MediaShift, Inc.

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

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

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

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

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

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