UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
☑
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended June 30, 2018
|
or
|
☐
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
|
For the transition period from __________________ to
__________________
|
Commission file number: 000-54887
Bright Mountain Media, Inc.
(Exact name of registrant as specified in its charter)
|
Florida
|
27-2977890
|
|
(State or other jurisdiction of incorporation or
organization)
|
(I.R.S. Employer Identification No.)
|
|
6400 Congress Avenue, Suite 2050, Boca Raton, Florida
|
33487
|
|
(Address of principal executive offices)
|
(Zip Code)
|
|
561-998-2440
|
|
(Registrant's telephone number, including area code)
|
|
not applicable
|
|
(
Former name, former address and former fiscal
year, if changed since last report)
|
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 and posted
on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 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 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
checkmark 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
As
of August 20, 2018 the registrant had 51,003,864 shares of its
common stock outstanding.
TABLE OF CONTENTS
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Page No.
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PART I - FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL STATEMENTS.
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4
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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
|
26
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
33
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ITEM 4.
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CONTROLS AND PROCEDURES.
|
33
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PART II - OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS.
|
34
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ITEM 1A.
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RISK FACTORS.
|
34
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ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
|
34
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES.
|
34
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ITEM 4.
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MINE SAFETY DISCLOSURES.
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34
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ITEM 5.
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OTHER INFORMATION.
|
35
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|
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ITEM 6.
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EXHIBITS.
|
35
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
Various
statements in this report contain or may contain forward-looking
statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
such forward-looking statements. These forward-looking statements
were based on various factors and were derived from utilizing
numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking
statements. These factors include, but are not limited
to:
●
our
history of losses and our ability to raise additional capital and
continue as a going concern;
●
our
ability to successfully integrate the operations of the Black
Helmet Apparel business;
●
our
ability to successfully integrate the Daily Engage Media
acquisition and fully develop the Bright Mountain Media Ad Network
and services platform;
●
a
failure to successfully transition to primarily advertising based
revenue model;
●
the
impact of seasonal fluctuations on our revenues;
●
once
established, our failure to detect advertising fraud;
●
our
dependence on our relationships with Amazon and
PayPal;
●
our
dependence on a limited number of vendors;
●
our
dependence on our relationship with Google AdSense;
2
●
acquisitions
of new businesses and our ability to integrate those businesses
into our operations;
●
online
security breaches;
●
failure
to effectively promote our brand;
●
our
ability to protect our content;
●
our
ability to protect our intellectual property rights and our
proprietary content;
●
the
success of our technology development efforts;
●
additional
competition resulting from our business expansion
strategy;
●
liability
related to content which appears on our websites;
●
regulatory
risks;
●
dependence
on executive officers and certain key employees and
consultants;
●
our
ability to hire qualified personnel;
●
third
party content;
●
possible
problems with our network infrastructure;
●
the
historic illiquid nature of our common stock;
●
risks
associated with securities litigation;
●
material
weaknesses in our internal control over financial
reporting;
●
the
lack of cash dividends on our common stock;
●
provisions
of our charter and Florida law which may have anti-takeover
effects;
●
control
of our company by our management; and
●
the
impact of diversion of management’s time and increased legal
fees as we pursue out litigation against the former owners of Daily
Engage Media.
Most
of these factors are difficult to predict accurately and are
generally beyond our control. You should consider the areas of risk
described in connection with any forward-looking statements that
may be made herein. Readers are cautioned not to place undue
reliance on these forward-looking statements and readers should
carefully review this report, our Annual Report on Form 10-K for
the year ended December 31, 2017, as filed with the Securities and
Exchange Commission on April 2, 2018 and our other filings with the
Securities and Exchange Commission in their entirety. 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.
OTHER PERTINENT INFORMATION
Unless
specifically set forth to the contrary, when used in this report
the terms “Bright Mountain”, the “Company,”
“we”, “us”, “our” and similar
terms refer to Bright Mountain Media, Inc., a Florida corporation,
and its subsidiaries. In addition, when used in this report,
“second quarter of 2018” refers to the three months
ended June 30, 2018, "second quarter of 2017" refers to the three
months ended June 30, 2017, “2018” refers to the year
ending December 31, 2018 and “2017” refers to the year
ended December 31, 2017. The information which appears on our
website at
www.brightmountainmedia.com
is not part of
this report.
3
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||
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|
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
|
||
|
|
||
|
|
|
|
|
|
June 30,
|
December 31,
|
|
|
2018
|
2017
|
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash
and Cash Equivalents
|
$
377,779
|
$
140,022
|
|
Accounts
Receivable, net
|
824,029
|
879,770
|
|
Inventories,
net
|
409,977
|
611,468
|
|
Prepaid
Expenses and Other Current Assets
|
60,328
|
145,732
|
|
Total current
assets
|
1,672,113
|
1,776,992
|
|
Property and Equipment, net
|
76,510
|
89,500
|
|
Website
Acquisition Assets, net
|
279,421
|
393,417
|
|
Intangible
Assets, net
|
868,596
|
967,774
|
|
Goodwill
|
446,426
|
446,426
|
|
Other
Assets
|
40,833
|
44,608
|
|
Total assets
|
$
3,383,899
|
$
3,718,717
|
|
|
0
|
|
|
LIABILITIES AND SHAREHOLDERS'
EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts
Payable
|
$
901,517
|
$
1,172,827
|
|
Accrued
Expenses
|
108,420
|
90,000
|
|
Accrued
Interest – Related Party
|
16,550
|
—
|
|
Premium
Finance Loan Payable
|
21,639
|
63,133
|
|
Deferred
Rent - Short Term
|
4,231
|
2,468
|
|
Deferred
Revenues
|
7,187
|
9,735
|
|
Long
Term Debt, Current Portion
|
577,420
|
767,071
|
|
Total Current
Liabilities
|
1,636,964
|
2,105,234
|
|
|
|
|
|
Long
term Deferred Rent
|
14,455
|
16,418
|
|
Long
Term Debt to Related Parties, net
|
1,299,863
|
1,198,893
|
|
Long
Term Debt, net of Current Portion
|
—
|
54,950
|
|
Total liabilities
|
2,951,282
|
3,375,495
|
|
Commitments and contingencies
|
|
|
|
Shareholders' Equity
|
|
|
|
Preferred
Stock, par value $0.01, 20,000,000 shares authorized,
|
|
|
|
Series
A, 2,000,000 shares designated, 100,000 and
|
|
|
|
100,000
shares issued and outstanding
|
1,000
|
1,000
|
|
Series
B, 1,000,000 shares designated, 0 and
|
|
|
|
0
shares issued and outstanding
|
—
|
—
|
|
Series
C, 2,000,000 shares designated, 0 and
|
|
|
|
0
shares issued and outstanding
|
—
|
—
|
|
Series
D, 2,000,000 shares designated, 0 and
|
|
|
|
0
shares issued and outstanding
|
—
|
—
|
|
Series
E, 2,500,000 shares designated,
|
|
|
|
2,012,500
and 1,375,000 issued and outstanding
|
20,125
|
13,750
|
|
Common
stock, par value $0.01, 324,000,000 shares authorized,
|
|
|
|
51,003,864
and 46,168,864 issued and outstanding
|
510,039
|
461,689
|
|
Additional
Paid-In capital
|
13,603,663
|
11,685,685
|
|
Accumulated
Deficit
|
(13,702,210
)
|
(11,818,902
)
|
|
Total shareholders'
equity
|
432,617
|
343,222
|
|
Total liabilities and shareholders' equity
|
$
3,383,899
|
$
3,718,717
|
See accompanying notes to unaudited condensed consolidated
financial statements
4
|
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
|
||||
|
|
||||
|
(Unaudited)
|
||||
|
|
|
|
|
|
|
|
For the Three Months Ended
|
For the Six Months Ended
|
||
|
|
June 30,
|
June 30,
|
||
|
|
2018
|
2017
|
2018
|
2017
|
|
Revenues
|
|
|
|
|
|
Product
|
$
318,765
|
$
572,931
|
$
694,051
|
$
1,124,286
|
|
Advertising
|
291,276
|
93,890
|
974,334
|
203,633
|
|
Total
revenues
|
610,041
|
666,821
|
1,668,385
|
1,327,919
|
|
|
|
|
|
|
|
Cost
of revenue
|
|
|
|
|
|
Products
|
238,953
|
365,411
|
530,518
|
737,957
|
|
Advertising
|
182,865
|
—
|
693,569
|
3,510
|
|
Total
cost of revenue
|
421,818
|
365,411
|
1,224,087
|
741,467
|
|
Gross
profit
|
188,223
|
301,410
|
444,298
|
586,452
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
1,011,510 |
1,064,765
|
2,101,912
|
1,948,968
|
|
|
|
|
|
|
|
Loss
from operations
|
(823,287
)
|
(763,355
)
|
(1,657,614
)
|
(1,362,516
)
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
Interest
income
|
729
|
137
|
1,017
|
219
|
|
Interest
expense
|
(9,851
)
|
(34,591
)
|
(25,204
)
|
(69,751
)
|
|
Interest
expense - related party
|
(101,650
)
|
(76,124
)
|
(201,507
)
|
(125,132
)
|
|
Total
other income (expense)
|
(110,772
)
|
(110,578
)
|
(225,694
)
|
(194,664
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
(934,059
)
|
(873,933
)
|
(1,883,308
)
|
(1,557,180
)
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
|
|
|
Series
A and Series E preferred stock
|
18,742
|
754
|
33,505
|
2,727
|
|
Total
preferred stock dividends
|
18,742
|
754
|
33,505
|
2,727
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
$
(952,801
)
|
$
(874,687
)
|
$
(1,916,813
)
|
$
(1,559,907
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
$
(0.02
)
|
$
(0.02
)
|
$
(0.04
)
|
$
(0.03
)
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic and diluted
|
48,192,461
|
44,936,196
|
48,192,461
|
44,925,043
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated
financial statements
5
|
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
|
|||||||
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS'
EQUITY
|
|||||||
|
For the Six Months Ended June 30, 2018
|
|||||||
|
(Unaudited)
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Total
|
|
|
Preferred Stock
|
Common Stock
|
Paid-in
|
Accumulated
|
Shareholders'
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Equity
|
|
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)
|
637,500
|
6,375
|
|
|
248,625
|
|
255,000
|
|
Series E 10%
preferred stock dividend
|
|
|
|
|
(33,505
)
|
|
(33,505
)
|
|
Stock option
vesting expense
|
|
|
|
|
14,208
|
|
14,208
|
|
Unit issued
for cash ($0.40/share)
|
|
|
4,825,000
|
48,250
|
1,688,750
|
|
1,737,000
|
|
Net loss for
the six months ended June 30, 2018
|
|
|
|
|
|
(1,883,308
)
|
(1,883,308
)
|
|
|
|
|
|
|
|
|
|
|
Balance - June
30, 2018
|
2,112,500
|
$
21,125
|
51,003,864
|
$
510,039
|
$
13,603,663
|
$
(13,702,210
)
|
$
432,617
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements
|
|||||||
6
Bright Mountain Media, Inc.
|
|
For the Six months ended
|
|
|
|
June 30,
|
|
|
|
2018
|
2017
|
|
Cash flows from operating activities:
|
|
|
|
Net
loss
|
$
(1,883,308
)
|
$
(1,557,180
)
|
|
Adjustments
to reconcile net loss to net cash used in operations:
|
|
|
|
Depreciation
|
12,852
|
12,148
|
|
Amortization
of debt discount
|
106,425
|
67,268
|
|
Amortization
of intangibles
|
213,174
|
151,542
|
|
Stock
option compensation expense
|
14,208
|
73,838
|
|
Common
stock and warrants issued for the brokers
|
—
|
25,860
|
|
Gain
on sale of property and equipment
|
(749
)
|
—
|
|
Provision
for bad debt
|
49,139
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
Accounts
receivable
|
(12,922
)
|
33,499
|
|
Inventory
|
201,491
|
60,497
|
|
Prepaid
expenses and other current assets
|
85,404
|
52,848
|
|
Other
assets
|
3,775
|
108,903
|
|
Accounts
payable and accrued expense
|
(275,511
)
|
(63,416
)
|
|
Accrued
interest
|
18,420
|
62,847
|
|
Accrued
interest - related party
|
16,550
|
6,858
|
|
Deferred
rents
|
(201
)
|
15,976
|
|
Deferred revenue
|
(2,548
)
|
—
|
|
Net
cash used in operating activities
|
(1,453,801
)
|
(948,512
)
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Purchase
of property and equipment
|
(1,213
)
|
(14,305
)
|
|
Cash
received for sale of property and equipment
|
2,100
|
—
|
|
Net
cash provided by (used in) investing activities
|
887
|
(14,305
)
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds
from issuance of preferred stock
|
255,000
|
—
|
|
Proceeds
from issuance of common stock, net of commissions
|
1,737,000
|
—
|
|
Repayments
on insurance premium notes payable
|
(41,494
)
|
(48,949
)
|
|
Dividend
payments
|
(33,505
)
|
—
|
|
Principal
payment on Notes Payable
|
(226,330
)
|
—
|
|
Long-term
debt - Related parties
|
—
|
950,000
|
|
Net
cash provided by financing activities
|
1,690,671
|
901,051
|
|
|
|
|
|
Net
increase (decrease) in cash
|
237,757
|
(61,766
)
|
|
Cash
and cash equivalents at beginning of period
|
140,022
|
162,795
|
|
Cash
and cash equivalents at end of period
|
$
377,779
|
$
101,029
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
Cash
paid for:
|
|
|
|
Interest
|
$
104,710
|
$
52,400
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
Premium
finance loan payable recorded as prepaid
|
$
—
|
$
42,362
|
|
Debt
discount on convertible notes payable
|
$
—
|
$
522,500
|
|
Valuation
of common stock warrants issued to Spartan
|
$
161,407
|
—
|
|
Accounts receivable charged against notes payable - Daily Engage
Media
|
$
19,525
|
$
—
|
See accompanying notes to unaudited condensed consolidated
financial statements
7
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
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 (“Daily Engage Media”) 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.
Bright
Mountain is a digital media holding company whose primary focus is
connecting brands with consumers as a full advertising services
platform. The Company’s assets include an ad network, an ad
exchange platform and 25 websites (owned and/or managed) that
provide content, services and products. In addition, the Bright
Mountain Media Ad Exchange Network will be fully developed and
implemented in the fourth quarter of 2018. The websites are
primarily geared for a young, male audience with several that focus
on active, reserve and retired military audiences as well as law
enforcement and first responders. With the acquisition of Daily
Engage Media in September 2017, the Company has acquired the
software and expertise to scale this side of the business. Two of
our websites operate as e-commerce platforms, one of which, Bright
Watches, is non-strategic to the current direction of our
business.
In
December 2016, we acquired the assets, constituting the Black
Helmet Apparel business (“Black Helmet Apparel”), from
Sostre Enterprises, Inc. Assets acquired included various website
properties and content, social media content, inventory and other
intellectual property rights.
On
September 19, 2017, under the terms of an Amended and Restated
Membership Interest Purchase Agreement with Daily Engage Media, and
its members, the Company acquired 100% of the membership interests
of Daily Engage Media. Launched in 2015, Daily Engage Media is an
ad network that connects advertisers with approximately 200 digital
publications worldwide.
Principles of Consolidation and Basis of Presentation
The
condensed consolidated financial statements include the accounts of
the Company and all of its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in the
condensed consolidated financial statements. The accompanying
unaudited financial statements for the three and six months ended
June 30, 2018 and 2017 have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”)
applicable to interim financial information and the requirements of
Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly,
they do not include all of the information and disclosures required
by accounting principles generally accepted in the United States
for complete consolidated financial statements. In the opinion of
management, such condensed consolidated financial statements
include all adjustments (consisting of normal recurring accruals)
necessary for the fair presentation of the condensed consolidated
financial position and the condensed consolidated results of
operations. The condensed consolidated results of operations for
periods presented are not necessarily indicative of the results to
be expected for the full year. The condensed consolidated balance
sheet information as of December 31, 2017 was derived from the
audited consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2017, as
filed with the SEC on April 2, 2018. The interim condensed
consolidated financial statements should be read in conjunction
with that report.
Reclassification
Certain
reclassifications have been made to the December 31, 2017
consolidated balance sheet to conform to the June 30, 2018
consolidated balance sheet presentation.
8
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued).
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.
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
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 financial and
non-financial assets and liabilities in accordance with Accounting
Standards Codification (“ASC”) 820
“
Fair
Value Measurements and Disclosures
.” This standard defines fair value,
provides guidance for measuring fair value and requires certain
disclosures. This standard does not require any new fair value
measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements. This
guidance does not apply to measurements related to share-based
payments. This guidance discusses valuation techniques, such as the
market approach (comparable market prices), the income approach
(present value of future income or cash flow), and the cost
approach (cost to replace the service capacity of an asset or
replacement cost). 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.
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.
9
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued).
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
policy for determining past due status is based on the contractual
payment terms of each customer, which are generally net 60 or net
90 days. Once collection efforts by the Company and its collection
agency are exhausted, the determination for charging off
uncollectible receivables is made.
Inventories
Inventories
consist of finished goods and are stated at the lower of cost or
market using the first in, first out (FIFO) method. Provisions have
been made to reduce excess or obsolete inventories to their net
realizable value.
Revenue Recognition
The Company recognizes revenue on our products in
accordance with 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 the product or advertising 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:
●
Sale
of merchandise directly to consumers: The Company's product sales
are recognized either FOB shipping point or FOB destination,
dependent on the customer. Revenues are therefore recognized at
point of ownership transfer, accordingly;
●
Advertising
revenue is received directly from companies who pay the Company a
monthly fee for advertising space and;
●
Advertising
revenues are generated by users “clicking” on website
advertisements utilizing several ad network partners. Revenues are
recognized net of their fees for Company owned websites upon
receipt of payment by the ad network partner since the revenue is
not determinable until it is received.
Our
advertising revenue generated from the Daily Engage and Bright
Mountain businesses are consistent with the above section. However,
the two scenarios that arise from revenue generation and
recognition include our owned and operated website advertising
revenue which requires little to no cost of revenue, as well as
advertising on non-owned websites which creates costs to those
website owners and the Company makes a range of 18% to 20% of the
gross revenues on these contractual agreements.
10
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued).
Cost of Revenues
Components of costs
of revenues for the products segment include product costs,
shipping costs to customers and any inventory adjustments for
product sales. Cost of revenue for the advertising segment consists
of revenue share payments to media providers and website publishers
that are directly related to a revenue generating event. The
Company becomes obligated to make the revenue share payments in the
period the advertising impressions, click throughs, actions or
lead-based information are delivered or occur. The Daily Engage
Media portion of the advertising segment cost of revenue consists
of revenue share payments to media providers and website publishers
that are directly related to a revenue generating event. The
Company becomes obligated to make the revenue share payments in the
period the advertising impressions, click throughs, actions or
lead-based information are delivered or occur.
Shipping and Handling Costs
The
Company includes shipping and handling fees billed to customers as
revenues and shipping and handling costs for shipments to customers
as cost of revenues.
Sales Return Reserve Policy
Our
return policy generally allows our end users to return purchased
products for refund or in exchange for new products. We estimate a
reserve for sales returns, if any, and record that reserve amount
as a reduction of sales and as a sales return reserve liability.
Sales to consumers on our web site generally may be returned within
a reasonable period of time.
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 five to 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. Expenditures for maintenance and
repairs along with fixed assets with a purchase price below our
capitalization threshold of $500 are expensed as
incurred.
Website Development Costs
The Company accounts for its website development
costs in accordance with ASC 350-50, “
Website Development
Costs
” (“ASC
350-50”). These costs, if any, are included in intangible
assets in the accompanying consolidated financial statements or
expensed immediately if the Company cannot support recovery of
these costs from positive future cash flows.
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.
For the
three and six months ended June 30, 2018 and 2017, all platform and
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 intangible assets. The
Company accounts for long-lived assets in accordance with the
provisions of ASC 360-10 “
Accounting for the Impairment
or Disposal of Long-Lived Assets
.” This statement 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.
11
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued).
Website
acquisition costs are amortized over three years and intangible
assets are amortized over up to eight 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
considered to be 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. Amortization expense is
included in selling, general and administrative expenses on the
accompanying condensed consolidated statement of
operations.
Stock-Based Compensation
The Company accounts for stock-based instruments
issued to employees for services in accordance with ASC 718
“
Compensation – Stock
Compensation
.” ASC 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 505-50, “
Equity-Based Payments to
Non-Employees
.”
The Company uses the Black-Scholes option pricing model for
estimating the fair value of stock options. The use of the option
valuation model requires the input of the Company's stock price, as
well as highly subjective assumptions, including the expected life
of the option and the expected stock price volatility based on peer
companies. Additionally, the recognition of expense requires the
estimation of the number of awards that will ultimately vest and
the number of awards that will ultimately be forfeited. The fair
value of the Company's common stock, for purposes of determining
the grant date fair value of option, has been determined by using
the closing market price per share of common stock as quoted on the
date of grant.
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 condensed consolidated statement of
operations. The Company recorded $7,340 and $58,379 stock-based
compensation expense for the three months ended June 30, 2018 and
2017 and $14,208 and $73,838 for the 6 months ended June 30, 2018
and 2017, respectively.
Advertising, Marketing and Promotion Costs
Advertising,
marketing and promotion expenses are expensed as incurred and are
included in selling, general and administrative expenses on the
accompanying statement of operations. For the three and six months
ended June 30, 2018 and 2017, advertising, marketing and promotion
expense was $74,964 and $72,945 and $135,887 and $165,233,
respectively.
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. 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
“
Accounting for Uncertain
Income Tax Positions.
”
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% 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
12
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued).
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.
As
of June 30, 2018, tax years 2017, 2016, and 2015 remain open for
IRS audit. The Company has received no notice of audit or any
notifications from the IRS for any of the open tax
years.
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 June 30, 2018 and 2017, there were
approximately 2,027,000 and 2,177,000 common stock equivalent
shares outstanding as stock options, respectively and 5,307,500 and
0 common stock equivalent shares outstanding from warrants to
purchase common shares, respectively, 2,112,500 and 100,000 common
stock equivalents from the conversion of preferred stock,
respectively, and 4,070,000 and 3,050,000 common stock equivalents
from the conversion of notes payable, respectively. Equivalent
shares were not utilized, as the effect is
anti-dilutive.
Segment Information
In accordance with the provisions of ASC 280-10,
“
Disclosures about Segments of
an Enterprise and Related Information
”, the Company is required to report
financial and descriptive information about its reportable
operating segments. The Company has two identifiable operating
segments based on the activities of the Company in accordance with
the ASC 280-10 The Company's two segments are product sales and
advertising as of June 30, 2018. The product sales segment sells
merchandise directly to customers thorough e-commerce distributor
portals such as Amazon and eBay, and through our proprietary
websites and our retail location. The advertising segment is
focused on producing advertising revenue generated by users
“clicking on” and/or viewing website advertisements
utilizing several ad network partners and direct
advertisers.
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 are currently reviewing the provisions of this
ASU and subsequent updates and evaluating the potential impact on
our results of operations, cash flows or financial condition as
well as related disclosures. As an emerging growth company, we have
elected to adopt this guidance under the private company
guidelines, which will go into effect on January 1,
2019.
In July 2015, FASB issued ASU No.
2015-11
,
“Inventory (Topic 330): Simplifying the Measurement of
Inventory
”. The
amendments in this ASU do not apply to inventory that is measured
using last-in, first-out (LIFO) or the retail inventory method. The
amendments apply to all other inventory, which includes inventory
that is measured using first-in, first-out (FIFO) or average cost.
An entity should measure inventory within the scope of this Update
at the lower of cost and net realizable value. Net realizable value
is the estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and
transportation. Subsequent measurement is unchanged for inventory
measured using LIFO or the retail inventory
method
.
For public business entities, this ASU is
effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. For all other
entities, this ASU is effective for fiscal years beginning after
December 15, 2016, and interim periods within fiscal years
beginning after December 15, 2017. The amendments in this ASU
should be applied prospectively with earlier application permitted
as of the beginning of an interim or annual reporting
period.
The adoption of ASU No. 2015-11 did not have a
material effect on our condensed consolidated financial
statements.
13
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
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. We are currently reviewing the provisions of
this ASU to determine the impact on our results of operations, cash
flows or financial condition.
In April 2016, the FASB issued ASU No.
2016-15,
“Classification of
Certain Cash Receipts and Cash Payments”
ASU 2016- provides guidance regarding the
classification of certain items within the statement of cash flows.
ASU 2016-15 is effective for annual periods beginning after
December 15, 2017 with early adoption permitted. We do not believe
this ASU will have an impact on our results of operation, cash
flows, other than presentation, or financial
condition.
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 November 2016, the FASB issued ASU
2016-18,
“Statement of Cash Flows
–Restricted Cash”
which requires entities to present the changes in
total cash, cash equivalents, restricted cash and restricted cash
equivalents in the statement of cash flows. The new guidance also
requires a reconciliation of the totals in the statement of cash
flows to the related captions in the balance sheet if restricted
cash and restricted cash equivalents are presented in a different
line item in the balance sheet. The amendments of this Update,
which should be applied using a retrospective transition method to
each period presented, are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15,
2017. Early adoption is permitted. The adoption of this standard is
not expected to have an impact on our statement of cash
flows.
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.
14
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
The accompanying condensed 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 of ($1,883,308) and used net cash in operating
activities of ($1,453,801) for the six months ended June 30, 2018.
The Company had an accumulated deficit of ($13,702,210) at June 30,
2018. These factors raise substantial doubt about the ability of
the Company to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to
generate revenues and its ability to continue receiving investment
capital from related parties to sustain its current level of
operations.
Management
plans to continue to raise additional capital through private
placements and is exploring additional avenues for future
fund-raising through both public and private sources.
The
condensed 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.
On
September 19, 2017 the Company, Daily Engage Media, and the owners
of the membership interests in Daily Engage Media entered into an
Amended and Restated Membership Interest Purchase Agreement (the
“Daily Engage Purchase Agreement”) under which the
Company acquired 100% of the membership interests of Daily Engage
Media in exchange for common stock, promissory notes and the
satisfaction of certain debt obligations of the acquired entity
totaling approximately $888,000.
Under
the terms of the Daily Engage Purchase Agreement, upon Daily Engage
Media achieving certain revenue and operating income tests, we
agreed to issue additional consideration as follows:
●
if
Daily Engage Media's revenues are at least $20,228,954, and it has
operating income of at least $3,518,623 (the "Year-One Daily Engage
Target") during the first 12 months following the closing date (the
"Year-One Earn out Period") as determined by us in accordance with
GAAP, we agreed to pay former members and executives collectively
an additional $500,000 in cash and issue an additional 1,008,547
shares of our common stock (the "Year-One Earn out
Shares");
●
if
Daily Engage Media's revenues are at least $60,385,952, and
operating income of at least $11,380,396 (the "Year-Two Daily
Engage Target") during the first 12 months following the Year-One
Earnout Period (the "Year-Two Earnout Period") as determined by us
in accordance with GAAP, we agreed to pay the pay former members
and executives an additional $500,000 in cash and issue an
additional 796,221 shares of our common stock (the "Year-Two
Earnout Shares"). In addition, if the Year-Two Daily Engage Target
is met, at the time of payment of the Year-Two Earnout Shares and
the year-two earnout cash, the former members and executives
collectively will also be entitled to receive the Year-One Earnout
Shares and the year-one earnout cash to the extent not previously
received; and
●
if
Daily Engage Media's revenues are at least $96,512,204, and it has
operating income of at least $18,524,967 (the "Year-Three Daily
Engage Target") during the 12 months following the Year-Two Earnout
Period (the "Year-Three Earnout Period") as determined by us in
accordance with GAAP, we agreed to pay former members and
executives an additional $550,000 in cash and issue an additional
723,523 shares of our common stock (the "Year-Three Earnout
Shares"). In addition, if the Year-Three Daily Engage Target is
met, at the time of payment of the Year-Three Earnout Shares and
the year-three earnout cash, the pay former members and executives
collectively will also be entitled to receive the Year-One Earnout
Shares, the year-one earnout cash, the Year-Two Earnout Shares and
the year-two earnout cash, to the extent not previously
received.
15
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
The
preliminary allocation of the purchase price to the assets acquired
and liabilities assumed based on the estimated fair values was as
follows:
|
Tangible
assets acquired
|
$
361,770
|
|
Liabilities
assumed
|
(562,006
)
|
|
Net
liabilities assumed
|
$
(200,236
)
|
|
|
|
|
Exchange
platform
|
$
50,000
|
|
Tradename
|
150,000
|
|
Customer
relationships
|
250,000
|
|
Non-compete
agreements
|
192,000
|
|
Unallocated
purchase price
|
446,426
|
|
Total
purchase price
|
$
1,088,426
|
The
final accounting for the acquisition is expected to be completed in
the third quarter of 2018.
Pro forma results
The
following table sets forth a summary of the unaudited pro forma
results of the Company as if the acquisition of the Daily Engage
Media, which was 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 business been acquired as of the first day of the periods
presented.
|
|
Three Months Ended
|
Six Months Ended
|
|
|
June 30, 2017
|
June 30, 2017
|
|
Total
revenue
|
$
1,141,444
|
$
2,366,160
|
|
Total
expenses
|
(2,159,054
)
|
(4,030,733
)
|
|
Preferred
stock dividend
|
(754
)
|
(2,727
)
|
|
Net
loss attributable to common shareholders
|
$
(1,018,364
)
|
$
(1,667,300
)
|
|
Basic
and diluted net loss per share
|
$
(0.02
)
|
$
(0.04
)
|
At
June 30, 2018 and December 31, 2017 inventories consisted of the
following:
|
|
June 30,
2018
|
December 31,
2017
|
|
Product
inventory: clocks and watches
|
$
235,834
|
$
453,852
|
|
Product
inventory: other inventory
|
196,591
|
180,064
|
|
Total
inventory balance
|
432,425
|
633,916
|
|
Less:
inventory allowance for slow moving
|
(22,448
)
|
(22,448
)
|
|
Total
inventory balance, net
|
$
409,977
|
$
611,468
|
16
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
At
June 30, 2018 and December 31, 2017, prepaid expenses and other
current assets consisted of the following:
|
|
June 30,
2018
|
December 31,
2017
|
|
Prepaid
rent
|
$
18,686
|
$
50,417
|
|
Prepaid
insurance
|
39,941
|
92,322
|
|
Prepaid
inventory
|
1,701
|
2,993
|
|
|
$
60,328
|
$
145,732
|
At
June 30, 2018 and December 31, 2017, property and equipment
consisted of the following:
|
|
Useful Lives
|
June 30, 2018
|
December 31, 2017
|
|
Furniture
and fixtures
|
3-5
years
|
$
78,856
|
$
78,994
|
|
Computer
equipment
|
3
years
|
59,511
|
59,511
|
|
Leasehold
improvements
|
5
years
|
39,384
|
39,384
|
|
Total
property and equipment
|
|
177,751
|
177,889
|
|
Less:
accumulated depreciation
|
|
(101,241
)
|
(88,389
)
|
|
Total
property and equipment, net
|
|
$
76,510
|
$
89,500
|
Depreciation
expense for the three and six months ending June 30, 2018 and 2017,
was $6,513 and $6,659 and $12,852 and $12,148,
respectively.
At
June 30, 2018 and December 31, 2017, respectively, website
acquisitions, net consisted of the following:
|
|
June 30,
2018
|
December 31,
2017
|
|
Website
Acquisition Assets
|
$
1,417,189
|
$
1,417,189
|
|
Less:
accumulated amortization
|
(926,571
)
|
(812,575
)
|
|
Less:
accumulated impairment loss
|
(211,197
)
|
(211,197
)
|
|
Website
Acquisition Assets, net
|
$
279,421
|
$
393,417
|
17
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
At
June 30, 2018 and December 31, 2017, respectively, intangible
assets, net consisted of the following:
|
|
Useful Lives
|
June 30, 2018
|
December 31, 2017
|
|
Tradename
|
5
years
|
$
300,000
|
$
300,000
|
|
Customer
relationships
|
5
years
|
502,000
|
502,000
|
|
Non-compete
agreements
|
5-8
years
|
312,000
|
312,000
|
|
Total
Intangible Assets
|
|
$
1,114,000
|
$
1,114,000
|
|
Less:
accumulated amortization
|
|
(195,177
)
|
(95,999
)
|
|
Less:
accumulated impairment loss
|
|
(50,227
)
|
(50,227
)
|
|
Intangible
assets, net
|
|
$
868,596
|
$
967,774
|
Amortization
expense for the three and six month periods ending June 30, 2018
and 2017 was $100,317 and $75,806 and $213,174 and $151,542,
respectively, related to both the website acquisition costs and the
intangibles.
The
Company has two identifiable segments as of June 30, 2018; products
and advertising. The products segment sells merchandise directly to
customers thorough e-commerce distributor portals such as Amazon
and eBay, and through our proprietary websites and retail location.
The advertising segment is focused on producing advertising revenue
generated by users “clicking on” and/or viewing website
advertisements utilizing several ad network partners and direct
advertisers and subscription revenue generated by the sale of
access to premium versions of our websites and to career postings
on one of our websites. The subscription revenues are about 0.7% of
the total advertising segment revenue. The following information
represents segment activity for the three and six month periods
ended June 30, 2018 and 2017.
|
|
For the three months ended
|
For the three months ended
|
||||
|
|
June 30, 2018
|
June 30, 2017
|
||||
|
|
Products
|
Advertising
|
Total
|
Products
|
Advertising
|
Total
|
|
Revenues
|
$
318,765
|
$
291,276
|
$
610,041
|
$
572,931
|
$
93,890
|
$
666,821
|
|
Intangible
amortization
|
$
41,732
|
$
58,585
|
$
100,317
|
$
—
|
$
75,806
|
$
75,806
|
|
Depreciation
|
$
3,099
|
$
3,414
|
$
6,513
|
$
5,707
|
$
952
|
$
6,659
|
|
Loss from
operations
|
$
(342,487
)
|
$
(480,800
)
|
$
(823,287
)
|
$
(445,896
)
|
$
(317,459
)
|
$
(763,355
)
|
|
Segment
assets
|
$
1,127,473
|
$
2,256,426
|
$
3,383,899
|
$
1,728,881
|
$
784,566
|
$
2,513,447
|
|
Purchase of
assets
|
$
1,213
|
$
—
|
$
1,213
|
$
14,305
|
$
—
|
$
14,305
|
18
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
|
|
For the
six months ended
|
For the
six months ended
|
||||
|
|
June 30,
2018
|
June 30,
2017
|
||||
|
|
Products
|
Advertising
|
Total
|
Products
|
Advertising
|
Total
|
|
Revenues
|
$
694,051
|
$
974,334
|
$
1,668,385
|
$
1,124,286
|
$
203,633
|
$
1,327,919
|
|
Intangible
amortization
|
$
63,526
|
$
149,648
|
$
213,174
|
$
—
|
$
151,542
|
$
151,542
|
|
Depreciation
|
$
5,346
|
$
7,505
|
$
12,852
|
$
10,285
|
$
1,863
|
$
12,148
|
|
Loss from
operations
|
$
(689,571
)
|
$
(968,043
)
|
$
(1,657,614
)
|
$
(845,275
)
|
$
(517,241
)
|
$
(1,362,516
)
|
|
Segment
assets
|
$
1,127,473
|
$
2,256,426
|
$
3,383,899
|
$
1,728,881
|
$
784,566
|
$
2,513,447
|
|
Purchase of
assets
|
$
1,213
|
—
|
$
1,213
|
$
14,305
|
—
|
$
14,305
|
Between
September 2016 and August 2017, the Company issued a series of
convertible notes payable to an executive officer and member of our
board of directors. The notes mature five years from issuance at
which time all principal and interest are payable. Interest rates
on the notes range from 6% to 12% and the notes are 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.
The
principal balance of these notes payable was $2,035,000 at June 30,
2018 and December 31, 2017 and discounts recognized upon respective
origination dates as a result of the beneficial conversion feature
total $1,018,125. As of June 30, 2018 and December 31, 2017, the
total convertible notes payable to related party net of discounts
was $1,299,863 and $1,198,893, respectively.
Notes Payable
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 is unsecured and carries an interest rate of 10%
per annum and matures on June 30, 2018, and the parties have agreed
to extend the maturity to December 31,2018. In the event of default
of any loan provision, the lender can declare all or any portion of
the unpaid principal and interest immediately due and payable.
During the six month period ended June 30, 2018 the Company made
payments of $205,000, reducing the note balance to $295,000. The
Company and the lender have reached an oral agreement, whereby the
lender will extend the maturity date to December 31, 2018 and the
Company will pay the lender $150,000 in the third quarter of 2018
and the remaining balance plus accrued interest by December 31,
2018. The Company paid $50,000 in July 2018, in accordance with
this agreement.
In
connection with the acquisition of Daily Engage Media, the Company
issued promissory notes totaling $380,000. The notes have no stated
interest rate and mature on September 19, 2018. The balance of the
notes payable at June 30, 2018 and December 31, 2017 was $225,162
and $254,687, respectively. The Company applied payments made on
behalf of the former company for the year ended December 31, 2017
of $125,313 and $19,525 for the six months ended June 30, 2018. In
April 2018 the Company paid principal payments of $2,500 to the
four note holders, totaling $10,000 and in July 2018, the Company
paid $25,000.
19
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
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 June 30, 2018 and December 31, 2017,
was $56,172 and $67,895 net of discounts of $6,364 and $11,820
respectively.
Interest expense on notes payable was
$9,851 and $34,591 and $25,204 and
$69,751 for the three and six month periods ended June 30, 2018 and
2017, respectively.
Amortization of the debt discount of $2,727 and
$5,455 and $106,425 and $67,268 for the three and six months ended
June 30, 2018 and 2017, respectively.
Interest expense on
notes payable – related party was
$101,650 and $76,124 and $201,507 and $125,132 for
the three and six month periods ended June 30, 2018 and 2017,
respectively, inclusive of amortization of debt discount totaled
$50,763 and $41,109 and $100,970 and $67,268,
respectively.
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 March 14, 2019. The lease terms
required base rent payments of approximately $9,000 per month for
the first twelve months commencing in October 2014, with a 3%
escalation each year. An additional security deposit of $2,500 was
required. 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. Prepaid rent totaled $18,686 and $50,417 at
June 30, 2018 and December 31, 2017, respectively.
The
Company leases a warehouse facility in Orlando, Florida consisting
of approximately 2,667 square feet. The lease commenced in April
2016, expiring in April 2021 with an initial base rental rate of
$1,641 per month, and escalating at approximately 3% per year
thereafter.
Rent
expense for the three and six months ended June 30, 2018 and 2017
was $73,836 and $57,249 and $137,926 and $117,925,
respectively.
Legal
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 Subsequent Events Note
13 for further discussion and Part II, Item 1. Legal
Proceedings
20
Other Commitments
The
Company entered into various contracts or agreements in the normal
course of business, which may contain commitments. During the three
and six months ended June 30, 2018 and 2017, the Company entered
into agreements with third party vendors to supply website content
and data, website software development, advertising, public
relations, and legal services. All of these commitments contain
provisions whereby either party may terminate the agreement with
specified notice, normally 30 days, and with no further obligation
on the part of either party.
Total
payments for the three and six month periods ended June 30, 2018
and 2017 were $80,877 and $37,500 and $112,810 and $90,000,
respectively.
Effective
June 1, 2014, the Company entered into an employment agreement with
its Chief Executive Officer (“CEO”). The agreement
calls for current base salary of $165,000 per year plus bonuses as
awarded by the Board of Director’s. The agreement terminates
upon the CEO’s death or disability in the event of which, the
Company is obliged to pay one year salary and in the event of
death, any unpaid bonuses. Both the Company and the CEO can
terminate the agreement and in the case of termination without
cause on the part of the Company, the CEO will be entitled to twice
his salary plus unpaid bonuses earned.
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.
Mr.
Speyer earned a performance bonus of $41,250 for 2017.
In
connection with the Daily Engage Media acquisition, the Company
entered into three-year employment agreements with two former
members of the entity. Under these agreements, the Company is
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. See Subsequent Events Note 13
for further discussion.
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"). At June 30, 2018,
there were 100,000 shares of Series A Stock and 2,012,500 shares of
Series E 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. In January 2018 the Company paid
10,000 shares of common stock dividends to the Series A
Stockholder of record as dividends on the Series A
Stock.
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.
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.
21
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
NOTE 11 – SHAREHOLDERS’ EQUITY
(continued).
In
September 2017, Mr. W. Kip Speyer, an executive officer and member
of our board of directors, purchased an aggregate of 500,000 shares
of Series E Stock at a purchase price of $0.40 per share. The
Company used the proceeds from these sales for working
capital.
During
the six months ended June 30, 2018 periods, Mr. W. Kip Speyer, an
executive officer and member of our board of directors, purchased
an aggregate of 637,500 shares of Series E Stock at a purchase
price of $0.40 per share. The Company used the proceeds from these
sales for working capital.
Stock issued for cash
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.
Between
January 2018 and June 2018, the Company sold an aggregate of
4,825,000 units of its securities to 28 accredited investors in a
private placement resulting in gross proceeds to the Company of
$1,930,000. 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 Securities, LLC
(“Spartan”), a broker-dealer and member of FINRA,
served as placement agent for the Company in this offering.
As compensation for its services, the Company paid Spartan
commissions totaling $193,000, included in the Company’s
condensed consolidated statement of changes in shareholders’
equity for the six months ended June 30, 2018.
In,
addition, the Company issued Spartan five-year placement agent
warrants to purchase an aggregate of 482,500 shares of the
Company's common stock at an exercise price of $0.65 per share.
During the period January 2018 to March 2018, warrants to purchase
an aggregate of 176,250 of the Company's common stock were valued
at $95,552 using the Black-Scholes model to value the warrants
based on a risk-free rate of l 0% based on recent borrowing costs
and a volatility of 214%. The Company recorded the warrants as
professional fees in the condensed consolidated statement of
operations however management subsequently determined that based on
the services specified in the agreement, the fees incurred from the
warrant issuance were solely for the purpose of raising capital in
connection with the private placement discussed above. As a result,
the fees are considered an offering cost and should have been
reflected as a component of shareholders' equity for the period
ended June 30, 2018. The net impact of this adjustment on the
interim period financials statements was not
significant.
During
the 2nd quarter of 2018, upon reviewing similar companies in our
industry, management determined that the volatility and risk-free
rate utilized was significantly higher than our peers. The Company
used a 2% risk-free interest rate and a volatility of approximately
62% for the valuation of the warrants issued during the period.
Based on this, during the period from April 2018 to June 2018,
warrants to purchase an aggregate of 306,250 of the Company's
common stock were valued at $100,256. Management believes the
current assumptions are more in-line with our peer group and closer
to our anticipated results.
Stock issued for services
On
January 16, 2017, the Company issued to a consultant 3,600 shares
of its common stock at $0.85 per share, or $3,060, for services
rendered. The Company valued these common shares based on the fair
value at the date of grant.
On
April 25, 2017 the Company issued 28,500 shares of its common stock
with a fair value of $22,800 on the date of issuance for
compensation to employees and officers.
Stock issued for dividends
In
January 2018, the Company issued 10,000 shares of its common stock
as dividends to the holder of its Series A preferred
stock.
Stock issued for acquisition
On
September 19, 2017, the Company issued 1,100,233 shares of its
common stock with a fair value of $429,091 for the acquisition of
Daily Engage Media.
22
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
Stock Incentive Plan and Stock Option Grants to Employees and
Directors
The
Company recorded $7,344 and $26,195 stock compensation for the
three months ended June 30, 2018 and 2017 and $14,208 and $53,653
for the six months ended June 30, 2018 and 2017, respectively. The
stock compensation expense has been recognized as a component of
selling, general and administrative expenses in the accompanying
unaudited condensed consolidated financial statements.
As
of June 30, 2018 there were total unrecognized compensation costs
related to non-vested share-based compensation arrangements of
$21,599 to be recognized through August 2020.
A
summary of the Company's stock option activity during the six
months ended June 30, 2018 is presented below:
|
|
Number of
Options
|
Weighted Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|
Balance
Outstanding, December 31, 2017
|
2,027,000
|
$
0.37
|
5.4
|
$
543,626
|
|
Granted
|
—
|
—
|
—
|
—
|
|
Exercised
|
—
|
—
|
—
|
—
|
|
Forfeited
|
—
|
—
|
—
|
—
|
|
Expired
|
—
|
—
|
—
|
—
|
|
Balance
Outstanding, June 30, 2018
|
2,027,000
|
$
0.37
|
4.9
|
$
654,446
|
|
Exercisable
at June 30, 2018
|
1,801,500
|
$
0.38
|
4.6
|
$
643,871
|
Summarized
information with respect to options outstanding under the three
option plans at June 30, 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
|
Remaining Average
Conversion Life
(In Years)
|
|
0.14 - 0.24
|
720,000
|
0.9
|
$
0.14
|
720,000
|
$
0.14
|
1.0
|
|
0.25 - 0.49
|
351,000
|
0.8
|
$
0.28
|
351,000
|
$
0.28
|
.09
|
|
0.50 - 0.85
|
956,000
|
3.2
|
$
0.67
|
730,500
|
$
0.66
|
2.7
|
|
|
2,027,000
|
4.9
|
$
0.37
|
1,801,500
|
$
0.38
|
4.6
|
The
Company has historically purchased a substantial amount of its
products from two vendors; Citizens Watch Company of America, Inc.,
and Bulova Corporation. During the six months ended June 30, 2018,
purchases from Botta, Citizens, Bulova and Pierre Laurent accounted
for approximately 17%, 15%,19% and 11%, of the watch products
purchased, respectively, as compared to 57% and 19%, for Citizens
and Bulova, respectively, for the six months ended June 30,
2017.
Three
Black Helmet Apparel vendors have been identified as having a high
concentration. During the six months ended June 30, 2018 purchases
from Pukka, Enemy Ink, and TSF Sportswear, LLC accounted for 10%,
27%, and 25% of the Black Helmet products purchased,
respectively.
Although
we continue to add additional product vendors and we continue to
expand our product line and vendor relationships, due to continued
high concentration and reliance on these three vendors, the loss of
one of these two vendors could adversely affect the Company's
operations.
23
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(Unaudited)
The
Company generates revenues from two segments: product sales and
advertising. The sharp increase in PayPal/eBay concentration is due
to our acquisition of the Black Helmet Apparel business in December
2016. Due to high concentration and reliance on these portals, the
loss of a working relationship with either of these two portals
could adversely affect the Company's operations. In addition,
a substantial amount of payments for our products sold are
processed through PayPal and Amazon. A disruption in PayPal or
Amazon payment processing could have an adverse effect on the
Company's operations and cash flow. During the three and six
months ended June 30, 2018, PayPal and Amazon accounted for 77% and
23% and 75% and 25%, respectively, of our total product sales as
compared to 41% and 44% and 41% and 53% in the three and six months
ended June 30, 2017, respectively. The Company replaced the
DriveCMS software with Shopify in May 2018 to the Black Helmet
website and the revenues attributable to this relationship were 30%
for the three months ended June 30, 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 June 30, 2018
and December 31, 2017, respectively, the Company had no cash
balances in excess of the FDIC insured limit.
Concentration of Funding
During
the six months ended June 30, 2018, the Company's funding was
provided primarily through the sale of 4,825,000 units of our
securities to 28 accredited investors in a private placement exempt
from registration under the Securities Act in reliance on
exemptions provided by Section 4(a)(2) of the act and Rule 506(b)
of Regulation D, resulting in gross proceeds to us of $1,930,000.
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, a broker-dealer and member of FINRA,
served as placement agent for us in this offering. As
compensation for its services, we paid Spartan cash commissions
totaling $193,000 and issued five-year placement agent warrants to
purchase an aggregate of 482,500 shares of our common stock at an
exercise price of $0.65 per share. After payment of our
offering expenses including legal, accounting, printing and other
related expenses, we are using the net proceeds for working
capital.
Between
January 2018 and June 2018, Mr. W. Kip Speyer, an executive officer
and member of our board of directors, an aggregate of 637,500
shares of our 10% Series E convertible preferred stock, resulting
in gross proceeds to us of $255,000. We did not pay any commissions
or finders fees, and the sales were made to Mr. Speyer, an
accredited investor, in transactions exempt from registration under
the Securities Act in reliance on exemptions provided by Section
4(a)(2) of that act.
On
July 13, 2018 and August 15, 2018 Mr. W. Kip Speyer, an executive
officer and member of our board of directors, purchased an
aggregate of 200,000 shares of Series E Stock at a purchase price
of $0.40 per share. The designations, rights and preferences of
Series E Stock as described in Note 11. The Company used the
proceeds from these sales for working capital.
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 Daily
Engage Media subsidiary since our acquisition of that company in
September 2017. Mr. Todd Speyer, our Vice President, Digital and a
member of our board of directors, has assumed operating
responsibilities for Daily Engage Media. We do not expect that
these terminations will result in any material, long-term change in
the operations of Daily Engage Media.
In
connection with the matters which lead to our termination for cause
of Messrs. Pagoulatos and Rezitis, in July 2018 we filed a verified
complaint for injunctive relief and damages against Messrs.
Pagoulatos and Rezitis in the Circuit Court of the 15
th
Judicial Circuit in
and for Palm Beach County, Florida 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. In this matter, we are seeking an
injunction and monetary damages and intend to aggressively pursue
our remedies.
24
In July
2018 Messrs. Pagoulatos 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, against the Company and our CEO,
seeking compensatory and punitive damages and attorneys’
fees, among other items, and alleging, among other items, fraud and
breach of contract. While we vehemently deny all allegations in the
complaint and deem them to be baseless, we will immediately pursue
a change of venue to Palm Beach County, Florida, the venue
specified in both the acquisition agreement for the Daily Engage
Media transaction as well as the employment agreements with Messrs.
Pagoulatos and Rezitis. At the appropriate juncture, we also intend
to serve a Rule 11 Motion for sanctions based upon the fact that
the complaint contains frivolous arguments and/or arguments with no
evidentiary support.
The
Company intends to evaluate the intangible assets specifically
related to the non-compete for the above individuals during the
third quarter of 2018. The Company does not intend to accrue any
liability for severance compensation to these individuals under
their employment agreements, as they were “terminated for
cause” within the terms of their respective employment
agreements.
In July
2018, the Company paid $25,000 to four noteholders related to our
acquisition of Daily Engage Media prior to the terminations
discussed above. Three of the four promissory notes issued in the
acquisition are not anticipated to be settled pending the
settlement of, conclusion of, litigation described under Part II,
Item 1 Legal Matters and Note 10.
On July
12, 2018 the Company paid $50,000 on the $500,000 Promissory Note
in accordance with the oral agreement to extend the Note to
December 31, 2018. The oral agreement also stipulates that
the Company will pay the lender $150,000 in the third quarter of
2018 and the remaining balance plus accrued interest on the
maturity date.
25
ITEM
2.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The
following discussion of our unaudited condensed consolidated
financial condition and results of operations for the three months
ended June 30, 2018 and 2017 should be read in conjunction with the
unaudited condensed 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 in
our Annual Report on Form 10-K for the year ended December 31, 2017
as filed with the Securities and Exchange Commission on April 2,
2018 (the “2017 10-K”) and our other filings with the
SEC. 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. All information in this section for the
three and six months ended June 30, 2018 and 2017 is unaudited and
derived from the unaudited condensed consolidated financial
statements appearing elsewhere in this report; unless otherwise
noted, all information for the year ended December 31, 2017 is
derived from our audited consolidated financial statements
appearing in the 2017 10-K.
Executive Overview of Second Quarter 2018 Results
Our key
user metrics and financial results for the second quarter of 2018
are as follows:
|
User metrics
:
|
●
Quarterly ad
impressions delivered were approximately 336.9 million in the
second quarter of 2018, a 149% increase over the second quarter
2017 and 58% decrease from the first quarter of 2018.
●
Delivered over 74
million advertisements on our owned and managed
websites.
|
Second quarter 2018 financial results:
|
●
Total
revenue decreased 9% when compared to the second quarter of
2017;
●
Advertising revenue
increased 210% in the second quarter of 2018 from the second
quarter of 2017;
●
Product
sales revenue decreased 44% in the second quarter of
2018 from the second quarter of 2018 which reflects our shift in
emphasis to our advertising segment;
●
Gross
profit decreased 38% in the second quarter of 2018 from the second
quarter of 2017 due to the September 2017 acquisition of Daily
Engage Media and lower margins on product sales.
●
Selling, general
and administrative expenses decreased 14% in the second quarter
2018 from the second quarter of 2017;
●
Loss
from operations was $823,287 for the second quarter of 2018 as
compared to $763,355 for the comparable period in
2017;
●
Net
loss attributable to common stockholders was $952,801 for the
second quarter of 2018 as compared to $874,687 for the comparable
period in 2017;
●
Adjusted EBITDA was
$(708,865) for the second quarter of 2018 as compared to $(652,374)
for the comparable period in 2017; and
●
Net
cash used in operations was $1,453,801 for the first six months of
2018 as compared to $948,512 for the first six months of
2017.
26
Overview
Bright
Mountain Media is a digital media holding company for online
publications, services and software primarily focused on serving a
young, male audience as well as brands trying to reach them. We do
this by connecting advertisers and brands with consumers through a
full advertising services platform that incorporates an ad network,
an ad exchange and 25 websites (owned and operated) that provide
content, services and products. Bright Mountain Media’s owned
and managed websites primarily provide content to active, reserve
and retired military audiences as well as law enforcement and first
responders and their families.
We
generate revenue
from two segments:
advertising and product sales. The ad platform generates revenue
from advertisements (ad impressions) placed on our owned and
managed sites, as well as from advertisements we place on partner
websites, for which we earn a share of the revenue. Product sales
revenues includes revenues from t
wo of our websites that
operate as e-commerce platforms, including Bright Watches and Black
Helmet, as well as Daily Engage Media and sales of products from
Bright Watches’ retail location. As described in “Key
Initiatives” appearing later in this section, the operations
of Bright Watches is non-strategic to our current business
direction.
A
key component of our growth is our continued transition to a full
services advertising platform. The Bright Mountain advertising
services platform will include a real-time bidding Ad Exchange when
fully developed and implemented. When fully developed, this new
platform is expected to have the following
capabilities:
●
The
ability for advertisers to login and purchase advertising space on
a variety of digital publications;
●
Leading
targeting technology, allowing advertisers to pinpoint their
marketing efforts to reach the military and public safety
demographics across desktop, tablet, and mobile
devices;
●
The
ability to handle any ad format, including video, display, and
native advertisements;
●
Ad
serving and self-service features for publishers and advertisers;
and
●
Server-to-server
integration with other ad exchanges for extremely quick
transactions with advertisers on other platforms.
This
Bright Mountain Media Ad Exchange Network will be a trading desk
for publishers and advertisers where they will be able to login and
choose from various features to maximize their earning potential.
Advertisers will be able to set their budget and choose where their
ads will be seen using our filters or by connection directly with
publishers through our platform. Publishers will be able to select
a variety of ad units for their video, mobile, display and native
advertisements and also have the ability to create their own unique
ad formats.
In
addition to our niche market of military and public safety sectors,
we intend to broaden the scope of our partner publishers to include
a young male audience, aged 18 to 54, of which there is a
population of over 100 million individuals in the United States
alone, according to the latest U.S Census Bureau report from 2010.
As a demographic group, we believe that this profile should be
attractive to local, national and international companies whose
advertising budgets are shifting from print media, radio and
television to the internet.
Key initiatives
Our
growth strategy is based upon:
●
completing and
launching the Bright Mountain Media Ad Exchange
Network;
●
expanding our sales
through organic growth;
●
continuing to
pursue acquisition candidates that are strategic our business
plan;
●
evaluating expenses
attributed to our non-strategic business lines; and
●
continuing to
automate our processes and reduce overhead where possible without
impacting our customer experience
27
Key metrics
The
following graph summarizes our quarterly revenue growth since the
fourth quarter of 2012 thought the second quarter of
2018:
In
addition, over the past quarters (second quarter in 2017 to the
second quarter of 2018), we experienced a 149% increase in the
number of total ad impressions delivered, with most of the increase
following our acquisition of Daily Engage Media. The change in ad
impression over the past four consecutive quarters is conveyed in
the following graph:
28
Results of operations
Revenue
|
|
For the three months ended
|
Six months
ended
|
||||||
|
|
June 30,
|
June
30,
|
||||||
|
|
2018
|
2017
|
Change
|
%
Change
|
2018
|
2017
|
Change
|
%
Change
|
|
Advertising
|
$
291,276
|
$
93,890
|
$
197,386
|
210
%
|
$
974,334
|
$
203,633
|
$
770,701
|
378
%
|
|
Product sales
|
318,765
|
572,931
|
(254,166
)
|
(44)
%
|
694,051
|
1,124,286
|
(430,235
)
|
(38
)%
|
|
Total revenue
|
$
610,041
|
$
666,821
|
$
(56,780
)
|
(9)
%
|
$
1,668,385
|
$
1,327,919
|
$
340,466
|
26
%
|
The
increase in advertising revenues is attributable to the impact of
the acquisition of Daily Engage Media in mid-September 2017. Sales
by the Daily Engage Media business totaled $276,650 and $913,160
during the three and six months ended June 30, 2018 compared to
their pre-acquisition sales of $580,838 and $790,037 for the three
and six months ended June 30,2017, as included in our pro-forma
disclosure in Note 3 – Acquisitions. Sales for the second
quarter of 2018 were lower than the prior period in 2017 because
the chief operating officer and the chief technology officer of the
Daily Engage Media subsidiary having failed to discharge their
duties and took actions to the detriment of the Company subsequent
to June 30, 2018 these individuals were terminated for cause for
their malfeasance during the second quarter of 2018 as described
later in this report under Part II, Item 1. Legal Proceedings. Mr.
Todd Speyer, our Vice President, Digital and a member of our board
of directors, has assumed operating control of Daily Engage Media,
and he is assisted by Mr. Vinay Belani, our consultant in India,
through AdsRemedy, who provides support services to us. While there
can be no assurances, however, with the termination of Messrs.
Pagoulatos and Rezitis for cause, we expect an increase
quarter-over-quarter during the remainder of 2018 resulting from
this acquisition.
Consistent
with our business model, which now focuses on our advertising
segment, revenues related to product sales decreased during 2018
from the comparable periods in 2017. In particular the decrease in
watch sales is a result of the Company’s watch business
focusing on higher margin sales of watches and the focus of the
Black Helmet business on the future launch of its subscription
sales program that will begin offering “mystery” boxes
to its customers. This sales program is scheduled to be fully
implemented in the second half of 2018.
Cost of Revenue and Gross Profit Margins
|
|
For the three months ended
|
Six months
ended
|
||||||
|
|
June 30,
|
June
30,
|
||||||
|
|
2018
|
2017
|
Change
|
%
Change
|
2018
|
2017
|
Change
|
%
Change
|
|
Advertising
|
$
182,865
|
$
–
|
$
182,865
|
100
%
|
$
693,569
|
$
3,510
|
$
690,059
|
19,660
%
|
|
Product sales
|
238,953
|
365,411
|
(126,458
)
|
(35
)%
|
530,518
|
737,957
|
(207,439
)
|
(28
%)
|
|
Total cost of
revenue
|
$
421,818
|
$
365,411
|
$
56,407
|
15
%
|
$
1,224,087
|
$
741,467
|
$
482,620
|
65
%
|
|
|
|
|
|
|
|
|
|
|
|
Advertising revenues gross profit
margin
|
37
%
|
100
%
|
|
|
29
%
|
34
%
|
|
|
|
Product sales gross profit
margin
|
25
%
|
36
%
|
|
|
24
%
|
98
%
|
|
|
Historically,
with respect to our advertising segment, we did not recognize any
cost of sales for this segment. However, as a result of the
expansion of the operations in this segment during the fourth
quarter of 2017 related to the Daily Engage Media acquisition, we
now incur costs of sales associated with this segment which
includes revenue share payments to media providers and website
publishers.
Gross
profit from product sales decreased in the 2018 periods compared to
the same periods in 2017 as a result of the Company’s change
in the watch business model related to the Black Helmet product
line. The Company is currently selling its previous inventory at a
lower margin as it directs its resources to its advertising
segment.
29
Selling, General and Administrative Expenses
|
|
For the three months ended
|
For the six
months ended
|
||||||
|
|
June 30
|
June
30,
|
||||||
|
|
2018
|
2017
|
Change
|
%
Change
|
2018
|
2017
|
Change
|
% of
Change
|
|
Selling, general and administrative
expenses
|
$
1,011,510
|
$
1,064,765
|
$
(53,255
)
|
(5
)%
|
$
2,101,912
|
$
1,948,968
|
$
152,944
|
8
%
|
|
SG&A as a percentage of total
revenues
|
165
%
|
160
%
|
|
|
126
%
|
147
%
|
|
|
The
primary components of selling, general and administrate expenses
are attributable to the period to period changes including salaries
and wages, non-cash stock-based compensation, rent, website
development expenses, bad debt expense and non-cash amortization of
intangibles, as well as a one-time charge in the 2017 period. The
higher salaries and wages, bad debt and rent expense in the 2018
periods reflects the impact of the Daily Engage Media acquisition
in September 2017. Website development expense increased in the six
months ended June 30, 2018 from the comparable period in 2017
related to the development of various websites completed during the
first quarter. The website development expense for three month
period ended June 30, 2018 compared to the 2017 period declined, as
the work was completed. Non-cash stock-based compensation decreased
in both the 2018 periods from the comparable 2017 periods, however,
non-cash amortization of intangible expense increased in both of
the 2018 periods related to the intangible assets acquired in the
Daily Engage Media acquisition in September 2017. Finally, we
recognized a one-time write-off of deferred offering expenses of
$108,903 in the second quarter of 2017 related to a secondary
public offering that was not completed for which there was no
comparable expense in 2018.
Selling,
general and administrative expenses are expected to continue to
increase as we execute our planned growth strategy of implementing
the Bright Mountain Media Ad Exchange Network which will include
additional administrative support, which will be offset by the
reduction in salary expenses related to Messrs. Pagoulatos and
Rezitis following our termination of these employees for cause in
July 2018. Subject to the availability of additional working
capital, the Company also intends to add administrative staff to
its accounting department to improve controls over its accounting
and reporting processes.
Total other income (expense)
Total
other income (expense) for the three and six months ended June 30,
2018 and 2017 primarily reflects interest expense associated with
our borrowings under a convertible notes payable. Interest under
these notes, inclusive of $53,335 and $45,108 and $50,763 and
$100,970 in amortization of the related debt discount, for the
three and six months ended June 30, 2018 and 2017,
respectively.
In addition, the
Company recorded interest expense of $9,851 and $34,591 and $25,200
and $69,751 for the three and six months ended June 30, 2018 and
2017, respectively on a $500,000 10% note payable issued in
November, 2016 which matures in December, 2018 pursuant to an oral
extension provided by the lender.
Non-GAAP financial measure
We
report adjusted net (loss) to measure our overall results because
we believe it better reflects our net results by excluding the
impact of non-cash equity-based compensation. We use Adjusted
EBITDA to measure our operations by excluding interest and certain
additional non-cash expenses. These measures are one of the primary
metrics by which we evaluate the performance of our business, on
which our internal budgets are based. We believe the presentation
of adjusted net (loss) and Adjusted EBITDA enhances our
investors’ overall understanding of the financial performance
of our business.
We
believe that investors have access to 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
believe these measures are useful for analysts and investors as the
measures allows a more meaningful year-to-year comparison of our
performance. The items below are excluded from the 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.
30
There
was a sharp decrease in the interest expense from 2017 to 2018
because of the change of the interest rate from 25% to 10% on the
$500,000 promissory note.
The
following is an unaudited reconciliation of net (loss) to adjusted
net (loss) and Adjusted EBITDA for the periods
presented:
|
|
For the
Three Months Ended
|
For the
Six Months Ended
|
||
|
|
June
30,
|
June
30,
|
||
|
unaudited
|
2018
|
2017
|
2018
|
2017
|
|
Net
loss
|
$
(934,059
)
|
$
(873,933
)
|
$
(1,883,308
)
|
$
(1,557,180
)
|
|
plus:
|
|
|
|
|
|
Stock
compensation expense
|
6,863
|
5,579
|
14,208
|
73,838
|
|
Stock
issued for services
|
—
|
22,800
|
—
|
25,860
|
|
Adjusted
net loss
|
(927,196
)
|
(845,554
)
|
(1,869,100
)
|
(1,457,482
)
|
|
Depreciation
expense
|
6,513
|
6,659
|
12,852
|
12,148
|
|
Amortization
expense
|
100,317
|
75,806
|
213,174
|
151,542
|
|
Interest
expense
|
111,501
|
110,715
|
226,711
|
194,883
|
|
Adjusted EBITDA
|
$
(708,865
)
|
$
(652,374
)
|
$
(1,416,363
)
|
$
(1,098,909
)
|
Liquidity and capital resources
Liquidity
is the ability of a company to generate sufficient cash to satisfy
its needs for cash. The following table summarized total current
assets, total current liabilities and working capital (deficit) at
June 30, 2018 as compared to December 31, 2017.
|
|
June 30,
2018
|
December 31,
2017
|
|
Total
current assets
|
$
1,672,113
|
$
1,776,992
|
|
Total
current liabilities
|
$
1,636,964
|
$
2,105,234
|
|
Working
capital (deficit)
|
$
35,149
|
$
(328,242
)
|
The
increases in cash and reduction in the working capital deficit is a
result of cash proceeds from the sale of equity securities in a
private placement during the first and second quarters of 2018. The
slight increase in our current assets is mostly reflective of our
decrease in watch inventory and prepaid expenses attributed to
lower prepaid rent and insurance, with an increase in cash balances
and accounts receivables related to Daily Engage Media. The
decrease in our current liabilities primarily reflects a decrease
in accounts payable, accrued expenses and premium finance loan
payable and note payables.
During
the six months ended June 30, 2018 and 2017 our average monthly
negative cash flow was approximately $242,000 and $158,000,
respectively. As we continue our efforts to grow our business we
expect that our monthly cash operating overhead will continue to
increase as we add personnel, although at a lesser rate, and we are
not able at this time to quantify the amount of this expected
increase. In the first quarter of 2018 we implemented policies and
procedures around cash collections to prevent the aging of accounts
receivables that was experienced in 2017. Cash collection efforts
have been successful, and we feel that we have appropriately
reserved for uncollectible amounts at June 30, 2018.
We
do not have any commitments for capital expenditures. In August
2018 we made an oral agreement with the holder of a promissory note
with a remaining balance of $295,000 at June 30, 2018, which is
presently past due. To restructure the promissory note requires the
Company to repay $150,000 in the third quarter of 2018 and the
balance in the fourth quarter of 2018, plus the outstanding 10%
interest. We anticipate this oral agreement to be memorialized over
the next few weeks. The Company paid in July 2018 $50,000, of the
third quarter commitment of $150,000 against the promissory note.
The promissory notes payable in the remaining aggregate amount of
$225,162 to three members of Daily Engage Media in September 2017
as partial consideration in our acquisition of that entity, which
will become due in September 2018, are not anticipated to be
settled pending the settlement of, or conclusion of, the litigation
described later in this report under Part II, Item 1. Legal
Matters. The Company paid $25,000 in July 2018 to the four
promissory noteholders prior to the above legal
actions.
31
Going concern and management’s liquidity plans
The
accompanying condensed 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 of
($1,883,308) and used net cash in operating activities of
($1,453,801) for the six months ended June 30, 2018. The Company
had an accumulated deficit of ($13,702,210) at June 30,
2018.
The
report of our independent registered public accounting firm on our
audited consolidated financial statements at December 31, 2017 and
2016 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
unaudited condensed consolidated financial statements 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 generate revenues or report profitable operations or to
continue as a going concern, in which event investors would lose
their entire investment in our company.
Our
ability to fully implement the Bright Mountain Media Ad Exchange
Network and maximize the value of our assets are dependent upon our
ability to raise additional sufficient capital sufficient for our
short-term and long-term growth plans. Historically we have been
dependent upon loans and equity purchases from our Mr. W. Kip
Speyer, an executive officer and member of our board of directors,
and, during 2018, sales of equity securities to accredited
investors, to provide sufficient funds to meet our working capital
needs. During the six months ended June 30, 2018 we raised $255,000
of working capital from equity purchases by Mr. Speyer, and an
additional $1,930,000 through the sale of our securities in a
private placement. While we estimate that we need a minimum of $1.8
to $2.4 million in additional working capital to provide sufficient
funds to pay our operating expenses and fund our development over
the next 12 months, we believe that if we are successful the
anticipated revenues from our advertising segment will have a
significant impact on our revenues and results of operations in
future periods. While we have engaged a placement agent to assist
us in raising capital, the placement agent is acting on a best
efforts basis and there are no assurances we will be successful in
raising additional capital during the balance of 2018 through the
sale of our securities. Any delay in raising sufficient funds will
delay the 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, most particularly from our advertising segment, 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.
Summary of cash flows
|
|
June 30,
2018
|
June 30,
2017
|
|
Net
cash (used in) operating activities
|
$
(1,453,801
)
|
$
(948,512
)
|
|
Net
cash provided by (used in) investing activities
|
$
887
|
$
(14,305
)
|
|
Net
cash provided by financing activities
|
$
1,690,671
|
$
901,051
|
During
the six months ended June 30, 2018, we used cash primarily to fund
our net loss of $1,883,308 for the period, with a reduction of
$201,000 in inventory purchases and a decrease in prepaid expenses
and other assets of $85,000 for the period offset by a decrease in
accounts receivable of $13,000 and $276,000 of accounts payable.
During the six months ended June 30, 2017, we used cash
primarily to fund our net loss of $1,557,180 for the period as well
as a decrease in inventory of approximately $60,000, $109,000 of
other assets, $63,000 of accrued interest offset by lower accounts
payable of $63,000. The Company reduced inventory, other
assets and payables attributed to the acquisition of Black Helmet
Apparel. The Company increased the accrued interest expense
attributed to the modified Note discussed above.
The
decreases in net cash used in investing activities in both periods
is attributable to less fixed asset purchases in the 2018
period.
During
the six months of 2018 the Company raised $1,930,000 through a the
sale of equity securities in a private placement memorandum and
$255,000 through the sale of shares of 10% Series E convertible
preferred stock to an executive officer and member of our board of
directors, and we paid cash dividends of $33,505 to Mr. Speyer on
shares of this series of preferred stock owned by him, and made
repayments of $41,494 in insurance premium financing notes. During
the six months ended June 30, 2017, the Company received $950,000
under a series of 6% - 12%, 5-year convertible notes issued to an
executive officer and member of our board of directors and paid
$48,949 on insurance premium notes.
32
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 and accounts receivable allowances. 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 1 to our unaudited condensed
consolidated financial statements appearing elsewhere in this
report.
Recent accounting pronouncements
The
recent accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies as described in Note 1
appearing earlier in this report that do not require adoption until
a future date are not expected to have a material impact on the
financial statements upon adoption.
All
other newly issued accounting pronouncements, but not yet
effective, have been deemed either immaterial or not
applicable.
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.
ITEM
3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not
applicable for a smaller reporting company.
ITEM
4.
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 Securities Exchange Act of
1934 (the “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 continuing material weaknesses in our internal control
over financial reporting as described in our Annual Report on Form
10-K for the year ended December 31, 2017. 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.
We
will continue to monitor 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.
33
ITEM
1.
LEGAL
PROCEEDINGS.
In connection
with the matters which lead to our termination for cause of Messrs.
Pagoulatos and Rezitis described below, in July 2018 we filed a
verified complaint for injunctive relief and damages against
Messrs. Pagoulatos and Rezitis in the Circuit Court of the
15
th
Judicial Circuit in and for Palm Beach County, Florida 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. In this matter, we are
seeking an injunction and monetary damages and intend to
aggressively pursue our remedies.
Recently instituted litigation involving
Bright Mountain may divert management's time and increase our
litigation expense.
In July
2018 Messrs. Pagoulatos 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, 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. While we vehemently deny all
allegations in the complaint and deem them to be baseless, we will
immediately pursue a change of venue to Palm Beach County, Florida,
the venue specified in both the acquisition agreement for the Daily
Engage Media transaction as well as the employment agreements with
Messrs. Pagoulatos and Rezitis. At the appropriate juncture, we
also intend to serve a Rule 11 Motion for sanctions based upon the
fact that the complaint contains frivolous arguments or arguments
with no evidentiary support.
ITEM
1A.
RISK
FACTORS.
We
incorporate by reference the risk factors disclosed in Part I, Item
1A of our 2017 Form 10-K subject to the new or modified risk
factors appearing below that should be read in conjunction with the
risk factors disclosed in such Form 10-K.
Recent instituted litigation
involving Bright Mountian may divert management's time and increase
our litigation expenses.
As
described earlier in this report, we are a party to litigation
involving the former principals of Daily Engage Media.
While we
intend to vigorously pursue this action, there is no assurance that
we will be successful in our efforts. While we do not believe
the termination for cause of Messrs. Pagoulatos and Rezitis will
have a material adverse impact on Daily Engage Media’s
operations, this litigation may divert management resources and we
may incur substantial legal fees and costs in future periods as we
pursue our claims.
ITEM
2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
In
June 2018 we sold an aggregate of 1,625,000 units of our securities
to 15 accredited investors in a private placement exempt from
registration under the Securities Act of 1933, as amended (the
“Securities Act”) in reliance on exemptions provided by
Section 4(a)(2) of the act and Rule 506(b) of Regulation D,
resulting in gross proceeds to us of $897,500. 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
Securities, LLC, a broker-dealer and member of FINRA, served as
placement agent for us in this offering. As compensation for its
services, we paid Spartan Capital Securities, LLC cash commissions
totaling $65,000 and issued it five year placement agent warrants
to purchase an aggregate of 162,500 shares of our common stock at
an exercise price of $0.65 per share. After payment of our offering
expenses including legal, accounting, printing and other related
expenses, we are using the net proceeds for working
capital.
Between
January, 2018 and July 13, 2018 period, we sold Mr. W. Kip Speyer,
and member of our board of directors, an aggregate of 737,500
shares of 10% Series E convertible preferred stock at a purchase
price of $0.40 per share. Mr. Speyer is an accredited investor and
the issuances were exempt from registration under Securities Act in
reliance on exemptions provided by Section 4(a)(2) of that act. We
did not pay any commissions or finders fees and used the proceeds
from these sales for working capital.
ITEM
3.
DEFAULTS
UPON SENIOR SECURITIES.
None.
ITEM
4.
MINE
SAFETY DISCLOSURES.
Not
applicable to our company’s operations.
34
ITEM
5.
OTHER
INFORMATION.
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 Daily
Engage Media subsidiary since our acquisition of that company in
September 2017. Mr. Todd Speyer, our Vice President, Digital and a
member of our board of directors, has assumed operating
responsibilities for Daily Engage Media. We do not expect that
these terminations will result in any material, long-term change in
the operations of Daily Engage Media.
ITEM
6.
EXHIBITS.
|
No.
|
|
Exhibit Description
|
|
Form
|
|
Date Filed
|
|
Number
|
|
Herewith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended
and Restated Articles of Incorporation
|
|
Form
10
|
|
3/31/13
|
|
3.3
|
|
|
|
|
|
Articles
of Amendment to the Amended and Restated Articles of
Incorporation
|
|
8-K
|
|
7/9/13
|
|
3.3
|
|
|
|
|
|
Articles
of Amendment to the Amended and Restated Articles of
Incorporation
|
|
8-K
|
|
11/16/13
|
|
3.4
|
|
|
|
|
|
Articles
of Amendment to the Amended and Restated Articles of
Incorporation
|
|
8-K
|
|
12/30/13
|
|
3.4
|
|
|
|
|
|
Articles
of Amendment to the Amended and Restated Articles of
Incorporation
|
|
10-K
|
|
3/31/14
|
|
3.5
|
|
|
|
|
|
Articles
of Amendment to the Amended and Restated Articles of
Incorporation
|
|
8-K
|
|
7/28/14
|
|
3.6
|
|
|
|
|
|
Articles
of Amendment to the Amended and Restated Articles of
Incorporation
|
|
10-K/A
|
|
4/1/15
|
|
3.5
|
|
|
|
|
|
Articles
of Amendment to the Amended and Restated Articles of
Incorporation
|
|
8-K
|
|
12/4/15
|
|
3.7
|
|
|
|
|
|
Amended
and Restated Bylaws
|
|
Form
10
|
|
3/31/13
|
|
3.2
|
|
|
|
|
|
Form of
unit warrants
|
|
10-K
|
|
4/2/18
|
|
4.1
|
|
|
|
|
|
Form of
placement agent warrants
|
|
10-K
|
|
4/2/18
|
|
4.2
|
|
|
|
|
|
Rule
13a-14(a)/15d-14(a) certification of Chief Executive
Officer
|
|
|
|
|
|
|
|
Filed
|
|
|
|
Rule
13a-14(a)/15d-14(a) certification of principal financial and
accounting officer
|
|
|
|
|
|
|
|
Filed
|
|
|
|
Section
1350 certification of Chief Executive Officer and principal
financial and accounting officer
|
|
|
|
|
|
|
|
Filed
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
|
|
|
|
Filed
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
|
|
|
|
Filed
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
|
|
Filed
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
|
|
Filed
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
|
|
Filed
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
|
|
|
|
Filed
|
35
SIGNATURES
Pursuant
to the requirements 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.
|
|
|
|
|
|
|
August 20, 2018
|
By:
|
/s/ W. Kip Speyer
|
|
|
|
W. Kip Speyer, Chief Executive Officer,
principal financial and accounting officer
|
36
TABLE OF CONTENTS
Part 1 - Financial InformationItem 1. Financial StatementsNote 1 Nature Of Operations and Summary Of Significant Accounting PoliciesNote 1 Nature Of Operations and Summary Of Significant Accounting Policies (continued)Note 2 - Going ConcernNote 3 AcquisitionsNote 3 Acquisitions (continued)Note 4 InventoriesNote 5 Prepaid Expenses and Other Current AssetsNote 6 Property and EquipmentNote 7 Website Acquisition and Intangible AssetsNote 7 Website Acqusition and Intangible Assets (continued)Note 8 Segment InformationNote 8 Segment Information (continuued)Note 9 Notes PayableNote 9 Notes Payable (continued)Note 10 Commitments and ContingenciesNote 11 Shareholders EquityNote 11 Shareholders Equity (continued)Note 12 ConcentrationsNote 12 Concentrations (continued)Note 13 Subsequent EventsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits