380 were charged to discontinued operations, respectively.~~

For purposes of accounting for stock based compensation, the fair value of each option and warrant award is estimated on the date of grant using the Black-47Scholes-Merton option pricing formula. Compensation expense is recognized upon actual vesting of the options. The following weighted average assumptions were utilized for the calculations during the year ended December 31, 2016 and 2015:

	For the years ended
	December 31,
	2016	2015
Expected life (in years)	2.60 years	2.61 years
Weighted average volatility	167.74%	98.05%
Forfeiture rate	21.92%	10.27%
Risk-free interest rate	1.05%	0.95%
Expected dividend rate	0.00%	0.00%

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For purposes of accounting for stock based compensation, the fair value of each option and warrant award is estimated on the date of grant using the Black-Scholes-Merton option pricing formula. Compensation expense is recognized upon actual vesting of the options. The following weighted average assumptions were utilized for the calculations during the year ended December 31, 2015 and 2014:

	2015			2014
Expected life (in years)	2.61 years			3.61 years
Weighted average volatility		98.05	%		96.98	%
Forfeiture rate		10.27	%		11.88	%
Risk-free interest rate		0.95	%		1.16	%
Expected dividend rate		0.00	%		0.00	%

The weighted average expected option and warrant term for employee stock options granted reflects the application of the simplified method set out in SEC Staff Accounting Bulletin No. 107, Share-Based Payment (SAB 107). The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all options. The Company utilized this approach as its historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term. Expected volatilities are based on the historical volatility of the Company’s stock. The Company estimated the forfeiture rate based on our expectation for future forfeitures and (for the purpose of computing stock based compensation given the contractual vesting of the Company’s options and warrants outstanding) the Company assumes that all options and warrants will vest. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at or near the time of grant. The Company has never declared or paid dividends and have no plans to do so in the foreseeable future.

As of December 31, ~~2015~~2016, $~~520~~696,~~484~~544 of total unrecognized compensation cost related to unvested stock based compensation arrangements is expected to be recognized over a weighted-average period of 2316.63 months. The following table summarizes option activity in connection with stock options and warrants (which resulted in stock based compensation charges) as of and for the years ended December 31, ~~2015~~2016 and ~~2014~~2015:

			Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term	Aggregate Instrinsic Value
		Weighted	Weighted
Outstanding at December 31, 2014			10,821,525		$	2.44
		Average	Average Remaining	Aggregate
Granted			3,807,780			0.31
		Exercise	Contractual	Instrinsic
Forfeited			(778,334	)		(0.92	)
	Shares	Price	Term	Value
Expired			(118,838	)		(7.24	)
Outstanding at December 31, 2015	12,982,113	$1.97
Exercised			(750,000	)		(0.17	)
Granted	19,701,064	0.07
Outstanding at December 31, 2015			12,982,133		$	1.98		39.9 months	$	-
Cancelled	(2,883,792)	(0.29)
Exercisable			11,711,738		$	2.06		39.6 months	$	-
Forfeited	(952,701)	(6.70)
			Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term	Aggregate Instrinsic Value
Exercised	-	-
Outstanding at December 31, 2013			5,447,992		$	6.69
Outstanding at December 31, 2016	28,849,184	$0.68	45.8 months	$-
Granted			8,541,000			1.08
Exercisable	26,735,358	$0.71	45.7 months	$-
Forfeited			(2,995,867	)		(5.93	)
Expired			(171,600	)		(8.21	)
Exercised			-			-
Outstanding at December 31, 2014			10,821,525		$	2.44		47.4 months	$	-
Exercisable			7,535,886		$	2.93		45.8 months	$	-

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		Weighted	Weighted
		Average	Average Remaining	Aggregate
		Exercise	Contractual	Instrinsic
	Shares	Price	Term	Value
Outstanding at December 31, 2014	10,821,525	$2.44
Granted	3,807,780	0.31
Cancelled	(775,834)	(0.92)
Expired	(118,858)	(7.24)
Exercised	(750,000)	(0.17)
Outstanding at December 31, 2015	12,982,113	$1.98	39.9 months	$-

Exercisable	11,711,738	$2.06	39.6 months	$-

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Additional disclosure concerning options and warrants is as follows:

	For the Year Ended	~~For the Year Ended~~
	December 31,	December 31,		~~Deccember 31,~~
		2015		2014
	2016	2015
Weighted average grant date fair value of options and warrants granted	$0.05	$0.18	~~0.18~~	$	~~0.60~~
Aggregate intrinsic value of options and warrants exercised	-	-	-		-
Weighted average fair value of options and warrants vested	0.43	0.66	~~0.66~~		~~1.95~~

The range of exercise prices for options and warrants granted and outstanding (which resulted in stock based compensation charges) was as follows at December 31, ~~2015~~2016 and ~~2014~~2015:

			Number of Options and Warrants
Exercise	Number of Options and Warrants
	Exercise Price Range		December 31, 2015		December 31, 2014
Price	December 31,	December 31,
	$	.10 - $.74		2,462,196		-
Range	2016	2015
	$	.75 - $1.20		7,878,584		8,241,000
$.01 - .74 $	19,643,684	2,462,196
	$	1.21 - $3.00		218,000		5,000
$.75 - 1.20 $	7,529,000	7,878,584
	$	3.01 - $4.50		-		-
$1.21 - 3.00 $	114,000	218,000
	$	4.51 - $12.00		2,423,333		2,575,525
$3.01 - 4.50 $	-	-
	$	12.01 - $15.00		-		-
$4.51 - 12.00 $	1,560,000	2,423,333
				12,982,113		10,821,525
	28,846,684	12,982,113

A summary of the activity of our non-vested options and warrants for the following periods:

	For the year ended	~~For the year ended~~
	December 31,	~~December 31,~~			~~December 31,~~
		2015			2014
	2016	2015
Non-vested outstanding, beginning	1,270,375	3,285,639	~~3,285,639~~			~~888,995~~
Granted	19,701,064	3,807,780	~~3,807,780~~			~~8,541,000~~
Vested	(17,238,203)	(5,279,016)	~~(5,279,016~~	)		~~(5,741,393~~	)
Expired			(544,028	)		(402,963	)
Forfeited	(825,915)
Non-vested outstanding, ending			1,270,375			3,285,639
Cancelled	(795,995)	(544,028)
Non-vested outstanding, ending	2,111,326	1,270,375

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Common Shares Reserved for Future Issuance

The following table summarizes shares of our common stock reserved for future issuance at December 31, ~~2015~~2016:

		December 31, 2015		December 31, 2014
	December 31,	December 31,
Stock options outstanding			10,337,113		8,807,667
	2016	2015
Stock options available for future grant			9,437,000		8,758,666
Stock options outstanding	26,865,017	10,337,113
Warrants			26,397,410		23,933,922
Stock options available for future grant	9,437,000	9,437,000
Total common shares reserved for future issuance			46,171,523		41,500,255
Warrants	39,818,347	26,397,410
Total common shares reserved for future issuance	76,120,364	46,171,523

~~-49-~~ 13. Income taxes

Deferred tax assets at December 31, 2016 and 2015 consisted of the following:

	Dec. 31, 2016	Dec. 31, 2015

Deferred tax asset
Net operating loss carryovers	29,294,157	26,991,694
Accrued Payroll	26,400	32,400
Sharebased Compensation	2,734,156	2,292,027
Charitable Contribution	4,700	4,700
Amortization	1,954,508	1,584,975
Depreciation	768,381	258,828
Allowance for Doubtful Account	687,104	555,953
Total deferred tax assets	36,209,406	31,720,577
Valuation allowance	(36,209,406)	(31,720,577)
Deferred tax asset, net of allowance	—	—

As of December 31, 2016 and 2015, the Company had federal and state net operating loss carryovers of approximately $75.3 million and $73.5 million, which will begin to expire in 2029. The net operating loss carryover may be subject to limitation under Internal Revenue Code section 382, should there be a greater than 50% ownership change as determined under the regulations.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. The Company has determined that, based on objective evidence currently available, it is more likely than not that the deferred tax assets will not be realized in future periods. Accordingly, the Company has provided a valuation allowance for the full amount of the deferred tax assets at December 31, 2016 and 2015. The valuation allowance increased by $4,488,829 and $4,700,682 in 2016 and 2015, respectively, due to the increase in deferred tax assets, primarily due to net operating loss carryforwards.

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17. Income taxes

Deferred tax assets at December 31, 2015 and 2014 consisted of the following:

	As of December 31,
	2015			2014
Deferred tax asset
Net operating loss carryovers	$	26,991,694		$	25,062,026
Accrued Payroll	$	32,400		$	-
Sharebased Compensation	$	2,292,027		$	1,666,644
Charitable Contribution	$	4,700		$	3,700
Amortization	$	1,584,975		$	(64,669	)
Depreciation	$	258,828		$	22,173
Allowance for Doubtful Account	$	555,953		$	330,021
Total deferred tax assets		31,720,577			27,019,895
Valuation Allowance		(31,720,577	)		(27,019,895	)
Deferred tax asset, net of allowance	$	-		$	-

As of December 31, 2015, the Company had federal and state net operating loss carryovers of approximately $66.2 million and $66.4 million, which will begin to expire in 2028. The net operating loss carryover may be subject to limitation under Internal Revenue Code section 382, should there be a greater than 50% ownership change as determined under the regulations.

A reconciliation of the expected tax benefit computed at the U.S. federal and state statutory income tax rates to our tax benefit is as follows:

	For the years ended	~~For the years ended~~
	December 31,	~~December 31,~~
		2015			2014
	2016	2015
Statutory federal income tax rate	-34.0%	-34.0%	~~-34.0~~	%		~~-34.0~~	%
State taxes, net of federal tax benefit	-5.0%	-5.0%	~~-5.0~~	%		~~-6.3~~	%
Valuation Allowance	39.0%	39.0%	~~39.0~~	%		~~40.3~~	%
Income tax provision			0.0	%		0.0	%
Income tax provision (benefit)	0.0%	0.0%

18 We file income tax returns in the U.S. ~~Commitments~~and in the state of California with varying statutes of limitations. Our policy is to recognize interest expense and penalties related to income tax matters as a component of our provision for income taxes. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2016. The majority of our operations are in California and the Company believes it has no tax positions which could more-likely-than not be challenged by tax authorities. We have no unrecognized tax benefits and thus no interest or penalties included in the financial statements.

~~We leased space in Des Moines, Iowa until June 30, 2015 and currently lease space in two locations San Luis Obispo, California~~ 14. ~~The~~ building that we lease at 805 Aerovista Parkway is owned by Alexander P Minicucci Trust, which is a related party transaction due to the trust being controlled by the Company's chief strategy officer. Rent expense was $169,511 and $162,266 for the years ended December 31, 2015 and 2014, respectively. Future rental commitments under contract total $193,073 as of December 31, 2015. For the second building that we lease in San Luis Obispo, California, the rent expense was $19,307 and $0 for the years ended December 31, 2015 and 2014, respectively. Future rental commitments under contract total $167,906 as of December 31, 2015. Commitments

~~-50-~~ We currently lease space in two locations in San Luis Obispo, California. The building that we lease at 805 Aerovista Parkway is owned by Alexander P Minicucci Trust, which is a related party transaction due to the trust being controlled by the Company's former chief strategy officer. Rent expense was $188,746 and $169,511 for the years ended December 31, 2016 and 2015, respectively. Future rental commitments under contract total $193,073 as of December 31, 2016.

15. Employee benefit plan

We have an employee savings plan (the “Plan”) pursuant to Section 401(k) of the Internal Revenue Code (the “Code”), covering all of our employees. Participants in the Plan may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code. Our Company may make contributions at the discretion of its Board of Directors. During the years ended December 31, 2016 and 2015, we made contributions to the Plan totaling $0 and $83,359, respectively.

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19 16. ~~Employee~~ Subsequent ~~benefit plan~~events

We On ~~have~~January an9, ~~employee~~2017, ~~savings~~the ~~plan~~Company ~~(the~~issued ~~“Plan”)~~a ~~pursuant~~Convertible Promissory Note to ~~Section~~Isaac ~~401(k)~~Blech, a member of the ~~Internal~~Company’s ~~Revenue~~board ~~Code (the “Code”)~~of directors, ~~covering~~in ~~all~~the sum of ~~our employees~~$22,000. ~~Participants~~The inConvertible ~~the~~Promissory ~~Plan~~Notes bear ~~may~~interest ~~contribute~~at athe ~~percentage~~rate of ~~compensation~~9%, ~~but~~has ~~not~~a insix ~~excess~~month ofmaturity ~~the~~date, ~~maximum~~and a ~~allowed~~voluntary ~~under~~conversion ~~the~~into ~~Code.~~an ~~Our~~upcoming ~~Company~~financing ~~may~~in ~~make~~the ~~contributions~~event at the Company ~~discretion~~closes ofa ~~its~~financing ~~Board~~and ofreceives ~~Directors.~~gross ~~During~~proceeds ~~the~~totaling ~~years~~at least ~~ended December 31~~$200,000. ~~2015~~The ~~and~~conversion ~~2014,~~rate wewill ~~made~~be ~~contributions~~at to the ~~Plan~~same ~~totaling~~terms ~~$83,359~~of the ~~and $54,696, respectively~~financing.

20 On January 23, 2017, the Company issued a Convertible Promissory Note to Isaac Blech, a member of the Company’s board of directors, in the sum of $100,000. ~~Subsequent~~The ~~events~~Convertible Promissory Notes bear interest at the rate of 9%, has a six month maturity date, and a voluntary conversion into an upcoming financing in the event the Company closes a financing and receives gross proceeds totaling at least $200,000. The conversion rate will be at the same terms of the financing.

~~Effective~~ On ~~January~~February 312, ~~2016~~2017, the Company ~~ended~~issued a Convertible Promissory Note to the ~~consulting~~Daniel ~~agreement~~Jonathan ~~with~~Blech ~~Siskey~~Trust ~~Capital~~DTD 9/01/2005 in the amount of $62,000. Mr. Blech, a member of the Company’s board of directors, is the trustee. The Convertible Promissory Note bears interest at the rate of 9% has six-month maturity date, and a voluntary conversion into an upcoming financing in the event the Company closes the financing and receives gross proceeds totaling at least $200,000. The conversion rate will be at the same terms of the financing.

~~The~~ On ~~Company’s~~February ~~Offer~~27, to2017, ~~Amend~~the ~~and~~Company ~~Exercise~~issued ~~Warrants~~a ~~(warrant~~Convertible ~~tender~~Promissory Note ~~offer) closed on February 8, 2016. Pursuant~~ to the ~~Offer~~Daniel toJonathan ~~Amend~~Blech ~~and~~Trust ~~Exercise,~~DTD an9/01/2005 ~~aggregate~~in the amount of 16$45,~~172,144~~000. ~~Original~~Mr. ~~Warrants~~Blech, ~~were~~a ~~tendered~~member byof ~~their~~the ~~holders~~Company’s ~~and~~board ~~were amended and exercised in connection therewith for an aggregate proceeds~~ of ~~approximately $2~~ directors,~~425,822.~~ ~~$200,000~~is of the trustee. The Convertible Promissory Note ~~issued~~bears interest onat ~~July~~the ~~15,~~rate ~~2015~~of ~~participated~~9% inhas ~~the~~six-month ~~warrant~~maturity ~~tender~~date, ~~offer~~ and ~~$200,000~~a voluntary ~~from~~conversion ~~the~~into ~~Tender~~an ~~Offer~~upcoming ~~proceeds~~financing ~~were~~in ~~used~~the toevent ~~pay off~~ the Company ~~remaining~~closes ~~balance. $485,333 of~~ the ~~Convertible~~financing ~~Promissory~~and ~~Notes~~receives ~~issued~~gross onproceeds ~~November~~totaling at ~~12,~~least ~~2015~~$200,000. ~~November~~The ~~13,~~conversion ~~2015,~~rate ~~and~~will ~~November~~be ~~16,~~at ~~2015~~the ~~converted~~same ~~into~~terms of the ~~warrant tender offer, including interest accrued~~financing.

On ~~February~~March 1724, ~~2016~~2017, ~~$200,000~~the ofCompany ~~the~~issued ~~outstanding~~a Convertible Promissory Note to ~~issued~~the onDaniel ~~July~~Jonathan 15Blech Trust DTD 9/01/2005 in the amount of $90,000. ~~2015~~Mr. ~~was~~Blech, ~~paid~~a ~~and~~member of the ~~remainder~~Company’s board of directors, is the trustee. The Convertible Promissory Note ~~was~~bears interest ~~converted~~at ~~into~~the 1rate of 9% has six-month maturity date,~~333,334~~ ~~shares~~and ofa voluntary ~~common~~conversion ~~stock~~into an upcoming financing in the event the Company closes the financing and 1receives gross proceeds totaling at least $200,~~333,334~~000. ~~warrants~~The ~~with~~conversion anrate ~~exercise~~will ~~price~~be at the same terms of the $financing.~~15.~~

~~Effective~~ On ~~February~~April 2418, ~~2016~~2017, ~~Bruce~~the ~~Neuschwander~~Company ~~resigned~~issued ~~his~~a ~~position~~Convertible asPromissory ~~Chief~~Note to ~~Financial~~the ~~Officer.~~Daniel ~~Effective~~Jonathan ~~March~~Blech 4Trust DTD 9/01/2005 in the amount of $45,000. ~~2016~~Mr. Blech, a member of the Company’s ~~appointed~~board ~~Brett~~of directors, ~~Schnell~~is asthe ~~Chief~~trustee. ~~Financial~~The ~~Officer.~~Convertible ~~Mr.~~Promissory ~~Schnell~~Note bears interest at the rate of 9% has ~~been~~six-month ~~employed~~maturity ~~with~~date, and a voluntary conversion into an upcoming financing in the event the Company ~~since~~closes ~~October~~the ~~2012~~financing asand ~~its~~receives ~~Controller~~gross proceeds totaling at least $200,000. The conversion rate will be at the same terms of the financing.

On The company was served with a lawsuit in February ~~25,~~2017 ~~2016,~~alleging breach of contract by Bryan Sarlitt. The action relates to the acquisition of TechXpress in 2014 and additional compensation that Mr. Sarlitt is claiming. The Company ~~made~~believes ~~its~~the ~~final~~Plaintiff's ~~payment~~allegations have ~~and~~no ~~was~~merit. There ~~released~~are ~~from~~no ~~its~~other ~~Business~~legal ~~Promissory~~claims ~~Note~~currently pending ~~and~~or ~~Security~~threatened ~~Agreement~~against ~~with~~us ~~Bank~~that in the opinion of ~~Lake~~our management ~~Mills~~would be likely to have a material adverse effect on out financial position, results of operations or cash flows.

~~Effective~~ On ~~March 21~~May 3, ~~2016~~2017, the Company ~~granted~~amended to the following directors and employees the following restricted stock or options: (a) Director Joseph Proto, 350,000 restricted shares of common stock vesting fifty percent upon grant and fifty percent on the one ~~year~~May ~~anniversary or based upon a change in control; (b) Director John Eyler~~5, ~~options~~2015 to9% ~~purchase~~Convertible Promissory ~~464,331~~Note ~~shares~~with ~~of common stock vesting fifty percent upon grant and fifty percent on the one year anniversary or based upon~~ a ~~change~~principal inamount ~~control; (c) director Cary Sucoff 350,000 restricted shares~~ of ~~common stock vesting fifty percent upon grant and fifty percent on the one year anniversary or based upon a change in control; (d) director Pat Kolenik 350~~$275,000 ~~restricted~~as ~~shares~~follows: ~~of common stock vesting fifty percent upon grant and fifty percent on~~ the maturity ~~one~~date ~~year~~was ~~anniversary~~extended ~~or based upon a change in control; (e) Director Chris Leong, options~~ to ~~purchase~~July ~~464~~7,~~331~~ ~~shares~~2017 ~~of common stock vesting fifty percent upon grant~~ and ~~fifty percent on the one year anniversary or based upon a change~~ in ~~control; (g) Chairman Jerold Rubinstein, options to purchase 663,330 shares of common stock vesting fifty percent upon grant and fifty percent on~~ the ~~one~~event year anniversary or based upon a change in control, and options to purchase 1,261,745 shares of common stock vested upon grant; (h) Vice Chairman Isaac Blech, options to purchase 663,330 shares of common stock vesting fifty percent upon grant and fifty percent on the borrower ~~one~~completes ~~year~~an ~~anniversary~~asset orsale based upon a change in control; (i) Director Alex Minicucci, options to purchase 464,331 shares of common stock vesting fifty percent upon the one year anniversary and fifty percent on the two year anniversary or ~~based~~capital ~~upon~~raise ~~a change in control; (j) employee Luke Wallace, options to purchase 397,998 shares~~ of ~~common~~more ~~stock vesting fifty percent upon the one year anniversary and fifty percent on the two year anniversary or based upon a change in control; (k) employee Brett Schnell~~than $275, ~~options to purchase 198~~000,~~999~~ ~~shares~~then ~~of common stock vesting fifty percent upon~~ the ~~one~~Notes ~~year~~shall ~~anniversary~~automatically ~~and~~immediately ~~fifty~~become ~~percent on the two year anniversary or based upon a change in control;~~ due and (l) employee Tim Boris options to purchase 397,998 shares of common stock vesting fifty percent upon the one year anniversary and fifty percent on the two year anniversary or based upon a change in controlpayable. ~~All of the options have an exercise price of $0.12 and a term of five years.~~

~~Effective~~ On ~~March 24~~May 15, ~~2016~~2017, ~~Alex~~the ~~Minicucci~~Company ~~resigned~~amended ~~his~~one ~~position~~May as5, ~~Chief~~2015 ~~Executive~~9% ~~Officer~~Convertible Promissory ~~and~~Note ~~was~~with ~~appointed~~a toprincipal ~~the~~amount ~~position~~ of ~~Chief~~$262,500 ~~Strategy Officer. Mr. Minicucci also resigned his position~~ as afollows: ~~member of~~ the maturity ~~Board~~date ofwas ~~Directors.~~extended ~~The~~to ~~Board~~July of7, ~~Directors~~2017 ~~appointed~~and ~~Chairman~~in ~~Jerold Rubinstein to~~ the ~~position~~event ~~of interim Chief Executive Officer. Mr. Rubinstein will serve as interim Chief Executive Officer until~~ the borrower ~~appointment~~completes ofan aasset ~~permanent~~sale ~~Chief~~or ~~Executive~~capital ~~Officer.~~raise ~~Mr. Rubinstein has served as a member~~ of ~~the~~more ~~Board~~than $275,000, ofthen ~~Directors and Chairman of~~ the ~~Company's~~Notes ~~Audit~~shall ~~Committee~~automatically ~~since~~immediately ~~October~~become ~~2013~~due and payable.

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On March 29, 2016, the Company amended the March 30, 2015 9% Convertible Promissory Note with a principal amount of $300,000 as follows: the maturity date was extended to eighteen months, the conversion price was lowered to $0.15 per share, the provision limiting the conversion price adjustment to that of the Series C Preferred Stock was removed, and an option to be repaid prior to the maturity date in the event the Company raises capital in excess of three million dollars was added. The Company also amended the warrant issued in conjunction with the Convertible Promissory Note reducing the exercise price to $0.15 and issued a new warrant to purchase 400,002 shares of the Company's common stock with a $0.15 exercise price and a three year expiration.

On March 30, 2016, the Company amended the March 30, 2015 9% Convertible Promissory Note with a principal amount of $262,500 as follows: the maturity date was extended to eighteen months, the conversion price was lowered to $0.15 per share, the provision limiting the conversion price adjustment to that of the Series C Preferred Stock was removed, and an option to be repaid prior to the maturity date in the event the Company raises capital in excess of three million dollars was added. The Company also amended the warrant issued in conjunction with the Convertible Promissory Note reducing the exercise price to $0.15 and issued a new warrant to purchase 350,002 shares of the Company's common stock with a $0.15 exercise price and a three year expiration.

On April 4, 2016, the Company amended the May 5, 2015 9% Convertible Promissory Note with a principal amount of $275,000 as follows: the maturity date was extended to eighteen months, the conversion price was lowered to $0.15 per share, the provision limiting the conversion price adjustment to that of the Series C Preferred Stock was removed, and an option to be repaid prior to the maturity date in the event the Company raises capital in excess of three million dollars was added. The Company also amended the warrant issued in conjunction with the Convertible Promissory Note reducing the exercise price to $0.15 and issued a new warrant to purchase 366,667 shares of the Company's common stock with a $0.15 exercise price and a three year expiration.

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Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A - Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Commission Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes 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 is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Securities and Exchange Commission Rule 13a-15(e) and 15d-15(e), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not operating effectively as of December 31, ~~2015~~2016. Our disclosure controls and procedures were not effective because of the “material weakness” described below.

(b) Management’s annual report on internal control over financial reporting.

SEC rules implementing Section 404 of the Sarbanes-Oxley Act of 2002 require our ~~2015~~2016 Annual Report on Form 10-K to contain management’s report regarding the effectiveness of internal control over financial reporting. As a basis for our report, we tested and evaluated the design, documentation, and operating effectiveness of our internal control.

Management is responsible for establishing and maintaining effective internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, of SpendSmart Networks, Inc. and its subsidiaries. The Company’s internal control over financial reporting consists of policies and procedures that are designed and operated to provide reasonable assurance about the reliability of the Company’s financial reporting and its process for preparing financial statements in accordance with generally accepted accounting principles (“GAAP”). There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Based on management's evaluation as of December 31, ~~2015~~2016, our management identified the material weaknesses set forth below in our internal control over financial reporting:

(i) The Company's process for internally reporting material information in a systematic manner to allow for timely filing of material information is ineffective, due to its inherent limitations from being a small company, and there exist material weaknesses in internal control over financial reporting that contribute to the weaknesses in our disclosure controls and procedures. These weaknesses include:

● The Company's ~~insufficient~~process ~~segregation~~for internally reporting material information in a systematic manner to allow for timely filing of ~~duties~~material information is ineffective, due to its inherent limitations from being a small company, and ~~oversight~~there ofexist ~~work~~material ~~performed~~weaknesses in internal ~~our~~control ~~finance~~over ~~and~~financial ~~accounting~~reporting ~~function~~that ~~due~~contribute to ~~limited~~the weaknesses ~~and~~in ~~qualified~~our ~~personnel;~~disclosure controls and procedures. These weaknesses include:

● ~~lack of controls in place to ensure that all material transactions and developments impacting the financial statements are reflected and financial reporting is produced timely.~~

~~(c)~~ insufficient segregation ~~Changes~~of duties and oversight of work performed in ~~internal~~our finance ~~control~~and ~~over~~accounting ~~financial~~function ~~reporting.~~due to limited personnel; and

There have been no changes in the Company's internal control over financial reporting that occurred during the year ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.●

~~Our~~ lack of ~~company's~~controls ~~management~~in ~~concluded~~place ~~that~~to inensure ~~light~~that ofall ~~the~~ material ~~weaknesses~~transactions ~~described~~and developments ~~above,~~impacting ~~our~~the ~~company~~financial ~~did~~statements ~~not~~are ~~maintain~~reflected ~~effective internal control over~~ and financial reporting asis ofproduced ~~December 31, 2015 based on the criteria set forth in Internal Control—Integrated Framework (2013) issued by the COSO~~timely.

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There have been no changes in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Our company's management concluded that in light of the material weaknesses described above, our company did not maintain effective internal control over financial reporting as of December 31, 2016 based on the criteria set forth in Internal Control—Integrated Framework (2013) issued by the COSO.

This Report on Form 10-K does not include an attestation report of the Company’s independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent public accounting firm pursuant to permanent rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Transition Report on Form 10-K.

Item 10 – Directors, Executive Officers and Corporate Governance

Term of Office

Our directors are elected by our stockholders to a term of one year and to serve until their successor is duly elected and qualified, or until their death, resignation or removal. Each of our officers is appointed by our Board of Directors to a term of one year and serves until their successor is duly elected and qualified, or until their death, resignation or removal from office.

Our current Board of Directors consists of eight directors.

The following table sets forth certain information regarding our executive officers and directors as of the date of this Annual Report:

Name	~~Age~~	Age	Position
Alex Minicucci	37		former Chief Executive Officer/Director 1
Luke Wallace		32	Chief Executive Officer
William Hernandez	59		former President2
Joseph Proto		60	Director
Isaac Blech	66	67	Director
Joseph Proto	59		Director
Patrick M. Kolenik		67	Director
Cary Sucoff	64		Director
Ka Cheong Christopher Leong		73	Director
Patrick M. Kolenik	64		Director
Francis J Liddy		49	Director
Ka Cheong Christopher Leong	73		Director
John Eyler, Jr.		68	Director
Jerold Rubinstein	77		Director/Chairman of the Board/interim Chief Executive Officer
Brett Schnell		49	Chief Financial Officer
Bruce Neuschwander	64		former Chief Financial Officer 3
Brett Schnell	48		Chief Financial Officer 4
John Eyler, Jr.	67		Director
1 On March 24, 2015, Mr. Minicucci resigned from his position as Chief Executive Officer and as a Director from the Company
2 On December 31, 2014, Mr. Hernandez resigned from his position as a Director and on January 26, 2015, resigned from the Company
3 On February 24, 2016 Mr. Neuschwander resigned from his position of Chief Financial Officer
4 On March 4, 2016, the Company appointed Brett Schnell to the position of Chief Financial Officer

Alex Minicucci was our Chief Executive Officer until March 24, 2016 at which time he assumed the title of Chief Strategy Officer. Mr. Minicucci is a serial entrepreneur with almost two decades of experience in web, ecommerce, and mobile marketing. In November 2008, Mr. Minicucci founded SMS Masterminds, subsequently earning several recognitions such as Top 20 under 40 Entrepreneur in 2013. Mr. Minicucci served as the Chief Executive Officer of SMS Masterminds until February 11, 2014. From 2006 to 2008, he served as Chief Operating Officer of TechXpress, Inc., a managed services IT firm. Between 2000 and 2003, Mr. Minicucci built and sold one of the nation’s largest virtual tour providers, USA Virtual Tours, to MediaNews Group. In the late 1990’s, Mr. Minicucci started and ran one of the first web development firms in central California, TooPhat.com, Inc., focused on next generation web development combined with interactive 3D environments. Mr. Minicucci is an Eagle Scout and active mentor to business students at Cal Poly San Luis Obispo.

Mr. Isaac Blech was appointed to the Board of Directors on March 10, 2011. He currently serves on the Board of Directors of Contrafect Corp., a biotech company specializing in novel methods to treat infectious disease; Cerecor, Inc., a biopharmaceutical company focused on activity in the human brain; Medgenics, Inc., a company that has developed a novel technology for the manufacture and delivery of therapeutic proteins; and Premier Alliance Group, Inc. (PIMO), a public company that provides business and technology consulting services to primarily Fortune 500 companies. Previously, Mr. Blech was an investor, advisor and director in a number of well-known companies, primarily focused in biotechnology.

Mr. Blech is the owner of 1,500,000 shares of our Company’s common stock and warrants to purchase up to an additional 1,337,500 million shares of our Company’s common stock. Mr. Blech has been a successful investor and a member of a number of Boards of Directors. We believe Mr. Blech’s past experience will be a tremendous benefit to our Company. Included among Mr. Blech’s more notable successes were:-59-

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● Mr. Blech ~~Celgene~~is ~~Corporation~~the –owner ~~Mr.~~of ~~Blech~~1,500,000 ~~was~~shares aof ~~founding~~our ~~shareholder~~Company’s common ofstock ~~Celgene~~and inwarrants ~~1986.~~to ~~Celgene~~purchase ~~has~~up ~~introduced~~to ~~two~~an ~~major~~additional ~~cancer~~1,337,500 million ~~drugs~~shares ~~and~~of our Company’s common stock. Mr. Blech has been a ~~stock~~successful ~~market~~investor ~~valuation~~and ~~(as~~a member of ~~September~~a 6,number ~~2011)~~of Boards of Directors. ~~approximately~~We ~~$27~~believe ~~billion~~Mr. Blech’s past experience will be a tremendous benefit to our Company. Included among Mr. Blech’s more notable successes were:

● ICOS Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors of ICOS beginning in 1991. ICOS discovered the drug Cialis and was later acquired by Eli Lilly for over $2 billion.

●Celgene ~~Nova Pharmaceutical~~ Corporation – Mr. Blech was a founding shareholder ~~and member~~ of ~~the~~Celgene ~~Board~~in ~~of Directors of Nova from 1982 to 1990~~1986. Celgene ~~Nova~~has ~~developed~~introduced atwo ~~treatment~~major ~~for brain~~ cancer drugs and ~~subsequently~~has ~~merged~~a ~~with~~stock market ~~Scios~~valuation ~~Corporation~~(as ~~which~~of ~~was~~September ~~later~~6, ~~purchased~~2011) ~~for~~of $2approximately $27 billion ~~by Johnson and Johnson~~.

● Pathogeneses Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors of Pathogeneses from 1992 to 1997. Pathogeneses created TOBI for the treatment of cystic fibrosis and was later acquired by Chiron Corp for $660 million.

●ICOS ~~Genetic Systems~~ Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors of ~~GSC~~ICOS ~~from~~beginning ~~1981~~in ~~to 1986~~1991. ~~GSC~~ICOS ~~developed~~discovered the drug ~~first~~Cialis ~~inexpensive~~ and ~~accurate test to diagnose chlamydia and~~ was later acquired by ~~Bristol~~Eli ~~Myers~~Lilly for ~~approximately~~over $~~300 million~~2 billion.

Mr. Joseph Proto was appointed to our Board of Directors on January 26, 2012 and was appointed Chairman of the Board of Directors on November 28, 2013, replacing Mike McCoy. Mr. Proto resigned his position as Chariman of the Board of Directors on October 1, 2015. Mr. Proto will remain a member of the Board of Directors. Mr. Proto is a seasoned and successful senior executive and entrepreneur with three decades in the billing and payments industry. Mr. Proto is currently the Chairman and Chief Executive Officer of electronic billing company Transactis Inc. He founded REMITCO, a remittance processing company where he also served as President for 11 years, which was acquired in 2000 by First Data Corp. Mr. Proto also founded Financial Telesis (CashFlex), a payment processor to 65 of the top 100 banks in the U.S., which was acquired by CoreStates/Wachovia and is now a part of Wells Fargo. In 2004, Mr. Proto co-founded Windham Ventures, an investment company focusing on financial technology and life sciences companies, where he currently serves as a founding partner. ●

Nova Pharmaceutical Corporation – Mr. ~~Sucoff~~Blech ~~currently~~was ~~serves~~a onfounding ~~the~~shareholder ~~following~~and ~~Boards~~ member of ~~Directors:~~the ~~Contrafect~~Board ~~Corp.~~of ~~(CFRX),~~Directors ~~The~~of ~~SpendSmart~~Nova ~~Payments~~from ~~Company~~1982 ~~(SSPC),~~to ~~root9B~~1990. ~~Technologies~~Nova ~~(RTNB)~~developed a ~~and~~treatment ~~Legacy~~for ~~Education~~brain ~~Alliance,~~cancer ~~Inc.~~and ~~(LEAI).~~subsequently Inmerged ~~addition,~~with ~~Mr.~~Scios Corporation ~~Sucoff~~which ~~currently~~was ~~serves~~later aspurchased afor ~~consultant~~$2 tobillion ~~Multimedia~~by ~~Platforms,~~Johnson ~~Inc. (MMPW)~~ and ~~Sapience Therapeutics~~ Johnson.

Mr. Sucoff is the President of New England Law/Boston and has been a member of the Board of Trustees for over 25 years. He is the Chairman of the Endowment Committee. Mr. Sucoff has recently been a member of the Adjunct Faculty of New England Law/Boston where he taught a third year seminar entitled “Perspectives In Law: Lawyers as Entrepreneurs and as Representatives of Entrepreneurs”. Mr. Sucoff received a B.A. from SUNY Binghamton (1974) and a J.D. from New England School of Law (1977) where he was the Managing Editor of the Law Review and graduated Magna Cum Laude. Mr. Sucoff has been a member of the Bar of the State of New York since 1978. ●

~~Mr.~~Pathogeneses Corporation ~~Patrick~~– ~~M. Kolenik was appointed to our Board of Directors on August 30, 2011.~~ Mr. ~~Kolenik~~Blech ~~has over forty years of securities industry experience. Mr. Kolenik~~ was ~~the Chief Executive Officer of Sherwood Securities Corp. where he has been involved with more than 200 successful public and private financings. Since 2003, Mr. Kolenik has been~~ a ~~consultant~~founding toshareholder ~~both public~~ and ~~private~~member of ~~companies through his company PK Advisors. Mr. Kolenik currently serves on~~ the Board of Directors of ~~Premier~~Pathogeneses ~~Alliance~~from ~~Group,~~1992 ~~Inc.~~to ~~(PIMO) a public company that provides business and technology consulting services~~1997. ~~Mr.~~ Pathogeneses ~~Kolenik~~created ~~also~~TOBI ~~serves~~for on the ~~Board~~treatment of ~~Directors~~cystic offibrosis ~~American~~and was ~~Roadside~~later ~~Burgers,~~acquired ~~Inc. Mr.~~by ~~Kolenik~~Chiron ~~has~~Corp ~~also~~for ~~been~~$660 ~~elected to the Board of Directors of Stratus Media Group (SMDI), a public company that owns and operates more than 140 live events~~million.

Mr. Kolenik has advised our Company since May 2009 in the area of investment banking, fund raising and capital markets. We have greatly benefited from Mr. Kolenik’s contributions to date and look forward to his future guidance in his role as a member of our Board of Directors. ●

Genetic Systems Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors of GSC from 1981 to 1986. GSC developed the first inexpensive and accurate test to diagnose chlamydia and was later acquired by Bristol Myers for approximately $300 million.

Mr. Joseph Proto was appointed to our Board of Directors on January 26, 2012 and was appointed Chairman of the Board of Directors on November 28, 2013, replacing Mike McCoy. Mr. Proto is a seasoned and successful senior executive and entrepreneur with three decades in the billing and payments industry. Mr. Proto is currently the Chairman and Chief Executive Officer of electronic billing company Transactis Inc. He founded REMITCO, a remittance processing company where he also served as President for 11 years, which was acquired in 2000 by First Data Corp. Mr. Proto also founded Financial Telesis (CashFlex), a payment processor to 65 of the top 100 banks in the U.S., which was acquired by CoreStates/Wachovia and is now a part of Wells Fargo. In 2004, Mr. Proto co-founded Windham Ventures, an investment company focusing on financial technology and life sciences companies, where he currently serves as a founding partner.

Mr. Patrick M. Kolenik was appointed to our Board of Directors on August 30, 2011. Mr. Kolenik has over forty years of securities industry experience. Mr. Kolenik was the Chief Executive Officer of Sherwood Securities Corp. where he was involved with more than 200 successful public and private financings. Since 2003, Mr. Kolenik has been a consultant to both public and private companies through his company PK Advisors. Mr. Kolenik currently serves on the Board of Directors of root9B Technologies, a public company that provides business and technology consulting services. Mr. Kolenik has advised our Company since May 2009 in the area of investment banking and capital markets.

Dr. Ka Cheong Christopher Leong was appointed to our board on October 29, 2012. Dr. Leong is a co-founder and the President of Transpac Capital, a venture capital firm based in Singapore. Transpac was formed in 1989 through the amalgamation of Techno-Ventures Hong Kong, which Dr. Leong co-founded in 1986, and Transtech Capital Management of Singapore, both pioneers of venture capital in their respective countries. Prior to his venture capital career, Dr. Leong was the CEO of Amoy Canning Corporation Limited, a food and packaging conglomerate listed on the stock exchange of Hong Kong. Prior to Amoy he founded Convenience Foods Limited in Hong Kong, which he sold to RJR Nabisco. Prior to his industrial career, Dr. Leong was a Senior Scientist at American Science and Engineering in Cambridge, MA. Dr. Leong has been a chairman of the Hong Kong Venture Capital Association, and is one of the founding inductees to the Singapore Venture Capital Hall of Fame in 2010 for his pioneering work in venture capital. Dr. Leong obtained a BS and a PhD degree from Massachusetts Institute of Technology, Cambridge, MA.

Mr. Jerold Rubinstein was appointed to our board on October 1, 2013. Mr. Rubinstein was appointed Chairman of the Board, replacing Joseph Proto. On March 24, 2016, Mr. Rubinstein was appointed Chief Executive Officer. Since June 28, 2012, Mr. Rubinstein has served as the Chairman of the Board, CEO and a director of Stratus Media Group, Inc., and joined the board of Stratus Group Media, Inc. in April 2011. Mr. Rubinstein is the chairman of the audit committee of CKE Restaurants, the parent company of Carl’s Jr. Restaurants and Hardees Restaurants. Mr. Rubinstein also serves as the non-executive chairman of US Global investors Inc., a mutual fund advisory company. Mr. Rubinstein has started and sold many companies over the years, including Bel Air Savings and Loan and DMX, a cable and satellite music distribution company. Mr. Rubinstein started and sold XTRA Music Ltd., a satellite and cable music distribution company in Europe. Most recently Mr. Rubinstein consults with and serves on 3 early stage development companies. Mr. Rubinstein is both a CPA and attorney.60-

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Mr. John Eyler was appointed to our board on November 25, 2014. Mr. Eyler retired from Toys "R" Us, Inc. as President and Chief Executive Officer in July, 2005. Mr. Eyler joined Toys "R" Us in January, 2000 and served as Chairman of the Board of Directors as well as Chairman of the Toys "R" Us Childrens fund from 2001 to 2005. Mr. Eyler was Chairman and Chief Executive Officer of FAO Schwarz from 1992 to 2000 and spent his entire career prior to that in retailing including becoming Chairman and Chief Executive Officer of May D & F, a department store in Denver Colorado at the age of 32. He served on the Board of the Andre Agassi Charitable Foundation for eight years, was a member of the NYC 2012 Board and a Board member of the Donna Karan Corporation from 1999 to 2001. For the past five years Mr. Eyler has served as President of Titan Sculpture Inc. which represents Roberto Santo's sculptures and paintings globally. He is an Advisory Board member of the College of the Environment at the University of Washington, and manages a charitable foundation created upon his retirement with a primary focus on improving the lives of children. A graduate of the University of Washington in 1969 with a degree in Finance, Mr. Eyler received an MBA from the Harvard Graduate School of Business in 1971.

Mr. Frank Liddy was appointed to the Board of Directors in May 2016. He is currently head of strategic partnerships at Paydiant, recently acquired by PayPal, where he empowers banks, retailers and strategic partners to achieve their growth objectives by creating great consumer experiences on Paydiant's open platform for mobile commerce. Mr. Liddy has more than twenty years of experience as an operator, advisor and investor in the fintech community. Mr. Liddy joined Paydiant from the consultancy firm Capco (now part of FIS Global) and previously held key leadership positions at Citigroup, KPMG Consulting and Unisys.

Mr. Luke Wallace was appointed the Chief Executive Officer of the Company in April 2016. As Co-Founder and CEO, Mr. Wallace has worked to build SMS Masterminds. Mr. Wallace currently oversees all elements of strategy and execution for the Company by leading the executive team and all Company initiatives. Prior to SMS Masterminds, Luke served as VP of IT Services at TechXpress, Inc. and Director of Broadband Services at DigitalPutty, Inc. Mr. Wallace earned a B.S. in Business Management from Cal Poly, San Luis Obispo with a concentration in Management and Information Technology.

Mr. Brett Schnell was appointed the Chief Financial Officer of the Company on March 4, 2016. Prior to this Mr. Schnell had been the Company’s Corporate Controller from October 2012 to March 2016. From 2011 to 2012, Mr. Schnell provided financial consulting services to clients in the banking, insurance, financial services, and SaaS industries. From 2009 to 2011, Mr. Schnell was the Finance Director of Fairview Northland Medical Center (part of the greater Minneapolis Fairview Health System), responsible for reporting, budgeting, forecasting, strategy, long-term planning, and treasury management. Prior to his tenure at Fairview Northland Medical Center, Mr. Schnell was employed at Ameriprise Financial Services, Inc. from 1991 to 2009 in several senior finance roles in the banking, trust, client service, corporate controllership, and domestic and international treasury divisions, providing leadership to multiple acquisitions, new entity startups and the corporate spin off from American Express. In addition, Mr. Schnell served in financial consulting roles with Wells Fargo, General Mills, and several startups. Mr. Schnell has a Bachelor of Business Administration degree in Accounting from Iowa State University and a Master of Business Administration degree from the University of St Thomas. Mr. Schnell is also a Certified Public Accountant, Certified Management Accountant, and Certified Treasury Professional.

In evaluating director nominees, our Company considers the following factors:

● ~~The appropriate size of the Board;~~

●The appropriate ~~Our~~size ~~needs~~of ~~with respect to~~ the ~~particular talents and experience of our directors~~Board;

● ~~The knowledge, skills and experience of nominees;~~

●Our needs ~~Experience~~ with ~~accounting~~respect ~~rules~~to ~~and~~the ~~practices;~~particular talents and experience of our directors;

● ~~The nominees’ other commitments.~~

The knowledge, skills and experience of nominees;

●

Experience with accounting rules and practices; and

●

The nominees’ other commitments.

Our Company’s goal is to assemble a Board of Directors that brings our Company a variety of perspectives and skills derived from high quality business, professional and personal experience. Other than the foregoing, there are no stated minimum criteria for director nominees.

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Specific talents and qualifications that we considered for the members of our Company’s Board of Directors are as follows:

● Mr. Blech is the owner of a significant number of shares of our Company’s common stock and warrants to purchase additional shares of our Company’s common stock. Mr. Blech has been a successful investor and a member of a number of Boards of Directors. We believe Mr. Blech’s past experience will be a tremendous benefit to our Company. Included among Mr. Blech’s more notable successes were:

~~o Celgene Corporation –~~ Mr. Blech ~~was~~is the owner of a ~~founding~~significant ~~shareholder~~number of ~~Celgene~~shares inof ~~1986.~~our ~~Celgene~~Company’s common ~~has~~stock ~~introduced~~and ~~two~~warrants ~~major~~to ~~cancer~~purchase ~~drugs~~additional ~~and~~shares ~~had~~of aour Company’s common stock. ~~market~~Mr. ~~valuation~~Blech ~~(as~~has been a successful investor and a member of ~~March~~a 8,number ~~2011)~~of Boards of ~~approximately~~Directors. ~~$25~~We believe ~~billion~~Mr. Blech’s past experience will be a tremendous benefit to our Company. Included among Mr. Blech’s more notable successes were:

o ICOS Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors of ICOS beginning in 1991. ICOS discovered the drug Cialis and was later acquired by Eli Lilly for over $2 billion.

oCelgene ~~Nova Pharmaceutical~~ Corporation – Mr. Blech was a founding shareholder ~~and member~~ of ~~the~~Celgene ~~Board~~in ~~of Directors of Nova from 1982 to 1990~~1986. Celgene ~~Nova~~has ~~developed~~introduced atwo ~~treatment~~major ~~for brain~~ cancer drugs and ~~subsequently~~had ~~merged~~a ~~with~~stock market ~~Scios~~valuation ~~Corporation~~(as ~~which~~of ~~was~~March ~~later~~8, ~~purchased~~2011) ~~for~~of $2approximately $25 billion ~~by Johnson and Johnson~~.

o Pathogeneses Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors of Pathogeneses from 1992 to 1997. Pathogeneses created TOBI for the treatment of cystic fibrosis and was later acquired by Chiron Corp for $660 million.

oICOS ~~Genetic Systems~~ Corporation – Mr. Blech was a founding shareholder and member of the Board of Directors of ~~GSC~~ICOS ~~from~~beginning ~~1981~~in ~~to 1986~~1991. ~~GSC~~ICOS ~~developed~~discovered the drug ~~first~~Cialis ~~inexpensive~~ and ~~accurate test to diagnose chlamydia and~~ was later acquired by ~~Bristol~~Eli ~~Myers~~Lilly for ~~approximately~~over $~~300 million~~2 billion.

~~-56-~~ o

●Nova Pharmaceutical Corporation – Mr. ~~Proto~~Blech iswas a ~~seasoned~~founding ~~and~~shareholder ~~successful senior executive~~ and ~~entrepreneur~~member of ~~with three decades in~~ the ~~billing~~Board ~~and~~of ~~payments~~Directors ~~industry. Mr. Proto is currently the Chairman and Chief Executive Officer~~ of ~~electronic~~Nova ~~billing~~from ~~company~~1982 ~~Transactis~~to ~~Inc~~1990. ~~Mr.~~Nova ~~Proto also founded REMITCO,~~ developed a ~~remittance~~treatment ~~processing~~for ~~company,~~brain ~~which~~cancer ~~was acquired in 2000 by First Data Corp.,~~ and ~~Financial~~subsequently ~~Telesis~~merged ~~(CashFlex),~~with aScios Corporation ~~payment processor to 65 of the top 100 banks in the U.S.,~~ which was ~~acquired~~later bypurchased ~~CoreStates/Wachovia~~for ~~and~~$2 isbillion ~~now~~by aJohnson ~~part of Wells Fargo. In 2004, Mr. Proto co-founded Windham Ventures, an investment company focusing on financial technology~~ and ~~life sciences companies, where he currently serves as a founding partner~~ Johnson.

● Mr. Kolenik’s vast securities industry history and work as a consultant to both public and private companies allows us to benefit from wisdom he has accrued from many varied companies and situations. Mr. Kolenik’s other public and private company Board service has been valuable as he has been a Company interface to our investors and potential investors since 2009 (prior to his appointment to the Board). We expect to further benefit from his expertise, now as a recently added member of our Board of Directors. o

●Pathogeneses Corporation – Mr. ~~Sucoff~~Blech ~~has~~was ~~advised~~a ~~our~~founding ~~Company~~shareholder ~~since~~and ~~September~~member of ~~2009 in~~ the ~~area~~Board of ~~investment~~Directors ~~banking,~~of ~~fund~~Pathogeneses ~~raising~~from ~~and~~1992 ~~capital markets. He has been key~~ to ~~our success in fundraising since joining our firm~~1997. Pathogeneses ~~Additionally,~~created ~~Mr.~~TOBI ~~Sucoff~~for ~~is an attorney (non-practicing) and contributes valuable insights in~~ the ~~area~~treatment of ~~legal~~cystic ~~matters~~fibrosis ~~in addition to those areas for which he is contracted with our Company. Mr. Sucoff’s broad~~ and was ~~diversified~~later ~~background~~acquired ~~has~~by ~~been~~Chiron aCorp ~~strong~~for ~~asset~~$660 ~~to our Company~~million.

● Dr. Leong is a co-founder and the President of Transpac Capital, a venture capital firm based in Singapore. Transpac was formed in 1989 through the amalgamation of Techno-Ventures Hong Kong, which Dr. Leong co-founded in 1986, and Transtech Capital Management of Singapore, both pioneers of venture capital in their respective countries. Prior to his venture capital career, Dr. Leong was the CEO of Amoy Canning Corporation Limited, a food and packaging conglomerate listed on the stock exchange of Hong Kong. Prior to Amoy he founded Convenience Foods Limited in Hong Kong, which he sold to RJR Nabisco. o

●

Mr. Proto is a seasoned and successful senior executive and entrepreneur with three decades in the billing and payments industry. Mr. Proto is currently the Chairman and Chief Executive Officer of electronic billing company Transactis Inc. Mr. Proto also founded REMITCO, a remittance processing company, which was acquired in 2000 by First Data Corp., and Financial Telesis (CashFlex), a payment processor to 65 of the top 100 banks in the U.S., which was acquired by CoreStates/Wachovia and is now a part of Wells Fargo. In 2004, Mr. Proto co-founded Windham Ventures, an investment company focusing on financial technology and life sciences companies, where he currently serves as a founding partner.

●

Mr. Kolenik’s vast securities industry history and work as a consultant to both public and private companies allows us to benefit from wisdom he has accrued from many varied companies and situations. Mr. Kolenik’s other public and private company Board service has been valuable as he has been a Company interface to our investors and potential investors since 2009 (prior to his appointment to the Board). We expect to further benefit from his expertise, now as a recently added member of our Board of Directors.

●

Dr. Leong is a co-founder and the President of Transpac Capital, a venture capital firm based in Singapore. Transpac was formed in 1989 through the amalgamation of Techno-Ventures Hong Kong, which Dr. Leong co-founded in 1986, and Transtech Capital Management of Singapore, both pioneers of venture capital in their respective countries. Prior to his venture capital career, Dr. Leong was the CEO of Amoy Canning Corporation Limited, a food and packaging conglomerate listed on the stock exchange of Hong Kong. Prior to Amoy he founded Convenience Foods Limited in Hong Kong, which he sold to RJR Nabisco.

There are no family relationships among members of our management or our Board of Directors.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and beneficial owners of more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Directors, executive officers and greater than 10% beneficial owners are required by SEC regulations to furnish to us copies of all Section 16(a) reports they file.

Based solely on our review of the reports, we believe that all required Section 16(a) reports were timely filed during our last fiscal year. None of our directors, executive officers or greater than 10% beneficial owners filed any Form 5s.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics that applies to, among other persons, our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our Code of Business Conduct and Ethics is available, free of charge, to any stockholder upon written request to our Corporate Secretary at SpendSmart Networks, Inc., 805 Aerovista Parkway, Suite 205, San Luis Obispo, California 93401.

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Involvement in Certain Legal Proceedings

To the best of our knowledge, except as disclosed below, none of our directors or executive officers has, during the past ten years, involved in any of the items below that the Company deems material to their service on behalf of the Company:

●	been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
●	had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
●	been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
●	been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
●	been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
●	been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Brett Schnell, our Company CFO, had a Chapter 7 Bankruptcy filed in the state of Minnesota on June 22, 2011 and subsequently discharged on October 4, 2011. Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.

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Corporate Governance

The business and affairs of the company are managed under the direction of our board. In the fiscal year ended December 31, ~~2015~~2016, we held four special board meetings. Each of our directors has attended all meetings either in person or via telephone conference.

Item 11. Executive Compensation

~~The~~ Our Company’s ~~information~~Management’s ~~required~~objectives byare ~~this~~to ~~item~~attract ~~will~~and retain behighly ~~incorporated~~competent byexecutives ~~reference~~and ~~from~~to ~~the~~compensate ~~information~~them ~~under~~based upon a pay-for-performance mentality. Our current plan relies on goals and objectives agreed upon among the ~~caption~~existing ~~“Compensation~~executive (officer and non-officer) group and our Company’s Board of Directors. ~~Named~~The ~~Executive~~achievement ~~Officers”~~of ~~contained~~such ingoals and objectives constitute requirements for continued employment, advancement with our ~~2015~~Company and ~~Proxy~~receipt ~~Statement~~of incentive bonus payments.

With the intent to increasestockholder value, we have designed our executive compensation policies and practices to reward our Company’s executives based on:

●

Company performance;

●

Individual performance; and

●

The demonstration of leadership, team building skills and high ethical standards.

We include equity as a component in our overall compensation to align the long-term interests of our executives with those of our stockholders.

Overall, we seek to employ executives that were not only qualified to fulfill the roles of the positions we require at the time of their hire, but who also have prior experience and demonstrated capabilities to function in a far larger and complex entity than where our Company is currently. We believe it is critical that our executives be able to work in an environment without the support of staff subordinates which usually accompany a larger and more seasoned company. Further, along with and given the benefit of maintaining continuity within the executive team, we highly desire executives that can adapt to what we hope will be a rapidly growing company. Our executives must be able to not only fill many roles within their areas of expertise, but also to oversee other areas that may be outside their specialty. Accordingly, we highly value the trait of adaptability.

In order to attract the type of talented executive we seek, we have found that these individuals value the potential large future rewards that come from long-term compensation arrangements in the form of stock ownership and stock option arrangements over current cash compensation. Also, given the current early stage nature of our business and the accompanying premium we must place on cash, this allocation of compensation also currently benefits our Company. Accordingly, we have structured our compensation arrangements accordingly.

On March 21, 2016, our Company granted options to purchase up to 1,459,326 shares of our common stock to the following employees: Alex Minicucci in the amount of 464,331, Luke Wallace in the amount of 397,998, Tim Boris in the amount of 397,998, and Brett Schnell in the amount of 198,999. The options vest over four years; have an exercise price of $0.12 per share; and expire five years after the date of grant. The fair value at grant date of these options was $140,095 and the amount expensed in 2016 was $48,145.

On March 31, 2016, our Company granted options to purchase up to 1,006,666 shares of our common stock to the following employees: Alex Minicucci in the amount of 750,000, Luke Wallace in the amount of 133,333, Tim Boris in the amount of 80,000, and Brett Schnell in the amount of 43,333. The options vest immediately; have an exercise price of $0.11 per share; and expire five years after the date of grant. The fair value at grant date of these options was $76,872 and the entire amount was expensed in 2016.

On June 30, 2016, our Company granted options to purchase up to 1,259,206 shares of our common stock to the following employees: Alex Minicucci in the amount of 938,151, Luke Wallace in the amount of 166,782, Tim Boris in the amount of 100,069, and Brett Schnell in the amount of 54,204. The options vest immediately; have an exercise price of $0.09 per share; and expire five years after the date of grant. The fair value at grant date of these options was $90,596 and the entire amount was expensed in 2016.

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On September 30, 2016, our Company granted options to purchase up to 1,739,632 shares of our common stock to the following employees: Alex Minicucci in the amount of 1,296,083, Luke Wallace in the amount of 230,415, Tim Boris in the amount of 138,249, and Brett Schnell in the amount of 74,885. The options vest immediately; have an exercise price of $0.06 per share; and expire five years after the date of grant. The fair value at grant date of these options was $90,604 and the entire amount was expensed in 2016.

On December 31, 2016, our Company granted options to purchase up to 5,061,453 shares of our common stock to the following employees: Alex Minicucci in the amount of 3,770,950, Luke Wallace in the amount of 670,391, Tim Boris in the amount of 402,235, and Brett Schnell in the amount of 217,877. The options vest immediately; have an exercise price of $0.02 per share; and expire five years after the date of grant. The fair value at grant date of these options was $90,600 and the entire amount was expensed in 2016.

On March 5, 2015, our Company granted options to purchase up to 360,000 shares of our common stock to members of our Board of Directors. The options vest immediately; have an exercise price of $0.92 per share; and expire five years after the date of grant. Each of the following Board members received 45,000 options each related to this issuance: Joe Proto, Isaac Blech, Alex Minicucci, John Eyler, Cary Sucoff, Patrick Kolenik, Chris Leong, and Jerold Rubinstein. The fair value at grant date of these options was $208,974 and the entire amount was expensed in 2015.

On December 31, 2015, our Company granted options to purchase up to 52,084 shares of our common stock to the following employees: Alex Minicucci in the amount of 33,750, Luke Wallace in the amount of 15,000, and Bruce Neuschwander in the amount of 3,334. The options vest immediately; have an exercise price of $.75 per share; and expire five years after the date of grant. The fair value at grant date of these options was $2,860 and the entire amount was expensed in 2015.

On December 31, 2015, our Company granted options to purchase up to 229,557 shares of our common stock to the following employees: Alex Minicucci in the amount of 194,907, Luke Wallace in the amount of 34,650. The options vest immediately; have an exercise price of $.14 per share; and expire five years after the date of grant. The fair value at grant date of these options was $22,083 and the entire amount was expensed in 2015.

Effective October 28, 2013, the Company entered into an advisory agreement (the “Chord Agreement”) with Chord Advisors, LLC (“Chord”). Pursuant to the Chord Agreement, Chord provided the Company with comprehensive outsourced accounting solutions. The Company paid Chord $7,500 per month. The Company has also agreed to issue Chord a vested stock option to purchase five thousand shares of common stock at an exercise price of $2.00 per share. The Agreement was terminated with the resignation of David Horin as the Company’s Chief Financial Officer on May 14, 2015. The Company retained Bruce Neuschwander to serve as its Chief Financial Officer effective May 19, 2015. Mr. Neuschwander was paid an annual salary of $150,000. The Company may terminate the employment for cause without notice and may terminate the employment without cause with thirty days notice. The agreement entitles Mr. Neuschwander to the usual and customary benefits of an employee and also contains the usual and customary restrictive covenants (including non-competition, non-solicitation and confidentiality). Mr. Neuschwander was granted options to purchase up to 75,000 shares of the Company’s common stock at an exercise price of $0.65 per share, said options vest over two years and have a term of five years. Mr. Neuschwander resigned from the Company effective February 24, 2016.

Elements of Executive Compensation

Executive compensation consists of the following elements:

●

Base salary;

●

Annual incentive bonuses; and

●

Long-term incentives.

Base Salary. The base salary for each executive is initially established through negotiation at the time the executive is hired, taking into account the scope of responsibilities, qualifications, experience, prior salary and competitive salary information within our industry. Year-to-year adjustments to each executive officer’s base salary are determined by an assessment of the sustained performance against individual goals, including leadership skills and the achievement of high ethical standards, the individual’s impact on the Company’s business and financial results, current salary in relation to the salary range designated for the job, experience, demonstrated potential for advancement, and an assessment against base salaries paid to executives for comparable jobs in the marketplace.

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Annual Incentive Bonuses. Our Company’s bonus plan’s year begins on January 1st and runs through December 31st. Payments under future executive bonus plans that may be instituted will be based on achieving both personal and corporate goals. Personal goals will support our overall corporate goals and, wherever possible, contain quantitative components. An executive officer’s success or failure in meeting some or all of these personal goals will affect the individual’s bonus amount. Corporate goals will consist of specific financial targets for the Company. We believe that offering significant potential income in the form of bonuses will allow us to attract and retain executives and to align their interests with those of our stockholders.

Long-Term Incentives. Our long-term incentives consist of our Company’s Common Stock and stock option awards. The objective of these awards is to align the longer-term interests of our stockholders and our executive officers and to complement incentives tied to annual performance.

401(k) and Other Benefits. During the years ended December 31, 2016, and 2015, our executive officers were eligible to receive certain benefits available to all our employees on the same terms, including medical and dental insurance. During the year, we also maintained a tax-qualified 401(k) Plan, which provides for broad-based employee participation. Under the 401(k) Plan, all employees were eligible to receive matching contributions from the Company of 100% of employee contributions up to a maximum of 4% of the employees’ salaries, per year, through December 31, 2015. We stopped the matching contributions from the Company effective January 1, 2016. We do not provide defined benefit pension plans or defined contribution retirement plans to our executives or other employees. We believe that the 401(k) Plan and medical and dental insurance benefits allow us to remain competitive for employee talent, and we believe that the availability of these benefit programs generally enhances employee productivity and retention.

Employment Agreements

Our Company entered into employment agreements with Alex Minicucci (our former Chief Executive Officer), and Luke Wallace, (our Chief Executive Officer). A summary of the material terms of these employment agreements is as follows:

Alex Minicucci, former Chief Executive Officer: On February 11, 2014, in connection with the appointment of Mr. Minicucci as our Chief Operating Officer, the Company and Mr. Minicucci entered into an employment agreement (the “Minicucci Employment Agreement”). The Minicucci Employment Agreement has an initial term of three years. The Minicucci Employment Agreement provides for the payment of a base salary of $375,000 per year (subject to discretionary increases by the Board). The Minicucci Employment Agreement provides that Mr. Minicucci is entitled to usual and customary benefits and also contains usual and customary restrictive covenants (including non-competition, non-solicitation and confidentiality). On August 1, 2014, we amended Mr. Minicucci’s employment agreement to provide that that Mr. Minicucci’s Base Salary shall be increased to $450,000 per year. On December 11, 2015, we amended Mr. Minicucci’s employment agreement to provide that Mr. Minicucci’s Base Salary shall be decreased to $225,000 per year from November 24, 2015 through November 24, 2016. Effective March 24, 2016, Mr. Minicucci resigned as Chief Executive Officer of the Company.

Luke Wallace, Chief Executive Officer: On February 11, 2014, in connection with the appointment of Mr. Wallace as our Chief Operating Officer, the Company and Mr. Wallace entered into an employment agreement (the “Wallace Employment Agreement”). The Wallace Employment Agreement has an initial term of three years. The Wallace Employment Agreement provides for the payment of a base salary of $200,000 per year (subject to discretionary increases by the Board). The Wallace Employment Agreement provides that Mr. Wallace is entitled to usual and customary benefits and also contains usual and customary restrictive covenants (including non-competition, non-solicitation and confidentiality). On December 11, 2015, we amended Mr. Wallace’s employment agreement to provide that Mr. Wallace’s Base Salary shall be decreased to $160,000 per year from November 24, 2015 through November 24, 2016.

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The Impact of Tax and Accounting Treatments on Elements of Compensation

We have elected to award non-qualified and incentive stock options to all grantees of our Company’s stock options that remain outstanding as of the date of this report. All other options or warrants granted to advisors, Directors and consultants were non-qualified options or warrants in order to allow our Company to take advantage of the more favorable tax advantages associated with non-qualified stock options or warrants.

Internal Revenue Code Section 162(m) precludes the Company from deducting certain forms of non-performance-based compensation in excess of $1,000,000 to named executive officers. However, since stock-based awards comprise a significant portion of total compensation, the Board of Directors has taken appropriate steps to preserve deductibility for such awards in the future, when appropriate.

The Level of Salary and Bonus in Proportion to Total Compensation

Because of the commonality of interests among our executives and our stockholders in achieving the sustained, long-term growth of the value of our stock, we seek to keep cash compensation in line with market conditions and, if justified by the Company’s financial performance, place emphasis on the ownership of Company stock and use of stock options as a means of obtaining significantly better than average compensation. Our efforts to keep cash compensation in line with market conditions to date have been informal and based primarily on discussions with business colleagues in the local marketplace, consultation with a local benefits consulting firm and the review of widely available comparative salary data. We also based our conclusions that our cash compensation was in line with market conditions based on our executives’ prior employment histories with other similar sized companies, in similar responsible positions. We have not engaged in a practice of formal benchmarking of our executive compensation, but expect to formalize our compensation practices in the future should we be successful in growing our business. Part of such formalization may take the form of benchmarking. Because of the significant equity stake or equity incentives that our executives maintain in our Company, we believe their cash compensation and benefits received are modest in comparison to similar sized public companies.

Other Compensation

We intend to continue to maintain our current benefits for our executives, including medical and dental insurance coverage and the ability to contribute to a 401(k) retirement plan; however, our Board of Directors may in its discretion revise, amend or add to the executive’s benefits if it deems it advisable. The benefits currently available to the executives are also available to our other employees.

Compensation Committee

The Company has established a compensation committee, which is comprised of independent directors (Mr. Joseph Proto, Mr. John Eyler and Mr. Pat Kolenik). The compensation committee will have the responsibility for evaluating making recommendations to the Board of Directors regarding the compensation payable to our executive officers, including our named executive officers.

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SUMMARY COMPENSATION TABLE

The following table provides information regarding the compensation awarded to, earned by, or paid to our executives during the years ended December 31, 2016 and 2015.

		Salary	Bonus	Stock Awards	Option and Warrant Awards	Non-equity Incentive	Change in Pension Value and Non-Qual. Deferred Comp. Earnings	All Other Comp.(1)(3)	Total
Position	Year	($)	($)	($)(2)	($)(2)	($)	($)	($)	($)

Luke Wallace (4)	2016	183,450	-	-	20,471	-	-	-	203,921
Chief Executive Officer	2015	198,452	-	-	43,043	-	-	7,067	248,562

William Hernandez (5)	2016	10,000	-	-	-	-	-	-	10,000
Former President and Director	2015	112,583	-	-	262,420	-	-	4,503	379,506

Alex Minicucci (6)	2016	268,502	-	-	204,564	-	-	-	473,066
Former Chief Executive Officer and Director	2015	417,411	-	-	104,336	-	-	9,788	531,535

Tim Boris (7)	2016	228,002	-	-	24,356	-	-	-	252,358

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