UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
W
ashington
, D.C.
20549
FORM 10-K
(M
ark
O
ne
)
☑
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
F
or
the fiscal year ended
D
ecember
31,
2018
or
☐
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
F
or
the transition period
from
_______________
to
_______________
C
ommission
file number
:
000-54887
|
BRIGHT MOUNTAIN MEDIA, INC.
|
|
(
Exact name of
registrant as specified in its charter
)
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Florida
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27-2977890
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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6400 Congress Avenue, Suite 2050, Boca Raton, Florida
33487
(Address of principal executive offices)(Zip Code)
Registrant's
telephone number, including area code:
561-998-2440
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name of
each exchange on which registered
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None
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Not applicable
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Securities
registered under Section 12(g) of the Act:
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Common stock, par value $0.01 per share
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|
(Title of class)
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities
Act. ☐ Yes ☑ No
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the
Act. ☐ Yes ☑ No
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90
days. ☑ Yes ☐ No
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.4.05 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). ☑ Yes ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not (§229.405 of this
chapter) contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
|
Large
accelerated filer
|
☐
|
Accelerated
filer
|
☐
|
|
Non-accelerated
filer
|
☑
|
Smaller
reporting company
|
☑
|
|
Emerging
growth company
|
☑
|
|
|
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange
Act) ☐ Yes ☑ No
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was sold, or the average bid and asked
prices of such common equity, as of the last business day of the
registrant's most recently completed second fiscal quarter.
$12,246,375 on June 29, 2018.
Indicate
the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
64,148,864 shares of common stock are issued and outstanding as of
April 8, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and
the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) Any annual report to security
holders; (2) Any proxy or information statement; and (3) Any
prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to
security holders for fiscal year ended December 24, 1980).
None.
TABLE OF CONTENTS
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Page No.
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Part I
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5
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9
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17
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17
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17
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17
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Part II
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18
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19
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19
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25
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25
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25
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25
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26
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Part III
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27
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31
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33
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34
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34
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Part IV
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36
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This
report includes forward-looking statements that relate to future
events or our future financial performance and involve known and
unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to
differ materially from any future results, levels of activity,
performance or achievements expressed or implied by these
forward-looking statements. Words such as, but not limited to,
“believe,” “expect,”
“anticipate,” “estimate,”
“intend,” “plan,” “targets,”
“likely,” “aim,” “will,”
“would,” “could,” and similar expressions
or phrases identify forward-looking statements. We have based these
forward-looking statements largely on our current expectations and
future events and financial trends that we believe may affect our
financial condition, results of operation, business strategy and
financial needs. Forward-looking statements include, but are not
limited to, statements about risks associated with:
●
our
history of losses, our declining gross profit margins, our ability
to raise additional capital and continue as a going
concern;
●
our
ability to fully develop the Bright Mountain Media Ad Exchange
Network and services platform
●
a
failure to successfully transition to primarily advertising based
revenue model;
●
the
continued appeal of Internet advertising;
●
our
ability to manage and expand our relationships with
publishers;
●
our
dependence on revenues from a limited number of
customers;
●
the
impact of seasonal fluctuations on our revenues;
●
acquisitions
of new businesses and our ability to integrate those businesses
into our operations;
●
online
security breaches;
●
failure
to effectively promote our brand and attract
advertisers;
●
our
ability to protect our content;
●
our
ability to protect our intellectual property rights;
●
the
success of our technology development efforts;
●
additional
competition resulting from our business expansion
strategy;
●
our dependence on revenues from a limited number of
customers
;
●
our
ability to detect advertising fraud;
●
liability
related to content which appears on our websites;
●
regulatory
risks and compliance with privacy laws;
●
dependence
on executive officers and certain key employees and
consultants;
●
our
ability to hire qualified personnel;
●
possible
problems with our network infrastructure;
●
ongoing
material weaknesses in our disclosure controls and internal control
over financial reporting;
●
the
impact on available working capital resulting from the payment of
cash dividends to our affiliates;
●
dilution to existing shareholders upon the conversion of
outstanding preferred stock and convertible notes and/or the
exercise of outstanding options and warrants, including warrants
with cashless exercise rights
;
●
the
illiquid nature of our common stock;
●
risks
associated with securities litigation;
●
provisions
of our charter and Florida law which may have anti-takeover
effects; and
●
the
impact of diversion of management’s time as we pursue the
litigation against the former owners of one of the entities we
acquired.
You
should read thoroughly this report and the documents that we refer
to herein with the understanding that our actual future results may
be materially different from and/or worse than what we expect. We
qualify all of our forward-looking statements by these cautionary
statements including those made in Part I. Item 1A. Risk Factors
appearing elsewhere in this report. Other sections of this report
include additional factors, which could adversely impact our
business and financial performance. New risk factors emerge from
time to time and it is not possible for our management to predict
all risk factors, nor can we assess the impact of all factors on
our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Except for our ongoing
obligations to disclose material information under the Federal
securities laws, we undertake no obligation to release publicly any
revisions to any forward-looking statements, to report events or to
report the occurrence of unanticipated events. These
forward-looking statements speak only as of the date of this
report, and you should not rely on these statements without also
considering the risks and uncertainties associated with these
statements and our business.
3
OTHER PERTINENT INFORMATION
Unless
specifically set forth to the contrary, when used in this report
the terms “Bright Mountain,” the “Company,”
“we,” “our,” “us,” and similar
terms refers to Bright Mountain Media, Inc., a Florida corporation,
and our subsidiaries. In addition, "fourth quarter of 2018" refers
to the three months ended December 31, 2018, “2018”
refers to the year ended December 31, 2018, "fourth quarter of
2017" refers to the three months ended December 31, 2017,
“2017” refers to the year ended December 31, 2017 and
“2019” refers to the year ending December 31,
2019.
Unless
specifically set forth to the contrary, the information which
appears on our website at www.brightmountainmedia.com is not part
of this report.
4
I
TEM 1. DESCRIPTION OF BUSINESS.
Historically
we have operated as a digital media holding company for online for
online assets primarily targeted to the military and public safety
sectors. In addition to our corporate website, we own and/or manage
25 websites which are customized to provide our niche users,
including active, reserve and retired military, law enforcement,
first responders and other public safety employees with products,
information and news that we believe may be of interest to them. We
also own an ad network which was acquired in September 2017. We
have placed a particular emphasis on providing quality content on
our websites to drive traffic increases. Our websites feature
timely, proprietary and aggregated content covering current events
and a variety of additional subjects targeted to the specific
demographics of the individual website. Our business strategy
requires us to continue to provide this quality content to our
niche markets and to grow our business, operations and revenues
both organically and through acquisitions as we expand our business
past the original niche markets into mainstream digital
audiences.
We
have invested in our infrastructure and acquisitions and placed an
emphasis on providing quality content on our websites necessary to
drive traffic to our websites. With the exit from our E-Commerce
businesses effective December 31, 2018, we believe that we have
advanced our transition to becoming a digital media company. We
believe that with this action, our business, results of operations
and financial condition will be positively impacted in the long
term.
Our
advertising network matches advertisers with publishers. It
offers video, display, mobile and native ads, providing focused
promotion for advertisers of products and services while helping
websites monetize their visitor traffic. Our advertising
exchange platform is being developed to be a trading desk for
publishers and advertisers where they will be able to log-in and
choose from various features. Publishers will be able to
select a variety of advertising units for their video, mobile,
display and native advertisements and also have the ability to
create their own unique advertising formats. Advertisers will be
able to choose where their advertisements will be seen using our
filters or by connection directly with the publisher through our
platform.
We
have grown our business through sales efforts
including:
●
establishing
favorable contract terms with many key advertising demand
parties;
●
supply
relationships with approximately 200 digital
publishers;
●
over 50 RTB
clients;
●
proprietary
software to collect and report results for publisher
clients;
●
ability and
software to quickly and efficiently detect fraudulent traffic;
and
●
highly scalable
sales and ad operations functions.
Bright Mountain Media Ad Network Business
While we are currently accessing third party real
time bidding, or “RTB,” platforms, we are currently
working on the development of our own proprietary real time
bidding, or “RTB,” platform, display and video ad
serving software, and header bidding technology, as we move to
vertically integrate higher margin software products into our ad
network business model. The platform, which is the pre-Alpha stage,
is being developed for us by
AdsRemedy
, a third party consulting firm that provides
support services to us.
Our
new platform is expected to have a significant impact on our
revenues and its capabilities will include:
●
server integration
with several ad exchanges, making for extremely quick ad
deployments;
●
leading targeting
technology, allowing advertisers to pinpoint their marketing
efforts to reach various demographics across mobile, tablet, and
desktop;
●
capable of handling
any ad format, including video, display, and native
ads;
●
ad serving and
self-service features; and
●
ability for
advertisers and publishers to conduct private deals.
We
believe that the exit from the E-Commerce business will have the
following benefits during 2019 and beyond:
●
allow us to
concentrate all our efforts on the Ad Network, Ad Tech, and Ad
software business; and
●
change the digital
market for young male audiences and advertisers by being the first
vertically integrated publisher/ad network in our
demographic.
5
Our Strategy
The
exit from all of our E-commerce businesses at December 31, 2018
allows Bright Mountain to concentrate all of our resources to our
best and fastest growing business opportunities.
The
Bright Mountain Media business strategy focuses on two primary
elements:
●
first
, the organic growth of our
existing Ad Network
and owned and
operated websites
.
●
second
, the very selective acquisition
of related businesses in our space that are complimentary to our
growth strategy.
To
implement this strategy, we intend to:
●
accelerate the
organic growth of Bright Mountain Media through the addition of
internally developed software products that will vertically
integrate our business model through our own ad serving, header
bidding and owned RTB platform which will increase sales and gross
profit margins; and
●
leverage our
Management and Acquisition Agreement with Spartan Capital
Securities, LLC (“Spartan Capital”) to help locate and
introduce companies in our space that will compliment our
acquisition business strategy.
Currently, in
addition to our corporate website, www.brightmountainmedia.com, we
own the following website properties which we have acquired or
developed:
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Advertisetothemilitary.com
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Militaryhousingrentals.com
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Bootcamp4me.com
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Popularmilitary.com
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●
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Bootcamp4me.org
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●
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Thebrightnetwork.com
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●
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BrightMountainMedia.com
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●
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Thebright.com
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●
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Coastguardnews.com
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Thebrightmail.com
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●
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Fdcareers.com
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●
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Usmclife.com
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●
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Thebravestonline.com
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●
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Wardocumentaryfilms.com
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●
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Firefightingnews.com
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●
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Warisboring.com
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●
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JQPublicblog.com
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●
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Welcomehomeblog.com
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●
|
Leoaffairs.com
|
|
|
We also
partner on six additional websites, havokjournal.com,
Article107News.com, 24HourCampFire.com, Retail Salute,
ChicagoFireWire.com, and yuuut.com, under revenue sharing
arrangements.
Discontinued Operations
Historically we
generated revenues from two segments, our advertising segment and
our product sales segment. Revenues from the product sales segment
included
revenues from t
wo of
our websites that operate as e-commerce platforms, including Bright
Watches and Black Helmet, as well as Bright Watches’ retail
location. During 2018 we began to de-emphasize our product sales
segment as we placed more emphasis on our advertising segment.
Management, prior to December 31, 2018, with the appropriate level
of authority, determined to discontinue the operations of Black
Helmet and Bright Watches effective December 31, 2018.
The
decision to exit all components of our product segment have
resulted in these businesses being accounted for as discontinued
operations. We recorded a loss, net of income taxes, of $1,092,750
in 2018 for the discontinued operations.
Subsequent
to December 31, 2018, we are aggressively marketing the remaining
Bright Watches’ inventory in an effort to liquidate such
inventory as quickly as possible. In addition, in March 2018 we
sold the assets which were used in our Black Helmet apparel
E-Commerce business to an unaffiliated third party for $175,000, of
which $20,000 was paid at closing and the balance is payable under
the terms of a promissory note in the principal amount of $155,000
and bearing interest at 15% per annum. The note is secured by a
guarantee of the principal of the purchaser.
6
Intellectual Property
We
currently rely on a combination of trade secret laws and
restrictions on disclosure to protect our intellectual property
rights. Our success depends on the protection of the proprietary
aspects of our technology as well as our ability to operate without
infringing on the proprietary rights of others. We also enter into
proprietary information and confidentiality agreements with our
employees, consultants and commercial partners and control access
to, and distribution of, our software documentation and other
proprietary information. We own various service marks and
trademarks, which are registered with the United States Patent and
Trademark Office including the following:
“THE BRIGHT
NETWORK” Design and Service Mark;
“THEBRIGHT.COM”
Logo Trade Mark and Service Mark;
“BRIGHT
MOUNTAIN” Service Mark; and
In
addition to www.brightmountainmedia.com and www.thebright.com, we
own multiple domain names that we may or may not operate in the
future.
Technology
Our top
technical priority is the fast and reliable delivery of pages and
ads to our users. Our systems are designed to handle traffic and
network growth. We rely on multiple tiers of redundancy/failover
and third-party content delivery network to achieve our goal of 24
hours, seven-days-a-week Website uptime. Regular automated backups
protect the integrity of our data. Our servers are continuously
monitored by numerous third-party and open-source monitoring and
alerting tools.
Competition
The
internet and industries that operate through it are intensely
competitive. We compete with other companies that have
significantly greater financial, technical, marketing, and
distribution resources. Our competitors include Verizon Media,
AppNexus, The Maven, and Praetorian Digital.
Most
of our competitors have significantly greater financial, technical,
marketing and distribution resources as well as greater experience
in the industry than we have. There are no assurances we will ever
be able to effectively compete in our marketplace. Our websites may
not be competitive with other technologies and/or our websites may
be displaced by newer technology. If this happens, our sales and
revenues will likely decline. In addition, our current and
potential competitors may establish cooperative relationships with
larger companies, to gain access to greater development or
marketing resources. Competition may result in price reductions,
reduced gross margins and loss of market share.
Government regulation
Interest-based
advertising, or the use of data to draw inferences about a
user’s interests and deliver relevant advertising to that
user, has come under increasing scrutiny by legislative,
regulatory, and self-regulatory bodies in the United States and
abroad that focus on consumer protection or data privacy. In
particular, this scrutiny has focused on the use of cookies and
other technology to collect or aggregate information about Internet
users’ online browsing activity. Because we, and our clients,
rely upon large volumes of such data collected primarily through
cookies, it is essential that we monitor developments in this area
domestically and globally, and engage in responsible privacy
practices, including providing consumers with notice of the
types of data we collect and how we use that data to provide our
services.
We
provide this notice through our privacy policy, which can be found
on our website at http://www.BrightMountainMedia.com. As stated in
our privacy policy, our technology platform does not collect
information, such as name, address, or phone number, that can be
used directly to identify a real person, and we take steps not to
collect and store such personally identifiable information from any
source. Instead, we rely on IP addresses, geo-location information,
and persistent identifiers about Internet users and do not attempt
to associate this data with other data that can be used to identify
real people. This type of information is considered personal data
in some jurisdictions or otherwise may be the subject of future
legislation or regulation. The definition of personal data varies
by country, and continues to evolve in ways that may require us to
adapt our practices to avoid violating laws or regulations related
to the collection, storage, and use of consumer data. For example,
some European countries consider IP addresses or unique device
identifiers to be personal data subject to heightened legal and
regulatory requirements. As a result, our technology platform and
business practices must be assessed regularly in each country in
which we do business.
7
There
are also a number of specific laws and regulations governing the
collection and use of certain types of consumer data relevant to
our business. For example, the Children’s Online Privacy
Protection Act ("COPPA"), imposes restrictions on the collection
and use of data about users of child-directed websites. To comply
with COPPA, we have taken various steps to implement a system that:
(i) flags seller-identified child-directed sites to buyers,
(ii) limits advertisers’ ability to serve interest-based
advertisements, (iii) helps limit the types of information
that our advertisers have access to when placing advertisements on
child-directed sites, and (iv) limits the data that we collect
and use on such child-directed sites.
The
use and transfer of personal data in EU member states is currently
governed under the EU Data Protection Directive, which generally
prohibits the transfer of personal data of EU subjects outside of
the EU, unless the party exporting the data from the EU implements
a compliance mechanism designed to ensure that the receiving party
will adequately protect such data. We have relied on alternative
compliance measures, which are complex, which may be subject to
legal challenge, and which directly subject us to regulatory
enforcement by data protection authorities located in the European
Union. By relying on these alternative compliance measures, we risk
becoming the subject of regulatory investigations in any of the
individual jurisdictions in which we operate. Each such
investigation could cost us significant time and resources, and
could potentially result in fines, criminal prosecution, or other
penalties. Further, some of these alternative compliance measures
are facing legal challenges, which, if successful, could invalidate
the alternative compliance measures that we currently rely on. It
may take us significant time, resources, and effort to restructure
our business and/or rely on another legally sufficient compliance
measure. In addition, the European Union has finalized the General
Data Protection Regulation ("GDPR"), which will become effective in
May 2018. The GDPR sets out higher potential liabilities for
certain data protection violations, as well as a greater compliance
burden for us in the course of delivering our solution in Europe;
among other requirements, the GDPR obligates companies that process
large amounts of personal data about EU residents to implement a
number of formal processes and policies reviewing and documenting
the privacy implications of the development, acquisition, or use of
all new products, technologies, or types of data. Further, the
European Union is expected to replace the EU Cookie Directive
governing the use of technologies to collect consumer information
with the ePrivacy Regulation. The ePrivacy Regulation propose
burdensome requirements around obtaining consent, and impose fines
for violations that are materially higher than those imposed under
the Cookie Directive.
The
UK's decision to leave the European Union may add cost and
complexity to our compliance efforts. If UK and EU privacy and data
protection laws and regulations diverge, we will be required to
implement alternative EU compliance measures and adapt separately
to any new UK requirements.
Additionally,
our compliance with our privacy policy and our general consumer
privacy practices are also subject to review by the Federal Trade
Commission, which may bring enforcement actions to challenge
allegedly unfair and deceptive trade practices, including the
violation of privacy policies and representations therein. Certain
State Attorneys General may also bring enforcement actions based on
comparable state laws or federal laws that permit state-level
enforcement. Outside of the United States, our privacy and
data practices are subject to regulation by data protection
authorities and other regulators in the countries in which we do
business.
Beyond
laws and regulations, we are also members of self-regulatory bodies
that impose additional requirements related to the collection, use,
and disclosure of consumer data, including the Internet Advertising
Bureau ("IAB"), the Digital Advertising Alliance, the Network
Advertising Initiative, and the Europe Interactive Digital
Advertising Alliance. Under the requirements of these
self-regulatory bodies, in addition to other compliance
obligations, we provide consumers with notice via our privacy
policy about our use of cookies and other technologies to collect
consumer data, and of our collection and use of consumer data to
deliver interest-based advertisements. We also allow consumers
to opt-out from the use of data we collect for purposes of
interest-based advertising through a mechanism on our website,
linked through our privacy policy as well as through portals
maintained by some of these self-regulatory bodies. Some of these
self-regulatory bodies have the ability to discipline members or
participants, which could result in fines, penalties, and/or public
censure (which could in turn cause reputational harm).
Additionally, some of these self-regulatory bodies might refer
violations of their requirements to the Federal Trade Commission or
other regulatory bodies.
Employees
At
April 8, 2019 we had thirteen full-time and one part-time
employees. We also utilize the services of eleven independent
contractors who provide content, operational and website
services.
8
History
of our company
We were
organized as a Florida corporation in 2010 under the name Speyer
Investment Advisors, Inc. In 2012 we changed our name to Speyer
Investment Research, Inc. In 2014, as we began building our brand
we changed our name to Bright Mountain Holdings, Inc. and in 2015
we changed our name to Bright Mountain Acquisition Corporation and
then to Bright Mountain Media, Inc. as we began implementing our
strategy to transform into a digital media company.
Additional
information concerning the terms of material business combinations
can be found in Note 1 and Note 4 of the notes to our audited
consolidated financial statements appearing later in this
report.
I
TEM 1A. RISK FACTORS.
Before you invest in our securities, you should be aware that there
are various risks in making any such investment. You should
consider carefully these risk factors, together with all of the
other information included in this report before you decide to
purchase any of our securities. If any of the following risks and
uncertainties develop into actual events, our business, financial
condition or results of operations could be materially adversely
affected and you could lose your entire investment in our
company.
RISKS RELATED TO OUR COMPANY
WE HAVE A HISTORY OF
LOSSES
.
We
incurred net losses of $5,224,064 and $2,994,096, respectively, for
2018 and 2017, which includes losses of $1,092,750 and $424,391,
respectively, for discontinued operations. At December 31, 2018 we
had an accumulated deficit of $17,042,966. While our revenues
increased 57.2% for 2018 from 2017, our gross profit margin
declined from 39.2% in 2017 to 20.6% in 2018. In addition, in 2018
our selling, general and administrative expenses, or
“SG&A
”, increased 34.6% in 2018 from 2017. We
anticipate that our SG&A will continue to increase in 2019 and
beyond, and we may continue to incur losses in future periods until
such time, if ever, as we are successful in significantly
increasing our revenues and gross profit to a level to fund our
operating expenses. There are no assurances that we will be able to
significantly increase our revenues and gross profit to a level
which supports profitable operations and provides sufficient funds
to pay our operating expenses and other obligations as they become
due.
WE ARE DEPENDENT UPON SALES OF EQUITY SECURITIES AND LOANS FROM OUR
CHIEF EXECUTIVE OFFICER TO PROVIDE OPERATING CAPITAL.
We do
not generate sufficient gross profit to pay our operating expenses
and we reported losses from continuing operations of $4,131,314 and
$2,569,705 in 2018 and 2017, respectively. Historically we have
been dependent upon the purchase of equity securities or
convertible notes by Mr. Kip Speyer, our Chief Executive Officer,
to provide operating capital. During 2018 and 2017 he invested
$530,000 and $1,760,000, respectively, in our company. During 2018
and 2017 we paid him $281,882 and $171,254, respectively, in
dividend and interest payments on these investments. In addition,
between January 2018 and January 2019 we raised $6,000,000 through
the sale of our equity securities in private placements. After
payment of the cash commissions of $600,000 and non-accountable
expense allowance of $40,000 to Spartan Capital, a broker dealer
and member of FINRA who served as placement agent in the offerings,
we used $2,000,000 of the gross proceeds of $6,000,000 to pay
Spartan $1,000,000 in fees, $600,000 in commissions, $400,000 in
uplisting, finders and 4% fees and are using the balance for
working capital, including to fund our operating loss. While we
expect to seek to raise additional working capital through the sale
of our securities in private or public transactions, we are not a
party to any binding agreements and there are no assurances we will
be able to raise any additional third party capital. Mr. Speyer is
also under no obligation to continue to lend us money or purchase
equity securities from us. If we are not able to raise sufficient
additional working capital as needed, absent a significant increase
in our revenues we may be unable to grow our company.
THE COMPANY'S ECONOMIC PERFORMANCE
HAS RAISED SUBSTANTIAL DOUBTS AS TO OUR ABILITY TO CONTINUE AS A
GOING CONCERN
.
Our
consolidated financial statements have been prepared assuming we
will continue as a going concern. We have experienced substantial
and recurring losses from operations, which losses have caused an
accumulated deficit of $17,042,966 at December 31, 2018. These
factors, among others, raise substantial doubt about our ability to
continue as a going concern. Our consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
9
IF WE FAIL TO DETECT ADVERTISING FRAUD OR OTHER ACTIONS THAT IMPACT
OUR ADVERTISING CAMPAIGN PERFORMANCE, WE COULD HARM OUR REPUTATION
WITH ADVERTISERS OR AGENCIES, WHICH WOULD CAUSE OUR REVENUE AND
BUSINESS TO SUFFER.
Once
established, the Bright Mountain Media Ad Network Business will
rely on our ability to deliver successful and effective advertising
campaigns. Some of those campaigns may experience fraudulent and
other invalid impressions, clicks or conversions that advertisers
may perceive as undesirable, such as non-human traffic generated by
machines that are designed to simulate human users and artificially
inflate user traffic on websites. These activities could overstate
the performance of any given advertising campaign and could harm
our reputation. It may be difficult for us to detect fraudulent or
malicious activity on websites where we do not own content and rely
in part on our customers to control such activity. If we fail to
detect or prevent fraudulent or other malicious activity, the
affected advertisers may experience or perceive a reduced return on
their investment and our reputation may be harmed. High levels of
fraudulent or malicious activity could lead to dissatisfaction with
our solutions, refusals to pay, refund or future credit demands or
withdrawal of future business.
IF ADVERTISING ON THE INTERNET LOSES ITS APPEAL, OUR REVENUE COULD
DECLINE.
Our
business model may not continue to be effective in the future for a
number of reasons, including:
●
a
decline in the rates that we can charge for advertising and
promotional activities;
●
our
inability to create applications for our customers;
●
Internet
advertisements and promotions are, by their nature, limited in
content relative to other media;
●
companies
may be reluctant or slow to adopt online advertising and
promotional activities that replace, limit or compete with their
existing direct marketing efforts;
●
companies
may prefer other forms of Internet advertising and promotions that
we do not offer;
●
the
quality or placement of transactions, including the risk of
non-screened, non-human inventory and traffic, could cause a loss
in customers or revenue; and
●
regulatory
actions may negatively impact our business practices.
If
the number of companies who purchase online advertising and
promotional services from us does not grow, we may experience
difficulty in attracting publishers, and our revenue could
decline.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO EFFECTIVELY EXPAND AND
MANAGE OUR RELATIONSHIPS WITH OUR PUBLISHERS.
Outside
of our owned and operated websites, we are dependent upon our
publishing partners to provide the media which we sell. We depend
on these publishers to make their respective media inventories
available to us to use in connection with our campaigns that we
manage, create or market. Our growth depends, in part, on our
ability to expand and maintain our publisher relationships within
our network and to have access to new sources of media inventory
such as new partner websites and Facebook pages that offer
attractive demographics, innovative and quality content and growing
Web user traffic volume. Our ability to attract new publishers to
our networks and to retain Web publishers currently in our networks
will depend on various factors, some of which are beyond our
control. These factors include, but are not limited to, our ability
to introduce new and innovative products and services, our pricing
policies, and the cost-efficiency to Web publishers of outsourcing
their advertising sales. In addition, the number of competing
intermediaries that purchase media inventory from Web publishers
continues to increase. In the event we are not able to maintain
effective relationships with our publishers, our ability to
distribute our advertising campaigns will be greatly hindered which
will reduce the value of our services and adversely impact our
results of operations in future periods.
WE ARE DEPENDENT ON REVENUES FROM A LIMITED NUMBER OF
CUSTOMERS.
For
2018 revenues from two customers accounted for approximately 22.6%
of our revenues and at December 31, 2018. The loss of either of
these customers could have material adverse impact on our results
of operations in future periods.
WE ARE SUBJECT TO SEASONAL FLUCTUATIONS IN OUR REVENUES IN FUTURE
PERIODS.
Typically
advertising technology companies report a material portion of their
revenues during the fourth calendar quarter as a result of holiday
related ad spend. Because of seasonal fluctuations, there can be no
assurance that the results of any particular quarter will be
indicative of results for the full year or for future
years.
10
THE ACQUISITION OF NEW BUSINESSES IS COSTLY AND THESE ACQUISITIONS
MAY NOT ENHANCE OUR FINANCIAL CONDITION.
A
significant element of our growth strategy has been to acquire
companies which complement our business. The process to undertake a
potential acquisition can be time-consuming and costly. We have and
continue to expect to expend significant resources to undertake
business, financial and legal due diligence on our potential
acquisition targets and there is no guarantee that we will acquire
the company after completing due diligence. The process of
identifying and consummating an acquisition could result in the use
of substantial amounts of cash and exposure to undisclosed or
potential liabilities of acquired companies. In some instances, we
may be required to provide historic audited financial statements
for up to two years for acquisition targets in compliance with the
rules and regulations of the SEC. The necessity to provide these
audited financial statements will increase the costs to us of
consummating an acquisition or, if it is determined that the target
company cannot obtain the requisite audited financials, we may be
unable to pursue an acquisition which might otherwise be accretive
to our business. In addition, even if we are successful in
acquiring additional companies, there are no assurances that the
operations of these businesses will enhance our future financial
condition. To the extent that a business we acquire does not meet
the performance criteria used to establish a purchase price, some
or all of the goodwill related to that acquisition could be charged
against our future earnings, if any.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.
User
confidence in our websites depends on maintaining strong security
features. While we are unaware of any security breaches to date,
experienced programmers or “hackers” could penetrate
sectors of our systems. Because a hacker who is able to penetrate
network security could misappropriate proprietary information or
cause interruptions in our services, we may have to expend
significant capital and resources to protect against or to
alleviate problems caused by hackers. Additionally, we may not have
a timely remedy against a hacker who is able to penetrate our
network security. Such security breaches could materially affect
our operations, damage our reputation and expose us to risk of loss
or litigation. In addition, the transmission of computer viruses
resulting from hackers or otherwise could expose us to significant
liability. Our insurance policies may not be adequate to reimburse
us for losses caused by security breaches. We also face risks
associated with security breaches affecting third parties with whom
we have relationships.
WE MUST PROMOTE THE BRIGHT MOUNTAIN BRAND TO ATTRACT AND RETAIN
USERS, ADVERTISERS AND STRATEGIC PARTNERS.
The
success of the Bright Mountain brand depends largely on our ability
to provide high quality content which is of interest to our users.
If our users do not perceive our existing content to be of high
quality, or if we introduce new content or enter into new business
ventures that are not favorably perceived by users, we may not be
successful in promoting and maintaining the Bright Mountain brand.
Any change in the focus of our operations creates a risk of
diluting our brand, confusing users and decreasing the value of our
website traffic base to advertisers. If we are unable to maintain
or grow the Bright Mountain brand, our business would be severely
harmed.
WE MAY EXPEND SIGNIFICANT RESOURCES TO PROTECT OUR CONTENT OR TO
DEFEND CLAIMS OF INFRINGEMENT BY THIRD PARTIES, AND IF WE ARE NOT
SUCCESSFUL WE MAY LOSE RIGHTS TO USE SIGNIFICANT MATERIAL OR BE
REQUIRED TO PAY SIGNIFICANT FEES.
Our
success and ability to compete are dependent on our proprietary
content. We rely exclusively on copyright law to protect our
content. While we actively take steps to protect our proprietary
rights, these steps may not be adequate to prevent the infringement
or misappropriation of our content, which could severely harm our
business. In addition to content written by our employees, we also
acquire content from various freelance providers and other
third-party content providers. While we attempt to ensure that such
content may be freely used by us, other parties may assert claims
of infringement against us relating to such content. We may need to
obtain licenses from others to refine, develop, market and deliver
new content or services. We may not be able to obtain any such
licenses on commercially reasonable terms or at all or rights
granted pursuant to any licenses may not be valid and
enforceable.
11
FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR CLAIMS BY
OTHERS THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS COULD
SUBSTANTIALLY HARM OUR BUSINESS.
Our
website domain names are crucial to our business. However, as with
phone numbers, we do not have and cannot acquire any property
rights in an internet address. The regulation of domain names in
the United States and in other countries is also subject to change.
Regulatory bodies could establish additional top-level domains,
appoint additional domain name registrars or modify the
requirements for holding domain names. As a result, we might not be
able to maintain our domain names or obtain comparable domain
names, which could harm our business. We also rely on a combination
of trade secret laws and restrictions on disclosure to protect our
intellectual property rights. Our success depends on the protection
of the proprietary aspects of our technology as well as our ability
to operate without infringing on the proprietary rights of others.
Despite these measures, any of our intellectual property rights
could be challenged, invalidated, circumvented or misappropriated.
Others may independently discover our trade secrets and proprietary
information, and in such cases we could not assert any trade secret
rights against such parties. Costly and time-consuming litigation
could be necessary to enforce and determine the scope of our
intellectual property rights. Therefore, in certain jurisdictions,
we may be unable to protect our technology and designs adequately
against unauthorized third party use, which could adversely affect
our ability to compete.
DEVELOPING AND IMPLEMENTING NEW AND UPDATED APPLICATIONS, FEATURES
AND SERVICES FOR OUR WEBSITES MAY BE MORE DIFFICULT THAN EXPECTED,
MAY TAKE LONGER AND COST MORE THAN EXPECTED AND MAY NOT RESULT IN
SUFFICIENT INCREASES IN REVENUE TO JUSTIFY THE COSTS.
Attracting and
retaining users of our websites requires us to continue to provide
quality, targeted content and to continue to develop new and
updated applications, features and services for our websites. If we
are unable to do so on a timely basis or if we are unable to
implement new applications, features and services without
disruption to our existing ones, our ability to continue to expand
our website traffic will be in jeopardy. The costs of development
of these enhancements may negatively impact our ability to achieve
profitability. There can be no assurance that the revenue
opportunities from expanded website content, or updated
technologies, applications, features or services will justify the
amounts ultimately spent by us.
OUR TECHNOLOGY DEVELOPMENT EFFORTS MAY NOT BE SUCCESSFUL IN
IMPROVING THE FUNCTIONALITY OF OUR NETWORK, WHICH COULD RESULT IN
REDUCED TRAFFIC ON OUR WEBSITES.
If our
websites do not work as intended, or if we are unable to upgrade
the functionality of our websites as needed to keep up with the
rapid evolution of technology for content delivery, our websites
may not operate properly, which could harm our business.
Additionally, software product design, development and enhancement
involve creativity, expense and the use of new development tools
and learning processes. Delays in software development processes
are common, as are project failures, and either factor could harm
our business.
OUR ABILITY TO DELIVER OUR CONTENT DEPENDS UPON THE QUALITY,
AVAILABILITY, POLICIES AND PRICES OF CERTAIN THIRD-PARTY SERVICE
PROVIDERS.
We rely
on third parties to provide website hosting services. In certain
instances, we rely on a single service provider for some of these
services. In the event the provider were to terminate our
relationship or stop providing these services, our ability to
operate our websites could be impaired. Our ability to address or
mitigate these risks may be limited. The failure of all or part of
our website hosting services could result in a loss of access to
our websites which would harm our results of
operations.
WE MAY BE HELD LIABLE FOR CONTENT, BLOGS OR THIRD PARTY LINKS ON
OUR WEBSITE OR CONTENT DISTRIBUTED TO THIRD PARTIES.
As a
publisher and distributor of content over the internet, including
blogs which appear on our websites and links to third-party
websites that may be accessible through our websites, or content
that includes links or references to a third-party’s website,
we face potential liability for defamation, negligence, copyright,
patent or trademark infringement and other claims based on the
nature, content or ownership of the material that is published on
or distributed from our websites. These types of claims have been
brought, sometimes successfully, against online services, websites
and print publications in the past. Other claims may be based on
errors or false or misleading information provided on linked
websites, including information deemed to constitute professional
advice such as legal, medical, financial or investment advice.
Other claims may be based on links to sexually explicit websites.
Although we carry general liability insurance, our insurance may
not be adequate to indemnify us for all liabilities imposed. Any
liability that is not covered by our insurance or is in excess of
our insurance coverage could severely harm our financial condition
and business. Implementing measures to reduce our exposure to these
forms of liability may require us to spend substantial resources
and limit the attractiveness of our websites to users.
12
OUR MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE OUR
ACQUISITIONS AND TO MANAGE OUR GROWTH AND WE MAY BE UNABLE TO FULLY
REALIZE ANY ANTICIPATED BENEFITS OF THESE
ACQUISITIONS.
We are
subject to various risks associated with our growth strategy,
including the risk that we will be unable to identify and recruit
suitable acquisition candidates in the future or to integrate and
manage the acquired companies. Acquired companies’ histories,
the geographical location, business models and business cultures
will be different from ours in many respects. Successful
integration of these acquisitions is subject to a number of
challenges, including:
●
the diversion of
management time and resources and the potential disruption of our
ongoing business;
●
difficulties in
maintaining uniform standards, controls, procedures and
policies;
●
unexpected costs
and time associated with upgrading both the internal accounting
systems as well as educating each of their staff as to the proper
methods of collecting and recording financial data;
●
potential unknown
liabilities associated with acquired businesses;
●
the difficulty of
retaining key alliances on attractive terms with partners and
suppliers; and
●
the difficulty of
retaining and recruiting key personnel and maintaining employee
morale.
There
can be no assurance that our efforts to integrate the operations of
any acquired assets or companies will be successful, that we can
manage our growth or that the anticipated benefits of these
proposed acquisitions will be fully realized.
WE DEPEND ON THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER AND OUR
VICE PRESIDENT - DIGITAL. THE LOSS OF EITHER OF THEIR SERVICES
COULD HARM OUR ABILITY TO OPERATE OUR BUSINESS IN FUTURE
PERIODS.
Our
success largely depends on the efforts, reputation and abilities of
W. Kip Speyer, our Chief Executive Officer, and Todd F. Speyer, our
Vice President - Digital. While we are a party to an employment
agreement with Mr. Kip Speyer and do not expect to lose his
services in the foreseeable future, the loss of the services of Mr.
Kip Speyer could materially harm our business and operations
in future periods. We are not a party to an employment agreement
with Mr. Todd Speyer, his son. While we do not expect to lose the
services of Mr. Todd Speyer in the foreseeable future, if he should
choose to leave our company our business and operations could be
harmed until such time as we were able to engage a suitable
replacement for him.
WE MUST HIRE, INTEGRATE AND/OR RETAIN QUALIFIED PERSONNEL TO
SUPPORT OUR EXPECTED BUSINESS EXPANSION.
Our
success also depends on our ability to attract, train and retain
qualified personnel. In addition, because our users must perceive
the content of our websites as having been created by credible and
notable sources, our success also depends on the name recognition
and reputation of our editorial staff. In addition, we need to hire
an experienced Chief Financial Officer and expand our accounting
department to add additional accounting personnel who are
experienced in U.S. generally accepted accounting principals (GAAP)
accounting and periodic reporting obligations of public companies
such as ours. Competition for qualified personnel is intense and we
may experience difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. If we fail to attract
and retain qualified personnel, our business will suffer and we may
be unable to timely meet our reporting obligations under Federal
securities laws.
WE DELIVER ADVERTISEMENTS TO USERS FROM THIRD-PARTY AD NETWORKS
WHICH EXPOSES OUR USERS TO CONTENT AND FUNCTIONALITY OVER WHICH WE
DO NOT HAVE ULTIMATE CONTROL.
We
display pay-per-click, banner, cost per acquisition
“CPM”, direct, and other forms of advertisements to
users that come from third-party ad networks. We do not control the
content and functionality of such third-party advertisements and,
while we provide guidelines as to what types of advertisements are
acceptable, there can be no assurance that such advertisements will
not contain content or functionality that is harmful to users. Our
inability to monitor and control what types of advertisements get
displayed to users could have a material adverse effect on our
business, financial condition and results of
operations.
13
OUR SERVICES MAY BE INTERRUPTED IF WE EXPERIENCE PROBLEMS WITH OUR
NETWORK INFRASTRUCTURE
.
The
performance of our network infrastructure is critical to our
business and reputation. Because our services are delivered solely
through the internet, our network infrastructure could be disrupted
by a number of factors, including, but not limited to:
●
unexpected
increases in usage of our services;
●
computer viruses
and other security issues;
●
interruption or
other loss of connectivity provided by third-party internet service
providers;
●
natural disasters
or other catastrophic events; and
●
server failures or
other hardware problems.
If our
services were to be interrupted, it could cause loss of users,
customers and business partners, which could have a material
adverse.
OUR SYSTEMS MAY FAIL DUE TO NATURAL DISASTERS, TELECOMMUNICATIONS
FAILURES AND OTHER EVENTS, ANY OF WHICH WOULD LIMIT USER
TRAFFIC
.
Our
websites are hosted by third party providers. Any disruption of the
computing platform at these third party providers could result in a
service outage. Fire, floods, earthquakes, power loss,
telecommunications failures, break-ins, supplier failure to meet
commitments, and similar events could damage these systems and
cause interruptions in the hosting of our websites. Computer
viruses, electronic break-ins or other similar disruptive problems
could cause users to stop visiting our website and could cause
advertisers to terminate any agreements with us. In addition, we
could lose advertising revenues during these interruptions and user
satisfaction could be negatively impacted if the service is slow or
unavailable. If any of these circumstances occurred, our business
could be harmed. Our insurance policies may not adequately
compensate us for losses that may occur due to any failures of or
interruptions in our systems. We do not presently have a formal
disaster recovery plan.
Our
websites must accommodate high volumes of traffic and deliver
frequently updated information. While we have not experienced any
systems failures to date, it is possible that we may experience
systems failures in the future and that such failures could harm
our business. In addition, our users depend on internet service
providers, online service providers and other website operators for
access to our websites. Many of these providers and operators have
experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures
unrelated to our systems. Any of these system failures could harm
our business.
PRIVACY CONCERNS COULD IMPAIR OUR BUSINESS.
We have
a policy against using personally identifiable information obtained
from users of our websites without the user’s permission. In
the past, the Federal Trade Commission has investigated companies
that have used personally identifiable information without
permission or in violation of a stated privacy policy. If we use
personal information without permission or in violation of our
policy, we may face potential liability for invasion of privacy for
compiling and providing information to our corporate customers and
electronic commerce merchants. In addition, legislative or
regulatory requirements may heighten these concerns if businesses
must notify internet users that the data may be used by marketing
entities to direct product promotion and advertising to the user.
Other countries and political entities, such as the European Union,
have adopted such legislation or regulatory requirements. The
United States may adopt similar legislation or regulatory
requirements in the future. If consumer privacy concerns are not
adequately addressed, our business, financial condition and results
of operations could be materially harmed.
WE ARE SUBJECT TO A NUMBER OF REGULATORY RISKS
.
ANY FAILURE TO COMPLY WITH
THE VARIOUS REGULATIONS COULD ADVERSELY IMPACT OUR
BUSINESS.
We are
subject to a number of domestic and, to the extent our operations
are conducted outside the U.S., foreign laws and regulations that
affect companies conducting business on the internet and through
other electronic means, many of which are still evolving and could
be interpreted in ways that could harm our business. U.S. and
foreign regulations and laws potentially affecting our business are
evolving frequently. We currently have not developed our internal
compliance program nor do we have policies in place to monitor
compliance. Instead, we rely on the policies of our publishing
partners. If we are unable to identify all regulations to which our
business is subject and implement effective means of compliance, we
could be subject to enforcement actions, lawsuits and penalties,
including but not limited to fines and other monetary liability or
injunction that could prevent us from operating our business or
certain aspects of our business. In addition, compliance with the
regulations to which we are subject now or in the future may
require changes to our products or services, restrict or impose
additional costs upon the conduct of our business or cause users to
abandon material aspects of our services. Any such action could
have a material adverse effect on our business, results of
operations and financial condition.
14
LITIGATION IS BOTH COSTLY AND TIME CONSUMING AND THERE IS NO
CERTAINTY OF A FAVORABLE RESULT.
We are
presently involved in litigation which is described in Item 3 of
this report. This litigation is both costly and time consuming and
has resulted in the diversion of management time and resources.
While we believe that all or a portion of our costs are covered by
insurance, there are no assurances that they are covered nor are
there assurances that we will prevail in the
litigation.
RISKS RELATED TO THE OWNERSHIP OF OUR SECURITIES
WE HAVE MATERIAL WEAKNESSES IN OUR DISCLOSURE CONTROLS AND OUR
INTERNAL CONTROL OVER FINANCIAL REPORTING. IF WE FAIL TO REMEDIATE
ANY MATERIAL WEAKNESSES OR IF WE FAIL TO ESTABLISH AND MAINTAIN
EFFECTIVE CONTROL OVER FINANCIAL REPORTING, OUR ABILITY TO
ACCURATELY AND TIMELY REPORT OUR FINANCIAL RESULTS COULD BE
ADVERSELY AFFECTED.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the
preparation of financial statements in accordance with GAAP. A
material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement
of annual or interim financial statements will not be prevented or
detected on a timely basis. Historically we have reported material
weaknesses in our disclosure controls and internal control over
financial reporting. These material weaknesses resulted in our
failure to timely file our Quarterly Report on Form 10-Q for the
period ended September 30, 2018. As required by the rules and
regulations of the SEC, our management assessed the effectiveness
of our internal control over financial reporting as of December 31,
2018. Based on this assessment, and as described later in this
report, our management concluded that as of December 31, 2018, our
internal control over financial reporting was not effective to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with GAAP as a result of material
weaknesses. These continuing material weaknesses in our internal
control over financial reporting also resulted in a material
weakness in our disclosure controls. While we have added a second
certified public accountant to our finance department, our failure
to remediate the material weaknesses or the identification of
additional material weaknesses in the future could adversely affect
our ability to report financial information, including our filing
of quarterly or annual reports with the SEC on a timely and
accurate basis. Moreover, our failure to remediate the material
weaknesses identified above or the identification of additional
material weaknesses could prohibit us from producing timely and
accurate financial statements, which may adversely affect the
market price of shares of our common stock. Please see Item 9A.
appearing later in this report.
THE AMOUNT OF WORKING CAPITAL WE HAVE AVAILABLE COULD BE ADVERSELY
IMPACTED BY THE AMOUNT OF CASH DIVIDENDS WE PAY
AFFILATES.
At
April 8, 2019 we have outstanding two series of preferred stock
which pays cash dividends which are owned by Mr. W. Kip Speyer, our
CEO, and Mr. Richard Rogers, a member of our board of directors.
During 2018 we paid cash dividends of $111,940 to these affiliates.
These dividend amounts are in addition to the $189,355 of interest
payments we made to Mr. Speyer under the terms of convertible
promissory notes which were exchanged for one of the series of
outstanding preferred stock in November 2018. The payment of these
cash dividends and interest payments reduces the amount of capital
we have available to devote to the growth of our company. For
additional information on these series of preferred stock please
see Note 9 to the notes to our audited consolidated financial
statements appearing later in this report.
WE HAVE OUTSTANDING PREFERRED STOCK, CONVERTIBLE NOTES, OPTIONS AND
WARRANTS TO PURCHASE APPROXIMATELY 43% OF OUR CURRENTLY OUTSTANDING
COMMON STOCK.
At April 8, 2019 we had 64,148,864 shares of our
common stock outstanding together with
outstanding preferred
stock, convertible notes, options and warrants to purchase an
aggregate of 27,481,017 shares of common stock. The automatic
conversion of the various series of preferred stock and the
possible
exercise of the warrants
and/or options on a cash basis will increase by approximately 42.5%
the number of shares of our outstanding common stock
, which
will have a dilutive effect on our
existing shareholders.
15
CERTAIN OF OUR OUTSTANDING WARRANTS CONTAIN CASHLESS EXERCISE
PROVISIONS WHICH MEANS WE WILL NOT RECEIVE ANY CASH PROCEEDS UPON
THEIR EXERCISE.
At
April 8, 2019 we had common stock warrants outstanding to purchase
an aggregate of 18,000,000 shares of our common stock with an
exercise price ranging from $0.65 to $0.75 per share, of which
1,500,000 warrants exercisable at $0.65 per share which are held by
Spartan Capital are exercisable on a cashless basis. This means
that the holder, rather than paying the exercise price in cash, may
surrender a number of warrants equal to the exercise price of the
warrants being exercised. It is possible that the warrant holders
will use the cashless exercise feature. In that event, it will
deprive us of approximately $975,000 of additional capital which
might otherwise be obtained if the warrants were exercised on a
cash basis.
SOME PROVISIONS OF OUR CHARTER DOCUMENTS AND FLORIDA LAW MAY HAVE
ANTI-TAKEOVER EFFECTS THAT COULD DISCOURAGE AN ACQUISITION OF US BY
OTHERS, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS AND MAY PREVENT ATTEMPTS BY OUR SHAREHOLDERS TO
REPLACE OR REMOVE OUR CURRENT MANAGEMENT.
Provisions in our
amended and restated articles of incorporation and amended and
restated bylaws, as well as provisions of Florida law, could make
it more difficult for a third party to acquire us or increase the
cost of acquiring us, even if doing so would benefit our
shareholders, or remove our current management. These include
provisions that:
●
permit our board of
directors to issue up to 20,000,000 shares of preferred stock, with
any rights, preferences and privileges as they may
designate;
●
provide that all
vacancies on our board of directors, including as a result of newly
created directorships, may, except as otherwise required by law, be
filled by the affirmative vote of a majority of directors then in
office, even if less than a quorum;
●
provide that
shareholders seeking to present proposals before a meeting of
shareholders or to nominate candidates for election as directors at
a meeting of shareholders must provide advance notice in writing,
and also satisfy requirements as to the form and content of a
shareholder’s notice;
●
not provide for
cumulative voting rights, thereby allowing the holders of a
majority of the shares of common stock entitled to vote in any
election of directors to elect all of the directors standing for
election; and
●
provide that
special meetings of our shareholders may be called only by the
board of directors or by the holders of at least 40% of our
securities entitled to notice of and to vote at such
meetings.
These
provisions may frustrate or prevent any attempts by our
shareholders to replace or remove our current management by making
it more difficult for shareholders to replace members of our board
of directors, who are responsible for appointing the members of our
management. Section 607.0902 of the Florida Business Corporation
Act provides provisions which may discourage, delay or prevent
someone from acquiring us or merging with us whether or not it is
desired by or beneficial to our shareholders. As permitted under
Florida law, we have elected not to be governed by this statute.
Any provision of our amended and restated articles of
incorporation, amended and restated bylaws or Florida law that has
the effect of delaying or deterring a change in control could limit
the opportunity for our shareholders to receive a premium for their
shares of common stock or warrants, and could also affect the price
that some investors are willing to pay for our shares of common
stock or warrants.
OUR COMPANY HAS A CONCENTRATION OF STOCK OWNERSHIP AND CONTROL,
WHICH MAY HAVE THE EFFECT OF DELAYING, PREVENTING, OR DETERRING A
CHANGE OF CONTROL.
Our
common stock ownership is highly concentrated. As of April 8, 2019,
Mr. W. Kip Speyer, our Chief Executive Officer and Chairman of
the Board, together with members of our board of directors and a
principal shareholder, beneficially owns approximately 53.4% of our
total outstanding shares of common stock. As a result of the
concentrated ownership of the stock, Mr. Speyer and our Board
may be able to control all matters requiring shareholder approval,
including the election of directors and approval of mergers and
other significant corporate transactions. This concentration of
ownership may have the effect of delaying, preventing or deterring
a change in control of our company. It could also deprive our
shareholders of an opportunity to receive a premium for their
shares as part of a sale of our company and it may affect the
market price of our common stock.
16
WE DO NOT KNOW WHETHER AN ACTIVE, LIQUID AND ORDERLY TRADING MARKET
WILL DEVELOP FOR OUR COMMON STOCK AND AS A RESULT IT MAY BE
DIFFICULT FOR YOU TO SELL YOUR SHARES OF OUR COMMON
STOCK.
Our
common stock is quoted on the OTCQB Tier of the OTC Markets and is
thinly traded. An active trading market in our common stock may
never develop or, if developed, sustained. The lack of an active
market may impair your ability to sell your shares at the time you
wish to sell them or at a price that you consider reasonable. The
lack of an active market may also reduce the fair market value of
your shares. Further, an inactive market may also impair our
ability to raise capital by selling shares of our common stock and
may impair our ability to enter into business combinations with
other companies by using our shares of common stock as
consideration. The market price of our common stock may be
volatile, and you could lose all or part of your investment. Please
see Part II Item 5 for discussion on common stock
dividends.
I
TEM 1B. UNRESOLVED STAFF COMMENTS.
Not
applicable to a smaller reporting company.
I
TEM 2. DESCRIPTION OF PROPERTY.
We
lease our corporate offices at 6400 Congress Avenue, Suite 2050,
Boca Raton, Florida 33487 under a long-term non-cancellable lease
agreement expiring on October 31, 2021. The lease terms require
base rent payments of approximately $7,260 per month for the first
twelve months commencing in September 2018, with a 3% escalation
each year. Rent is all-inclusive and includes electricity, heat,
air-conditioning, and water.
We
lease retail space at 4900 Linton Boulevard, Bay 17A, Delray Beach,
FL 33445 under two long-term, non-cancellable lease agreements,
which contain renewal options. The leases commenced in January 2017
and are in effect for a period of five years. Minimum base rentals
total approximately $6,000 per month, escalating 3% per year
thereafter. This retail space was used by our products segment. We
have discontinued all e-commerce and retail operations and have
made a settlement with the landlord to buyout the lease with a lump
sum payment of $55,870 less the security deposit.
In
January 2017, we entered into an additional lease and modified and
extended our existing lease for our retail site. The new lease
agreement provides for an additional 2,720 square feet adjacent to
our existing Delray Beach, FL location commencing February 1, 2017,
expiring January 31, 2022. This lease provides for an initial
monthly base rental of $1,757, representing a one-half reduction in
rental payments for the first year as an accommodation. Minimum
base rental for year two is $3,513 per month, escalating 3% per
year thereafter. Simultaneously, we modified our existing lease on
the initial space, extending this lease to coincide with the new
space, expiring January 31, 2022, at an initial base rental of
$2,471 per month, escalating 3% per year thereafter.
This additional lease has also been terminated in
connection with the settlement set forth above.
We
leased a warehouse facility in Orlando, Florida consisting of
approximately 2,667 square feet. The lease commenced in April 2016,
expiring at March 31, 2019 with an initial base rental rate of
$1,641 per month, and escalating at approximately 3% per year
thereafter. This lease was not renewed because the operations
located in Orlando are part of the discontinued operations at
December 31, 2018.
I
TEM 3. LEGAL PROCEEDINGS.
From
time-to-time, we may be involved in litigation or be subject to
claims arising out of our operations or content appearing on our
websites in the normal course of business. Although the results of
litigation and claims cannot be predicted with certainty, we
currently believe that the final outcome of these ordinary course
matters will not have a material adverse effect on our business.
Regardless of the outcome, litigation can have an adverse impact on
our company because of defense and settlement costs, diversion of
management resources and other factors.
In
connection
with the
matt
ers
which lead to our
termination
for cause of former officers of our Daily Engage
Media subsidiary, in
July
2018
we filed a Verified
Complaint for
injunctive
relief
and
damage
s
against Messrs. Harry
Pagoulatos
and George
Rezitis
in the Circuit Court
of
the
15th
Judicial
Circuit in and
for
Palm
Beach
County,
Florida (case number
502018CA008972XXXXMB)
alleging their failure, among other things,
to provide us
with certain login codes and
passwords
as
well as
reporting
other current information about
Daily
Engage
Media's
business
.
That
matter
was removed to the Southern
District
of
Florida,
United
States
District
Court
and
ultimately
stayed and
closed pending
a
determination
of
jurisdiction by the pending
New Jersey action
described b
e
low.
In July
of
2018, Messrs.
Pagoulato
s
and
Rezitis
,
along with a
third
party
who had
been
a
minority owner in
Daily
Engage Media prior to our acquisition
of that company, filed a Complaint
in the U.S. District
Court,
District of
New
Jersey
(case
number
2:
l
8-cv-11357-ES-SCM) against our company
and our Chief Executive Officer,
seeking
compensatory and
punitive damages
and attorneys' fees
,
among other
items, and alleging
,
among other items
,
fraud
and
breach
of
contract.
We
vehemently
deny
all
allegation
s
in
the
complaint
and
believe
them
to be
without
merit.
We
filed
a
Motion
to
Dismiss
this
case
for
a
multitude
of
reasons
including,
but
not restricted
to, failure to state a
cause
of
action and
jurisdictional
and venue
arguments
as
the
acquisition and
employment
agreements
provides
that
any
di
s
pute
should
be heard
in
either
the
state or
local
courts of
Palm Beach
County, Florida. This Motion to Dismiss has been
pending and ripe for a decision since October 2018. At
the
appropriate
juncture
,
we
also
intend
to serve a Rule 11 Motion for
Sanctions based
upon the fact
that the
Complaint contains
frivolo
us
arguments
or arguments with no evidentiary support.
I
TEM 4. MINE SAFETY DISCLOSURES.
Not
applicable to our company.
17
PART II
I
TEM 5. MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
Our
common stock is quoted on the OTCQB Tier of the OTC Markets under
the symbol "BMTM." The last sale price of our common stock as
reported on the OTCQB on March 26, 2019 was $2.00 per share. As of
April 8, 2019, there were approximately 203 record owners of our
common stock.
Dividend Policy
We have
never paid cash dividends on our common stock. Payment of dividends
will be within the sole discretion of our board of directors and
will depend, among other factors, upon our earnings, capital
requirements and our operating and financial condition. In
addition, under Florida law, we may declare and pay dividends on
our capital stock either out of our surplus, as defined in the
relevant Florida statutes, or if there is no such surplus, out of
our net profits for the year in which the dividend is declared
and/or the preceding year. If, however, the capital of our company
computed in accordance with the relevant Florida statutes, has been
diminished by depreciation in the value of our property, or by
losses, or otherwise, to an amount less than the aggregate amount
of the capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets, we
are prohibited from declaring and paying out of such net profits
any dividends upon any shares of our capital stock until the
deficiency in the amount of capital represented by the issued and
outstanding stock of all classes having a preference upon the
distribution of assets shall have been repaired.
Recent sales of unregistered securities
In
November 2018 we borrowed an aggregate of $80,000 from Mr. Kip
Speyer under the terms of five year convertible promissory notes.
The notes, which bear interest at 10% per annum, are convertible at
his option into shares of our common stock at a conversion price of
$0.40 per share. If the notes have not previously been converted,
the principal and any accrued but unpaid interest automatically
converts into shares of our common stock on the maturity date of
the notes. We did not pay any commissions or finders fees and Mr.
Speyer is an accredited investor. The issuance of the notes were
exempt from registration under the Securities Act of 1933, as
amended (the “Securities Act”) in reliance on an
exemption provided by Section 4(a)(2) of that act. We used the
proceeds for working capital.
Effective December
30, 2018 we issued 100,000 shares of our common stock to an
accredited investor upon the automatic conversation of 100,000
shares of our 10% Series A convertible preferred stock together
with accrued but unpaid dividends on those shares. In accordance
with the designations, rights and preferences of the 10% Series A
convertible preferred stock, those shares automatically converted
into shares of our common stock on a one for one basis on the fifth
anniversary of the date of issuance of such shares. The issuance of
the shares of our common stock upon the conversion were exempt from
registration under
Securities Act in
reliance on an exemption provide by Section 3(a)(9) of such act,
and the issuance of the shares of our common stock as dividends on
such shares were exempt from registration in reliance on an
exemption provided by Section 4(a)(2) of the Securities
Act.
Between
January 28, 2019 and February 21, 2019 we sold 750,000 units of our
securities to three accredited investors in a private placement
exempt from registration under the Securities Act in reliance on
exemptions provided by Section 4(a)(2) and Rule 506(b) of
Regulation D of the Securities Act. The units were sold at a
purchase price of $0.40 per unit resulting in gross proceeds to us
of $300,000. Each unit consisted of one share of our common stock
and one five year common stock purchase warrant to purchase one
share of our common stock at an exercise price of $0.65 per share.
We did not pay any commissions or finder’s fees in this
offering. We are using the proceeds for general working
capital.
18
Between
February 26, 2019 and April 8, 2019, we sold 1,210,000 units of our
securities to ten accredited investors in a private placement
exempt from registration under the Securities Act in reliance on
exemptions provided by Section 4(a)(2) and Rule 506(b) of
Regulation D and Regulation S of the Securities Act. The units were
sold at a purchase price of $0.50 per unit resulting in gross
proceeds to us of $605,000. Each unit consisted of one share of our
common stock and one five-year common stock purchase warrant to
purchase one share of our common stock at an exercise price of
$0.75 per share. We did not pay any commissions or finder’s
fees in this offering. We have allocated 90% of the gross proceeds
received by us ($544,500) to make an unsecured loan to an unrelated
third party, and are using the remaining $60,500 for working
capital.
In
the foregoing unit sales, we granted purchasers of the units demand
and piggy-back registration rights with respect to the shares of
our common stock included in the units and the shares of common
stock issuable upon the exercise of the warrants. In addition, we
are obligated to file a resale registration statement within 120
days following the closing of these offerings covering the shares
of our common stock issuable upon the exercise of the warrants. We
failed to timely file this resale registration statement, then
within five business days of the end of month we will pay the
holders an amount in cash, as partial liquidated damages, equal to
2% of the aggregate purchase price paid by the holder for each 30
days, or portion thereof, until the earlier of the date the
deficiency is cured or the expiration of six months from filing
deadline. We will keep any such registration statement effective
until the earlier of the date upon which all such securities may be
sold without registration under Rule 144 or the date which is six
months after the expiration of the warrants. We are obligated to
pay all costs associated with this registration statement, other
than selling expenses of the holders.
Additional
terms of the warrants include:
●
the exercise price
is subject to adjustment in the event of certain stock dividends
and distributions, stock splits, stock combinations,
reclassifications or similar events affecting our common stock and
also upon any distributions of assets, including cash, stock or
other property to our shareholders;
●
if we fail to
timely file the resale registration statement described above or at
any time thereafter during the exercise period there is not an
effective registration statement registering such shares, or the
prospectus contained therein is not available for the issuance of
the such shares to the holder for a period of at least 60 days
following the delivery of a suspension notice (as described in the
warrants), then the warrants may also be exercised, in whole or in
part, at such time by means of a “cashless exercise” in
which case the holder would receive upon such exercise the net
number of shares of common stock determined according to the
formula set forth in the warrants;
●
providing that
there is an effective registration statement registering the shares
of common stock issuable upon exercise of the warrant, during the
exercise period, upon 30 days prior written notice to the holder
following the date on which the last sale price of our common stock
equals or exceeds $1.50 per share for 10 consecutive trading days,
as may be adjusted for stock splits, stock dividends and similar
corporate events, if the average daily trading volume of our common
stock is not less than 30,000 shares during such 10 consecutive
trading day period, we have the right to call any or all of the
warrants at a call price of $0.01 per underlying share;
and
●
a holder will not
have the right to exercise any portion of the warrant if the holder
(together with its affiliates) would beneficially own in excess of
4.99% of the number of shares of our common stock outstanding
immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the
warrants;
provided,
however
, that any holder may increase or decrease such
percentage to any other percentage not in excess of 9.99% upon at
least 61 days’ prior notice from the holder to
us.
Purchases of equity securities by the issuer and affiliated
purchasers
None.
I
TEM 6. SELECTED FINANCIAL DATA.
Not
applicable to a smaller reporting company.
I
TEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our consolidated
financial condition and results of operation
s for the years ended December 31, 2018 and 2017
should be read in conjunction with the audited consolidated
financial statements and the notes to those statements that are
included elsewhere in this report. Our discussion includes
forward-looking statements based upon current expectations that
involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of
events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors,
including those set forth under Item 1A. Risk Factors appearing
elsewhere in this report. We use words such as
“anticipate,” “estimate,”
“plan,” “project,”
“continuing,” “ongoing,”
“expect,” “believe,” “intend,”
“may,” “will,” “should,”
“could,” and similar expressions to identify
forward-looking statements.
19
Overview
Historically
we have operated as a digital media holding company for online
assets primarily targeted to the military and public safety
sectors. In addition to our corporate website, we own and/or manage
25 websites which are customized to provide our niche users,
including active, reserve and retired military, law enforcement,
first responders and other public safety employees with products,
information and news that we believe may be of interest to them. We
also own an ad network which was acquired in September
2017.
We
have placed a particular emphasis on providing quality content on
our websites to drive traffic increases. Our websites feature
timely, proprietary and aggregated content covering current events
and a variety of additional subjects targeted to the specific
demographics of the individual website. Our business strategy
requires us to continue to provide this quality content to our
niche markets and to grow our business, operations and revenues
both organically and through acquisitions as we expand our business
past the original niche markets into mainstream digital
audiences.
A
key component of our growth is the expansion in our ad network
business. Our ad network creates revenue from other
publisher’s content, as well as our own, in the form of a
revenue share based on ad impressions we deliver. For this reason,
the managerial focus will be in increasing our total impressions
delivered to grow our total advertising revenue. Last year, we
delivered approximately 2.2 billion advertising impressions.
These impressions include both our targeted demographics and
the larger general demographics from our ad network.
During
2018 we have grown our business through sales efforts
including:
●
establishing
favorable contract terms with many key advertising demand
parties;
●
supply
relationships with approximately 200 digital
publishers;
●
over 50 RTB
clients;
●
proprietary
software to collect and report results for publisher
clients;
●
ability and
software to quickly and efficiently detect fraudulent traffic;
and
●
highly scalable
sales and ad operations functions.
We believe that the exit from all of our
E-commerce businesses at December 31, 2018 will allow us to
concentrate all of our resources to our best and fastest growing
business opportunities. While we are presently accessing third
party RTB platforms, we are currently working on the development of
our own proprietary RTB platform, display and video ad serving
software, and header bidding technology, as we move to vertically
integrate higher margin software products into our ad network
business model. The platform, which is in the pre-Alpha stage, is
being developed for us by
AdsRemedy
, a third party consulting firm that provides
support services to us.
20
Going Concern
For
the year ended December 31, 2018, we reported a net loss from
continuing operations of $4,131,314, a loss of $1,092,750 related
to discontinued operations, net cash used in operating activities
of $3,970,013 and we had an accumulated deficit of $17,042,966 at
December 31, 2018. The report of our independent registered public
accounting firm on our audited consolidated financial statements at
December 31, 2018 and 2017 and for the years then ended contains an
explanatory paragraph regarding substantial doubt of our ability to
continue as a going concern based upon our net losses, cash used in
operations and accumulated deficit. These factors, among others,
raise substantial doubt about our ability to continue as a going
concern. Our audited consolidated financial statements appearing
elsewhere in this report do not include any adjustments that might
result from the outcome of this uncertainty. There are no
assurances we will be successful in our efforts to significantly
increase our revenues or report profitable operations or to
continue as a going concern, in which event investors would lose
their entire investment in our company.
Results of Operations
|
|
For the Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Revenues
|
$
1,735,649
|
$
1,104,017
|
|
Cost
of revenues
|
1,378,377
|
671,286
|
|
Gross
profit
|
357,272
|
432,731
|
|
Selling,
general and administrative expenses
|
3,494,858
|
2,596,827
|
|
Loss
from continuing operations
|
(3,137,586
)
|
(2,164,096
)
|
|
Total
other income (expense)
|
(993,728
)
|
(405,609
)
|
|
Net
loss from continuing operations
|
(4,131,314
)
|
(2,569,705
)
|
|
Discontinued
operations
|
(1,092,750
)
|
(424,391
)
|
|
Net
loss
|
(5,224,064
)
|
(2,994,096
)
|
|
Total
preferred stock dividends
|
111,940
|
17,645
|
|
Net
loss attributable to common shareholders
|
$
(5,336,004
)
|
$
(3,011,741
)
|
Revenue
Advertising
revenues increased approximately 57.2% in 2018 over 2017. The
increase in our revenues in 2018 is primarily attributable to the
impact of a full year of operation of our ad network which we
acquired in the fourth quarter of 2017. With our operational focus
on this one operating segment of our business we expect that our
revenues will increase in 2019, although there can be no
assurances.
21
Cost of Sales
Cost
of sales as a percentage of revenues increased approximately 18.5%,
from approximately 61% in 2017 to approximately 79% in 2018. During
2018 we offered publishers favorable payouts in an effort to
attract more publishers to our ad network as we expanded its
operations, which resulted in the decrease in our gross profit
margins. As we continue to expand our ad network during 2019 we
will seek to increase our gross margins to the 2017 level. However,
as we operate in a highly competitive industry, there are no
assurances our efforts will be successful.
Selling, General and Administrative (“SG&A”)
Expenses
SG&A expenses increased by approximately
$898,031 for 2018 compared to 2017. Our selling, general and
administrative expenses were 201% of our total revenues for 2018 as
compared to 235% for 2017.
The increase in our SG&A
expenses reflects increases in both cash and non-cash expenses in
the 2018 period. During 2018, the increases in our cash SG&A
expenses were primarily attributable to increases in payroll
expense, travel and entertainment, professional fees, and website
and other expenses. The approximate $79,941 increase in our payroll
costs in 2018 reflects our increased staffing to support the
expected growth of our company and the addition of staffing in our
accounting department to improve our accounting and reporting
processes. Our travel and entertainment expense increased
approximately $29,816 in 2018 which represents costs to attend
various trade shows and increased travel related to our capital
raising efforts. Professional fees increased approximately $502,539
in 2018 from 2017 which is primarily related to legal fees
associated with ongoing litigation and increased audit and review
fees. During 2018 our website expenses, which includes ad network
site development, maintenance and hosting costs, increased
approximately $32,557 and our other expenses, which includes wire
transfer fees for payments by vendors, increased approximately
$63,864, both of which reflect a full year of operations of Daily
Engage Media following our acquisition of that entity in September
2017. Non-cash increases in SG&A in 2018 are primarily
attributable to the amortization of $277,500 of the $1,360,000 of
cash consulting and advisory fees we paid Spartan Capital as
described earlier in this report, as well an approximate $321,623
increase in our provision for bad debt expense to account for the
possibility we will not collect certain accounts receivable and to
reflect the past due nature of a loan we made to Kubient,
Inc.
SG&A
expenses are expected to continue to increase in a controlled
manner as we execute our planned growth strategy of increasing
website visits both organically and through targeted acquisitions
and providing the needed administrative support and the hiring of
an experienced chief financial officer for the increased level of
activities. We are unable at this time, however, to predict the
amount of the expected increase.
Total other income (expense)
Total other income (expense) primarily reflects
interest expense associated with our borrowings under a
non-convertible and several convertible notes. Our Chief Executive
Officer loaned us an additional $1,460,000 during 2017 under a
series of 6% to 12% convertible notes bringing the total notes
payable to him at November 7, 2018 to $2,035,000. On November 8,
2018 we entered into a note exchange agreement with Mr. Speyer
pursuant to which he exchanged these convertible promissory notes
for three sub-series of a new series of convertible preferred stock
in a transaction which is described in
Note 9 of the notes
to our audited consolidated financial statements appearing
elsewhere in this report. This transaction resulted in a $579,233
loss on the exchange of convertible notes
. Interest under these notes prior to the exchange
transaction totaled $370,963, inclusive of $196,375 amortization of
the related debt discount for 2018 and $323,112, inclusive of
$168,613 in amortization of the related debt discount for
2017.
In
addition, we recorded interest of $35,971 and $51,389 for the years
ended December 31, 2018 and 2017, respectively on a $500,000 note
payable issued in November 2016 to us to an unrelated third party.
This note was satisfied on December 26, 2018.
Discontinued Operations
During
the years ended December 31, 2018 and 2017 we recorded a loss from
discontinued operations $1,092,750 and $424,391, respectively. The
loss is attributable to our product sales segment which was
discontinued effective December 31, 2018. As described earlier in
this report, the discontinuation of this segment was a strategic
decision which we believe permits us to focus our operational
efforts on the advertising segment. During 2018 we recognized
$326,000 of impairment losses compared to $61,000 for the 2017
period.
Preferred stock dividends
We
paid stock dividends on one series of our preferred stock which was
held by an unrelated third party, and cash dividends on two
additional series of our preferred stock which are held by
affiliates. The increase in preferred stock dividends in 2018 from
2017 primarily reflects the exchange of the convertible notes
payable to equity by Mr. Speyer as described elsewhere herein.
Under the series of preferred issued to him in the exchange we pay
him cash dividends which are identical to the interest rate he
previously received on the convertible notes, and the shares of
preferred will automatically convert into shares of our common
stock on the dates and at the same conversion rates as the
convertible notes.
22
Liquidity and capital resources
Liquidity
is the ability of a company to generate sufficient cash to satisfy
its needs for cash. As of December 31, 2018, we had a balance of
cash and cash equivalents of $1,042,457 and working capital of
$881,949 as compared to cash and cash equivalents of $101,231 and
negative working capital of $395,315 at December 31, 2017. Our
current assets increased 43% at December 31, 2018 from December 31,
2017 which reflects the substantial increase in our cash balance
and increases in our prepaid expenses primarily attributable to the
consulting and advisory agreements with Spartan Capital, offset by
decreases in accounts receivable as well as the impact on the
decrease in assets held for sale for discontinued operations and
current assets related to those discontinued
operations.
Our
current liabilities decreased 25% at December 31, 2018 from
December 31, 2017 which primarily reflects a 27% decrease in
accounts payable and a 70% decrease in the current portion of
long-term debt reflecting the exchange of convertible notes payable
for preferred stock by our Chief Executive Officer, offset by
increases in accrued expenses related to legal fees and the
recordation of a previously undisclosed liability of $197,500 at
Daily Engage Media prior to the closing of the acquisition, as well
as a reduction in current liabilities associated with our
discontinued operations.
During
2018 we raised net proceeds of $5.1 million through the sale of our
securities in private placements, as well as an additional $450,000
through the sale of preferred stock to our Chief Executive Officer
and $80,000 through the issuance of convertible promissory notes to
him. During 2019 we have raised an additional $888,950 in net
proceeds through the sale of our securities. After payment of
$1,360,000 to Spartan Capital as cash compensation under the terms
of various consulting and advisory agreements, we used
approximately $570,000 to repay debt to unrelated third parties,
and of the net proceeds for $3.8 million to fund our operating
losses during 2018, and are using the additional proceeds for
working capital as well as for a loan to an unrelated third party
which matures in April 2019.
We
have also entered into various loan transactions with unrelated
third parties, including:
●
in
September
2018 we entered
into
a non-binding letter of intent with
Kubient
,
Inc
. to
acquire
Kubient
,
Inc
.
The closing of the transaction was
subject to a number of conditions precedent, including satisfactory
due diligence on our part and the execution of definitive
agreements. Thereafter, in
October 2018 we lent Kubient,
Inc. $75,000 under the terms of an unsecured 6% note due on January
31, 2019,
provided,
however
, that if the share exchange or merger as
contemplated by the non-binding letter of intent with Kubient, Inc.
was consummated on or prior to the maturity date, the outstanding
principal of the note would be forgiven by us and the purchase
price contemplated by the non-binding letter of intent reduced. We
subsequently determined not to proceed with the proposed
transaction. The note is now in default;
and
●
in February 2019,
we entered into a not-binding letter of intent to acquire a company
which operates in our industry segment. Between February 2019 and
April 2019, we lent that company an aggregate of $477,000 under the
terms of 6% promissory notes which mature on April 30, 2019. As
collateral for the repayment of the notes, the chief executive
officer of the target has pledged his shares in the target under
the terms of a security agreement. We utilized a portion of the
proceeds from the sale of our securities as described earlier in
this report for this loan. Due diligence on this target continues
as we cannot predict at this time if we will proceed with this
transaction
.
Our
operations do not provide sufficient cash to pay our cash operating
expenses and we have historically been dependent upon loans and
equity purchases from Mr. Speyer to provide sufficient funds for
our operations. During 2018 we were also materially dependent upon
the capital raised in the private placements. If we are unable to
increase our revenues to a level which provides sufficient funds to
pay our operating expenses without relying upon loans and equity
purchases from related parties or third party investment capital,
our ability to continue to as a going concern are in jeopardy. We
expect that we will need to raise an additional $ 2,000,000 in
capital during 2019for use in our operations. We also expect to
continue to seek to raise capital from private sources during 2019,
however we are not a party to any agreement or understanding for
firm commitments for this capital. Any delay in raising sufficient
funds will delay the continued implementation of our business
strategy and could adversely impact our ability to significantly
increase our revenues in future periods. In addition, if we are
unable to raise the necessary additional working capital, absent a
significant increase in our revenues, of which there is no
assurance, we will be unable to continue to grow our company and
may be forced to reduce certain operating expenses in an effort to
conserve our working capital.
23
Cash flows
Net
cash used in operating activities totaled $3,970,013 and $1,725,749
for 2018 and 2017, respectively. During 2018, we used cash
primarily to fund our net loss of $5,224,064 for the period as well
as increases in prepaid expenses and expansion plans. Cash used
during 2017 was used primarily to fund our net loss of $2,994,096
during the period.
Net
cash provided by investing activities totaled $13,970 in 2018 as
compared to net cash used in investing activities of $224,429 for
2017. Cash used included the purchase of fixed assets in 2018 and
2017 of $15,183 and $329 and cash used in the acquisition of Daily
Engage Media, net of $207,801 during 2017. The company sold
equipment and received $15,182 in cash during
2018.
Net
cash provided by financing activities totaled $4,919,312 and
$1,885,251 during 2018 and 2017, respectively. In both periods,
cash was provided from the sale of our securities, net of
repayments of debt obligations and the payable of cash dividends on
our Series E and F convertible preferred stock to related
parties.
Non-GAAP Measures
We
report adjusted EBITDA from continuing operations as a supplemental
measure to U.S. generally accepted accounting principles
(“GAAP”). This measure is one of the primary metrics by
which we evaluate the performance of our business, on which our
internal budgets are based. We believe that investors have access
to, and we are obligated to provide, the same set of tools that we
use in analyzing our results. This non-GAAP measure should be
considered in addition to results prepared in accordance with GAAP,
but should not be considered a substitute for or superior to GAAP
results. We endeavor to compensate for the limitations of the
non-GAAP measure presented by providing the comparable GAAP measure
with equal or greater prominence and description of the reconciling
items, including quantifying such items to derive the non-GAAP
measure. We encourage investors to examine the reconciling
adjustments between the GAAP and non-GAAP measure.
Our
adjusted EBITDA from continuing operations is defined as operating
income/loss excluding:
●
non-cash stock
option compensation expense;
●
non-cash loss on
note exchange transaction with our Chief Executive
Officer;
●
depreciation;
●
acquisition-related
items consisting of amortization expense and impairment
expense;
●
interest;
and
●
amortization on
debt discount.
We
believe this measure is useful for analysts and investors as this
measure allows a more meaningful year-to-year comparison of our
performance. Moreover, our management uses this measure internally
to evaluate the performance of our business as a whole. The above
items are excluded from adjusted EBITDA measure because these items
are non-cash in nature, and we believe that by excluding these
items, adjusted EBITDA corresponds more closely to the cash
operating income/loss generated from our business. Adjusted EBITDA
has certain limitations in that it does not take into account the
impact to our statement of operations of certain
expenses
The
following is an unaudited reconciliation of net (loss) from
continuing operations to adjusted EBITDA for the periods
presented:
|
|
For the Year Ended December 31,
|
|
|
|
2018
|
2017
|
|
Net
loss from continuing operations
|
$
(4,131,314
)
|
$
(2,569,705
)
|
|
plus:
|
|
|
|
Stock
compensation expense
|
24,128
|
108,090
|
|
Depreciation
expense
|
13,220
|
13,950
|
|
Amortization
expense
|
189,948
|
191,731
|
|
Amortization
on debt discount
|
207,285
|
181,426
|
|
Impairment
expense
|
-
|
9,375
|
|
Interest
expense
|
210,559
|
406,252
|
|
Loss
on extinguishment of convertible debt
|
579,233
|
-
|
|
Adjusted
EBITDA from continuing operations
|
$
(2,906,941
)
|
$
(1,658,881
)
|
24
Critical accounting policies
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amount of assets and liabilities, the disclosure of
contingent assets and liabilities and the reported amounts of
revenue and expenses during the reported periods. The more critical
accounting estimates include estimates related to revenue
recognition, valuation of inventory, intangible assets, and equity
based transactions. We also have other key accounting policies,
which involve the use of estimates, judgments and assumptions that
are significant to understanding our results, which are described
in Note 3 to our audited consolidated financial statements
appearing elsewhere in this report.
Recent accounting pronouncements
The
recent accounting standards that have been issued or proposed by
the Financial Accounting Standards Board (FASB) or other
standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the
financial statements upon adoption. These recent accounting
pronouncements are described in Note 3 to our notes to consolidated
financial statements appearing later in this report.
Off balance sheet arrangements
As
of the date of this report, we do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to
investors. The term "off-balance sheet arrangement" generally means
any transaction, agreement or other contractual arrangement to
which an entity unconsolidated with us is a party, under which we
have any obligation arising under a guarantee contract, derivative
instrument or variable interest or a retained or contingent
interest in assets transferred to such entity or similar
arrangement that serves as credit, liquidity or market risk support
for such assets.
I
TEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not
applicable for a smaller reporting company.
I
TEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Please
see our Financial Statements beginning on page F-1 of this annual
report.
I
TEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
I
TEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and
Procedures
. We maintain “disclosure controls and
procedures” as such term is defined in Rule 13a-15(e)
under Exchange Act. In designing and evaluating our disclosure
controls and procedures, our management recognized that disclosure
controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the
objectives of disclosure controls and procedures are met.
Additionally, in designing disclosure controls and procedures, our
management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure
controls and procedures. The design of any disclosure controls and
procedures also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all
potential future conditions. Based on their evaluation as of the
end of the period covered by this report, our Chief Executive
Officer who also serves as our principal financial and accounting
officer, concluded that our disclosure controls and procedures were
not effective such that the information relating to our company,
required to be disclosed in our Securities and Exchange Commission
reports (i) is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms and (ii) is
accumulated and communicated to our management, including our Chief
Executive Officer, to allow timely decisions regarding required
disclosure as a result of (i) our failure to timely file our
Quarterly Report on Form 10-Q for the period ended September 30,
2018, and (ii) continuing material weaknesses in our internal
control over financial reporting described below. A material
weakness is a deficiency, or combination of deficiencies, that
results in more than a remote likelihood that a material
misstatement of annual or interim financial statements will not be
prevented or detected.
Our
management, including our Chief Executive Officer who also serves
as our principal financial and accounting officer, have evaluated
the effectiveness of the design and operations of our disclosure
controls and procedures (defined in Exchange Act Rules 13a-15(c)
and 15d-15(e)) as of the end of the periods covered by this report.
Based upon the evaluation, our Chief Executive Officer who also
serves as our principal financial and accounting officer have
concluded that the disclosure controls and procedures as of
December 31, 2018 were not effective due to the material weaknesses
identified below.
To
address these material weaknesses, management performed additional
procedures to ensure the financial statements included herein
fairly present, in all material respects, our financial position,
results of operations and cash flows for the periods
presented.
Management’s Report on Internal Control
over Financial Reporting
.
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting for the Company. Our
internal control system was designed to, in general, provide
reasonable assurance to the Company’s management and board
regarding the preparation and fair presentation of published
financial statements, but because of the inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may
deteriorate.
Our
management assessed the effectiveness of the Company’s
internal control over financial reporting as of December 31, 2018.
The framework used by management in making that assessment was the
criteria set forth in the documents entitled “2013 Internal
Controls – Integrated Framework” issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
Based on that assessment, management concluded that, during the
period covered by this report, such internal controls and
procedures were not effective as of December 31, 2018 and the
material weaknesses in internal controls over financial reporting
(‘ICFR”) existed as more fully described
below.
25
A
material weakness is a deficiency, or a combination of
deficiencies, within the meaning of Public Company Accounting
Oversight Board (“PCOAB”) Audit Standard No. 5, in
internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the
Company’s annual or interim financial statements will not be
prevented or detected on a timely basis. Management has identified
the following material weaknesses, which have caused management to
conclude that as of December 31, 2018 our ICFR were not
effective at the reasonable assurance level:
●
There are
insufficient written policies and procedures to ensure the correct
application of accounting and financial reporting with respect to
GAAP and SEC disclosure requirements;
●
Insufficient
segregation of duties, oversight of work performed and lack of
compensating controls in our finance and accounting functions due
to limited personnel
●
The Company’s
systems that impact financial information and disclosures have
ineffective information technology controls.
●
Inadequate controls
surrounding revenue recognition, to ensure that all material
transactions and developments impacting the financial statements
are reflected and properly recorded;
●
Management
evaluation of 1) the disclosure controls and procedures and 2)
internal control over financial reporting was not sufficiently
comprehensive due to limited personnel
Notwithstanding the
existence of these material weaknesses in our internal control over
financial reporting, management believes that the consolidated
financial statements included in this Form 10-K present in all
material respects our financial condition, results of operations
and cash flows for the periods presented.
Internal Control
Remediation Efforts. Management expects to remediate the material
weaknesses identified above as follows:
●
Management has
leveraged and will continue to leverage experienced consultants to
assist with ongoing GAAP, U.S. Securities, and Exchange Commission
compliance requirements. We have expanded our finance department
through the hiring of a certified public accountant to strengthen
the segregation of duties, internal controls and enhance our
current staff. Management will further expand the accounting and
finance function by hiring appropriate staff to resolve this
material weakness in 2019.
●
Segregation of
duties will be analyzed and adjusted Company-wide as part of the
internal controls implementation and documentation of those
controls and procedures that is expected to commence in
2019.
●
In addition, we
expect that the discontinuation of the E-Commerce segment will
provide the opportunity for the finance department to focus on
enhancing the efficiency and effectiveness of the department
functions and reporting, allowing the staff to focus on one segment
and revenue stream.
●
The Company plans
on evaluating various accounting systems to enhance our system
controls.
We
will continue to monitor and evaluate the effectiveness of our
internal control over financial reporting on an ongoing basis and
are committed to taking further action and implementing additional
enhancements or improvements, as necessary and as funds allow. We
do not, however, expect that the material weaknesses in our
disclosure controls will be remediated until such time as we have
added to our accounting and administrative staff allowing improved
internal control over financial reporting.
Changes in Internal Control over Financial
Reporting.
There have been no changes in our internal
control over financial reporting during our last fiscal quarter
that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
I
TEM 9B. OTHER INFORMATION.
None.
26
PART III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
Executive Officers and Directors
|
Name
|
|
Age
|
|
Positions
|
|
W. Kip
Speyer
|
|
70
|
|
Chief
Executive Officer, President and Chairman of the Board, principal
financial and accounting officer
|
|
Todd F.
Speyer
|
|
37
|
|
Vice
President, Digital; Director
|
|
Richard
Rogers
|
|
63
|
|
Director
|
|
Todd
Davenport
|
|
68
|
|
Director
|
|
Charles
H. Lichtman
|
|
63
|
|
Director
|
W. Kip Speyer
has
been our CEO, President and Chairman of the Board since May 2010
and has been serving as our principal financial and accounting
officer on an interim basis. From 2005 to 2009 Mr. Speyer
served as a director, the president and chief executive officer of
Speyer Door and Window, LLC, which was sold to Haddon Windows, LLC
(SecuraSeal, LLC, AccuWeld Corporation) in December 2009. From
October 2002 to May 2005 Mr. Speyer had been a private
investor. Mr. Speyer was president and chief executive officer
of Intelligent Systems Software, Inc. from October 2000 through
June 2002, whereby Mr. Speyer became chief executive officer
of ICAD, Inc. (ICAD: NASDAQ) which was a combination of ISSI and
Howtek, Inc. (HOWT:NASDAQ). Mr. Speyer was the president and
chief executive officer of Galileo Corporation (GAEO: NASDAQ) from
1998 to 1999. Galileo Corporation changed its name to NetOptix
(OPTX: NASDAQ) and was merged with Corning Corporation (GLW: NYSE)
in a stock purchase in May 2000. From 1996 to 1998 Mr. Speyer
was the president of Leisegang Medical Group, three medical device
companies owned by Galileo Corporation. Prior to joining Galileo
Corporation, Mr. Speyer founded Leisegang Medical, Inc. and
served as its president and chief executive officer from 1986 to
1996. Leisegang Medical, Inc. was a company specializing in medical
devices for women’s health. Mr. Speyer is a graduate of
Northeastern University, Boston, Massachusetts, where he earned a
Bachelor of Science Degree in Business Administration in 1972.
Mr. W. Kip Speyer is active in many local charities and is the
father of Mr. Todd F. Speyer, our Vice President, Digital and
a director. Mr.
Speyer’s
experience as the Chief Executive Officer and/or Chairman of the
Board of Directors of other public companies
were factors
considered by our board of directors in concluding that he should
be serving as a director of our company.
Todd F. Speyer
has
been a member of the board of directors and an employee of our
company since January 2011, currently serving as our Vice
President, Digital. Mr. Speyer is responsible for the content
and operations of our owned websites. For over the previous five
and one-half years, he has been responsible for the integration of
all website organic growth and acquisitions, including content,
design and visitor traffic. Previously, Mr. Speyer was our
Director of Business Development, helping locate acquisitions and
shaping the website portfolio. Mr. Speyer graduated from
Florida State University in 2004 with a Bachelor of Arts Degree in
English Literature. Mr. Todd F. Speyer is the son of
Mr. W. Kip Speyer, our CEO, President and Chairman.
Mr.
Speyer’s
website
development experience as well as his marketing experience
w
ere factors considered by our
board of directors in concluding that he should be serving as a
director of our company.
Richard
Rogers
has been
a member of our board of directors since July 2013. For more than
the past five years, Mr. Rogers has been the president and
chief executive officer of On Course Insurance, Inc., which
provides custom insurance analysis to create the appropriate
customer solution for its clients. As an independent agency, On
Course Insurance represents multiple insurance carriers.
Mr. Rogers has been in the insurance industry since 1985.
Mr. Rogers is a graduate of West Chester University and earned
his Bachelor of Science Degree in pre-law in 1978. Mr.
Rogers'
business
experience, with a concentration in a regulated industry,
was the
factor considered by
our board of directors in concluding that he should be serving as a
director of our company.
Todd F.
Davenport
has been a director since February 2012.
Mr. Davenport is an accomplished executive with significant
domestic and international marketing, sales and general managerial
experience. He most recently served as President and CEO of Oxira
Medical, Inc., Boca Raton, FL from 2008 to 2012. Oxira Medical,
Inc., formerly known as Breeze Medical, Inc., was a
pre-commercialization stage company targeting the development of
catheter-based medical products to be used in the treatment of
coronary arteries. Mr. Davenport was recruited by the Board of
Cardio Optics, Inc. to be its President and CEO, where he worked
from 2005 to 2007. Prior to that he was President, CEO and
co-founder of Viacor, Inc. from 2000 to 2004. During this time he
was the co-inventor of eight issued U.S. patents. Mr. Davenport
graduated from Kent State University with a Bachelor of Science in
Journalism. Mr. Davenport's marketing, sales and executive
experience
w
ere factors
considered by our board of directors in concluding that he should
be serving as a director of our company.
27
Charles H. Lichtman
has been a member of our board of directors since October 2014. Mr.
Lichtman is an attorney practicing law since 1980, licensed in
Illinois and Florida. He is a founding partner of Berger Singerman
LLP since 2001. Mr. Lichtman has been honored as a two time Lawyer
of the Year by Best Lawyers in America, and noted by them for his
excellence every year since 2009 in the categories of Complex
Business Litigation, Securities Litigation, Bankruptcy Litigation
and Commercial Litigation. He has also been recognized by Chambers
International and received other legal awards from various entities
and periodicals. Mr. Lichtman's professional experience as an
attorney
was the
factor
considered by our board of directors in concluding that he should
be serving as a director of our company.
There
are no family relationships between any of the executive officers
and directors other than as set forth above. Each director is
elected at our annual meeting of shareholders and holds office
until the next annual meeting of shareholders, or until his
successor is elected and qualified. If any director resigns, dies
or is otherwise unable to serve out his or her term, or if the
board increases the number of directors, the board may fill any
vacancy by a vote of a majority of the directors then in office,
although less than a quorum exists. A director elected to fill a
vacancy shall serve for the unexpired term of his or her
predecessor. Vacancies occurring by reason of the removal of
directors without cause may only be filled by vote of the
shareholders.
Board departure subsequent to December 31, 2018
As
previously reported in our Current report on Form 8-K filed on
January 15, 2019, on January 14, 2019 Charles B. Pearlman, Esq.
resigned from our board of directors. Mr. Pearlman had been a
member of the Board since February 2018. As a result of Mr.
Pearlman’s resignation, our Board is now comprised of a
majority of independent directors. Mr. Pearlman is a partner in the
law firm that continues to represent us in connection with certain
corporate and securities matters.
Leadership structure, independence of directors and risk
oversight
Mr. W. Kip
Speyer serves as both our Chief Executive Officer and Chairman of
our board of directors. Messrs. Rogers, Davenport and Lichtman are
considered independent directors within the meaning of Rule 5605 of
the NASDAQ Marketplace Rules, but none are considered a
“lead” independent director.
Risk is
inherent with every business, and how well a business manages risk
can ultimately determine its success. We face a number of risks,
including credit risk, interest rate risk, liquidity risk,
operational risk, strategic risk and reputation risk. Management is
responsible for the day-to-day management of risks we face, while
the board, as a whole and through its committees, has
responsibility for the oversight of risk management. In its risk
oversight role, the board of directors has the responsibility to
satisfy itself that the risk management process designed and
implemented by management are adequate and functioning as designed.
To do this, the chairman of the board meets regularly with
management to discuss strategy and the risks facing our company.
Senior management attends the board meetings and is available to
address any questions or concerns raised by the board on risk
management and any other matters. The chairman of the board and
independent members of the board work together to provide strong,
independent oversight of our company’s management and affairs
through its standing committees and, when necessary, special
meetings of independent directors.
Committees of our board of directors
In May
2015 our board of directors established a standing Audit Committee
and a standing Compensation Committee. In August 2016 our board of
directors established a standing Corporate Governance and
Nominating Committee. Each committee has a written charter. The
charters are available on our website at
www.brightmountainmedia.com. All committee members are required to
be independent directors. Information concerning the current
membership and function of each committee is as
follows:
|
Director
|
|
Audit
Committee
|
|
Compensation
Committee
|
|
Corporate
Governance
and
Nominating
Committee
|
|
Charles
H. Lichtman
|
|
✓
|
|
|
|
✓
|
|
Todd
Davenport
|
|
✓
|
|
✓
|
|
✓
|
|
Richard
Rogers
|
|
|
|
✓
|
|
|
28
Audit Committee
The
Audit Committee assists the board in fulfilling its oversight
responsibility relating to:
●
the integrity of
our financial statements;
●
our compliance with
legal and regulatory requirements; and
●
the qualifications
and independence of our independent registered public
accountants.
The
Audit Committee is composed of three directors, each of whom has
been determined by the board of directors to be independent within
the meaning of the NYSE American Company Guide. None of the members
of the Audit Committee are qualified as an “audit committee
financial expert” as defined by the SEC. The Audit Committee
met four times during 2018.
Compensation Committee
The
Compensation Committee assists the board in:
●
determining, in
executive session at which our Chief Executive Officer is not
present, the compensation for our CEO or President, if such person
is acting as the CEO;
●
discharging its
responsibilities for approving and evaluating our officer
compensation plans, policies and programs;
●
reviewing and
recommending to the board regarding compensation to be provided to
our employees and directors; and
●
administering our
stock compensation plans.
The
Compensation Committee is charged with ensuring that our
compensation programs are competitive, designed to attract and
retain highly qualified directors, officers and employees,
encourage high performance, promote accountability and assure that
employee interests are aligned with the interests of our
shareholders. The Compensation Committee is composed of two
directors, both of whom have been determined by the board of
directors to be independent within the meaning of the NYSE American
Company Guide. The Compensation Committee did not meet in
2018.
Corporate Governance and Nominating Committee
The
Corporate Governance and Nominating Committee:
●
assists the board
in selecting nominees for election to the Board;
●
monitors the
composition of the board;
●
develops and
recommends to the board, and annually reviews, a set of effective
corporate governance policies and procedures applicable to our
company; and
●
regularly reviews
the overall corporate governance of the Corporation and recommends
improvements to the board as necessary.
The
purpose of the Corporate Governance and Nominating Committee is to
assess the performance of the board and to make recommendations to
the board from time to time, or whenever it shall be called upon to
do so, regarding nominees for the board and to ensure our
compliance with appropriate corporate governance policies and
procedures. The Corporate Governance and Nominating Committee is
composed of two directors, both of whom have been determined by the
board of directors to be independent within the meaning of the NYSE
American Company Guide. The Corporate Governance and Nominating
Committee did not meet in 2018.
29
Shareholder
nominations
Shareholders who
would like to propose a candidate may do so by submitting the
candidate’s name, resume and biographical information to the
attention of our Corporate Secretary. All proposals for nomination
received by the Corporate Secretary will be presented to the
Corporate Governance and Nominating Committee for appropriate
consideration. It is the policy of the Corporate Governance and
Nominating Committee to consider director candidates recommended by
shareholders who appear to be qualified to serve on our board of
directors. The Corporate Governance and Nominating Committee may
choose not to consider an unsolicited recommendation if no vacancy
exists on the board of directors and the committee does not
perceive a need to increase the size of the board of directors. In
order to avoid the unnecessary use of the Corporate Governance and
Nominating Committee’s resources, the committee will consider
only those director candidates recommended in accordance with the
procedures set forth below. To submit a recommendation of a
director candidate to the Corporate Governance and Nominating
Committee, a shareholder should submit the following information in
writing, addressed to the Corporate Secretary of Bright Mountain at
our main office:
●
the name and
address of the person recommended as a director
candidate;
●
all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors pursuant to
Regulation 14A under the Exchange Act;
●
the written consent
of the person being recommended as a director candidate to be named
in the proxy statement as a nominee and to serve as a director if
elected;
●
as to the person
making the recommendation, the name and address, as they appear on
our books, of such person, and number of shares of our common stock
owned by such person;
provided,
however
, that if the person is not a registered holder of
our common stock, the person should submit his or her name and
address along with a current written statement from the record
holder of the shares that reflects the recommending person’s
beneficial ownership of our common stock; and
●
a statement
disclosing whether the person making the recommendation is acting
with or on behalf of any other person and, if applicable, the
identity of such person.
Code of Ethics and Conduct
We have
adopted a Code of Ethics and Conduct which applies to our board of
directors, our executive officers and our employees. The Code of
Ethics and Conduct outlines the broad principles of ethical
business conduct we adopted, covering subject areas such
as:
●
conflicts of
interest;
●
corporate
opportunities;
●
public disclosure
reporting;
●
confidentiality;
●
protection of
company assets;
●
health and
safety;
●
conflicts of
interest; and
●
compliance with
applicable laws.
A copy
of our Code of Ethics and Conduct is available without charge, to
any person desiring a copy, by written request to us at our
principal offices at 6400 Congress Avenue, Suite 2050, Boca Raton,
Florida 33487.
Director compensation
In
December 2017 our board of directors adopted a compensation policy
for our independent directors for 2018. Under the terms of the 2018
director compensation policy, independent directors will receive
$500 in cash for each board meeting attended and members of any
committee of the board receive an additional $250 per committee
meeting attended. Our non-independent directors are not compensated
for their services.
The
following table provides information concerning the compensation
paid to our independent directors for their services as members of
our board of directors for 2018. The information in the following
table excludes any reimbursement of out-of-pocket travel and
lodging expenses which we may have paid:
30
Director Compensation
|
Name
|
Fees
earned
or
paid
in
cash
($)
|
Stock
awards
($)
|
Option
awards
($)
|
Non-equity
incentive
plan
compensation
($)
|
Nonqualified
deferred
compensation
earnings
($)
|
All
other
Compensation($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
Richard
Rogers
|
4,500
|
—
|
—
|
—
|
—
|
—
|
4,500
|
|
Todd
Davenport
|
5,000
|
—
|
—
|
—
|
—
|
—
|
5,000
|
|
Charles
Lichtman
|
2,500
|
—
|
—
|
—
|
—
|
—
|
2,500
|
———————
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the
Exchange Act of 1934, as amended, requires our
executive officers and directors, and persons who beneficially own
more than 10% of a registered class of our equity securities to
file with the Securities and Exchange Commission initial statements
of beneficial ownership, reports of changes in ownership and annual
reports concerning their ownership of our common shares and other
equity securities, on Forms 3, 4 and 5 respectively. Executive
officers, directors and greater than 10% shareholders are required
by the Securities and Exchange Commission regulations to furnish us
with copies of all Section 16(a) reports they file. Based on our
review of the copies of such forms received by us, all executive
officers, directors and persons holding greater than 10% of our
issued and outstanding stock have filed the required reports in a
timely manner during 2018, except for Mr. Kip Speyer who failed to
timely file four Form 4s, three of which each reported one
acquisition and the third which reported one disposition by gift.
The delinquent Form 4s have subsequently been
filed.
I
TEM 11. EXECUTIVE COMPENSATION.
The
following table summarizes all compensation recorded by us in the
past two years for:
●
our principal
executive officer or other individual serving in a similar
capacity;
●
our two most highly
compensated executive officers other than our principal executive
officer who were serving as executive officers at December 31,
2018; and
●
up to two
additional individuals for whom disclosure would have been required
but for the fact that the individual was not serving as an
executive officer at December 31, 2018.
For
definitional purposes, these individuals are sometimes referred to
as the "named executive officer." The amounts included in the
"Stock Awards" column represent the aggregate grant date fair value
of the shares of our common stock, computed in accordance with ASC
Topic 718.
Summary Compensation Table
|
Name and
principal position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
No
equity
incentive
plan
compensation
($)
|
Non-qualified
deferred
compensation
earnings
($)
|
All
other
compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Kip
Speyer,
|
2018
|
165,000
|
41,250
|
—
|
—
|
—
|
—
|
2,400
|
208,650
|
|
Chief Executive
Officer
|
2017
|
165,000
|
—
|
1,200
|
—
|
—
|
—
|
—
|
166,250
|
|
Todd
Speyer
|
2018
|
100,650
|
—
|
—
|
—
|
—
|
—
|
—
|
100,650
|
|
Vice president,
digital
|
2017
|
97,000
|
—
|
1,200
|
—
|
—
|
—
|
—
|
98,200
|
The
amount of compensation paid to Mr. Speyer excludes $281,882and
$165,662 in interest and dividend payments for 2018 and 2017,
respectively.
31
Employment agreement with our named executive officers
W. Kip Speyer
We have
entered into an Executive Employment Agreement with W. Kip Speyer,
our Chief Executive Officer, with an effective date of June 1,
2014. Under the terms of this agreement, he is serving as Chairman
of the Board, Chief Executive Officer and President of our company.
On April 1, 2017, we entered into an amendment to his employment
agreement which extended the term for an additional three years,
set his base compensation at $165,000 per annum and provided the
ability to earn a performance bonus beginning for 2017 based upon
annual revenues above $3,000,000 per year and the certain earnings
before interest, taxes and depreciation, or “EBITDA,”
goals as follows: (i) for annual revenues of $3,000,000 to
$3,500,000, a bonus of 25% of his then base salary; (ii) for annual
revenues of $3,500,001 to $4,000,000 and a minimum EBITDA of
$100,000, a bonus of 40% of his then base salary; (iii) for annual
revenues of $4,000,0001 to $4,500,000 and a minimum EBITDA of
$150,000, a bonus of 65% of his then base salary; and (iv) for
annual revenues of $4,500,001 or greater and a minimum EBITDA of
$175,000, a bonus of 80% of this then base salary.
The agreement with Mr. Speyer will terminate upon his death or
disability. In the event of a termination upon his death, we are
obligated to pay his beneficiary or estate an amount equal to one
year base salary plus any earned bonus at the time of his death. In
the event the agreement is terminated as a result of his
disability, as defined in the agreement, he is entitled to continue
to receive his base salary for a period of one year. We are also
entitled to terminate the agreement either with or without case,
and he is entitled to voluntarily terminate the agreement upon one
year’s notice to us. In the event of a termination by us for
cause, as defined in the agreement, or voluntarily by Mr. Speyer,
we are obligated to pay him the base salary through the date of
termination. In the event we terminate the agreement without cause,
we are obligated to give him one years’ notice of our intent
to terminate and, at the end of the one-year period, pay an amount
equal to two times his annual base salary together with any bonuses
which may have been earned as of the date of termination. A
constructive termination of the agreement will also occur if we
materially breach any term of the agreement or if a successor to
our company fails to assume our obligations under Mr.
Speyer’s employment agreement. In that event, he will be
entitled to the same compensation as if we terminated the agreement
without cause. The employment agreement contains customary
non-compete and confidentiality provisions. We have also agreed to
indemnify Mr. Speyer pursuant to the provisions of our amended
and restated articles of incorporation and amended and restated
by-laws.
Todd Speyer
We are
not a party to an employment agreement with Mr. Todd Speyer. His
compensation is determined by Mr. Kip Speyer, our Chief Executive
Officer, based upon industry norms. Mr. Kip Speyer is Mr. Todd
Speyer’s father. Mr. Todd Speyer’s compensation may be
changed from time to time at the discretion of Mr. Kip
Speyer
Outstanding equity awards at fiscal year-end
The
following table provides information concerning unexercised stock
options, stock that has not vested and equity incentive plan awards
for each named executive officer outstanding as of December 31,
2018, together with unexercised stock options, stock that has not
vested and equity incentive plan awards for each of our other
executive officers outstanding as of December 31,
2018:
|
|
OPTION
AWARDS
|
STOCK
AWARDS
|
|||||||
|
Name
|
Number of
Securities Underlying Unexercised Options
(#)
Exercisable
|
Number of
Securities Underlying Unexercised Options
(#)
Unexercisable
|
Equity Incentive
Plan Awards: Number of Securities Underlying Unexercised Unearned
Options
(#)
|
Option Exercise
Price
($)
|
Option
Expiration Date
|
Number of Shares
or Units of Stock That Have Not Vested (#)
|
Market Value of
Shares or Units of Stock That Have Not Vested
($)
|
Equity Incentive
Plan
Awards: Number
of Unearned Shares, Units or Other Rights that Have Not
Vested
(#)
|
Equity Incentive
Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
(#)
|
|
W. Kip
Speyer
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Todd
Speyer
|
180,000
|
0
|
0
|
0.14
|
1/3/21
|
0
|
0
|
0
|
0
|
|
|
75,000
|
25,000
|
0
|
0.65
|
10/27/25
|
0
|
0
|
0
|
0
|
32
I
TEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
At
April 8, 2019, we had 64,148,864 shares of our common stock issued
and outstanding. The following table sets forth information
regarding the beneficial ownership of our common stock as of that
date by:
●
each person known
by us to be the beneficial owner of more than 5% of our common
stock;
●
each of our
directors;
●
each of our named
executive officers; and
●
our named executive
officers and directors as a group.
Unless
specified below, the business address of each shareholder is c/o
6400 Congress Avenue, Suite 2050, Boca Raton, FL 33487. The
percentages in the table have been calculated on the basis of
treating as outstanding for a particular person, all shares of our
common stock outstanding on that date and all shares of our common
stock issuable to that holder in the event of exercise of
outstanding options, warrants, rights or conversion privileges
owned by that person at that date which are exercisable within 60
days of that date. Except as otherwise indicated, the persons
listed below have sole voting and investment power with respect to
all shares of our common stock owned by them, except to the extent
that power may be shared with a spouse.
|
Name of
Beneficial Owner
|
Amount
and
Nature
of
Beneficial
Ownership
|
% of
Class
|
|
|
|
|
|
W. Kip Speyer
(1)
|
29,324,602
|
41.3
%
|
|
Todd F. Speyer
(2)
|
796,500
|
1.2
%
|
|
Richard Rogers
(3)
|
637,000
|
1.0
%
|
|
Todd Davenport
(4
|
126,500
|
0.2
%
|
|
Charles H. Lichtman
(5)
|
1,407,537
|
2.2
%
|
|
All directors and
executive officers as a group (five persons)
(1)(2)(3)(4)(5)
|
27,748,122
|
41.2
%
|
|
Andrew A.
Handwerker
(6)
|
9,560,388
|
14.9
%
|
|
|
|
|
———————
(1)
The
number of shares of common stock beneficially owned by Mr. Speyer
includes (i) 2,375,000 shares issuable upon the conversion of
shares of our 10% Series E convertible preferred stock, (ii)
2,177,233 shares of our common stock issuable upon the conversion
of shares of our 12% Series F-1 Convertible Preferred Stock, (iii)
1,408,867 shares of common stock issuable upon the conversion of
shares of our 6% Series F-2 Convertible Preferred Stock, (iv)
757,917 shares of our common stock issuable upon the conversion of
shares of our 10% Series F-3 Convertible Preferred Stock, and (v)
200,000 shares of our common stock issuable upon the conversion of
convertible promissory notes in the aggregate principal amount of
$80,000 which have a conversion price of $0.40 per
share.
(2)
The
number of shares of common stock beneficially owned by
Mr. Speyer includes 255,000 shares underlying vested stock
options.
(3)
The
number of shares of common stock beneficially owned by
Mr. Rogers includes 125,000 shares issuable upon the
conversion of shares of our 10% Series E convertible preferred
stock and 88,000 shares underlying vested stock
options.
(4)
The
number of shares of common stock beneficially owned by
Mr. Davenport includes 90,500 shares underlying vested stock
options.
(5)
The
number of shares beneficially owned by Mr. Lichtman includes
101,000 shares underlying vested stock options.
(6)
The
number of shares beneficially owned by Mr. Handwerker
includes:
●
5,169,500 shares
held jointly with his wife; and
●
4,390,888 shares
held individually.
33
Mr. Handwerker’s
address is 4399 Pine Tree Drive, Boynton Beach, FL 33436. The
number of shares beneficially owned by Mr. Handwerker excludes
750,000 shares underlying common stock purchase warrants. Under the
terms of the warrants, Mr. Handwerker may not exercise the warrants
to the extent such conversion or exercise would cause him, together
with his affiliates, to beneficially own a number of shares of our
common stock which would exceed 4.99% of our then outstanding
shares of our common stock following such exercise. This limitation
may be increased to 9.99% at Mr. Handwerker’s option upon 61
day’s notice to us.
Securities authorized for issuance under equity compensation
plans
The
following table sets forth securities authorized for issuance under
any equity compensation plans approved by our shareholders as well
as any equity compensation plans not approved by our shareholders
as of December 31, 2018.
|
Plan
category
|
Number of
securities to be issued upon exercise of outstanding options,
warrants and rights (a)
|
Weighted average
exercise price of outstanding options, warrants and
rights
|
Number of
securities remaining available for future issuance under equity
compensation plans (excluding
securities
reflected in column (a))
|
|
Plans approved by
our shareholders:
|
|
|
|
|
2011 Stock Option
Plan
|
720,000
|
0.14
|
9,000
|
|
2013 Stock Option
Plan
|
351,000
|
0.28
|
132,000
|
|
2015 Stock Option
Plan
|
956,000
|
0.67
|
375,000
|
|
Plans not approved
by shareholders:
|
-
|
-
|
-
|
I
TEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Related party transactions
Preferred stock purchases
During
2017, Mr. W. Kip Speyer, our Chairman and Chief Executive Officer,
purchased an aggregate of 1,250,000 shares of our 10% Series E
Convertible Preferred Stock at a purchase price of $0.40 per share.
We used the proceeds from these sales for working
capital.
During
2017, Mr. Richard Rogers, a member of our board of directors,
purchased an aggregate of 125,000 shares of our 10% Series E
Convertible Preferred Stock at a purchase price of $0.40 per share.
We used the proceeds from this sale for working
capital.
During
2018, Mr. Speyer purchased an aggregate of 1,125,500 shares of our
10% Series E Convertible Preferred Stock at a purchase price of
$0.40 per share. We used the proceeds from these sales for working
capital.
In 2018
and 2017 we paid cash dividends on these outstanding shares of our
10% Series E Convertible Preferred Stock and the three sub-series
of our Series F Convertible Preferred Stock described below of
$83,232 and $29,707, and $11,303 to Mr. Speyer and Mr. Rogers,
respectively.
Note Exchange Agreement
From time to time Mr. Speyer lent us funds for
working capital under the terms of various convertible promissory
notes.
On November 7, 2018 we entered into a Note Exchange
Agreement with Mr. Speyer pursuant to which we
exchanged:
●
$1,075,000
principal amount and accrued but unpaid interest due Mr. Speyer
under 12% Convertible Promissory Notes maturing between September
26, 2021 and April 10, 2022 for 2,177,233 shares of our newly
created Series F-1 Convertible Preferred Stock in full satisfaction
of those notes;
●
$660,000 principal
amount and accrued but unpaid interest due Mr. Speyer under 6%
Convertible Promissory Notes maturing between April 19, 2022 and
July 27, 2022 for 1,408,867 shares of our newly created Series F-2
Convertible Preferred Stock in full satisfaction of those notes;
and
●
$300,000 principal
amount and accrued but unpaid interest due Mr. Speyer under 10%
Convertible Promissory Notes maturing between August 1, 2022 and
August 30, 2022 for 757,197 shares of our newly created Series F-3
Convertible Preferred Stock in full satisfaction of those
notes.
Convertible notes
During November 2018, we issued and sold Mr.
Speyer
two five year unsecured convertible notes in the
aggregate principal amount of $80,000. These notes, which are
convertible at the option of the holder at any time at a conversion
price of $0.40 per share, will automatically convert into shares of
our common stock on the fifth anniversary of the date of issuance.
We used the proceeds from these notes for working
capital.
Director independence
Messrs.
Rogers, Davenport and Lichtman are considered
“independent” within the meaning of meaning of Section
803 of the NYSE American Company Guide.
I
TEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES.
The
following table shows the fees that were billed for the audit and
other services provided by for 2018 and 2017.
|
|
2018
|
2017
|
|
|
|
|
|
Audit
Fees
|
$
164,763
|
$
86,900
|
|
Audit-Related
Fees
|
28,000
|
25,396
|
|
Tax
Fees
|
--
|
1,000
|
|
All Other
Fees
|
—
|
—
|
|
Total
|
$
192,763
|
$
113,296
|
Audit Fees
— This category
includes the audit of our annual financial statements, review of
financial statements included in our Quarterly Reports on Form 10-Q
and services that are normally provided by the independent
registered public accounting firm in connection with engagements
for those fiscal years. Included in this amount for 2018 are fees
charged by our prior audit in connection with the application of
discontinued operations to our historic 2017 audited consolidated
financial statements. This category also includes advice on audit
and accounting matters that arose during, or as a result of, the
audit or the review of interim financial statements.
Audit-Related Fees
—
This category consists of assurance and related services by the
independent registered public accounting firm that are reasonably
related to the performance of the audit or review of our financial
statements or acquisition audits and are not reported above under
“Audit Fees.” The services for the fees disclosed under
this category include consultation regarding our correspondence
with the Securities and Exchange Commission and other accounting
consulting.
34
Tax Fees
— This category consists
of professional services rendered by our independent registered
public accounting firm for tax compliance and tax advice. The
services for the fees disclosed under this category include tax
return preparation and technical tax advice.
All Other Fees
— This category
consists of fees for other miscellaneous items.
Our
board of directors has adopted a procedure for pre-approval of all
fees charged by our independent registered public accounting firm.
Under the procedure, the Audit Committee of the Board approves the
engagement letter with respect to audit, tax and review services.
Other fees are subject to pre-approval by the Audit Committee. The
audit and tax fees paid to the auditors with respect to 2018 and
2017 were pre-approved by the Audit Committee.
35
PART IV
I
TEM 15. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES.
(a)(1)
Financial
statements.
●
Reports of
Independent Registered Public Accounting Firms;
●
Consolidated
balance sheets at December 31, 2018 and 2017;
●
Consolidated
statement of operations for the years ended December 31, 2018 and
2017;
●
Consolidated
statements of change in shareholders’ equity for the years
ended December 31, 2018 and 2017;
●
Consolidated
statements of cash flows for the years ended December 31, 2018 and
2017; and
●
Notes to
consolidated financial statements.
(b)
Exhibits.
|
|
|
|
|
Incorporated by
Reference
|
|
|
||||
|
No.
|
|
Exhibit Description
|
|
Form
|
|
Date
Filed
|
|
Number
|
|
Filed or
Furnished Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
|
Form
10
|
|
1/31/13
|
|
3.3
|
|
|
|
|
3.2
|
|
|
8-K
|
|
7/9/13
|
|
3.3
|
|
|
|
|
3.3
|
|
|
8-K
|
|
11/16/13
|
|
3.4
|
|
|
|
|
3.4
|
|
|
8-K
|
|
12/30/13
|
|
3.4
|
|
|
|
|
3.5
|
|
|
10-K
|
|
3/31/14
|
|
3.5
|
|
|
|
|
3.6
|
|
|
8-K
|
|
7/28/14
|
|
3.6
|
|
|
|
|
3.7
|
|
|
10-K/A
|
|
4/1/15
|
|
3.5
|
|
|
|
|
3.8
|
|
|
8-K
|
|
12/4/15
|
|
3.7
|
|
|
|
|
3.9
|
|
|
8-K
|
|
11/13/18
|
|
3.10
|
|
|
|
|
3.10
|
|
|
Form
10
|
|
1/31/13
|
|
3.2
|
|
|
|
|
4.1
|
|
|
10-K
|
|
4/2/18
|
|
4.1
|
|
|
|
|
4.2
|
|
|
10-K
|
|
4/2/18
|
|
4.2
|
|
|
|
|
4.3
|
|
Specimen
common stock certificate
|
|
|
|
|
|
|
|
Filed
|
|
4.4
|
|
|
8-K
|
|
1/14/19
|
|
4.1
|
|
|
|
|
4.5
|
|
|
8-K
|
|
1/14/19
|
|
4.2
|
|
|
|
|
10.1
|
|
|
Form
10
|
|
1/31/13
|
|
10.1
|
|
|
|
|
10.2
|
|
|
10-Q
|
|
11/13/13
|
|
10.18
|
|
|
|
|
10.3
|
|
|
8-K
|
|
5/27/15
|
|
10.36
|
|
|
|
|
10.4
|
|
|
8-K
|
|
12/21/16
|
|
10.28
|
|
|
|
|
10.5
|
|
|
8-K
|
|
3/9/17
|
|
10.31
|
|
|
|
|
10.6
|
|
|
8-K
|
|
9/25/17
|
|
10.1
|
|
|
|
|
10.7
|
|
|
8-K
|
|
9/25/17
|
|
10.2
|
|
|
|
|
10.8
|
|
|
8-K
|
|
9/25/17
|
|
10.3
|
|
|
|
|
10.9
|
|
|
8-K
|
|
9/25/17
|
|
10.4
|
|
|
|
|
10.10
|
|
|
8-K
|
|
9/25/17
|
|
10.5
|
|
|
|
|
10.11
|
|
|
8-K
|
|
9/25/17
|
|
10.6
|
|
|
|
36
|
10.12
|
|
|
8-K
|
|
9/25/17
|
|
10.7
|
|
|
|
|
10.13
|
|
|
8-K
|
|
9/25/17
|
|
10.8
|
|
|
|
|
10.14
|
|
|
8-K
|
|
9/25/17
|
|
10.9
|
|
|
|
|
10.15
|
|
|
10-Q
|
|
11/20/17
|
|
10.11
|
|
|
|
|
10.16
|
|
|
10-Q
|
|
11/20/17
|
|
10.12
|
|
|
|
|
10.17
|
|
|
8-K
|
|
10/4/18
|
|
10.45
|
|
|
|
|
10.18
|
|
|
8-K
|
|
10/4/18
|
|
10.46
|
|
|
|
|
10.19
|
|
|
10-Q
|
|
11/20/18
|
|
10.2
|
|
|
|
|
10.20
|
|
|
8-K
|
|
1/14/19
|
|
10.1
|
|
|
|
|
10.21
|
|
|
8-K
|
|
11/13/18
|
|
10.1
|
|
|
|
|
10.22
|
|
|
10-Q
|
|
11/12/14
|
|
10.26
|
|
|
|
|
10.23
|
|
|
10-Q
|
|
8/11/15
|
|
10.37
|
|
|
|
|
10.24
|
|
|
10-Q
|
|
11/20/18
|
|
10.1
|
|
|
|
|
10.25
|
|
|
8-K
|
|
6/3/14
|
|
10.21
|
|
|
|
|
10.26
|
|
|
8-K
|
|
4/6/17
|
|
10.32
|
|
|
|
|
10.27
|
|
|
|
|
|
|
|
|
Filed
|
|
|
10.28
|
|
|
|
|
|
|
|
|
Filed
|
|
|
10.29
|
|
|
|
|
|
|
|
|
Filed
|
|
|
10.30
|
|
|
|
|
|
|
|
|
Filed
|
|
|
10.31
|
|
|
|
|
|
|
|
|
Filed
|
|
|
10.32
|
|
|
|
|
|
|
|
|
Filed
|
|
|
14.1
|
|
|
10-K
|
|
3/31/14
|
|
14.1
|
|
|
|
|
21.1
|
|
|
|
|
|
|
|
|
Filed
|
|
|
|
Consent
of EisnerAmper LLP
|
|
|
|
|
|
|
|
Filed
|
|
|
|
Consent of Liggett & Webb, P.A.
|
|
|
|
|
|
|
|
Filed
|
|
|
31.1
|
|
|
|
|
|
|
|
|
Filed
|
|
|
31.2
|
|
|
|
|
|
|
|
|
Filed
|
|
|
32.1
|
|
|
|
|
|
|
|
|
Filed
|
|
|
101.INS
|
|
XBRL INSTANCE DOCUMENT
|
|
|
|
|
|
|
|
Filed
|
|
101.SCH
|
|
XBRL TAXONOMY EXTENSION SCHEMA
|
|
|
|
|
|
|
|
Filed
|
|
101.CAL
|
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
|
|
|
|
|
|
|
|
Filed
|
|
101.DEF
|
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
|
|
|
|
|
|
|
|
Filed
|
|
101.LAB
|
|
XBRL TAXONOMY EXTENSION LABEL LINKBASE
|
|
|
|
|
|
|
|
Filed
|
|
101.PRE
|
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
|
|
|
|
|
|
|
|
Filed
|
I
TEM 16. FORM 10-K SUMMARY.
None.
37
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
Bright
Mountain Media, Inc.
|
|
|
|
|
|
|
|
|
April 12,
2019
|
By:
|
/s/
W. Kip
Speyer
|
|
|
|
|
W. Kip Speyer,
Chief Executive Officer
|
|
|
|
|
|
|
POWER OF ATTORNEY
Each
person whose signature appears below hereby constitutes and
appoints W. Kip Speyer his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him
and in his name, place and stead, in any and all capacities, to
sign any and all amendments (including amendments) to this Annual
Report on Form 10-K for the year ended December 31, 2017, and to
file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission,
and hereby grants to such attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant in the capacities and on the dates
indicated.
|
Name
|
|
Positions
|
|
Date
|
|
|
|
|
|
|
|
/s/ W.
Kip Speyer
|
|
Chairman
of the Board of Directors, Chief Executive Officer, President,
principal executive officer, principal financial and accounting
officer
|
|
April
12, 2019
|
|
W. Kip
Speyer
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Todd F. Speyer
|
|
Vice
President, Digital Media, director
|
|
April
12, 2019
|
|
Todd F.
Speyer
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Richard Rogers
|
|
Director
|
|
April
12, 2019
|
|
Richard
Rogers
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Todd F. Davenport
|
|
Director
|
|
April
12, 2019
|
|
Todd F.
Davenport
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Charles H. Lichtman
|
|
Director
|
|
April
12, 2019
|
|
Charles H.
Lichtman
|
|
|
|
|
38
INDEX
TO FINANCIAL STATEMENTS
|
|
Page
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-9
|
F-1
R
EPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Bright Mountain Media, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheet of Bright
Mountain Media, Inc. and subsidiaries (the “Company") as of
December 31, 2018, and the related consolidated statements of
operations, shareholders’ equity, and cash flows for the year
ended December 31, 2018, and the related notes (collectively
referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material
respects, the consolidated financial position of the Company as of
December 31, 2018 and the consolidated results of their operations
and their cash flows for the year ended December 31, 2018, in
conformity with accounting principles generally accepted in the
United States of America.
Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Company has
experienced recurring net losses, cash outflows from operating
activities, and has an accumulated deficit that raise substantial
doubt about its ability to continue as a going concern.
Management’s plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) ("PCAOB") and are
required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audit in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audit we are required to obtain an understanding of
internal control over financial reporting 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.
Our
audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audit also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audit provide a reasonable basis
for our opinion.
/s/
EisnerAmper LLP
We have
served as the Company’s auditor since 2018.
EISNERAMPER
LLP
Iselin,
New Jersey
April
12, 2019
F-2
R
EPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the
Shareholders and Board of Directors of:
Bright
Mountain Media, Inc.
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheet of Bright
Mountain Media, Inc. and Subsidiaries (the “Company”)
as of December 31, 2017 and the related consolidated statements of
operations, changes in stockholders’ equity and cash flows
for each of the year ended December 31, 2017, and the related
notes. In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2017 and the results of its
operations and its cash flows for the year ended December 31, 2017
in conformity with accounting principles generally accepted in the
United States of America.
Explanatory Paragraph – Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company
sustained a net loss of $2,994,096 and used cash in operating
activities of $1,732,618 for the year ended December 31, 2017. The
Company had an accumulated deficit of $11,818,902 at December 31,
2017. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management’s plans in
regard to these matters are described in Note 2. The consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal controls over financial
reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating 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.
/s/
Liggett & Webb, P.A.
LIGGETT
& WEBB, P.A.
Certified Public Accountants
We have
served as the Company’s auditor since 2013
Boynton
Beach, Florida
April
2, 2018, except for Note 5, to which the date is April 12,
2019.
F-3
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
C
ONSOLIDATED BALANCE SHEETS
|
|
December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and Cash Equivalents
|
$
1,042,457
|
$
101,231
|
|
Accounts Receivable, net
|
561,470
|
900,770
|
|
Note
Receivable, net
|
18,750
|
—
|
|
Prepaid Expenses and Other Current Assets
|
611,206
|
92,322
|
|
Current
Assets - Discontinued Operations
|
239,747
|
632,014
|
|
|
|
|
|
Total current
assets
|
2,473,630
|
1,726,337
|
|
|
|
|
|
Property
& Equipment, net
|
5,464
|
31,905
|
|
Website
Acquisition Assets, net
|
113,741
|
300,349
|
|
Intangible
Assets, net
|
221,117
|
569,334
|
|
Goodwill
|
988,926
|
446,426
|
|
Prepaid Services/Consulting Agreements - Long Term
|
1,162,500
|
—
|
|
Other
Assets
|
—
|
23,700
|
|
Other
Assets - Discontinued Operations
|
60,470
|
620,666
|
|
Total Assets
|
$
5,025,848
|
$
3,718,717
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
Current Liabilities
|
|
|
|
Accounts
Payable
|
$
655,229
|
$
897,260
|
|
Accrued
Expenses
|
465,032
|
90,000
|
|
Accrued
Interest to Related Party
|
947
|
—
|
|
Premium
Finance Loan Payable
|
92,537
|
63,133
|
|
Deferred
Revenues
|
4,163
|
9,735
|
|
Long
Term Debt, Current Portion
|
229,844
|
767,071
|
|
Current
Liabilities - Discontinued Operations
|
143,929
|
294,453
|
|
|
|
|
|
Total Current
Liabilities
|
1,591,681
|
2,121,652
|
|
|
|
|
|
Long
Term Debt to Related Parties, net
|
11,688
|
1,198,893
|
|
Long
Term Debt, net of Current Portion
|
—
|
54,950
|
|
Total Liabilities
|
1,603,369
|
3,375,495
|
|
Commitments and contingencies
|
|
|
|
Shareholders' Equity
|
|
|
|
Convertible
Preferred stock, par value $0.01, 20,000,000 shares
authorized,
|
|
|
|
Series
A, 2,000,000 shares designated, 0 and
|
|
|
|
100,000
shares issued and outstanding for December 31, 2018 and 2017,
respectively
|
—
|
1,000
|
|
Series
B, 0 and 1,000,000 shares designated, 0 and
|
|
|
|
0
shares issued and outstanding for December 31, 2018 and 2017,
respectively
|
—
|
—
|
|
Series
C, 0 and 2,000,000 shares designated, 0 and
|
|
|
|
0
shares issued and outstanding for December 31, 2018 and 2017,
respectively
|
—
|
—
|
|
Series
D, 0 and 2,000,000 shares designated, 0 and
|
|
|
|
0
shares issued and outstanding for December 31, 2018 and 2017,
respectively
|
—
|
—
|
|
Series
E, 2,500,000 shares designated,
|
|
|
|
2,500,000
and 1,375,000 issued and outstanding for December 31, 2018 and
2017, respectively
|
25,000
|
13,750
|
|
Series
F, 4,344,017 and 0 shares designated,
|
|
|
|
4,344,017
and 0 issued and outstanding for December 31, 2018 and 2017,
respectively
|
43,440
|
—
|
|
Common
stock, par value $0.01, 324,000,000 shares authorized,
|
|
|
|
62,125,114
and 46,168,864 issued and outstanding for December 31, 2018 and
2017, respectively
|
621,252
|
461,689
|
|
Additional
paid-in capital
|
19,775,753
|
11,685,685
|
|
Accumulated
Deficit
|
(17,042,966
)
|
(11,818,902
)
|
|
Total
shareholders' equity
|
3,422,479
|
343,222
|
|
Total Liabilities and Shareholders' Equity
|
$
5,025,848
|
$
3,718,717
|
See accompanying notes to consolidated financial
statements
F-4
B
RIGHT MOUNTAIN MEDIA, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Year Ended
December 31,
|
|
|
|
2018
|
2017
|
|
|
|
|
|
Revenues
|
|
|
|
Advertising
|
$
1,735,649
|
$
1,104,017
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
Advertising
|
1,378,377
|
671,286
|
|
Gross
profit
|
357,272
|
432,731
|
|
|
|
|
|
Selling,
general and administrative expenses
|
3,494,858
|
2,596,827
|
|
|
|
|
|
Loss
from continuing operations
|
(3,137,586
)
|
(2,164,096
)
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
Interest
income
|
3,349
|
643
|
|
Loss
on extinguishment of convertible debt
|
(579,233
)
|
—
|
|
Interest
expense
|
(46,881
)
|
(83,140
)
|
|
Interest
expense - related party
|
(370,963
)
|
(323,112
)
|
|
Total
other expense
|
(993,728
)
|
(405,609
)
|
|
|
|
|
|
Net
Loss from Continuing Operations
|
(4,131,314
)
|
(2,569,705
)
|
|
|
|
|
|
Loss
from Discontinued Operations
|
(1,092,750
)
|
(424,391
)
|
|
|
|
|
|
Net
Loss
|
(5,224,064
)
|
(2,994,096
)
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
|
Series
A, Series E, and Series F preferred stock
|
111,940
|
17,645
|
|
Total
preferred stock dividends
|
111,940
|
17,645
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
$
(5,336,004
)
|
$
(3,011,741
)
|
|
|
|
|
|
Basic
and diluted net loss for continuing operations per
share
|
$
(0.08
)
|
$
(0.06
)
|
|
Basic
and diluted net loss for discontinued operations per
share
|
$
(0.02
)
|
$
(0.01
)
|
|
Basic
and diluted net loss per share
|
$
(0.10
)
|
$
(0.07
)
|
|
Weighted
average shares outstanding - basic and diluted
|
51,560,351
|
45,290,360
|
|
|
|
|
See accompanying notes to consolidated financial
statements
F-5
B
RIGHT MOUNTAIN MEDIA, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
For the years ended December 31, 2018 and 2017
|
|
|
|
Additional
|
|
Total
|
||
|
|
Preferred
Stock
|
Common
Stock
|
Paid-in
|
Accumulated
|
Shareholders'
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
Balance
– January 1, 2017
|
100,000
|
$
1,000
|
44,901,531
|
$
449,016
|
$
9,944,744
|
$
(8,824,806
)
|
$
1,569,954
|
|
Common
stock issued for 10% dividend payment pursuant to Series A
preferred stock Subscription Agreements
|
—
|
—
|
10,000
|
100
|
(100
)
|
—
|
—
|
|
Issuance
of Series E preferred stock ($0.40/share)
|
1,375,000
|
13,750
|
—
|
—
|
536,250
|
—
|
550,000
|
|
Series
E 10% preferred stock dividend
|
—
|
—
|
—
|
—
|
(11,303
)
|
—
|
(11,303
)
|
|
Stock
option vesting expense
|
—
|
—
|
—
|
—
|
108,090
|
—
|
108,090
|
|
Common
stock issued as compensation
|
—
|
—
|
28,500
|
285
|
22,515
|
—
|
22,800
|
|
Common
stock issued for services ($0.85/share)
|
—
|
—
|
3,600
|
36
|
3,024
|
—
|
3,060
|
|
Beneficial
conversion feature
|
—
|
—
|
—
|
—
|
615,625
|
—
|
615,625
|
|
Common
stock issued for cash ($0.40/share)
|
—
|
—
|
125,000
|
1,250
|
48,750
|
—
|
50,000
|
|
Common
stock issued in acquisition
|
—
|
—
|
1,100,233
|
11,002
|
418,090
|
—
|
429,092
|
|
Net
loss for the year ended December 31, 2017
|
—
|
—
|
—
|
—
|
—
|
(2,994,096
)
|
(2,994,096
)
|
|
Balance
– December 31, 2017
|
1,475,000
|
14,750
|
46,168,864
|
461,689
|
11,685,685
|
(11,818,902
)
|
343,222
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
for 10% dividend payment pursuant to Series A preferred stock
Subscription Agreements
|
—
|
—
|
10,000
|
100
|
(100
)
|
—
|
—
|
|
Issuance of Series
E preferred stock ($0.40/share)
|
1,125,000
|
11,250
|
—
|
—
|
438,750
|
—
|
450,000
|
|
Series E preferred
stock dividend
|
—
|
—
|
—
|
—
|
(82,232
)
|
—
|
(82,232
)
|
|
Series
F preferred stock dividend
|
—
|
—
|
—
|
—
|
(29,708
)
|
—
|
(29,708
)
|
|
Preferred Series F
issued for extinguishment of convertible debt
|
4,344,017
|
43,440
|
—
|
—
|
1,929,141
|
—
|
1,972,581
|
|
Stock option
vesting expense
|
—
|
—
|
—
|
—
|
24,128
|
—
|
24,128
|
|
Common
Stock issued for services
|
—
|
—
|
10,000
|
100
|
7,400
|
—
|
7,500
|
|
Debt
Discount on convertible note
|
—
|
—
|
—
|
—
|
70,000
|
—
|
70,000
|
|
Units
consisting of one share of common stock and one warrant issued for
cash ($0.40 per unit), net of costs
|
—
|
—
|
14,836,250
|
148,363
|
4,992,689
|
—
|
5,141,052
|
|
Stock
issued to Spartan Capital for prepaid consulting
contract
|
—
|
—
|
1,000,000
|
10,000
|
740,000
|
—
|
750,000
|
|
Preferred
Stock Series A conversion to common stock
|
(100,000
)
|
(1,000
)
|
100,000
|
1,000
|
—
|
—
|
—
|
|
Net
loss for the year ended December 31, 2018
|
—
|
—
|
—
|
—
|
—
|
(5,224,064
)
|
(5,224,064
)
|
|
Balance
–
December 31, 2018
|
6,844,017
|
$
68,440
|
62,125,114
|
$
621,252
|
$
19,775,753
|
$
(17,042,966
)
|
$
3,422,479
|
See accompanying notes to consolidated financial
statements
F-6
B
RIGHT MOUNTAIN MEDIA, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
|
2018
|
2017
|
|
Cash flows from operating activities:
|
|
|
|
Net
loss
|
$
(5,224,064
)
|
$
(2,994,096
)
|
|
Addback:
Loss attributable to discontinued operations
|
1,092,750
|
424,391
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operations:
|
|
|
|
Depreciation
|
13,220
|
13,950
|
|
Amortization
of debt discount
|
207,285
|
181,426
|
|
Amortization
|
189,948
|
191,731
|
|
Loss
on extinguishment of convertible debt
|
579,233
|
—
|
|
Impairment
|
—
|
9,375
|
|
Stock
option compensation expense
|
24,128
|
108,090
|
|
Common
stock and warrants issued for services
|
7,500
|
25,860
|
|
Gain
on sale of fixed assets
|
(749
)
|
—
|
|
Provision
for bad debt
|
321,623
|
56,620
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
54,403
|
(406,027
)
|
|
Prepaid
expenses and other current assets
|
(8,883
)
|
(7,497
)
|
|
Prepaid services/consulting agreements
|
(922,500
)
|
—
|
|
Other
assets
|
23,700
|
86,988
|
|
Accounts
payable
|
(231,515
)
|
(8,099
)
|
|
Accrued
expenses
|
177,532
|
78,889
|
|
Accrued
interest - related party
|
715
|
(5,592
)
|
|
Deferred
revenues
|
(5,572
)
|
—
|
|
Cash
used in continuing operations for operating activities
|
(3,701,246
)
|
(2,243,991
)
|
|
Cash
(used in) provided by discontinued operations for operating
activities
|
(268,767
)
|
518,242
|
|
Net
cash used in operating activities
|
(3,970,013
)
|
(1,725,749
)
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Proceeds
from sale of property and equipment
|
15,183
|
(329
)
|
|
Cash
paid for property and equipment
|
(1,213
)
|
—
|
|
Cash
paid for acquisition, net of cash received
|
-
|
(207,801
)
|
|
Net
cash provided by (used in) investing activities from continuing
operations
|
13,970
|
(208,130
)
|
|
Cash
used in discontinued operations for investing
activities
|
-
|
(16,299
)
|
|
Net
cash provided by (used in) investing activities
|
13,970
|
(224,429
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds
from issuance of common stock, net of commissions
|
5,141,052
|
50,000
|
|
Proceeds
from issuance of preferred stock
|
450,000
|
550,000
|
|
Increase in insurance premium notes payable
|
29,404
|
9,490
|
|
Dividend
payments
|
(111,940
)
|
(11,303
)
|
|
Principal
payment on notes payable
|
(594,204
)
|
(172,936
)
|
|
Note
receivable funded
|
(75,000
)
|
—
|
|
Proceeds from long-term debt - related parties
|
80,000
|
1,460,000
|
|
Net
cash provided by financing activities
|
4,919,312
|
1,885,251
|
|
|
|
|
|
Net
increase
(decrease)
in cash and cash equivalents including cash and cash equivalents
classified within assets related to discontinued
operations
|
963,269
|
(64,927
)
|
|
Net
(decrease) increase in cash and cash equivalents classified within
assets related to discontinued operations
|
(22,043
)
|
21,077
|
|
Net
increase
(decrease)
in cash and cash equivalents
|
941,226
|
(43,850
)
|
|
Cash
and cash equivalents at beginning of period
|
101,231
|
145,081
|
|
Cash
and cash equivalents at end of year
|
$
1,042,457
|
$
101,231
|
See accompanying notes to consolidated financial
statements
F-7
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
|
Supplemental disclosure of cash flow information
|
|
|
|
Cash
paid for:
|
|
|
|
Interest
|
$
185,444
|
$
215,908
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
Premium
finance loan payable recorded as prepaid
|
$
104,249
|
$
92,322
|
|
Beneficial
conversion of debt discount to additional paid in
capital
|
$
70,000
|
$
615,625
|
|
Adjustment
to Goodwill for unrecorded liability assumed in the acquisition of
Daily Engage Media Group, LLC
|
$
197,500
|
$
—
|
|
Common
stock issued for acquisition of Daily Engage Media Group,
LLC
|
$
—
|
$
429,092
|
|
Notes
payable issued for acquisition of Daily Engage Media Group,
LLC
|
$
—
|
$
380,000
|
|
Accounts
receivable charged against notes payable - Daily Engage Media
Group, LLC
|
$
19,525
|
$
125,313
|
|
Issuance
of Common Stock for prepaid consulting services
|
$
750,000
|
$
—
|
|
Series
F Preferred Stock issued in exchange for extinguishment of
$2,035,000, net of discount of $662,625
|
$
1,972,581
|
$
—
|
See accompanying notes to consolidated financial
statements
F-8
B
RIGHT MOUNTAIN MEDIA, INC. AND
SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – NATURE OF OPERATIONS
Organization and Nature of Operations
Bright Mountain Media, Inc. is a Florida
corporation formed on May 20
,
2010.
Its
wholly
owned
subsidiaries,
Bright Mountain LLC
,
and The
Bright Insurance Agency, LLC
,
were
formed as Florida
limited liability
companies
in
May 2011.
Its
wholly
owned subsidiary
,
Bright
Watches, LLC was formed as a Florida limited
liability
company in December 2015
,
and
its
wholly owned
subsidiary
Daily Engage Media Group, LLC ("DEM") was formed
as
a
New Jersey limited liability company in February
2015. When used herein
,
the terms "BMTM
,
the
"Company," "we
,
"
"us
,"
"our"
or
"Bright Mountain"
refers
to Bright Mountain Media, Inc. and
its
subsidiaries.
Discontinued Operations
Management, prior
to December 31, 2018, with the appropriate level of authority,
determined to discontinue the operations of Black Helmet and Bright
Watches effective December 31, 2018. Both these businesses comprise
our identifiable segment Products. Accordingly, the Company
determined that the assets and liabilities of this reportable
segment met the discontinued operations criteria in Accounting
Standards Codification 205-20-45, and have been classified as
discontinued operations in the accompanying consolidated financial
statements.
See Discontinued
Operations Note 5 and Subsequent Events Note
16.
Continuing
Operations
We are a digital media holding company for online
assets targeting and servicing the military and public safety
markets. During 2018, we delivered approximately 2.2 million
advertising impressions. These impressions include both our
targeted demographic and the larger general demographic from our ad
network. Our owned websites are dedicated to providing
“
those that keep us
safe
” places to go online
where they can do everything from stay current on news and events
affecting them, look for jobs, share information, communicate with
the public, and purchase products. We own 24 websites and manage
five additional websites, for a total of 29 websites, which are
customized to provide our niche users, including active, reserve
and retired military, law enforcement, first responders and other
public safety employees with information, news and entertainment
across various platforms that has proven to be of interest and
engaging to them.
During
the past several years the Company has evolved to place its
emphasis on not only providing quality content on our websites to
drive traffic increases, but to increase the advertising revenue we
generate from companies and brands looking to reach our audiences.
Our ad network connects general use advertisers with approximately
200 digital publications worldwide. Bright Mountain’s
websites feature timely, proprietary and aggregated content
covering current events and a variety of additional subjects that
are targeted to the specific, primarily young male, demographics of
the individual website. Our business strategy requires us to
continue to provide this quality content to our niche markets as we
grow our business, operations and revenues. The Company’s
focus is to launch its full-scale Ad Network Business platform, the
Bright Mountain Media Ad Network Business.
On
September 19, 2017, under the terms of an Amended and Restated
Membership Interest Purchase Agreement with DEM, and its members,
the Company acquired 100% of the membership interests of DEM.
Launched in 2015, DEM is an ad network that connects advertisers
with approximately 200 digital publications worldwide.
NOTE 2 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company sustained a net loss from continuing
operations of $4,131,314, a loss of $1,092,750 from discontinued
operations and used cash in operating activities of $3,970,013 for
the year ended December 31, 2018. The company had an accumulated
deficit of $17,042,966 at December 31, 2018. These factors raise
substantial doubt about the ability of the Company to continue as a
going concern for a reasonable period. The Company's continuation
as a going concern is dependent upon its ability to generate
revenues, control its expenses and its ability to continue
obtaining investment capital and loans from related parties and
outside investors to sustain its current level of
operations.
F-9
Management
continues raising capital through private placements and is
exploring additional avenues for future fund-raising through both
public and private sources. The Company is not currently involved
in any binding agreements to raise private equity
capital.
The
consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern.
NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles of Consolidation and Basis of Presentation
For
Fiscal 2018 and 2017, our revenues from continuing operations have
come from our advertising segment, our one reportable
segment.
The
consolidated financial statements include the accounts of the
Company and it’s wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated
Revenue Recognition
The
Company recognizes revenue in accordance with the Financial
Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 605
, "Revenue
Recognition"
. Under these guidelines, revenue is recognized
on sales transactions when all of the following exist: persuasive
evidence of an arrangement did exist, delivery of product has
occurred, the sales price to the buyer is fixed or determinable and
collectability is reasonably assured. The Company has several
revenue streams generated directly from its website and specific
revenue recognition criteria for each revenue stream is as
follows:
●
Advertising revenue
is received directly from companies who pay the Company a monthly
fee for advertising space;
●
Advertising
revenues are generated by users "clicking" on website
advertisements utilizing several ad network partners: Revenues are
recognized, net of adjustments based on the traffic generated and
is billed monthly. The Company subsequently settles these
transactions with publishers at which time adjustments for invalid
traffic may impact the amount collected.
Use of Estimates
Our
consolidated financial statements are prepared in accordance with
GAAP. These accounting principles require management to make
certain estimates, judgments, and assumptions. We believe
that the estimates, judgments, and assumptions upon which we rely
are reasonable based upon information available to us at the time
that these estimates, judgments, and assumptions are
made. These estimates, judgments, and assumptions can affect the
reported amounts of assets and liabilities as of the date of our
consolidated financial statements as well as reported amounts of
revenue and expenses during the periods presented. Our consolidated
financial statements would be affected to the extent there are
material differences between these estimates and actual results. In
many cases, the accounting treatment of a particular transaction is
specifically dictated by GAAP and does not require management's
judgment in its application. There are also areas in which
management's judgment in selecting any available alternative would
not produce a materially different result. Significant estimates
included in the accompanying consolidated financial statements
include revenue recognition, the fair value of acquired assets for
purchase price allocation in business combinations, valuation of
inventory, valuation of intangible assets, estimates of
amortization period for intangible assets, estimates of
depreciation period for fixed assets and the valuation of
equity-based transactions, and the valuation allowance on deferred
tax assets.
F-10
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash
equivalents.
Fair Value of Financial Instruments and Fair Value
Measurements
FASB ASC 820
“
Fair
Value Measurement and Disclosures:
(“ASU 820”)
defines fair value as the price that would be received to sell an
asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date.
ASC 820 also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. A financial
instrument’s level within the fair value hierarchy is based
on the lowest level of input significant to the fair value
measurement.
The
Company measures its financial assets and liabilities in accordance
with GAAP. For certain of our financial instruments, including
cash, accounts payable, accrued expenses, and the short-term
portion of long-term debt, the carrying amounts approximate fair
value due to their short maturities. We adopted accounting guidance
for fair values measurements and disclosures (ASC 820). The
guidance utilizes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value into
three broad levels. The following is a brief description of those
three levels:
Level
1:
Observable inputs
such as quoted prices (unadjusted) in active markets for identical
assets or liabilities;
Level
2:
Inputs other than
quoted prices that are observable, either directly or indirectly.
These include quoted prices for similar assets or liabilities in
active markets and quoted prices for identical or similar assets or
liabilities in markets that are not active; and
Level
3:
Unobservable inputs
in which little or no market data exists, therefore developed using
estimates and assumptions developed by us, which reflect those that
a market participant would use.
Financial
instruments recognized in the consolidated balance sheets consist
of cash, accounts receivable, prepaid expenses and other current
assets, note receivable, accounts payable, accrued expenses and
premium finance loan payable. The Company believes that the
carrying value of its current financial instruments approximates
their fair values due to the short-term nature of these
instruments. The carrying value of long-term debt to related
parties and long-term debt to others approximates the current
borrowing rate for similar debt instruments.
The
following are the major categories of liabilities measured at fair
value on a recurring basis: as of December 31, 2018 and December
31, 2017, using significant unobservable inputs (Level
3):
|
Fair
Value measurement using Level 3
|
|
|
|
|
|
Fair Value at
December 31, 2016
|
$
1,191,357
|
|
Long term debt
added during 2017
|
1,840,000
|
|
Principal
reductions during 2017
|
(160,334
)
|
|
Adjustment to fair
value
|
—
|
|
Balance at December
31, 2017
|
$
2,871,023
|
|
Long term debt
additions during 2018
|
90,000
|
|
Principal
reductions during 2018
|
(2,651,179
)
|
|
Adjustment to fair
value
|
—
|
|
Balance at December
31, 2018
|
$
309,844
|
Accounts Receivable
Accounts receivable
are recorded at fair value on the date revenue is recognized. The
Company provides allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to repay their
obligation. If the financial condition of the Company's customers
were to deteriorate, resulting in an impairment of their ability to
repay, additional allowances may be required. The Company provides
for potential uncollectible accounts receivable based on specific
customer identification and historical collection experience
adjusted for existing market conditions. If market conditions
decline, actual collection experience may not meet expectations and
may result in decreased cash flows and increased bad debt expense.
The Company is also subject to adjustments from traffic settlements
that are deducted from open invoices.
The
policy for determining past due status is based on the contractual
payment terms of each customer, which are generally net 30 or net
60 days. Once collection efforts by the Company and its collection
agency are exhausted, the determination for charging off
uncollectible receivables is made. As of December 31, 2018 and
2017, the Company has recorded an allowance for doubtful accounts
of $228,779 and $40,000, respectively.
F-11
Property and Equipment
Property and
equipment is recorded at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of the
related assets of seven years for office furniture and equipment,
and five years for computer equipment. Leasehold improvements are
amortized over the lesser of the lease term or the useful life of
the improvements.
Website Development Costs
The
Company accounts for its website development costs in accordance
with ASC 350-50,
"Website
Development Costs"
. These costs, if any, are included in
intangible assets in the accompanying consolidated financial
statements.
ASC
350-50 requires the expensing of all costs of the preliminary
project stage and the training and application maintenance stage
and the capitalization of all internal or external direct costs
incurred during the application and infrastructure development
stage. Upgrades or enhancements that add functionality are
capitalized while other costs during the operating stage are
expensed as incurred. The Company amortizes the capitalized website
development costs over an estimated life of five
years.
As of
December 31, 2018, and 2017, all website development costs have
been expensed.
Amortization and Impairment of Long-Lived Assets
Amortization and impairment of long-lived assets
are non-cash expenses relating primarily to website acquisitions.
The Company accounts for long-lived assets in accordance with the
provisions of ASC 360,
"Property, Plant and
Equipment"
. This requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Website acquisition costs are amortized over five years.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset.
If such assets are impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less
costs to sell. While it is likely that we will have significant
amortization expense as we continue to acquire websites, we believe
that intangible assets represent costs incurred by the acquired
website to build value prior to acquisition and the related
amortization and impairment charges of assets, if applicable, are
not ongoing costs of doing business.
Stock-Based Compensation
The
Company accounts for stock-based instruments issued to employees
for services in accordance with ASC Topic 718. ASC Topic 718
requires companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity-based
compensation issued to employees. The value of the portion of an
employee award that is ultimately expected to vest is recognized as
an expense over the requisite service periods using the
straight-line attribution method. The Company accounts for
non-employee share-based awards in accordance with the measurement
and recognition criteria of ASC Topic 505-50,
"Equity-Based
Payments to Non-Employees".
The Company
estimates the fair value of stock options by using the
Black-Scholes option-pricing model. Non-cash stock-based stock
option compensation is expensed over the requisite service period
and are included in selling, general and administrative expenses on
the accompanying statement of operations. For the year ended
December 31, 2018 and 2017, non-cash stock-based stock option
compensation expense was $24,128 and $108,090,
respectively.
Advertising and Marketing
Advertising and
marketing expenses are expensed as incurred and are included in
selling, general and administrative expenses on the accompanying
consolidated statement of operations. For the years ended December
31, 2018 and 2017, advertising and marketing expense was $289,018
and $307,621, respectively, of which $0 and $33,518, was
attributable to continuing operations, respectively.
F-12
Income Taxes
We use
the asset and liability method to account for income taxes. Under
this method, deferred income taxes are determined based on the
differences between the tax basis of assets and liabilities and
their reported amounts in the consolidated financial statements
which will result in taxable or deductible amounts in future years
and are measured using the currently enacted tax rates and laws in
the period those differences are expected to reverse. A valuation
allowance is provided to reduce net deferred tax assets to the
amount that, based on available evidence, is more likely than not
to be realized.
The
Company follows the provisions of ASC 740-10,
Income Taxes - Overall.
When tax
returns are filed, it is highly certain that some positions taken
would be sustained upon examination by the taxing authorities,
while others are subject to uncertainty about the merits of the
position taken or the amount of the position that would be
ultimately sustained. In accordance with the guidance of ASC
740-10, the benefit of a tax position is recognized in the
financial statements
in the period during which, based
on all available evidence, management believes it is more likely
than not that the position will be
sustained upon examination,
including the resolution of appeals or litigation processes, if
any. Tax positions taken are not offset or
aggregated with other positions.
Tax positions that meet the more-likely-than-not recognition
threshold are measured as the largest
amount of tax benefit that is
more than 50 percent likely of being realized upon settlement with
the applicable taxing authority. The
portion of the benefits
associated with tax positions taken that exceeds the amount
measured as described above should be reflected as
a liability for unrecognized tax
benefits in the accompanying consolidated balance sheets along with
any associated interest and penalties that would
be payable to the taxing
authorities upon examination. Interest and penalties
associated with unrecognized tax expenses are recognized as tax
expenses in the Statement of Operations.
As of
December 31, 2018, tax years 2017, 2016, and 2015 remain open for
Internal Revenue Service ("IRS") audit. The Company has received no
notice of audit or any notifications from the IRS for any of the
open tax years.
Concentrations
The
Company generates revenues from through an Ad Exchange Network and
through our Owned and Operated Ad Exchange Network. There are two
large customers who account for approximately 22.6% of the 2018 Ad
Exchange Network Revenue and approximately 33% of the Accounts
Receivable at December 31, 2018.
Credit Risk
The
Company minimizes the concentration of credit risk associated with
its cash by maintaining its cash with high quality federally
insured financial institutions. However, cash balances in excess of
the FDIC insured limit of $250,000 are at risk. At December 31,
2018 and December 31, 2017, the Company had approximately $706,000
and $0, respectively, in cash balances above the FDIC insured
limit. The Company performs ongoing evaluations of its trade
accounts receivable customers and generally does not require
collateral.
Concentration of Funding
During
the year ended December 31, 2017 a large portion of the Company's
funding was provided through the issuance of 12% convertible notes
and the sale of shares of the Company's common stock and preferred
stock to a related party officer and director, as well as to a
principal shareholder.
Basic and Diluted Net Earnings (Loss) Per Common Share
In
accordance with ASC 260-10
,
"Earnings Per Share",
basic net earnings (loss) per common
share is computed by dividing the net earnings (loss) for the
period by the weighted average number of common shares outstanding
during the period. Diluted earnings (loss) per share are computed
using the weighted average number of common and dilutive common
stock equivalent shares outstanding during the period. As of
December 31, 2018, and 2017 there were 1,797,000 and 2,027,000
common stock equivalent shares outstanding as stock options,
respectively; 16,319,875 and 0 common stock equivalent shares
outstanding from warrants to purchase common shares, respectively,
6,844,017 and 1,475,000 common stock equivalents from the
conversion of preferred stock, respectively; and 200,000 and
4,300,000 common stock equivalents from the conversion of notes
payable, respectively. Equivalent shares were not utilized as the
effect is anti-dilutive.
F-13
Segment Information
The
Company currently operates in one reporting segment. The services
segment is focused on producing advertising revenue generated by
users "clicking" on website advertisements utilizing several ad
network partners and direct advertisers and subscription revenue
generated by the sale of access to career postings on one of our
websites.
Recent Accounting Pronouncements
May 2014, the Financial Accounting Standards Board
(“FASB”) issued ASU 2014-09,
"Revenue from Contracts with
Customers (Topic 606)
.”
ASU 2014-09, which has been modified on several occasions, provides
new guidance designed to enhance the comparability of revenue
recognition practices across entities, industries, jurisdictions
and capital markets. The core principle of the new guidance is that
an entity recognizes revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods and services. The new guidance also
requires disclosures about the nature, amount, timing and
uncertainty of revenue and cash flows arising from contracts with
customers. We have reviewed the provisions of this ASU and
subsequent updates and evaluated the potential impact on our
results of operations, cash flows or financial condition as well as
related disclosures and management believes the impact will be
nominal. As an emerging growth company, we have elected to adopt
this guidance, which will go into effect on January 1, 2019,
retrospectively, with a minimal cumulative
adjustment.
In February 2016, the FASB issued ASU 2016-02
“
Leases
,” which will amend current lease accounting
to require lessees to recognize (i) a lease liability, which is a
lessee’s obligation to make lease payments arising from a
lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right
to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting
requirements applicable to lessors; however, certain changes were
made to align, where necessary, lessor accounting with the lessee
accounting model. This standard will be effective for fiscal years
beginning after December 15, 2018, including interim periods within
those fiscal years. The Company will implement ASU 2016-02 in the
first quarter of 2019, based on the liability as of December 31,
2018, we anticipate that approximately $338,600 will be established
as a right of use asset with a similar
obligation.
In June 2016, the FASB issued ASU 2016-13
“Financial
Instruments – Credit Losses”
which replaces the incurred loss model with a
current expected credit loss (“CECL”) model. The CECL
model applies to financial assets subject to credit losses and
measured at amortized cost and certain off-balance sheet exposures.
Under current U.S. GAAP, an entity reflects credit losses on
financial assets measured on an amortized cost basis only when
losses are probable and have been incurred, generally considering
only past events and current conditions in making these
determinations. ASU 2016-13 prospectively replaces this approach
with a forward-looking methodology that reflects the expected
credit losses over the lives of financial assets, starting when
such assets are first acquired. Under the revised methodology,
credit losses will be measured based on past events, current
conditions and reasonable and supportable forecasts that affect the
collectability of financial assets.
ASU 2016-13 also revises the approach to
recognizing credit losses for available-for-sale securities by
replacing the direct write-down approach with the allowance
approach and limiting the allowance to the amount at which the
security’s fair value is less than the amortized cost. In
addition, ASU 2016-13 provides that the initial allowance for
credit losses on purchased credit impaired financial assets will be
recorded as an increase to the purchase price, with subsequent
changes to the allowance recorded as a credit loss expense. ASU
2016-13 also expands disclosure requirements regarding an
entity’s assumptions, models and methods for estimating the
allowance for credit losses. The amendments of this Update are
effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. Early adoption is
permitted as of January 1, 2019. The Company is currently
evaluating the impact the adoption of this new standard will have
on its consolidated financial statement
s.
In January 2017, the FASB issued 2017-04,
Intangibles -
Goodwill and Other
(Topic 350):
Simplifying the Test for Goodwill Impairment. The amendments in
this ASU simplify the subsequent measurement of goodwill by
eliminating Step 2 from the goodwill impairment test and
eliminating the requirement for a reporting unit with a zero or
negative carrying amount to perform a qualitative assessment.
Instead, under this pronouncement, an entity would perform its
annual, or interim, goodwill impairment test by comparing the fair
value of a reporting unit with its carrying amount and would
recognize an impairment change for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the
loss recognized is not to exceed the total amount of goodwill
allocated to that reporting unit. In addition, income tax effects
will be considered, if applicable. This ASU is effective for fiscal
years, and interim periods within those fiscal years, beginning
after December
15,
2019. Early adoption is permitted. The Company is currently
evaluating the impact of this ASU on its consolidated financial
statements and related disclosures.
F-14
In June 2018, the FASB issued ASU No. 2018-07,
“
Compensation – Stock
Compensation (Topic 718): Improvements to Nonemployee Share-based
Payment Accounting.
” ASU
2018-17 simplifies the accounting for share-based payments issued
to nonemployees for goods and services aligning such payments with
the requirements of share-based payments granted to employees. This
provision supersedes ASC 505-50 and expands ASC 718 to include all
share-based payment arrangements involving both nonemployees and
employees. The Company has implemented ASU No. 2018-07 early and
the adoption of this standard did not have a material impact on the
Company’s financial position and results of
operations.
In
August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement
(Topic 820), - Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement," which makes a number of
changes meant to add, modify or remove certain disclosure
requirements associated with the movement amongst or hierarchy
associated with Level 1, Level 2 and Level 3 fair value
measurements. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December
15, 2019. Early adoption is permitted upon issuance of the update.
We do not expect the adoption of this guidance to have a material
impact on our consolidated Financial Statements.
Reclassification
Certain
reclassifications have been made to the December 31, 2017
consolidated balance sheet to conform to the December 31, 2018
consolidated balance sheet presentation.
NOTE 4 – ACQUISITIONS
On
March 3, 2017 the Company entered into a Membership Interest
Purchase Agreement with DEM, and its members Harry G. Pagoulatos,
George G. Rezitis and Angelos Triantafillou (collectively, the
"Members"). On September 19, 2017 the parties entered into an
Amended and Restated Membership Interest Purchase Agreement which
modified certain terms of the original agreement. The original
agreement, as amended, is referred to as the "Daily Engage Purchase
Agreement." Following the execution of the amendment, on September
19, 2017 the parties closed the transaction pursuant to which the
Company acquired 100% of the membership interests of DEM in
exchange for the following consideration:
F-15
NOTE 4 – ACQUISITIONS (CONTINUED)
●
$380,000
paid through the delivery of unsecured, interest free, one-year
promissory notes (the "Closing Notes"). Subsequent to the
acquisition, these notes were reduced by $125,313 for working
capital adjustments.
●
an
aggregate of 1,100,233 shares of our common stock valued at
$429,092 (the "Consideration Shares"); and
●
the
forgiveness of $204,411 in working capital we had previously
advanced DEM.
At
the request of the Members and included as part of the Closing
Notes and Consideration Shares, a portion of the closing
consideration, including an $165,162 principal amount Closing Note
together with 275,058 Consideration Shares, were issued to Mr.
Vinay Belani, a third party with whom DEM has a business
relationship and are included in the above figures.
Under the terms of the Daily Engage Purchase
Agreement, upon DEM achieving certain revenue and operating income
tests, we agreed to issue additional consideration, if met.
Management assessed the likelihood of
meeting these targets and determined that it was unlikely. As a
result no contingency has been recognized.
In
accordance with ASC 805 “Business Combinations” the
measurement period for the acquisition was for one year during
which the Company reevaluated the assets acquired, liabilities
assumed and the goodwill resulting from the transaction as well as
the change in amortization as a result of changes in the
provisional amounts as if the accounting had been completed at the
acquisition date.
The
allocation of the purchase price to the assets acquired and
liabilities assumed based on management’s estimate of fair
values at the date of acquisition and as restated was as
follows:
|
|
At
Acquisition
|
Liability
Assumed
|
Adjustment
|
Measurement
Date
|
|
Tangible
assets acquired
|
$
361,770
|
$
—
|
$
—
|
$
361,770
|
|
Liabilities
assumed
|
$
(562,006
)
|
(197,500
)(1)
|
—
|
(759,506
)
|
|
Net
liabilities assumed
|
$
(200,236
)
|
$
(197,500
)
|
$
—
|
$
(397,736
)
|
|
|
|
|
|
|
|
Exchange
platform
|
$
50,000
|
$
—
|
$
(50,000
)(2)
|
$
—
|
|
Tradename
|
150,000
|
—
|
(118,000
)(2)
|
32,000
|
|
Customer
relationships
|
250,000
|
—
|
(63,000
)(2)
|
187,000
|
|
Non-compete
agreements
|
192,000
|
—
|
(114,000
)(2)
|
78,000
|
|
Unallocated
purchase price
|
446,426
|
197,500
|
345,000
|
988,926
|
|
Total
purchase price
|
$
1,088,426
|
$
197,500
|
$
—
|
$
1,285,926
|
(1)
During
August 2018, the Company became aware of an additional liability in
the form of a settlement of a legal claim for an unpaid vendor
liability which was not disclosed to the Company at the time of the
acquisition. The settlement claim of $197,500 was included in
accrued expenses at December 31, 2018.
(2)
A
valuation was performed at the end of the measurement period to
determine the fair value of acquired intangible assets as defined
in ASC 820-10. The valuation and corresponding measurement of
assets acquired and liabilities assumed resulted in adjustments to
the provisional amounts of intangible assets recognized at the
original acquisition date.
Pro forma results
The
following table sets forth a summary of the unaudited pro forma
results of the Company as if the acquisition of DEM which closed in
September 2017, had taken place on the first day of the periods
presented. These combined results are not necessarily indicative of
the results that may have been achieved had the assets been
acquired as of January 1, 2017.
|
|
December
31,
2017
|
|
Total
revenue
|
$
2,455,210
|
|
Total
expenses
|
5,593,061
|
|
Net loss
attributable to common shareholders
|
$
(3,137,851
)
|
|
Basic and diluted
net loss per share
|
$
(0.07
)
|
F-16
NOTE 5 – DISCONTINUED OPERATIONS
Management,
prior to December 31, 2018 with the appropriate leve or authority,
determined to exit, effective December 31, 2018, its Black Helmet
business line as a result of, among other things, the change in our
strategic direction to a focus solely in our advertising segment.
Historically revenues from our product sales segment including
revenues from two of our websites that operate as e-commerce
platforms, including Bright Watches and Black Helmet, as well as
Bright Watches’ retail location.
Management,
prior to December 31, 2018, with the appropriate level of
authority, determined to discontinue the operations of Bright
Mountain watches effective December 31, 2018. The decisions to exit
all components of our product segment will result in these
businesses being accounted for as discontinued operations. The
Company has determined that the exit of the Bright Watches business
requires the Company to liquidate the inventory and settle all
obligations to wind down the business unit. The Company anticipates
selling the inventory of remaining products at reduced prices
within one year. Accordingly, the Company determined that the
assets and liabilities of this reportable segment met the
discontinued operations criteria in Accounting Standards
Codification 205-20-45, as such the results have been classified as
discontinued operations.
On
March 8, 2019 the Black Helmet Apparel E-Commerce business was sold
for $175,000. At December 31, 2018, $180,000 of inventory was
considered held for sale and included in discontinued
operations.
The
detail of the consolidated balance sheets the consolidated
statements of operations and consolidated cash flows for the
discontinued operations is as stated below:
|
|
Year
ended December 31,
|
|
|
Discontinued
Operations
|
2018
|
2017
|
|
Cash and Cash
Equivalents
|
$
16,747
|
$
38,790
|
|
Inventory,
net
|
223,000
|
593,224
|
|
Total Current
Assets – Discontinued Operations
|
239,747
|
632,014
|
|
Property and
Equipment, net
|
49,347
|
57,835
|
|
Intangible Assets,
net
|
—
|
491,508
|
|
Prepaid
Rents
|
—
|
50,417
|
|
Other
Assets
|
11,123
|
20,906
|
|
Total Other Assets
– Discontinued Operations
|
60,470
|
620,666
|
|
Total Assets -
Discontinued Operations
|
300,217
|
1,252,680
|
|
Accounts
Payable
|
127,512
|
264,711
|
|
Accrued
Expenses
|
—
|
10,856
|
|
Deferred
Rents
|
16,417
|
18,886
|
|
Total Current
Liabilities – Discontinued Operations
|
143,929
|
294,453
|
|
Net Assets
(Liabilities) Discontinued Operations
|
$
156,288
|
$
958,227
|
|
|
Year ended December 31,
|
|
|
|
2018
|
2017
|
|
Revenues
|
$
1,268,657
|
$
2,577,331
|
|
Cost of
revenue
|
974,873
|
1,904,586
|
|
Gross
profit
|
293,784
|
672,745
|
|
|
|
|
|
Selling general,
and administrative expenses
|
1,388,087
|
1,096,744
|
|
|
|
|
|
Loss from
operations - discontinued operations
|
(1,094,303
)
|
(423,999
)
|
|
|
|
|
|
Other income
(expense)
|
1,553
|
(392
)
|
|
|
|
|
|
Loss from
discontinued operations
|
$
(1,092,750
)
|
$
(424,391
)
|
|
|
|
|
|
Basic and fully
diluted net loss per share
|
$
(0.02
)
|
$
(0.01
)
|
F-17
|
|
Year ended December 31,
|
|
|
Cash (used in)
provided by operations for discontinued operations:
|
2018
|
2017
|
|
Loss from
discontinued operations
|
$
(1,092,750
)
|
$
(424,391
)
|
|
Depreciation
|
13,069
|
12,179
|
|
Amortization of
website acquisitions and intangibles
|
165,066
|
135,798
|
|
Impairment
of website acquisitions and intangibles assets
|
326,442
|
61,029
|
|
Provision
for bad debts
|
1,437
|
—
|
|
Product
refund reserve
|
(21,000
)
|
11,580
|
|
Provision
for inventory reserve
|
(27,448
)
|
22,448
|
|
Change in Assets
and Liabilities Classified as Discontinued Operations:
|
|
|
|
Inventory
|
457,759
|
426,688
|
|
Deposits
|
8,765
|
|
|
Prepaid
rents
|
50,417
|
46,523
|
|
Accounts
payable
|
(137,200
)
|
197,351
|
|
Accrued
Expenses
|
(10,856
)
|
10,151
|
|
Deferred
Rents
|
(2,468
)
|
18,886
|
|
Change in cash
(used in) provided by discontinued operations
|
$
(268,767
)
|
$
518,242
|
|
Cash used in
investing activities for discontinued operations:
|
|
|
|
Purchase of
property and equipment included in discontinued
operations
|
$
—
|
$
(16,299
)
|
|
|
|
|
|
Net decrease in
cash and cash equivalents from discontinued operations
|
$
(22,043
)
|
$
21,077
|
F-18
NOTE 6– PREPAID COSTS AND EXPENSES
At
December 31, 2018 and December 31, 2017, prepaid expenses and other
current assets consisted of the following:
|
|
December 31,
|
|
|
|
2018
|
2017
|
|
Prepaid
Insurance
|
$
101,206
|
$
92,322
|
|
Current
portion of prepaid service agreements
|
510,000
|
-
|
|
Prepaid Expenses
and Other Current Assets
|
$
611,206
|
$
92,322
|
NOTE 7 – PROPERTY AND EQUIPMENT
At
December 31, 2018 and December 31, 2017, property and equipment
consisted of the following:
|
|
December 31,
|
Depreciable Life
|
|
|
|
2018
|
2017
|
(Years)
|
|
Furniture
and Fixtures
|
$
36,374
|
$
51,411
|
3-5
|
|
Computer
Equipment
|
57,112
|
56,142
|
3
|
|
Total
Property
and Equipment
|
93,486
|
107,553
|
|
|
Less:
Accumulated Depreciation
|
(88,022
)
|
(75,648
)
|
|
|
Total
Property
and Equipment, net
|
$
5,464
|
$
31,905
|
|
Depreciation
expense was $26,289 and $26,129, with $13,220 and $13,950
attributable to continuing operations for the years ending December
31, 2018 and 2017, respectively.
NOTE 8 –WEBSITE ACQUISITION AND INTANGIBLE
ASSETS.
At December 31, 2018 and 2017, respectively, website acquisitions,
net consisted of the following:
|
|
2018
|
2017
|
|
Website
Acquisition Assets
|
$
1,116,846
|
$
1,166,846
|
|
Less:
accumulated amortization
|
(802,709
)
|
(666,101
)
|
|
Less:
accumulated impairment loss
|
(200,396
)
|
(200,396
)
|
|
Website
Acquisition Assets, net
|
$
113,741
|
$
300,349
|
At December 31, 2018 and 2017, respectively, intangible assets, net
consisted of the following:
|
|
Useful Lives
|
2018
|
2017
|
|
Tradename
|
5
years
|
$
32,000
|
$
150,000
|
|
Customer
relationships
|
5
years
|
187,000
|
250,000
|
|
Non-compete
agreements
|
5-8
years
|
78,000
|
192,000
|
|
Total
Intangible Assets
|
|
297,000
|
592,000
|
|
Less:
accumulated amortization
|
|
(75,883
)
|
(22,666
)
|
|
Intangible
assets, net
|
|
$
221,117
|
$
569,334
|
Amortization expense for the years ended December 31, 2018 and 2017
was $355,015 and $327,529, respectively, of which $165,066 and
$135,798 was attributed to discontinued operations, respectively,
related to both the website acquisition costs and the
intangibles.
Included in discontinued operations are impairment losses for the
years ended December 31, 2018 and 2017 was $326,442 and $61,029,
respectively. See Note 5 for further discussion.
F-19
NOTE 9 – ACCRUED EXPENSES
At
December 31, 2018 and 2017, respectively, accrued expenses
consisted of the following:
|
|
Year ended December 31,
|
|
|
|
2018
|
2017
|
|
Contingency
accrued for DEM payable settlement
|
$
197,690
|
$
—
|
|
Accrued
dividends
|
25,548
|
—
|
|
Accrued
interest
|
361
|
12,500
|
|
Accrued
legal fees
|
94,200
|
77,500
|
|
Other
accrued expenses
|
51,979
|
—
|
|
Accrued
traffic settlements
|
95,254
|
—
|
|
Total
Accrued Expenses
|
$
465,032
|
$
90,000
|
NOTE 10 – NOTES PAYABLE
Long term debt to related parties
Between September 2016 and August
2017
,
the Company issued a series of convertible notes
payable to an executive officer and a major shareholder totaling
$2,035,000. The notes mature five years from
issuance
at
which time all principal and interest are payable. Interest rates
on the notes ranged from 6% to 12% and the notes were convertible
at any time prior to maturity at conversion prices ranging from
$0.40 to 0.50 per share
.
The Company recognized a beneficial
conversion feature when the fair value of the underlying common
stock to which
the
note is convertible into was in excess
of the face value of the note. For notes payable
under
this criteria the intrinsic value of the beneficial conversion
features was recorded as a debt discount with a corresponding
amount to additional paid in capital. The debt discount is being
amortized to
interest
over the five-year life of the
note
using
the effective interest method.
On
November 7, 2018 the Company entered into a Note Exchange Agreement
with Mr. W. Kip Speyer, our CEO and member of our Board of
Directors, pursuant to which we exchanged our convertible notes for
three new series of preferred stock as outlined below:
●
$1,075,000
principal amount and accrued but unpaid interest due Mr. Speyer
under 12% Convertible Promissory Notes maturing between September
26, 2021 and April 10, 2022 for 2,177,233 shares of our newly
created Series F-1 Convertible Preferred Stock in full satisfaction
of those notes;
●
$660,000 principal
amount and accrued but unpaid interest due Mr. Speyer under 6%
Convertible Promissory Notes maturing between April 19, 2022 and
July 27, 2022 for 1,408,867 shares of our newly created Series F-2
Convertible Preferred Stock in full satisfaction of those
notes.
●
$300,000 principal
amount and accrued but unpaid interest due Mr. Speyer under 10%
Convertible Promissory Notes maturing between August 1, 2022 and
August 30, 2022 for 757,197 shares of our newly created Series F-3
Convertible Preferred Stock in full satisfaction of those
notes.
The
Company determined the value of the preferred shares using a third
party valuation expert. The summary of the Exchange Transaction as
of November 7, 2018 is as follows:
|
Fair value of
preferred Series F-1
|
$
995,076
|
|
Fair value of
preferred Series F-2
|
643,904
|
|
Fair value of
preferred Series F-3
|
333,601
|
|
Total
consideration
|
1,972,581
|
|
|
|
|
Principal balance
of convertible notes
|
2,035,000
|
|
Accrued
interest
|
20,963
|
|
Discount on
convertible notes
|
(662,615
)
|
|
Net Carrying value
of debt extinguished
|
$
1,393,348
|
|
|
|
|
Loss on
extinguishment of debt
|
$
579,233
|
During
November 2018 the Company issued 10% convertible promissory notes
in the amount of $80,000 to a related party, to our Chief Executive
Officer. The notes mature five years from issuance and is
convertible at the option of the holder into shares of common stock
at any time prior to maturity at a conversion price of $0.40 per
share. A beneficial conversion feature exists on the date the
convertible notes were issued whereby the fair value of the
underlying common stock to which the notes are convertible into is
in excess of the face value of the note of $70,000.
F-20
The principal balance of these notes
payable
was $80,000 and $2,035,000 at December 31, 2018
and December 31
,
2017, respectively
and discounts recognized upon
respective
origination dates as a
result
of
the
beneficial
conversion feature total $68,312 and
$1,018
,
125.
At
December 31, 2018 and 2017, the total convertible notes payable to
related
party
net of discounts was $11,688 and
$1,198
,
893, respectively.
Interest
expense for note payable to related party was $174,588 and $154,499
for the years ended December 31, 2018 and 2017, respectively and
discount amortization was $196,375 and $168,613,
respectively.
Long-term debt
On
November 30, 2016, the Company entered into a promissory note
agreement with an unaffiliated party in the principal amount of
$500,000. The note was unsecured and carries an interest rate of
10% per annum payable in arrears at maturity. An amendment made on
September 30, 2017 reduced the interest rate from the original 25%
to 10%. In addition, the note holder reduced the accrued interest
due under the note from approximately $106,000 to $50,000 at
September 20, 2017. This reduction in accrued interest of
approximately $56,000 reduced interest expense for the year ended
December 31, 2017. The maturity date was amended and extended from
the former maturity date of April 30, 2018 to December 31, 2018 and
may be prepaid at any time without notice or prepayment penalty.
During the year ended December 31, 2018 the note balance was paid
in full.
The Company has a note payable originating from a
prior website acquisition. At the time of the acquisition, the
Company agreed to pay $150,000, payable monthly in an amount equal
to 30% of the net revenues from the website, when collected, with
the total amount of the earn out to be paid by January 4, 2019. The
Company recorded the future monthly payments
totaling $150,000 at a present value of $117,268,
net of a discount of $32,732. The present value was calculated at a
discount rate of 12% using the estimate future revenues. The
balance of the note payable at December 31, 2018 and 2017, was
$57,181 and $67,334 net of discounts of $0 and $11,820
respectively.
The
Company assumed certain notes upon the DEM acquisition on September
19, 2017. The note balances assumed were $123,913, and as of
December 31, 2017, the note balance was paid off. The Company
amortized $12,811 of debt discount on the notes payable assumed
from DEM upon full repayment of these notes payable as of December
31, 2017.
In
connection with the acquisition of DEM, the Company issued
promissory notes totaling $380,000. The notes have no stated
interest rate and matured on September 19, 2018 and the Company is
in default pending the final outcome of the legal matters. The
balance of the notes payable at December 31, 2018 and 2017 were
$165,162 and $254,687, respectively. This note was not paid off by
the maturity date due to pending litigation. See further discussion
in Note 11, under Legal.
At December 31,
2018 and 2017 a summary of the Company's debt is as
follows:
|
|
December
31,
2018
Balance
|
December
31,
2017
Balance
|
|
$500,000 10% Promissory Note with an unaffiliated
party issued on November 30, 2016, maturing
and
repaid
by
December 31, 2018.
|
$
—
|
$
500,000
|
|
$150,000
n
on-interest bearing Note Payable issued on January
6, 2016 for the acquisition of the WarIsBoring.com website maturing
on January 4, 2019
|
57,181
|
67,334
|
|
Non-interest
bearing Promissory Note issued for the DEM acquisition on September
19, 2017 which matured on September 19, 2018. The original
note was $380,000 of which $35,000 was reclassified in 2018 to the
Service Agreement listed below.
|
165,162
|
254,687
|
|
$45,000
non-interest bearing Note Payable issued on August 23,2018 and
maturing on April 23, 2019 associated with a Service Agreement
through August 23, 2020.
|
7,501
|
—
|
|
Total
Debt
|
$
229,844
|
$
822,021
|
|
Less
Short Term Debt
|
229,844
|
767,071
|
|
Long
Term Debt
|
$
—
|
$
54,950
|
The
minimum annual principal payments of notes payable at December 31,
2018 were:
|
2019
|
$
229,844
|
Interest expense for notes payable was $34,070 and $59,768 for the
years ended December 31, 2018 and 2017, respectively and discount
amortization was $10,910 and $23,772,
respectively
.
Premium Finance Loan Payable
The
Company generally finances its annual insurance premiums through
the use of short-term notes, payable in 10 equal monthly
installments. Coverages financed include Directors and Officers and
Errors and Omissions with premiums financed in 2018 of $92,537 and
$63,999, respectively.
Total
Premium Finance Loan Payable balance for all of the Company's
policies was $92,537 at December 31, 2018 and $63,133 at December
31, 2017.
F-21
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases its corporate offices at 6400 Congress Avenue, Suite
2050, Boca Raton, Florida 33487 under a long-term non-cancellable
lease agreement expiring on October 31, 2021. The lease terms
required base rent payments of approximately $7,260 per month for
the first twelve months commencing in September 2018, with a 3%
escalation each year. Included in other assets is a required
security deposit of $18,100. Rent is all-inclusive and includes
electricity, heat, air-conditioning, and water.
The
Company leases retail space for its product sales division at 4900
Linton Boulevard, Bay 17A, Delray Beach, FL 33445 under a two
long-term, non-cancellable lease agreement, which contain renewal
options. The leases commenced in January 2017 and are in effect for
a period of five years. Minimum base rentals total approximately
$6,000 per month, escalating 3% per year thereafter. The Company
also provided a $10,000 security deposit and prepaid $96,940 in
future rents on the facility through the funding of certain
leasehold improvements. The Company has discontinued all retail
operations and has made a settlement with the landlord to terminate
the lease of approximately $52,000 which is included in accrued
expenses. See Discontinued Operations Note 5.
On
December 16, 2016, with an effective date of December 15, 2016
under the terms of the Asset Purchase Agreement, we acquired the
assets constituting the Black Helmet apparel business including
various website properties and content, social media content,
inventory and other intellectual property right (See Note 8). We
also acquired the right to assume the lease of their warehouse
facility consisting of approximately 2,667 square feet. The lease
was renewed for a three-year term in April 2016 with an initial
base rental rate of $1,641 per month, escalating at approximately
3% per year thereafter. The Company has notified the landlord of
its intent to vacate the premises on or before March 31, 2019. See
Discontinued Operations Note 5.
Future
minimum lease commitments due for facilities under non-cancellable
operating leases at December 31, 2018 are as follows:
|
|
Operating Leases
|
|
2019
|
$
109,582
|
|
2020
|
112,763
|
|
2021
and thereafter
|
115,642
|
|
Total
minimum lease payments
|
$
337,987
|
Rent
expense for the years ended December 31, 2018 and 2017 was $350,974
and $246,127 of which $132,891 and $139,987 are from continuing
operations, respectively. Rent commitments have decreased because
two leases were not renewed and the Company down sized the space
rented at its corporate headquarters.
Legal
Effective
July
18, 2018
we
terminated the
employment
agreements
with each
of
Messrs. Harry G. Pagoulatos and George G. Rezitis for cause.
Messrs
.
Pagoulatos and Rezitis had been employed by us as
chief operating officer and chief technology officer, respectively,
of our DEM
subs
idiary
since
our acquisition of that company in September 2017. Mr. Todd Speyer,
our Vice President, Digital and a member of our board of
directors
,
have assumed operating responsibilities for DEM.
While the malfeasance of Messrs. Harry G. Pagoulatos and George G.
Rezitis giving rise to their for-cause termination adversely
affected our
results
of operations for the second and third
quarters, we do not expect that these terminations will result in
any material,
long-term
change in the operations of
DEM.
In July
of
2018, Messrs.
Pagoulato
s
and
Rezitis
,
along with a
third
party
who had
been
a
minority owner in
DEM
prior to our acquisition of that
company, filed a Complaint
in
the U.S. District
Court,
District of
New
Jersey
(case
number
2:
l
8-cv-11357-ES-SCM) against our Company
and our Chief Executive Officer,
seeking
compensatory and
punitive damages
and attorneys' fees
,
among other
items, and alleging
,
among other items
,
fraud
and
breach
of
contract.
We
vehemently
deny
all
allegation
s
in
the
complaint
and
believe
them
to be
without
merit.
We
filed
a
Motion
to
Dismiss
this
case
for
a
multitude
of
reasons
including,
but
not restricted
to, failure to state a
cause
of
action and
jurisdictional
and venue
arguments
as
the
acquisition and
employment
agreements
provides
that
any
di
s
pute
should
be heard
in
either
the
state or
local
courts of
Palm Beach
County, Florida. This Motion to Dismiss has been
pending and ripe for a decision since October 2018. At
the
appropriate
juncture
,
we
also
intend
to serve a Rule 11 Motion for
Sanctions based
upon the fact
that the
Complaint contains
frivolo
us
arguments
or arguments with no evidentiary support.
F-22
In connection with the DEM acquisition, the
Company entered
into
three-year
employment
agreements
with
two
former members of the
entity.
Under
these agreements, the Company
was
obliged to
pay base salaries of $65,000 and $70,000, respectively to the
employees with an increase to
$75,000
each
in the
second
year of the agreement as well
as
bonuses to be paid at the discretion of the board
of directors.
As
described
above, the
principles
of
DEM failed to disclose
an
obligation
of approximately
$300,000 at
closing.
The obligation, which
has been reduced to approximately $200,000, is included in accrued
expenses at December 31, 2018 and the net assets acquired from DEM
have been adjusted as disclosed in Note 4. A lawsuit has been filed
in
New
York state court to collect this obligation. We
intend to vigorously defend this motion.
From time-to-time, we may be involved in
litigation or be subject to claims arising out of our operations or
content appearing on our websites in the normal course of business.
Although the results of
litigation
and
claims cannot be predicted with certainty, we currently believe
that the final outcome of these ordinary course matters will
not
have
a material adverse effect on our business.
Regardless of the outcome, litigation can have an adverse
impact
on our company because of defense and settlement
costs
,
diversion of management resources and other
factors.
See Part II, Item I, Legal Proceedings for further
discussion.
Other Commitments
On September 5
,
2018 the
Company entered into a Master Services Agreement with
Kubient
,
Inc. pursuant to which it will provide its
programmatic technology platform to us on a nonexclusive basis for
the purpose of managing our programmatic business partners. The
Company did not pay anything to Kubient
,
Inc. for the
year ended December 31, 2018 for its platform. The Company has
provided advertising services to Kubient and at December 31, 2018
the Company is owed $108,817 and a note receivable of $75,000 and
we have reserved a total of $136,000 against these balances.
On September 28
,
2018 Bright
Mountain Media
,
Inc. entered
into
a
non-binding letter of intent with Kubient
,
Inc
.
pursuant to which we
may
acquire Kubient
,
Inc
.
in
an all stock transaction.
The Company has completed the due diligence
process and has made a determination that it will not pursue the
acquisition of Kubient, Inc.
On September 6
,
2017 Bright
Mountain Media
,
Inc
.
entered into
a five-
year
Consulting Agreement with the Spartan Capital
Securities
,
LLC (
"
Spartan
Capital"), a broker-dealer and member of FINRA, which under its
terms would not become effective until the closing of the private
placement in which Spartan Capital served as placement agent as
described below. The Consulting Agreement became effective on
September 28
,
2018
and,
accordingly, Spartan Capital was engaged to
provide advisory
services
including
,
but not
limited to advice and input with respect to raising capital,
assisting us with
strategic
introductions,
and assisting
management with enhancing corporate and shareholder value. The
consulting agreement calls for an initial
fee
of
$200,000 as consideration for the termination of a prior agreement
between the Company and Spartan. The consulting agreement also
calls for payments of $5,000 per month for a term of 60 months to
be prepaid upon the effective date of the agreement. In
addition
,
the Company issued Spartan Capital 1,000,000
shares of our common
stock
(the
"Consulting
Shares") in accordance with the consulting
agreement.
On September 6
,
2017
we
also
entered
into a
five-year M&A Advisory Agreement with Spartan Capital which
became effective on September 28, 2018 upon the completion of the
private placement for sixty months. Under the terms of the
agreement, Spartan Capital will provide consulting
services
to us related to potential mergers or
acquisitions, including candidates, valuations and transaction
terms and structures. As consideration for the M&A advisory
service we paid Spartan Capital a fee of $500,000 on the effective
date of the
agreement.
●
The
$200,000 initial consulting fee was expensed upon payment and is
included in selling, general and administrative expenses for the
year ended December 31, 2018.
●
Consulting fees consisting of
$300
,
000 in cash and
1,000
,
000 shares of
common stock valued at $750,000 as well as the $500,000 M&A
advisory fee are considered prepaid expenses. Total prepaid
service/consulting fees, net were $1,472,500
,
of which
$310,000 is considered
short-term
and
is included in prepaid expenses and other current assets as of
December 31, 2018. These prepaid expenses are being amortized over
60 months, the term of the respective agreements. The amortization
expense was $77,500 for the year ended December 31,
2018.
F-23
For
the 36 months from the final closing of this private placement,
Spartan Capital has certain rights of first refusal if we decide to
undertake a future private or public offering or if we decide to
engage an investment banking firm.
The Company granted the purchasers in the offering
demand
and
piggy-back registration rights with respect to the
share
s
of our common stock included in the Units and the
shares of common stock issuable upon the exercise of the Private
Placement Warrants. In addition
,
the Company
agreed to file a resale registration statement
within
120
days following the final closing of this offering covering the
shares of common stock issuable upon the exercise of the Private
Placement Warrants included in the Units. If the Company should
fail to timely file this resale registration
statement,
then within five business days of the end of month
we will pay the holders an amount in cash, as partial liquidated
damages, equal to 2% of the aggregate purchase price paid by the
holder for each 30 days, or portion thereof, until the earlier of
the date the deficiency is cured or the expiration of six months
from filing deadline
.
The Company will keep any such
registration
statement
effective until the earlier of the
date upon which all such securities may be sold without
registration under Rule 144 promulgated under the Securities Act or
the date which is six months after the
expiration
date of the Private Placement Warrants. We are
obligated to pay all costs associated with this registration
statement
,
other than selling expenses of the
holders
.
On
December 11, 2018 we entered into an Uplisting Advisory and
Consulting Agreement with Spartan Capital pursuant to which Spartan
Capital will provide (i) advice and input with respect to
strategies to accomplish an uplisting of our common stock to the
Nasdaq Capital Market or NYSE American LLC or another national
securities exchange, and the implementation of such strategies and
making introductions to facilitate the uplisting, (ii) advice and
input with respect to special situation and restructuring services,
including debtor and creditor advisory services, and (iii)
sell-side advisory services with respect to the sale and
disposition of non-core businesses and assets, including
facilitating due diligence and identifying potential buyers and
strategic partners and positioning these businesses and assets to
maximize value. We paid Spartan Capital a fee of $200,000 for its
services under this agreement which is for a 12 month term
beginning on the closing date of the offering. The agreement also
provides that we will reimburse Spartan Capital for reasonable
out-of-pocket expenses, which we must approve in advance. The
Company has included this payment in prepaid expense at December
31, 2018 and it will be amortized over a twelve-month
period.
The
Company entered into an Executive Employment Agreement with our
Chief Executive Officer, with an effective date of June 1, 2014.
Under the terms of this agreement, the Company will compensate the
Chief Executive Officer with a base salary of $75,000 annually, and
he is entitled to receive discretionary bonuses as may be awarded
by the
Company's
board of directors from time to time. The initial term of the
agreement is three years, and the Company may extend it for an
additional one-year period upon written notice at least 180 days
prior to the expiration of the term. The Company amended this
agreement April 1, 2017 for an additional term of three years. The
Chief Executive Officer's base annual salary was increased to
$165,000 upon recommendation of the Compensation Committee of the
board of directors.
The employment
agreement contains customary non-compete and confidentiality
provisions. The Company also agreed to indemnify the Chief
Executive Officer pursuant to the provisions of the Company's
Amended and Restated Articles of Incorporation and Amended and
Restated By-laws.
NOTE 13 – PREFERRED STOCK
The
Company has authorized 20,000,000 shares of preferred stock with a
par value of $0.01 (the "Preferred Stock"), issuable in such series
and with such designations, rights and preferences as the board of
directors may determine. The Company's board of directors has
previously designated five series of preferred stock, consisting of
10% Series A Convertible Preferred Stock ("Series A Stock"), 10%
Series B Convertible Preferred Stock ("Series B Stock"), 10% Series
C Convertible Preferred Stock ("Series C Stock"), 10% Series D
Convertible Preferred Stock ("Series D Stock") and 10% Series E
Convertible Preferred Stock ("Series E Stock").
F-24
On
November 5, 2018 we filed Articles of Amendment to our Amended and
Restated Articles of Incorporation, as amended, which:
●
returned
1,000,000 shares of previously designated 10% Series B Convertible
Preferred Stock, 2,000,000 shares of previously designated 10%
Series C Convertible Preferred Stock and 2,000,000 shares of
previously designated 10% Series D Convertible Preferred Stock to
the status of authorized but undesignated and unissued shares of
our blank check preferred stock as there were no shares of any of
these series outstanding and no intention to issue any such shares
in the future; and
●
created
three new series of preferred stock, 12% Series F-1 Convertible
Preferred Stock (“Series F-1”) consisting of 2,177,233
shares, 6% Series F-2 Convertible Preferred Stock (“Series
F-2”) consisting of 1,408,867 shares, and 10% Series F-3
Convertible Preferred Stock (“Series F-3”) consisting
of 757,917 shares.
The
designations, rights and preferences of the Series F-1, Series F-2
and Series F-3 are identical, other than the dividend rate,
liquidation preference and date of automatic conversion into shares
of our common stock.
The
Series F-1 pays dividends at the rate of 12% per annum and
automatically converts into shares of our common stock on April 10,
2022. The Series F-2 pays dividends at the rate of 6% per annum and
automatically converts into shares of our common on July 27, 2022.
The Series F-3 pays dividends at the rate of 10% per annum and
automatically converts into shares of our common stock on August
30, 2022. Additional terms of the designations, rights and
preferences of the Series F-1, Series F-2 and Series F-3
include:
●
the
shares have no voting rights, except as may be provided under
Florida law;
●
the
shares pay cash dividends subject to the provisions of Florida law
at the dividend rates set forth above, payable monthly in
arrears;
●
the
shares are convertible at any time at the option of the holder into
shares of our common stock on a 1:1 basis. The conversion ratio is
proportionally adjusted in the event of stock splits,
recapitalization or similar corporate events. Any shares not
previously converted will automatically convert into shares of our
common stock on the dates set forth above;
●
the
shares rank junior to our 10% Series A Convertible Preferred Stock
and our 10% Series E Convertible Preferred Stock;
●
in
the event of a liquidation or winding up of the Company, the shares
have a liquidation preference of $0.50 per share for the Series
F-1, $0.50 per share for the Series F-2 and $0.40 per share for the
Series F-3; and
●
the
shares are not redeemable by the Company.
At
December 31, 2018, there were 0 shares of Series A Stock and
2,500,000 shares of Series E Stock and 4,344,017 shares of Series F
Stock issued and outstanding. There are no shares of Series B
Stock, Series C Stock or Series D Stock issued and
outstanding.
The
Series A Stock is senior to all other classes of the Company's
securities and has a stated value of $0.50 per share. Holders of
shares of Series A Stock are entitled to the payment of a 10%
dividend payable in shares of the Company’s common stock at a
rate of one share of common stock for each 10 shares of
Series A Stock, payable annually the 10th business day of
January. The shares of Series A Stock are redeemable at the
Company's option upon 20 days’ notice for an amount equal to
the amount of capital invested. On the 10th business day of January
2018 there were 10,000 shares of common stock dividends owed and
payable to the Series A Stockholder of record as dividends on
the Series A Stock. These preferred shares automatically
converted into common shares on December 30, 2018 as defined
above.
On
September 6, 2017, the board of directors designated 2,500,000
shares of Preferred Stock as Series E Stock, which such designation
was amended on September 29, 2017. Holders of shares of Series E
Stock are entitled to 10% dividends, payable monthly as may be
permitted under Florida law out of funds legally available
therefor. The shares of Series E Stock rank senior to any other
class of our equity securities, except for the Series A Stock, have
a liquidation preference of $0.40 per share and are not
redeemable.
F-25
The
remaining designations, rights and preferences of each of the
Series A Stock and Series E Stock are identical, including (i)
shares do not have voting rights, except as may be permitted under
Florida law, (ii) are convertible into shares of our common stock
at the holder's option on a one for one basis, (iii) are entitled
to a liquidation preference equal to a return of the capital
invested, and (iv) each share will automatically convert into
shares of common stock five years from the date of issuance or upon
a change in control. Both the voluntary and automatic conversion
formulas are subject to proportional adjustment in the event of
stock splits, stock dividends and similar corporate
events.
During
2018, Mr. W. Kip Speyer, the Company’s Chairman and Chief
Executive Officer, purchased an aggregate of 1,125,500 shares of
the Company’s Series E Convertible Preferred Stock at a
purchase price of $0.40 per share. The designations, rights and
preferences of Series E Stock are described in Note
12.
In
2017, Mr. W. Kip Speyer, the Company’s Chairman and Chief
Executive Officer, purchased an aggregate of 1,250,000 shares of
Series E Stock at a purchase price of $0.40 per share.
During
2017, Mr. Richard Rogers, a director of the Company, purchased an
aggregate of 125,000 shares of the Company’s 10% Series E
Convertible Preferred Stock at a purchase price of $0.40 per
share.
Dividends
for Series E and F Convertible Preferred Stock paid to Mr. W. Kip
Speyer were $107,294 and $11,164 during the years ended December
31, 2018 and 2017, respectively.
NOTE 14 – COMMON STOCK
A)
Stock
Issued for cash
During
2018, the Company sold an aggregate of 14,836,250 units of its
securities to 106 accredited investors in a private placement
exempt from registration under the Securities Act in reliance on
exemptions provided by Section 4(a)(2) and Rule 506(b) of
Regulation D resulting in gross proceeds to the Company of
$5,934,500. Each unit, which was sold at a purchase price of
$0.40, consisted of one share of common stock and one five-year
warrant to purchase one share of common stock at an exercise price
of $0.65 per share. Spartan Capital, served as placement
agent for the Company in this offering. As compensation for
its services, the Company paid Spartan Capital commissions and
other fees totaling $793,450, and issued Spartan Capital Placement
Agents Warrants to purchase an aggregate of 1,483,625 shares of our
common stock, including the cash commission and Placement Agent
Warrants issued pursuant to the final closing on November 30, 2018
included in the Company’s consolidated statement of changes
in shareholders’ equity for the year ended December 31, 2018.
We used $1.0 million of these proceeds from this final closing for
the payment of the fees due Spartan Capital under the terms of the
Consulting Agreement and M&A Advisory Agreement described in
Note 11, and are using the balance for general working capital.
Under the terms of the agreement the Company agreed to file a
resale registration agreement within 120 days after the final
closing of the offering covering the common stock shares issuable
upon exercise of the Private Placement Warrants included in the
Units. The Company did not file the resale registration agreement
timely and has an obligation $3,260 per day that the filing is
delinquent.
In August 2017 the Company issued 125,000 shares
of its common stock for $50,000 or
$0.40
per
share to a private investor.
B)
Stock
issued for services
The Company issued Spartan Capital 1,000,000
shares of our common
stock
based on the fair
value at the date of grant, or $0.75 a share
valued at
$750
,
000
(the
"Consulting
Shares") in accordance with the
consulting agreement. See Commitments and Contingencies Note
11.
In
September 2018, the Company issued 10,000 shares of common stock to
a consultant for services rendered based on the fair value at the
date of grant, or $0.75 a share valued at $7,500.
F-26
On
April 25, 2017, the Company issued to the Company’s employees
28,500 shares of its common stock with a fair value $22,800 on the
date of issuance for compensation to employees and
officers.
On
January 16, 2017 the Company issued 3,600 shares to a consultant at
$0.85 per share valued at $3,060 for services rendered. The Company
valued these common shares based on a fair value on the date of the
grant.
C)
Stock
issued for acquisitions
On
September 19, 2017, the Company issued 1,100,233 shares of its
common stock in connection the acquisition of the DEM Group, LLC -
(See Note 3). The common shares were valued at $429,092 or $0.85
per share, based on the fair value on the date of
issuance.
D)
Stock
issued for dividends
In
January 2017, the Company issued 10,000 shares of its common stock
as dividends to the holder of its Series A preferred
stock.
Stock Option Compensation
The
Company accounts for stock option compensation issued to employees
for services in accordance with ASC Topic 718,
“Compensation – Stock
Compensation”.
ASC Topic 718 requires companies to
recognize in the statement of operations the grant-date fair value
of stock options and other equity-based compensation issued to
employees. The value of the portion of an employee award that is
ultimately expected to vest is recognized as an expense over the
requisite service periods using the straight-line attribution
method. The Company accounts for non-employee share-based awards in
accordance with the measurement and recognition criteria of
ASU No. 2018-07,
“
Compensation – Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting.
”
.
The Company estimates the fair value
of stock options by using the Black-Scholes option-pricing
model.
Stock
options issued to consultants and other non-employees as
compensation for services provided to the Company are accounted for
based on the fair value of the services provided or the estimated
fair market value of the option, whichever is more reliably
measurable in accordance with FASB ASC 505,
Equity,
and FASB ASC 718
,
including related amendments and
interpretations. The related expense is recognized over the period
the services are provided.
On
April 20, 2011, the Company's board of directors and majority
stockholder adopted the 2011 Stock Option Plan (the "2011 Plan"),
to be effective on January 3, 2011. The Company has reserved for
issuance an aggregate of 900,000 shares of common stock under the
2011 Plan. The maximum aggregate number of shares of Company stock
that shall be subject to Grants made under the Plan to any
individual during any calendar year shall be 180,000 shares. On
April 1, 2013, the Company's board of directors and majority
stockholder adopted the 2013 Stock Option Plan (the "2013 Plan"),
to be effective on April 1, 2013. The Company has reserved for
issuance an aggregate of 900,000 shares of common stock under the
2013 Plan. As of December 31, 2018, 132,000 shares were remaining
under the 2013 Plan for future issuance.
On May
22, 2015, the Company's board of directors and majority stockholder
adopted the 2015 Stock Option Plan (the "2015 Plan"), to be
effective on May 22, 2015. The Company has reserved for issuance an
aggregate of 1,000,000 shares of common stock under the 2015 Plan.
As of December 31, 2018, 375,000 shares were remaining under the
2015 Plan for the future issuance.
F-27
The
purpose of the 2011 Plan, 2013 Plan, and 2015 Plan (the
“Plans” are to provide an incentive to attract and
retain directors, officers, consultants, advisors and employees
whose services are considered valuable, to encourage a sense of
proprietorship and to stimulate an active interest of such persons
into our development and financial success. Under the 2015 Plan,
the Company is authorized to issue incentive stock options intended
to qualify under Section 422 of the Code, non-qualified stock
options, stock appreciation rights, performance shares, restricted
stock and long-term incentive awards. The Company's board of
directors will administer the 2011 Plan until such time as such
authority has been delegated to a committee of the board of
directors. The material terms of each option granted pursuant to
the 2011 Plan by the Company shall contain the following terms: (i)
that the purchase price of each share purchasable under an
incentive option shall be determined by the Committee at the time
of grant, (ii) the term of each option shall be fixed by the
Committee, but no option shall be exercisable more than 10 years
after the date such option is granted and (iii) in the absence of
any option vesting periods designated by the Committee at the time
of grant, options shall vest and become exercisable in terms and
conditions, consistent with the Plan, as may be determined by the
Committee and specified in the Grant Instrument. As of December 31,
2018, 9,000 shares were remaining under the 2011 Plan for future
issuance.
On
September 1, 2017 the Company granted 10,000 ten-year stock
options, which have an exercise price of $0.50 per share. The
aggregate fair value of these options was computed at $1,840 or
$0.184 per option.
The
Company estimates the fair value of share-based compensation
utilizing the Black-Scholes option pricing model, which is
dependent upon several variables such as the expected option term,
expected volatility of our stock price over the expected option
term, expected risk-free interest rate over the expected option
term, expected dividend yield rate over the expected option term,
and an estimate of expected forfeiture rates.
The
Company believes this valuation methodology is appropriate for
estimating the fair value of stock options granted to employees and
directors, which is subject to ASC Topic 718 requirements. These
amounts are estimates and thus may not be reflective of actual
future results, nor amounts ultimately realized by recipients of
these grants. The Company recognizes share-based compensation
expense on a straight-line basis over the requisite service period
for each award.
The following table
summarizes the assumptions the Company utilized to record
compensation expense for stock options granted during the year
ended December 31, 2017:
|
Assumptions:
|
2017
|
|
Expected
term (years)
|
6.25
|
|
Expected
volatility
|
52
%
|
|
Risk-free
interest rate
|
1.99
%
|
|
Dividend
yield
|
0
%
|
|
Expected
forfeiture rate
|
0
%
|
The
expected life is computed using the simplified method, which is the
average of the vesting term and the contractual term. The expected
volatility is based on an average of similar public company’s
historical volatility, as the Company's common stock is quoted in
the over the counter market on the OTCQB Tier of the OTC Markets,
Inc. The risk-free interest rate is based on the U.S. Treasury
yields with terms equivalent to the expected term of the related
option at the time of the grant. Dividend yield is based on
historical trends. While the Company believes these estimates are
reasonable, the compensation expense recorded would increase if the
expected life was increased, a higher expected volatility was used,
or if the expected dividend yield increased.
No
options were granted during the year ended December 31,
2018
The
Company recorded $24,128 and $108,090 of stock option expense for
the year ended December 31, 2018 and December 31, 2017
respectively. The stock option expense for year ended December 31,
2018 and 2017 has been recognized as a component of general and
administrative expenses in the accompanying consolidated financial
statements.
As of
December 31, 2018 there were total unrecognized compensation costs
related to non-vested share-based compensation arrangements of
$11,678 to be recognized through December 2020.
F-28
A
summary of the Company's stock option activity during the years
ended December 31, 2018 and 2017 is presented below:
|
|
Number of
Options
|
Weighted Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|
Balance
Outstanding, December 31, 2016
|
2,281,000
|
0.47
|
6.8
|
795,185
|
|
Granted
|
10,000
|
0.50
|
—
|
—
|
|
Exercised
|
—
|
—
|
—
|
—
|
|
Forfeited
|
(264,000
)
|
0.80
|
—
|
(92,034
)
|
|
Expired
|
—
|
—
|
—
|
—
|
|
Balance
Outstanding, December 31, 2017
|
2,027,000
|
$
0.42
|
5.5
|
$
73,770
|
|
Granted
|
—
|
—
|
—
|
—
|
|
Exercised
|
—
|
—
|
—
|
—
|
|
Forfeited
|
(230,000
)
|
0.22
|
2.58
|
122,496
|
|
Expired
|
—
|
—
|
—
|
—
|
|
Balance
Outstanding, December 31, 2018
|
1,797,000
|
$
0.44
|
5.1
|
$
4,584,340
|
|
Exercisable
at December 31, 2018
|
1,681,500
|
$
0.44
|
5.2
|
$
4,322,980
|
Summarized
information with respect to options outstanding under the two
option plans at December 31, 2018 is as follows:
|
|
Options Outstanding
|
Options Exercisable
|
|||
|
Range or
Exercise Price
|
Number
Outstanding
|
Remaining
Average
Contractual
Life (In Years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|
0.14 - 0.24
|
540,000
|
2.7
|
$
0.14
|
540,000
|
$
0.14
|
|
0.25 - 0.49
|
351,000
|
4.7
|
$
0.28
|
351,000
|
$
0.28
|
|
0.50 - 0.85
|
906,000
|
6.7
|
$
0.68
|
790,500
|
$
0.67
|
|
|
1,797,000
|
5.1
|
$
0.44
|
1,681,500
|
$
0.44
|
Summarized
information with respect to options outstanding under the three
option plans at December 31, 2017 is as follows:
|
|
Options Outstanding
|
Options Exercisable
|
|||
|
Range or
Exercise Price
|
Number
Outstanding
|
Remaining
Average
Contractual
Life (In Years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
|
0.14 - 0.24
|
720,000
|
3.0
|
$
0.14
|
720,000
|
$
0.14
|
|
0.25 - 0.49
|
351,000
|
5.2
|
$
0.28
|
351,000
|
$
0.29
|
|
0.50 - 0.85
|
956,000
|
7.4
|
$
0.68
|
706,500
|
$
0.67
|
|
|
2,027,000
|
5.5
|
$
0.42
|
1,777,500
|
$
0.38
|
NOTE 15 – RELATED PARTIES
As
discussed more fully in Note 8, section titled “Long Term
Debt to Related Parties, net”, in 2017, the Company issued a
series of convertible promissory notes to our Chief Executive
Officer totaling $1,460,000. These notes have a conversion price
ranging from $0.50 per share to $0.40 per share and resulted in the
recognition of a beneficial conversion
feature
recorded as a debt discount. These notes payable total $1,198,893
at December 31, 2017 net of their unamortized debt discount of
$836,107.
F-29
On
November 7, 2018 the Company entered into a Note Exchange Agreement
with Mr. W. Kip Speyer, our CEO and member of our Board of
Directors, pursuant to which we exchanged our convertible notes for
three new series of preferred stock. See further discussion in Note
8 Notes Payable for more details regarding the Note Exchange
Agreement and Exchange Transaction.
During November 2018, Mr. w. Kip
Speyer
, the Company’s
Chairman and Chief Executive Officer, entered into two convertible
note agreements with the company totaling $80,000. These notes have
a conversion price of $0.40 per share and resulted in the
recognition of a beneficial conversion feature recorded as a debt
discount. These notes payable total $11,688 at December 31, 2018.
The notes are reported net of their unamortized debt discount of
$68,312 as of December 31, 2018.
During
2018, Mr. W. Kip Speyer, the Company’s Chairman and Chief
Executive Officer, purchased an aggregate of 1,125,500 shares of
the Company’s Series E Convertible Preferred Stock at a
purchase price of $0.40 per share. The designations, rights and
preferences of Series E Stock are described in Note
12.
During
2017, Mr. W. Kip Speyer, the Company’s Chairman and Chief
Executive Officer, purchased an aggregate of 1,250,000 shares of
the Company’s Series E Convertible Preferred Stock at a
purchase price of $0.40 per share. The designations, rights and
preferences of Series E Stock are described in Note
12.
During
2017, Mr. Richard Rogers, a director of the Company, purchased an
aggregate of 125,000 shares of the Company’s Series E
Convertible Preferred Stock at a purchase price of $0.40 per share.
The designations, rights and preferences of Series E Stock are
described in Note 12.
In 2018
and 2017 we paid cash dividends on these outstanding shares of the
Company’s Series E and F Preferred Stock of $83,232 and
$29,707, and $11,303 for W Kip Speyer and Rich Rogers, ,
respectively.
NOTE 16 – INCOME TAXES
The Tax
Cuts and Jobs Act (the “TCJA”) was enacted on December
22, 2017. The TCJA, among other things, contains significant
changes to corporate taxation, including reduction of the corporate
tax rate from a top marginal rate of 35% to a flat rate of 21%,
effective as of January 1, 2018; limitation of the tax deduction
for interest expense; limitation of the deduction for net operating
losses to 80% of current year taxable income and elimination of net
operating loss carrybacks, in each case, for losses arising in
taxable years beginning after December 31, 2017 (though any such
tax losses may be carried forward indefinitely).
For the
years ended December 31, 2018 and 2017 there was no provision for
income taxes and deferred tax assets have been entirely offset by
valuation allowances.
As of
December 31, 2018, the Company has net operating loss carry
forwards of approximately $14,442,460. The Company's net operating
loss carry forwards may be subject to annual limitations if the
Company experiences a change of ownership as defined in Section 382
of the Internal Revenue Code. The Company has not conducted a
study to determine if a change of ownership has
occurred.
At
December 31, 2018 and 2017 the Company has not recorded any
liability for uncertain tax positions.
F-30
The tax
effect of significant components of the Company's deferred tax
assets and liabilities at December 31, 2018 and 2017, are as
follows:
|
|
Year ended December 31,
|
|
|
|
2018
|
2017
|
|
Deferred
tax assets:
|
|
|
|
Net
operating loss carryforward
|
$
3,158,471
|
$
2,473,817
|
|
Book
to tax difference – intangible assets
|
(45,206
)
|
22,779
|
|
Stock
option expense
|
—
|
88,553
|
|
Accounts
receivable
|
67,512
|
—
|
|
Total
gross deferred tax assets
|
3,180,777
|
2,585,149
|
|
Less:
Deferred tax asset valuation allowance
|
(3,180,777
)
|
(2,585,149
)
|
|
Total
net deferred tax assets
|
$
—
|
$
—
|
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.
Because
of the historical earnings history of the Company, the net deferred
tax assets for 2018 and 2017 were fully offset by a 100% valuation
allowance. The change in the valuation allowance was an increase of
approximately $596,000 and a decrease of approximately $528,000 for
the years December 31, 2018 and 2017, respectively. The Company
recorded a tax benefit for discontinued operations of $241,412 and
$159,138 offset by a similar valuation allowance for the years
December 31, 2018 and 2017, respectively.
For the
years ended December 31, the provision for income taxes
differs from the expected tax provision computed by applying the
U.S. federal statutory rate to loss before taxes as a result of the
following:
|
|
2018
|
2017
|
||
|
|
Amount
|
Rate
|
Amount
|
Rate
|
|
Federal tax expense
(benefit) at the statutory rate from continuing
operations
|
$
(867,576
)
|
-21.00
%
|
(873,700
)
|
-34.00
%
|
|
State tax benefit,
net of federal income tax benefit
|
(33,819
)
|
-0.82
%
|
(86,193
)
|
-3.35
%
|
|
|
|
|
|
|
|
Federal deferred
tax expense
|
(2,640
)
|
-0.06
%
|
(27,427
)
|
-1.07
%
|
|
State deferred tax
expense
|
2,791
|
0.07
%
|
(25,000
)
|
-0.97
%
|
|
Effect of true
up
|
16,906
|
0.41
%
|
—
|
—
|
|
Effect of tax rate
change
|
341,358
|
8.26
%
|
1,305,477
|
50.80
%
|
|
Non-deductible
expenses
|
189,274
|
4.58
%
|
242,434
|
9.43
%
|
|
Change in valuation
allowance
|
353,706
|
8.56
%
|
(535,592
)
|
-20.84
%
|
|
Total - continuing
operations
|
—
|
—
|
—
|
—
|
|
|
|
|
|
|
|
Federal tax expense
(benefit) at the statutory rate from discontinued
operations
|
(229,478
)
|
-21.00
%
|
(144,293
)
|
-34.00
%
|
|
State tax benefit,
net of federal income tax benefit
|
(11,934
)
|
-1.09
%
|
(14,845
)
|
-3.50
%
|
|
|
|
|
|
|
|
Change in valaution
allowance
|
241,412
|
22.09
%
|
159,138
|
37.50
%
|
|
Total -
discontinued operations
|
—
|
—
|
—
|
—
|
|
|
|
|
|
|
|
Total
|
$
—
|
—
|
—
|
—
|
|
|
Year
ended December 31,
|
|
|
|
2018
|
2017
|
|
Current
|
|
|
|
Federal
|
$
(678,302
)
|
$
(654,652
)
|
|
State
|
(36,459
)
|
(70,454
)
|
|
|
(714,761
)
|
(725,106
)
|
|
Deferred
|
|
|
|
Federal
|
358,264
|
(66,437
)
|
|
State
|
2,791
|
(7,093
)
|
|
|
361,055
|
(73,530
)
|
|
Total
|
$
(353,706
)
|
$
(798,636
)
|
|
|
|
|
|
Income taxes from
continuing operations before valuation
|
|
|
|
Allowance
|
$
(353,706
)
|
$
($798,636
)
|
|
Change in valuation
allowance
|
353,706
|
798,636
|
|
Total
|
$
—
|
$
—
|
|
|
|
|
|
Discontinued
Operations
|
|
|
|
Current
|
|
|
|
Federal
|
$
(229,478
)
|
$
(144,293
)
|
|
State
|
(11,953
)
|
(14,845
)
|
|
|
(241,412
)
|
(159,138
)
|
|
Deferred
|
|
|
|
Federal
|
—
|
—
|
|
State
|
—
|
—
|
|
|
—
|
—
|
|
Total
|
$
(241,412
)
|
$
(159,138
)
|
|
|
|
|
|
Income tax benefit
from continuing operations before valuation
allowance
|
(241,412
)
|
-
|
|
Allowance
|
|
—
|
|
Change in valuation
allowance
|
241,412
|
159,138
|
|
Total
|
$
—
|
$
—
|
NOTE 17 – SUBSEQUENT EVENTS
On
March 8, 2019 the Black Helmet Apparel E-Commerce business was sold
for $175,000, a $20,000 amount was paid at the closing and the
Company received a Promissory Note in the amount of $155,000
bearing a 15% interest rate payable in twelve equal
payments.
On
January 9, 2019, Bright Mountain Media, Inc. sold 163,750 units of
our securities to 1 accredited investor in a private placement
exempt from registration under the Securities Act in reliance on
exemptions provided by Section 4(a)(2) and Rule 506(b) of
Regulation D and Regulation S of the Securities Act. The units (the
“Units”) were sold at a purchase price of $0.40 per
Unit resulting in gross proceeds to us of $65,500 and we paid a
commission to Spartan of $6,550. Each unit consisted of one share
of our common stock and one five-year common stock purchase warrant
to purchase one share of our common stock at an exercise price of
$0.65 per share (the “Private Placement
Warrants”).
F-31
Between
January 28, 2019 and March 22, 2019, Bright Mountain Media, Inc.
sold 750,000 units of our securities to 3 accredited investors in a
private placement exempt from registration under the Securities Act
in reliance on exemptions provided by Section 4(a)(2) and Rule
506(b) of Regulation D and Regulation S of the Securities Act. The
units (the “Units”) were sold at a purchase price of
$0.40 per Unit resulting in gross proceeds to us of $300,000. Each
unit consisted of one share of our common stock and one five-year
common stock purchase warrant to purchase one share of our common
stock at an exercise price of $0.65 per share (the “Private
Placement Warrants”).
Between
February 26, 2019 and April 8, 2019, Bright Mountain Media, Inc.
sold 1,210,000 units of our securities to 12 accredited investors
in a private placement exempt from registration under the
Securities Act in reliance on exemptions provided by Section
4(a)(2) and Rule 506(b) of Regulation D and Regulation S of the
Securities Act. The units (the “Units”) were sold at a
purchase price of $0.50 per Unit resulting in gross proceeds to us
of $605,000. Each unit consisted of one share of our common stock
and one five-year common stock purchase warrant to purchase one
share of our common stock at an exercise price of $0.75 per share
(the “Private Placement Warrants”).
On
February 13, 2019, the Company entered into a not-binding letter of
intent to acquire a company which operates in our industry, subject
to due diligence. During February and March,2019 we lent that
company an aggregate of $337,500 under the terms of a 6% promissory
note which matures on April 30, 2019. As collateral for the
repayment of the note, the chief executive officer of the target
has pledged his shares in the target.
On
March 29, 2019 the Company failed to meet its Registration
requirement by not timely filing the Registration Statement (Resale
S-1) with the SEC to register the resale of the shares sold under
the Private Placement Memorandum with Placement Agent. Under the
Agreement the Company was required to file the Registration
Statement on March 29, 2019. Since the Company has not filed the
Registration Statement timely, the Company will incur an obligation
of $3,260 per day that it is delinquent. The Company intends to
file the Registration Statement as soon as practible, subsequent to
filing our Form 10-K.
F-32
TABLE OF CONTENTS
Part IItem 1. Description Of BusinessItem 1A. Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. Description Of PropertyItem 3. Legal ProceedingsItem 4. Mine Safety DisclosuresPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accounting Fees and ServicesPart IVItem 15. Exhibits, Financial Statement SchedulesItem 16. Form 10-k SummaryNote 1 Nature Of OperationsNote 2 Going ConcernNote 3 Summary Of Significant Accounting PoliciesNote 4 AcquisitionsNote 4 Acquisitions (continued)Note 5 Discontinued OperationsNote 6 Prepaid Costs and ExpensesNote 7 Property and EquipmentNote 8 Website Acquisition and Intangible AssetsNote 9 Accrued ExpensesNote 10 Notes PayableNote 11 Premium Finance Loans PayableNote 12 Commitments and ContingenciesNote 13 Preferred StockNote 14 Common StockNote 15 Related PartiesNote 16 Income TaxesNote 17 Subsequent Events