Consolidated SEC Viewer Rendering

Notes

Note 1 - Organization

NOTE 1 - ORGANIZATION

The consolidated financial statements include the accounts of Summer Energy Holdings, Inc. (formerly Castwell Precast Corporation) and its wholly owned subsidiaries Summer Energy, LLC ("Summer LLC"), Summer Energy of Ohio ("Summer Ohio") and Summer EM Marketing, LLC ("Marketing LLC") (collectively referred to as the "Company," "we," "us," or "our"). All significant intercompany transactions and balances have been eliminated in these consolidated financial statements.

On March 27, 2012, Summer LLC became a wholly-owned subsidiary of Summer Energy Holdings, Inc. (previously known as Castwell Precast Corporation) through a reverse acquisition transaction, which resulted in the former members of Summer LLC owning approximately 92.3% of Summer Energy Holdings, Inc.'s outstanding common stock. The operations of Summer LLC are the Company's sole line of business. The transaction was treated as a recapitalization of Summer LLC, and Summer LLC (and its historical financial statements) is the continuing entity for financial reporting purposes.

Summer LLC is a retail electric provider in the state of Texas under a license with the Public Utility Commission of Texas ("PUCT"). Summer LLC procures wholesale energy and resells to commercial and residential customers. Summer LLC was organized on April 6, 2011, under the laws of the State of Texas.

Marketing, LLC was formed in the State of Texas on November 6, 2012 to provide marketing services to Summer LLC.

Summer Ohio was formed in the State of Ohio on December 16, 2013 to procure and sell electricity in the state of Ohio. The Public Utilities Commission of Ohio ("PUCO") issued a certificate as a Retail Electric Service Provider to Summer Ohio on June 16, 2015. At December 31 2016, there was no business activity in the State of Ohio

Note 2 - Significant Accounting Policies

Note 2 - Significant Accounting Policies

Note 2 - Significant Accounting Policies

Notes

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

Revenue Recognition

Our electricity revenue is recognized by our Company upon delivery of electricity to a customer's meter. This method of revenue recognition is commonly referred to as the flow method. The flow method of revenue relies upon Electric Reliability Council of Texas ("ERCOT") settlement statements to determine the estimated revenue for a given month. Supply delivered to customers for the month, measured on a daily basis, provides the basis for revenues. Electricity revenue consists of proceeds from energy sales, including pass through charges from the Transmission and Distribution Providers ("TDSPs") billed to the customer at cost.

Unbilled Revenue and Accounts Receivable

Electric services not billed by month-end are accrued based upon estimated deliveries to customers as tracked and recorded by ERCOT multiplied by our average billing rate per kilowatt hour ("kWh") in effect at the time. At the end of each calendar month, revenue is accrued to unbilled receivables based on the estimated amount of power delivered to customers using the flow technique. Unbilled revenue also includes accruals for estimated TDSP charges and monthly service charges applicable to the estimated electricity usage for the period. All charges that were physically billed in the calendar month are recorded from the unbilled account to the customer's receivable account. Unbilled accounts as of December 31, 2016, and 2015 were estimated at $10,922,288 and $8,463,954, respectively. Accounts receivable are customer obligations billed at the customer's monthly meter read date for that period's electricity usage and due within 16 days of the date of the invoice. The balances past due are customers subject to a late fee that is assessed on that billing.

The Company determines the allowance based upon a review of outstanding receivables, historical write-off experience and existing economic conditions. Receivables past due over 90 days are considered delinquent and reviewed individually for collectability. After all means of collection have been exhausted, delinquent receivables are written off. Management has determined that the allowance for doubtful accounts as of December 31, 2016, and 2015 is $999,046 and $1,571,965, respectively. Bad debt expense for the years ended December 31, 2016 and 2015 is $1,543,840 and $1,975,073, respectively.

Cost Recognition

Direct energy costs are recorded when the electricity is delivered to the customer's meter.

Cost of Goods Sold ("COGS") include electric power purchased and pass through charges from the TDSPs in the areas serviced by the Company. TDSP charges are costs for metering services and maintenance of the electric grid. TDSP charges are established by regulation of the PUCT.

The energy portion of our COGS is comprised of two components: bilateral wholesale costs and balancing/ancillary costs. These two cost components are incurred and recognized differently as follows:

Bilateral wholesale costs are incurred through contractual arrangements with wholesale power suppliers for firm delivery of power at a fixed volume and fixed price. We are invoiced for these wholesale volumes at the end of each calendar month for the volumes purchased for delivery during the month, with payment due 20 days after the end of the month.

Balancing/ancillary costs are based on the customer load and are determined by ERCOT through a multiple step settlement process. Balancing costs/revenues are related to the differential between supply that we provided through our bilateral wholesale supply and the supply required to serve our customer load. The Company endeavors to minimize the amount of balancing/ancillary costs through our load forecasting and forward purchasing programs.

Basic and Diluted Income/(Loss) Per Share

Basic income/(loss) per share are computed by dividing net income/loss applicable to the weighted-average number of shares outstanding during the period. Diluted income per share is determined using the weighted-average number of shares outstanding during the period, adjusted for the dilutive effect of share equivalents, using the treasury method, consisting of shares that might be issued upon exercise of share equivalents. In periods where losses are reported, the weighted-average number of shares outstanding excludes share equivalents of 345,889 as of December 31, 2016 because their inclusion would be anti-dilutive.

Stock-Based Compensation

Under the fair value recognition provisions of the authoritative guidance, stock-based compensation cost granted to employees is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service or performance period, which is the vesting period.

Stock options and warrants issued to consultants and other non-employees as compensation for services to be provided to us are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant, whichever can be more clearly determined. We currently use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, the expected term of the award, the risk-free interest rate and any expected dividends. Compensation cost associated with grants of restricted stock units are also measured at

fair value. We evaluate the assumptions used to value restricted stock units on a quarterly basis. When factors change, including the market price of the stock, share-based compensation expense may differ significantly from what has been recorded in the past.

If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense.

Income Taxes

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of tax-related assets and liabilities and income tax expense. These estimates and assumptions are based on the requirements of the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") relating to accounting for uncertainty in income taxes. Our policy is to classify interest and penalties related to unrecognized income tax benefits as a component of income tax expense.

We assess whether previously unrecognized tax benefits may be recognized when the tax position is (1) more likely than not of being sustained based on its technical merits, (2) effectively settled through examination, negotiation or litigation, or (3) settled through actual expiration of the relevant tax statutes. Implementation of this requirement requires the exercise of significant judgment. Recognizing deferred tax assets will increase tax benefits and increase net income.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the period in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company records interest related to unrecognized tax benefits and penalties in income tax expense.

New Customer Implementation Costs

We ordinarily incur additional costs to implement our services for new customers. These costs are comprised primarily of additional labor and support. These costs are expensed as incurred, and have a negative impact on our statements of operations and cash flows during the implementation phase.

Warrants

The Company's common stock warrants are measured at fair value using the Black-Scholes valuation model which takes into account, as of the measurement date, factors including the current exercise price, the term of the instrument, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the term of the item.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Concentration of Credit Risk

The Company maintains its cash in demand deposit accounts or "noninterest-bearing transaction accounts" which, at times, may exceed federally insured limits. The Company's management periodically assesses the financial stability of these banks. The Company has not experienced any losses on such accounts.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all short-term investments and debt instruments with an original maturity of three months or less to be cash equivalents.

Restricted cash represents funds held in escrow for customer deposits and for securing irrevocable stand-by letters of credit for the benefit of the Transmission and Distribution Providers that provide transmission services to the Company in the amount of $1,904,898 and $632,868 as of December 31, 2016, and 2015, respectively.

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives:

Estimated Lives

Computer software	3 years
Computer hardware	3 years
Furniture and fixtures	5 years
Leasehold improvements	5 years
Website	3 years
Other equipment	7 years

Expenditures for additions, major renewals and betterments are capitalized, and expenditures for maintenance and repairs are charged against income as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operations.

Deferred Financing Costs

The Company's deferred financing costs in the amount of $179,887 are amortized over the two year life of the financing from Blue Water Capital Funding LLC (See Note 8). Amortization of deferred financing costs as of December 31, 2016, and 2015 were $44,971 and $0.

Derivative Instruments

The Company's business operations require entering into physically settled commodity contracts that meets the definition of a derivative. The Company has elected "normal purchases and normal sales" exception which is a term specific to ASC 815-10-15-22. When the contract satisfies certain criteria, including a requirement that physical delivery of the underlying commodity is probable and is expected to be used in normal course of business. Retail revenues and retail cost of revenues resulting from deliveries of commodities under normal purchase contracts and normal sales contracts are included in earnings at the time of contract settlement.

Recent Pronouncements

ASU 2014-15 — In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity's ability to continue as a going concern within one year after the financial statements are available to be issued. The Company adopted this ASU effective December 31, 2016.

ASU 2016-18 — In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, or ASU No. 2016-18. The amendments of ASU No. 2016-18 were issued to address the diversity in classification and presentation of changes in restricted cash and restricted cash equivalents on the statement of cash flows which is currently not addressed under Topic 230. The amendments of ASU No. 2016-18 would require an entity to include amounts generally described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. The amendments of ASU No. 2016-18 are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted and the adoption of ASU No. 2016-18 should be applied retrospectively. The Company is currently evaluating the impact of the standard on the Company's statement of cash flows.

ASU 2016-02 — In 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or Topic 842 with the objective to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and to improve financial reporting by expanding the related disclosures. The guidance in Topic 842 provides that a lessee that may have previously accounted for a lease as an operating lease under current GAAP should recognize the assets and liabilities that arise from a lease on the balance sheet. In addition, Topic 842 expands the required quantitative and qualitative disclosures with regards to lease arrangements. The Company expects to adopt the standard effective January 1, 2019 utilizing the required modified retrospective approach for the earliest period presented. It is currently not practicable to quantify the impact of adopting the ASU at this time.

Note 3 - Income Taxes

Note 3 - Income Taxes

Note 4 - Private Placement of Series B Preferred Shares

Notes

Note 3 - Income Taxes

NOTE 3 - INCOME TAXES

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2016 and 2015 are as follows:

	Current	Deferred	Total

2016
U.S. Federal	-	$-	$-
States and Local	85,100	-	85,100
Total	$85,100	$-	$85,100

2015
U.S. Federal	30,500	$-	$30,500
States and Local	101,000	-	101,000
Total	$131,500	$-	$131,500

Actual income tax expense for the years ended December 31, 2016 and 2015 is reconciled from the amount computed by applying the U.S. federal income tax rate of 34% and an effective state tax rate of (7.80%) to income before income taxes as follows:

	2016	2015

Expected tax expense	(314,500)	581,000
Reconciling items:
Permanent Differences/Discrete Items	(29,500)	11,500
Change in Valuation Allowance	429,100	(461,000)
Others	-	-

Total tax expense	$85,100	$131,500

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below:

	2016	2015

Deferred tax assets:
Net operating loss carryforward - Federal	$2,017,500	$1,554,000
Federal Minimum Tax	28,000	30,500
Reserve for accounts receivable	340,000	534,500
Organizational costs	10,000	11,000
Accrued expenses	167,000	41,500
Total gross deferred tax assets	2,562,500	2,171,500
Valuation allowance	(2,530,000)	(2,103,000)
Net deferred tax assets	32,500	68,500

Deferred tax liabilities:
Plant and equipment	(32,500)	(68,500)
Net deferred tax liabilities	(32,500)	(68,500)

Net deferred tax assets	$-	$-

There was a valuation allowance of $2,530,000 and $2,103,000 as of December 31, 2016 and 2015, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income, projections for future taxable income over the periods in which the deferred tax assets are deductible, and the scheduled reversal of deferred tax liabilities, management does not believe it is more likely than not the Company will realize the full benefits of these deductible differences at December 31, 2016.

Net operating loss carryforwards attributable to federal was $5,934,000 at December 31, 2016 expires at different dates through 2036.

There is not a provision for material uncertain tax positions for the Company at December 31, 2016 or 2015.

As of December 31, 2016, with few exceptions, the Company is no longer subject to U.S. Federal income tax examinations by tax authorities for years before 2013 and for state for years before 2012.

Note 4 - Private Placement of Series B Preferred Shares

Note 4 - Private Placement of Series B Preferred Shares

Notes

NOTE 4 – PRIVATE PLACEMENT OF SERIES B PREFERRED SHARES

On February 19, 2014, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions (the "Series B Designation") with respect to a class of preferred stock designated as Series B Preferred Stock (the "Series B Preferred"). The Series B Preferred entitles holders thereof to receive a dividend payable in cash or common stock, at the election of the holder, at an annual rate of 12% of the Deemed Original Issue Price. The "Deemed Original Issue Price" of the Series B Preferred for purposes of calculating the Series B Preferred dividend is $1.00 per share, which the board of directors of the Company determined represents the estimated fair market value as of the date of grant. The Series B Preferred dividends are payable in cash or by the issuance of common stock ten (10) days following the end of each month, or portion thereof. The number of shares to be paid as a dividend shall be determined based on the fair market value of the shares of common stock on the record date for the dividend. On February 21, 2014, the Company entered into Series B Preferred Stock Purchase Agreements (each an "Agreement" and collectively the "Agreements") with several investors. Pursuant to the Agreements, the Company sold an aggregate of 1,900,000 shares of the Series B Preferred, for an aggregate purchase price of $1,900,000 as of December 31, 2014. Several members of the Company's board of directors directly or indirectly participated in the offering.

The foregoing is only a brief description of the material terms of the Series B Designation and the offering of the Series B Preferred, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the full text of the Certificate of Designation which was filed as Exhibit 3.1 to our Form 8-K filed on February 24, 2014.

In accordance with the Series B Designation, dividends due to holders of Series B Preferred may be paid at the option of the holder in shares of the Company's $0.001 par value common stock valued at the fair market value of such shares of common stock as determined in good faith by the Board of Directors on the record date of the dividend.

The holders of outstanding shares of Series B Preferred are entitled to receive, out of funds legally available for the payment of dividends, cumulative monthly dividends at the annual rate of 12% of the Deemed Original Issue Price per share, in preference to and in priority over any dividends with respect to Common Stock. At the option of the holders of Series B Preferred Stock, dividends may be paid to holders of Series B Preferred Stock in shares of the Company's common stock valued at fair market value of such shares of common stock as determined in good faith by the board of directors.

During the year ended December 31, 2015, the Company had paid $228,004 of cumulative monthly dividends on Series B Preferred Stock. Certain shareholders elected to be paid in shares of the Company's common stock shares valued at $37,023 and the remaining holders were paid a total of $190,981 in cash.

During the year ended December 31, 2016, the Company paid $109,940 of cumulative monthly dividends on Series B Preferred Stock. Certain shareholders elected to be paid in shares of the Company's common stock shares valued at $23,145 and the remaining holders were paid a total of $86,795 in cash.

On June 24, 2016, the Series B Stockholders affirmatively elected to convert all outstanding Series B Shares into shares of common stock with a Conversion Price as of such date equal to $1.00 per Series B Share.

Note 5 - Letter of Credit

Note 5 - Letter of Credit

Note 5 - Letter of Credit

Notes

NOTE 5 - LETTERS OF CREDIT

During the year ended December 31, 2016, the Company secured nine irrevocable stand-by letters of credit totaling $1,188,200 with a financial institution for the benefit of the Transmission and Distribution Providers ("TDSPs") that provide transition services to the Company. The nine letters of credit will expire during the second quarter of 2017 and are subject to automatic extension and renewal provisions. The nine letters of credit are secured by restricted cash held by the financial institution who issued the irrevocable stand-by letters of credit.

As of December 31, 2016, none of the letters of credit issued on behalf of the Company were drawn upon.

Note 6 - Advance To Loan Amount Note

Note 6 - Advance To Loan Amount Note

Note 6 - Advance To Loan Amount Note

Notes

NOTE 6 - ADVANCE TO LOAN AMOUNT NOTE

On April 18, 2014, the Company signed an Advance to Loan Amount Note (the "Note") with Comerica Bank in the amount of $1,500,000. The Note had an original maturity date of December 22, 2014, which was extended through February 22, 2015. On February 22, 2015, the Note was increased from $1,500,000 to $1,700,000 and extended again to November 4, 2016, with interest thereon at a per annum rate equal to the "Prime Referenced Rate" plus the "Applicable Margin." The "Prime Referenced Rate" means, for any day, a per annum interest rate which is equal to the "Prime Rate" in effect on such day, but in no event and at no time shall the "Prime Reference Rate" be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.5%) per annum. "Prime Rate" means the per annum rate established by Comerica Bank as its prime rate for its borrowers at any such time. "Applicable Margin" means 2% per annum. Accrued and unpaid interest on the unpaid principal balance outstanding shall be payable monthly, in arrears, on the first Business Day of each month.

Guaranty of the Note was made by four members of the Company's board of directors ("Guarantors"). The Company agreed to issue the four Guarantors a total of 120,000 shares of the Company's common stock per month (30,000 shares of common stock per month per Guarantor) reduced accordingly as the loan is reduced for agreeing to act as a Guarantor of the Note.

During the year ended December 31, 2015, the Company issued 1,006,171 shares of common stock to the Guarantors and recognized $1,006,173 in financing cost, and the balance of the Note was $111,057 at year end.

In May 2016, the Company released the Guarantors from the obligation to guaranty the Note and stock payments for such guaranty were discontinued as of May 31, 2016.

During the year ended December 31, 2016, the Company issued 482,156 shares of common stock to the Guarantors and recognized $532,988 in financing cost.

The Advance to Loan Amount Note was paid in full on June 14, 2016 and at such time of payoff the loan terminated.

Note 7 - Financing From Black Ink Energy LLC and Issuance of Warranty

Note 7 - Financing From Black Ink Energy LLC and Issuance of Warranty

Note 7 - Financing From Black Ink Energy LLC and Issuance of Warranty

Notes

NOTE 7 - FINANCING FROM BLACK INK ENERGY LLC AND ISSUANCE OF WARRANT

On March 2, 2015, Summer Energy, LLC (the "Borrower"), a wholly owned subsidiary of Summer Energy Holdings, Inc. ("SEH"), entered into a Second Lien Term Loan Agreement (the "Agreement") with Black Ink Energy, LLC ("BIE"). Pursuant to the Agreement, BIE agreed to provide a term loan (the "Term Loan") to the Borrower, and the Borrower agreed to borrow and repay funds loaned by BIE.

The amount of the Term Loan was Three Million Dollars $3,000,000, and the loan was not revolving in nature. Pursuant to the Agreement, any amounts prepaid or repaid may not be re-borrowed by the Borrower. The maturity date of the loan was September 2, 2016. The Term Loan bore interest at a rate of 15% per annum, except in the occurrence of an event of default, at which point the default interest rate would be 18%. Interest is payable in arrears on the last day of each month and on the maturity date of the loan. The Term Loan was not evidenced by a promissory note.

Additionally, the Borrower agreed to pay to BIE a facility fee. The facility fee in the amount of $24,450 was expensed immediately as fees occurred to obtain financial resource.

In connection with the Agreement and the Term Loan, SEH issued BIE a warrant (the "Warrant") to purchase up to 800,000 shares of SEH's common stock. The Warrant has a term of ten (10) years, has an exercise price of $1.50 per share, and is subject to adjustment as set forth in the Warrant. The Warrant also contains a cashless or net exercise provision, pursuant to which the holder of the Warrant may elect to convert all or a portion of the Warrant without the payment of additional consideration, by receiving a net number of shares calculated pursuant to a formula set forth in the Warrant. SEH agreed to reserve 120% of the number of shares issuable upon the exercise of the Warrant so long as the Warrant is exercisable and outstanding. Additionally, SEH agreed to grant to the holder piggyback registration rights.

The term loan had a relative fair value of $2,967,535 and the warrant had a relative fair value of $32,465 at the date of issuance determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17 (iii) dividend yield of 0.00% and (iv) expected life of the options of five years.

During the years ended December 31, 2016 and 2015, the Company paid interest expense in the amount of $227,500 and $381,250, respectively, to BIE.

On June 30, 2016, the Term Loan to BIE was paid in full and the Agreement between the Company and BIE was terminated.

Note 8 - Financing From Blue Water Capital Funding LLC

Note 8 - Financing From Blue Water Capital Funding LLC

Note 8 - Financing From Blue Water Capital Funding LLC

Notes

NOTE 8 - FINANCING FROM BLUE WATER CAPITAL FUNDING LLC

On June 29, 2016, Summer Energy, LLC (the "Borrower"), a wholly-owned subsidiary of Summer Energy Holdings, Inc. ("SEH"), entered into a Loan Agreement (the "Agreement") with Blue Water Capital Funding, LLC ("Blue Water"). Pursuant to the Agreement, Blue Water agreed to provide a revolving loan (the "Loan") to the Borrower, and the Borrower agreed to borrow and repay funds loaned by Blue Water.

The amount of available credit under the Loan is Five Million Dollars ($5,000,000). The Loan is revolving in nature and is evidenced by a Revolving Promissory Note (the "Note"). The maturity date of the Loan is June 30, 2018. The Loan will bear interest at a rate of 11% per annum, with a minimum monthly financing fee of $22,500 per month. Interest is payable on the tenth day of each month and on the maturity date of the Note. The loan balance as of December 31, 2016 is $2,500,000.

The proceeds of the Loan may be used by the Borrower to repay indebtedness owed to Black Ink Energy, LLC ("Black Ink"), and for other corporate purposes. Simultaneous with the closing of the Loan, Borrower paid off all outstanding debt due and owing to Black Ink and Black Ink's security interest in and to the assets of the Borrower and to SEH's ownership interest in Borrower were terminated.

In connection with the Agreement, the Borrower made certain customary representations and warranties, and agreed that while the Loan amount remains outstanding, it would not take certain actions, including that it will not incur certain debts (as defined in the Agreement); create, assume, or suffer to exist any lien on any property or asset of the Borrower, except those set forth in and allowed by the Agreement; consolidate or merge with any other entity; or sell, lease, or transfer all or substantially all of the assets of the Borrower.

In connection with the Agreement, the Borrower and Blue Water also entered into a Security Agreement (the "Security Agreement"), and SEH executed a Guaranty (the "Guaranty") in favor of Blue Water.

Security Agreement

Pursuant to the Security Agreement, the Borrower granted to Blue Water a second position security interest in and to the Borrower's collateral, as more fully defined in the Security Agreement, and which includes receivables, equipment, inventory, personal property, other intangibles, and proceeds from any of these, to secure the Borrower's payment of its obligations under the Loan. The security interest granted to Blue Water is subordinate to a security interest granted to DTE Energy Trading, Inc. ("DTE") pursuant to a credit agreement between the Borrower and DTE dated April 1, 2014.

Note 9 - Private Placement Offering And Issuance of Warrants

Note 9 - Private Placement Offering And Issuance of Warrants

Note 9 - Private Placement Offering And Issuance of Warrants

Notes

NOTE 9 – PRIVATE PLACEMENT OFFERING AND ISSUANCE OF WARRANTS

During 2015, the Company accepted subscription agreements from various accredited investors and entered into Securities Purchase Agreements with such investors to purchase from the Company 130,000 shares of the Company's common stock at a price of $1.00 per share totaling $130,000. Such subscription agreements also included 115,000 warrants at an exercise price of $1.50 per share.

During 2016, the Company accepted subscription agreements from various accredited investors and entered into Securities Purchase Agreements with such investors to purchase from the Company 3,844,854 shares of the Company's common stock at a price of $1.10 per share totaling $4,228,450. No warrants were issued in connection with the 2016 Securities Purchase Agreements.

Note 10 - Warrants

Note 10 - Warrants

Notes

Note 10 - Warrants

NOTE 10 - WARRANTS

During the calendar year 2015, the Company issued a total of 1,065,000 warrants comprised of 115,000 warrants issued in association with Private Placement Agreements (Note 9), 800,000 warrants issued in association with the financing agreement with Black Ink Energy LLC (Note 7) and 150,000 warrants issued in association with a promissory note converted to 100,000 shares of the Company's common stock on October 19, 2015. The exercise price of 1,015,000 of the warrants issued in 2015 was $1.50 per share and the exercise price of 50,000 of the warrants issued in 2015 was $2.00 per share.

The Company issued no warrants during the calendar year ended December 31, 2016.

Warrant activity for the years ended December 31, 2016 and 2015, was as follows:

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)	Grant Date Fair Value
Outstanding at December 31, 2014	826,000	$1.33	3.56	$75,406
Warrants granted	1,065,000	1.52	4.19	38,420
Warrants exercised	-	-	-	-
Warrants cancelled/forfeited/expired	-	-	-	-
Outstanding at December 31, 2015	1,891,000	$1.44	3.47	$113,826
Warrants granted	-		-	-
Warrants exercised	-	-	-	-
Warrants cancelled/forfeited/expired	-	-	-	-
Outstanding at December 31, 2016	1,891,000	$1.44	2.46	$113,826
Vested at December 31, 2016	1,625,763	$1.51	2.50	$68,826
Exercisable at December 31, 2016	1,625,763	$1.51	2.50	$68,826

Note 11 - Wholesale Power Purchase Agreement

Note 11 - Wholesale Power Purchase Agreement

Note 11 - Wholesale Power Purchase Agreement

Notes

NOTE 11 - WHOLESALE POWER PURCHASE AGREEMENT

On April 25, 2014, the Company closed a transaction with DTE Energy Trading, Inc. ("DTE"), with an effective date of April 1, 2014. As part of the transaction, the Company and DTE entered into an Energy Marketing Agreement for Electric Power (the "Energy Marketing Agreement"). Pursuant to the terms of the Energy Marketing Agreement, the Company agreed to purchase its electric power and associated services requirements from DTE, and DTE agreed to provide the Company with certain credit facilities to assist the Company in the purchase of its electric power and associated service requirements. The Company also agreed to pay DTE a fixed monthly fee, as well as certain fees based on megawatt hours purchased. The terms of the Energy Marketing Agreement are governed by the ISDA 2002 Master Agreement, as well as a Schedule and Power Annex thereto (the "2002 Master Agreement"). In conjunction, therewith, the Company and DTE also entered into a Credit Agreement, a Security Agreement and a Membership Interest Pledge Agreement.

Pursuant to the Credit Agreement, among other things DTE agreed to (i) provide a guaranty (a "Credit Guaranty") to the Electric Reliability Council of Texas ("ERCOT") for the benefit of the Company, and (ii) provide commodity loans for the purchase of electricity ("Commodity Loans"). Each Commodity Loan and any Credit Guaranty shall bear interest on the outstanding principal amount thereof, from the date such Commodity Loan or Credit Guaranty is issued until it becomes due or is revoked, respectively, at a rate per annum equal to the Prime Rate (as reported by the Wall Street Journal) plus two percent (2%). The Company covenanted not to, among other things, (a) merge or consolidate with any other person, (b) acquire all or substantially all of the capital stock or property of another person, (c) create, assume or suffer to exist any lien on any property now owned or hereafter acquired by the Company except for permitted liens (as set forth in the Credit Agreement) or (d) become liable for any indebtedness (other than permitted indebtedness, as set forth in the Credit Agreement).

In consideration of the services and credit support provided by DTE to the Company, and pursuant to the Security Agreement, the Company is required to, among other things (i) grant a priority security interest to DTE in all of its assets, equipment and inventory; (ii) require its customers to remit monthly payments into a lockbox account over which DTE has a security interest; and (iii) deliver monthly and annual forecasted and audited statements to DTE.

Pursuant to the Membership Interest Pledge Agreement, the Company pledged to DTE, and granted to DTE a security interest in all of the membership interests of Summer Energy, LLC owned by the Company, as well as all additional membership interests of Summer Energy, LLC from time to time acquired by the Company.

The foregoing is only a brief description of the material terms of the transaction with DTE and does not purport to be a complete description of the rights and obligations of the parties thereunder and such

descriptions are qualified in their entirety by reference to the text of the Energy Marketing Agreement, the 2002 Master Agreement, the Credit Agreement, the Security Agreement, the Membership Interest Pledge Agreement and the Novation Agreement, which were filed as Exhibits 10.1-10.6, respectively, to our Form 10-Q filed on May 15, 2014.

Note 12 - 2012 Stock Option and Stock Award Plan

Note 12 - 2012 Stock Option and Stock Award Plan

2012 Stock Option and Stock Award Plan

Note 12 - 2012 Stock Option and Stock Award Plan

NOTE 12 – 2012 STOCK OPTION AND STOCK AWARD PLAN

During 2012, the Company approved the 2012 Stock Option and Stock Award Plan ("Plan") established to advance the interest of the Company and its shareholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company.

The maximum aggregate number of (i) shares of stock that may be issued under the Plan, and (ii) shares of stock with respect to which stock appreciation rights may be granted, is 785,000 and consists of authorized but unissued or reacquired shares of stock or any combination thereof. Such number of shares of stock may be may be issued under the Plan pursuant to Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock Grants, Stock Appreciation Right Grants or any combination thereof, so long as the aggregate number of shares so issued does not exceed such number of shares, as adjusted.

The Plan continues in effect until the earlier of its termination by the Board or the date on which all the shares of stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms on the Plan and the agreement evidencing awards granted under the Plan have lapsed. However, all awards shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the Shareholders of the Company. As of December 31, 2016, 2,000 shares remain available for issuance.

On December 6, 2012, a Form S-8 Registration Statement was filed with the United States Securities and Exchange Commission regarding the Plan.

During the calendar year 2015, the Company granted stock options from the 2012 Plan to purchase up to 153,750 shares of the Company's common stock. The fair value of the options was $14,026 determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of five years.

During the calendar year 2016, the Company granted stock options from the 2012 Plan to purchase up to 2,500 shares of the Company's common stock. The options covering a total of 2,500 shares vest one year after the date of grant. The stock options have an exercise price of $2.00 per share and will expire ten (10) years from the date of grant. The fair value of the options of $5,344 was determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.07% (ii) estimated volatility of 172% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

During the year ended December 31, 2016, the Company recognized total stock compensation expenses of $2,259 for vesting options issued from the 2012 Plan and $13,376 during the year 2015 relating to the vesting of stock options issued from the 2012 Plan.

As of December 31, 2016, there are 2,500 stock options issued from the 2012 Plan which are not vested and the unrecognized expense for vesting of such options issued from the 2012 Plan is $3,116.

As of December 31, 2016, the Company had outstanding granted stock options from the 2012 Stock Option and Stock Award Plan, net of forfeitures to purchase 632,000 shares summarized as follows:

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)	Grant Date Fair Value
Outstanding at December 31, 2014	479,250	$1.22	8.57	$48,563
Options granted	153,750	1.3	9.07	14,026
Options exercised	-	-	-	-
Options cancelled/forfeited/expired	(2,000)	1.5		(82)
Outstanding at December 31, 2015	631,000	$1.25	7.93	$62,507
Options granted	2,500	$2.00	10.00	$5,344
Options exercised
Options cancelled/forfeited/expired	(1,500	$1.5	-	$(62)
Outstanding at December 31, 2016	632,000	$1.24	6.86	$67,789

Vested at December 31, 2016	629,500	$1.23	6.89	$64,673

Exercisable at December 31, 2016	629,500	$1.23	6.89	$64,673

Note 13 - 2015 Stock Option and Stock Award Plan

Note 13 - 2015 Stock Option and Stock Award Plan

2015 Stock Option and Stock Award Plan

Note 13 - 2015 Stock Option and Stock Award Plan

NOTE 13 – 2015 STOCK OPTION AND STOCK AWARD PLAN

During the year ended December 31, 2015, the Company's stockholders approved the 2015 Stock Option and Stock Award Plan ("Plan"), which was established to advance the interest of the Company and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company.

The maximum aggregate number of (i) shares of stock that may be issued under the Plan, and (ii) shares of stock with respect to which stock appreciation rights may be granted, is 1,500,000 and consists of authorized but unissued or reacquired shares of stock or any combination thereof. Such number of shares of stock may be issued under the Plan pursuant to Incentive Stock Options, Nonstatutory Stock Options, Restricted Stock Grants, Stock Appreciation Right Grants or any combination thereof, so long as the aggregate number of shares so issued does not exceed such number of shares, as adjusted.

As of December 31, 2016, 600,500 shares remain available for issuance.

On July 2, 2015, a Form S-8 Registration Statement was filed with the United States Securities and Exchange Commission regarding the Plan.

During 2015, the Company granted a total of 643,500 stock options from the 2015 Plan with a fair value of approximately $78,574 on the date of grant. The fair value of the options in the amount of $78,574 was determined using the Black-Scholes option-pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87 (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of all options averaging 5.49 years.

During 2016, the Company granted a total of 263,500 stock options from the 2015 Plan with a fair value of approximately $349,181 on the date of grant. The fair value of the options in the amount of $349,181 was determined using the Black-Scholes option-pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.25% (ii) estimated volatility of 132.67% (iii) dividend yield of 0.00% and (iv) expected life of all options averaging 10 years.

During the year ended December 31, 2016, the Company recognized total stock compensation expenses of $340,606 for vesting options issued from the 2015 Plan and $72,021 during the year 2015 relating to the vesting of options issued from the 2015 Plan.

As of December 31, 2016, the unrecognized expense for vesting of options issued from the 2015 plan is $8,906 relating to 147,000 of unvested shares.

As of December 31, 2016, the Company had outstanding granted stock options from the 2015 Stock Option and Stock Award Plan, net of forfeitures to purchase 899,500 shares summarized as follows:

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)	Grant Date Fair Value
Outstanding at December 31, 2014	$-	-	-	$-
Options granted	643,500	1.27	9.57	78,574
Options exercised	-	-	-	-
Options cancelled/forfeited/expired	-	-	-	-
Outstanding at December 31, 2015	643,500	$1.27	9.57	78,574
Options granted	263,500	$1.51	9.65	349,181
Options exercised
Options cancelled/forfeited/expired	(7,500)	$1.83	-	(810)
Outstanding at December 31, 2016	899,500	$1.33	8.75	426,945

Vested at December 31, 2016	752,500	$1.27	8.87	418,848

Exercisable at December 31, 2016	752,500	$1.27	8.87	418,848

Note 14 - Property and Equipment

Note 14 - Property and Equipment

Note 14 - Property and Equipment

Notes

NOTE 14 – PROPERTY AND EQUIPMENT

Property and equipment are carried at cost and are depreciated over their estimated useful lives (3 to 7 years) using the straight-line method. Costs of assets include those capital expenditures which improve the efficiency of the assets or lengthen their useful lives. Expenditures for maintenance and repairs are charged against income as incurred. Costs and related accumulated depreciation of assets sold or otherwise retired are removed from accounts, and any resulting gain or loss is reflected in income. Depreciation expense charged to operations totaled $210,481 for the year ended December 31, 2016 and $295,375 for the year ended December 31, 2015.

As of December 31, 2016 and 2015, property and equipment consisted of the following:

	December 31, 2016 ($)	December 31, 2015 ($)
Computer software	113,451	107,399
Computer hardware	155,182	136,982
Furniture and fixtures	49,723	49,723
Leasehold improvements	86,714	86,714
Website	775,881	723,371
Other equipment	-	-
Total property and equipment	1,180,951	1,104,189
Less: Accumulated depreciation	(942,158)	(731,677)
Property and equipment, net	238,793	372,512

Note 15 - Operating Lease Commitments

Note 15 - Operating Lease Commitments

Note 15 - Operating Lease Commitments

Notes

NOTE 15 - OPERATING LEASE COMMITMENTS

The Company assumed an operating lease for office space on November 1, 2011, under a non-cancellable lease obligation which expired on August 31, 2016. The Sixth Amendment to the office space lease extended the obligation to October 31, 2019.

Future minimum commitments including extension options under all non-cancellable operating lease obligations are as follows:

Contractual Obligations	2017	2018	2019	2020	2021	Total
Operating Leases	$152,513	$155,747	$132,035	$0	$0	$440,295

Lease expense for the years ended December 31, 2016 and 2015 totaled $116,945 and $135,268, respectively.

Note 16 - Related Party

Note 16 - Related Party

Notes

Note 16 - Related Party

NOTE 16 – RELATED PARTY

On August 29, 2013, the Company entered into two five (5) year credit facility agreements with two members of the Company's board of directors, Neil Leibman and Tom O'Leary. Both parties agreed to act as surety and personal guarantors ("Guarantors") with respect to $826,000 of the Company's depository requirements, consisting of a line of credit from a financial institution and certain extensions of credit by critical vendors that were necessary for the Company to carry out its business. As consideration for acting as surety and personal Guarantors, the Company issued each member 413,000 shares of its Series A Preferred Stock (“Series A Preferred”) totaling 826,000 shares of Series A Preferred. On May 6, 2014, the Guarantors were released from such obligation by the Company when the Company exercised the Call Right reflected within the Credit Facility Agreements to purchase the 826,000 shares of Series A Preferred stock from the two assisting parties. On May 13, 2014, in consideration for the purchase of the 826,000 shares of Series A Preferred from the Guarantors, the Company granted a five-year stock option to each Guarantor to purchase 151,115 shares of the Company's common stock at an exercise price of $1.50 per share.

On April 18, 2014, four members of the Company's board of directors, guaranteed an Advance to Loan Note in the amount of $1,500,000 which increased to $1,700,000. The Company agreed to issue the four Guarantors a total of 120,000 shares of the Company's common stock per month (30,000 shares of common stock per month per Guarantor) reduced accordingly as the loan is reduced in consideration for agreeing to act as a Guarantor of the Advance to Loan Amount.

In May 2016, the Company released the Guarantors from the obligation to guaranty the Advance to Loan Amount Note and stock payments for such guaranty were discontinued as of May 31, 2016. The balance of the Advance to Loan Amount was zero as of December 31, 2016 (Note 6).

On July 22, 2016, the Company advance $611,424 to a related party for purposes of short-term financing. Such advances were paid back in full to the Company on August 9, 2016. As of December 31, 2016, there were no outstanding balances due between the Company and such related party.

During the calendar year 2016, the Company provided employee services to a related party valued at $73,078. In addition, the related party provided aviation services to the Company in the amount of $20,463. The net effect of these services to the Company was $52,615. There were no outstanding balances between the Company and such related party as of December 31, 2016.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References + Details

Note 17 - Subsequent Events

Note 17 - Subsequent Events

Note 17 - Subsequent Events

Notes

NOTE 17 - SUBSEQUENT EVENTS

Employment Agreements

On January 1, 2017, the Company entered into employment agreements with three key employees. The agreements require a total annual base compensation of $550,000 in 2016 and $605,000 in 2017.

On January 1, 2017, the employment agreements provided for these three key employees be granted an option to purchase a total of 235,000 shares of the Company's common stock with a strike price which is the greater of (i) the fair market value of a share of the Company common stock on the date of grant or (ii) $2.50 per share, which option will vest five (5) years from the date of grant, so long as such key employees are employed by the Company.

A second option will be granted on January 1, 2018 to the key employees for an option to purchase a total of 235,000 shares of the Company's common stock with a strike price which is the greater of (i) the fair market value of a share of the Company's common stock on the date of grant or (ii) $2.50 per share, so long as such key employees are employed by the Company.

In addition, the employee agreements provide that such key employees shall be eligible to receive additional options to purchase common stock of the Company upon reaching certain milestones related to the performance of the Company with a strike price which is the greater of (i), the fair market value of a share of the Company's common stock on the date of grant or (ii) $2.50 per share based on metrics determined by the Board of Directors.

The Company may terminate the employment agreements without cause on thirty days advance written notice at which time the key employee would receive severance pay in accordance with such agreement of 6 months or 12 months.

The foregoing summary of the three employment agreements is qualified in its entirety by reference to the full context of the agreements which are found as Exhibits 10.1, 10.2 and 10.3 to our 8-K filing on January 4, 2017.

Stock Options

On January 1, 2017, the Company granted stock options to purchase up to 235,000 shares of the Company's common stock to two key employees. The options covering a total of 235,000 shares vest five years after the date of grant. The stock options have an exercise price of $2.50 per share and will expire ten (10) years from the date of grant. The fair value of the options of $328,665 was determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.93% (ii) estimated volatility of 171.44% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

On January 1, 2017, the Company granted stock options to purchase up to 5,000 shares of the Company's common stock to a key employee. The options covering a total of 5,000 shares vest one year after the date of grant. The stock options have an exercise price of $2.50 per share and will expire ten (10) years from the date of grant. The fair value of the options of $6,993 was determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.93% (ii) estimated volatility of 171.44% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

On February 2, 2017, the Company granted stock options to purchase up to 6,000 shares of the Company's common stock to two key employees. The options covering a total of 6,000 shares vest one year after the date of grant. The stock options have an exercise price of $2.50 per share and will expire ten (10) years from the date of grant. The fair value of the options of $8,620 was determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.92% (ii) estimated volatility of 117.37% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

On February 17, 2017, the Company granted stock options to purchase up to 2,500 shares of the Company's common stock to a key employee. The options covering a total of 2,500 shares vest one year after the date of grant. The stock options have an exercise price of $2.50 per share and will expire ten (10) years from the date of grant. The fair value of the options of $3,559 was determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.92% (ii) estimated volatility of 116.49% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

On February 17, 2017, the Company granted a total of 45,000 stock options to non-employee members of the Company's Board of Directors under the 2015 Stock Option and Stock Award Plan as compensation for service on the Company's Board. The director stock options were fully vested on the date of grant, have an exercise price of $2.25 per share, will expire ten (10) years from the date of the grant and are estimated to have a fair value of approximately $64,321 on the date of grant determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.92% (ii) estimated volatility of 116.49% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

Note 2 - Significant Accounting Policies (Policies)

Note 2 - Significant Accounting Policies (Policies)

Unbilled Revenue and Accounts Receivable

Policies

Revenue Recognition

Cost Recognition

Direct energy costs are recorded when the electricity is delivered to the customer's meter.

The energy portion of our COGS is comprised of two components: bilateral wholesale costs and balancing/ancillary costs. These two cost components are incurred and recognized differently as follows:

Basic and Diluted Loss Per Unit

Basic and Diluted Income/(Loss) Per Share

Stock-Based Compensation

If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned share-based compensation expense.

Income Taxes

New Customer Implementation Costs

Warrants

Use of Estimates

Concentration of Credit Risk

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all short-term investments and debt instruments with an original maturity of three months or less to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives:

Estimated Lives

Computer software	3 years
Computer hardware	3 years
Furniture and fixtures	5 years
Leasehold improvements	5 years
Website	3 years
Other equipment	7 years

Deferred Financing Costs

Derivative Instruments

Recent Pronouncements

Note 3 - Income Taxes: Schedule of Components of Income Tax Expense (benefit) From Continuing Operations (Tables)

Note 3 - Income Taxes: Schedule of Components of Income Tax Expense (benefit) From Continuing Operations (Tables)

Schedule of Components of Income Tax Expense (benefit) From Continuing Operations

The components of income tax expense (benefit) from continuing operations for the years ended December 31, 2016 and 2015 are as follows:

	Current	Deferred	Total

2016
U.S. Federal	-	$-	$-
States and Local	85,100	-	85,100
Total	$85,100	$-	$85,100

2015
U.S. Federal	30,500	$-	$30,500
States and Local	101,000	-	101,000
Total	$131,500	$-	$131,500

Note 3 - Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Tables)

Note 3 - Income Taxes: Schedule of Effective Income Tax Rate Reconciliation (Tables)

Schedule of Effective Income Tax Rate Reconciliation

	2016	2015

Expected tax expense	(314,500)	581,000
Reconciling items:
Permanent Differences/Discrete Items	(29,500)	11,500
Change in Valuation Allowance	429,100	(461,000)
Others	-	-

Total tax expense	$85,100	$131,500

Note 3 - Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Tables)

Note 3 - Income Taxes: Schedule of Deferred Tax Assets and Liabilities (Tables)

Schedule of Deferred Tax Assets and Liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below:

	2016	2015

Deferred tax assets:
Net operating loss carryforward - Federal	$2,017,500	$1,554,000
Federal Minimum Tax	28,000	30,500
Reserve for accounts receivable	340,000	534,500
Organizational costs	10,000	11,000
Accrued expenses	167,000	41,500
Total gross deferred tax assets	2,562,500	2,171,500
Valuation allowance	(2,530,000)	(2,103,000)
Net deferred tax assets	32,500	68,500

Deferred tax liabilities:
Plant and equipment	(32,500)	(68,500)
Net deferred tax liabilities	(32,500)	(68,500)

Net deferred tax assets	$-	$-

Note 10 - Warrants: Schedule of Warrant activity (Tables)

Note 10 - Warrants: Schedule of Warrant activity (Tables)

Schedule of Warrant activity

Warrant activity for the years ended December 31, 2016 and 2015, was as follows:

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)	Grant Date Fair Value
Outstanding at December 31, 2014	826,000	$1.33	3.56	$75,406
Warrants granted	1,065,000	1.52	4.19	38,420
Warrants exercised	-	-	-	-
Warrants cancelled/forfeited/expired	-	-	-	-
Outstanding at December 31, 2015	1,891,000	$1.44	3.47	$113,826
Warrants granted	-		-	-
Warrants exercised	-	-	-	-
Warrants cancelled/forfeited/expired	-	-	-	-
Outstanding at December 31, 2016	1,891,000	$1.44	2.46	$113,826
Vested at December 31, 2016	1,625,763	$1.51	2.50	$68,826
Exercisable at December 31, 2016	1,625,763	$1.51	2.50	$68,826

- Definition

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

+ References + Details

Note 12 - 2012 Stock Option and Stock Award Plan: Schedule of Share-based Compensation, Stock Options, Activity (Tables)

Note 12 - 2012 Stock Option and Stock Award Plan: Schedule of Share-based Compensation, Stock Options, Activity (Tables)

2012 Stock Option and Stock Award Plan

Schedule of Share-based Compensation, Stock Options, Activity

As of December 31, 2016, the Company had outstanding granted stock options from the 2012 Stock Option and Stock Award Plan, net of forfeitures to purchase 632,000 shares summarized as follows:

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)	Grant Date Fair Value
Outstanding at December 31, 2014	479,250	$1.22	8.57	$48,563
Options granted	153,750	1.3	9.07	14,026
Options exercised	-	-	-	-
Options cancelled/forfeited/expired	(2,000)	1.5		(82)
Outstanding at December 31, 2015	631,000	$1.25	7.93	$62,507
Options granted	2,500	$2.00	10.00	$5,344
Options exercised
Options cancelled/forfeited/expired	(1,500	$1.5	-	$(62)
Outstanding at December 31, 2016	632,000	$1.24	6.86	$67,789

Vested at December 31, 2016	629,500	$1.23	6.89	$64,673

Exercisable at December 31, 2016	629,500	$1.23	6.89	$64,673

Note 13 - 2015 Stock Option and Stock Award Plan: Schedule of Share-based Compensation, Stock Options, Activity (Tables)

Note 13 - 2015 Stock Option and Stock Award Plan: Schedule of Share-based Compensation, Stock Options, Activity (Tables)

2015 Stock Option and Stock Award Plan

Schedule of Share-based Compensation, Stock Options, Activity

As of December 31, 2016, the Company had outstanding granted stock options from the 2015 Stock Option and Stock Award Plan, net of forfeitures to purchase 899,500 shares summarized as follows:

	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in Years)	Grant Date Fair Value
Outstanding at December 31, 2014	$-	-	-	$-
Options granted	643,500	1.27	9.57	78,574
Options exercised	-	-	-	-
Options cancelled/forfeited/expired	-	-	-	-
Outstanding at December 31, 2015	643,500	$1.27	9.57	78,574
Options granted	263,500	$1.51	9.65	349,181
Options exercised
Options cancelled/forfeited/expired	(7,500)	$1.83	-	(810)
Outstanding at December 31, 2016	899,500	$1.33	8.75	426,945

Vested at December 31, 2016	752,500	$1.27	8.87	418,848

Exercisable at December 31, 2016	752,500	$1.27	8.87	418,848

Note 14 - Property and Equipment: Schedule of Property and Equipment (Tables)

Note 14 - Property and Equipment: Schedule of Property and Equipment (Tables)

Schedule of Property and Equipment

As of December 31, 2016 and 2015, property and equipment consisted of the following:

	December 31, 2016 ($)	December 31, 2015 ($)
Computer software	113,451	107,399
Computer hardware	155,182	136,982
Furniture and fixtures	49,723	49,723
Leasehold improvements	86,714	86,714
Website	775,881	723,371
Other equipment	-	-
Total property and equipment	1,180,951	1,104,189
Less: Accumulated depreciation	(942,158)	(731,677)
Property and equipment, net	238,793	372,512

Note 15 - Operating Lease Commitments: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)

Note 15 - Operating Lease Commitments: Schedule of Future Minimum Rental Payments for Operating Leases (Tables)