Bright Mountain Media, Inc. - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

OR

6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487

(Address of principal executive offices)(Zip Code)

Registrant's telephone number, including area code:  561-998-2440

Securities registered under Section 12(b) of the Act:

Securities registered under Section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes  þ No

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ Yes  o 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 (§232.4.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes  o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o Yes  þ No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter.  $6,153,742 on June 30, 2017.

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.  47,941,364 shares of common stock are issued and outstanding as of March 21, 2018.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980).  None.

TABLE OF CONTENTS

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about risks associated with:

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect.  We qualify all of our forward-looking statements by these cautionary statements including those made in Part I. Item 1A. Risk Factors appearing elsewhere in this report.  Other sections of this report include additional factors, which could adversely impact our business and financial performance.  New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

ii

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “Bright Mountain,” the “Company,” “we,” “our,” “us,” and similar terms refers to Bright Mountain Media, Inc., a Florida corporation, and our subsidiaries.  In addition, "fourth quarter of 2017" refers to the three months ended December 31, 2017, “2017” refers to the year ended December 31, 2017, "fourth quarter of 2016" refers to the three months ended December 31, 2016, “2016” refers to the year ended December 31, 2016 and “2018” refers to the year ending December 31, 2018.

Unless specifically set forth to the contrary, the information which appears on our website at www.brightmountainmedia.com is not part of this report.

iii

PART I

ITEM 1.

DESCRIPTION OF BUSINESS.

Overview

Historically we have operated as a digital media holding company for online assets primarily targeted to the military and public safety sectors. We are dedicated to providing “those that keep us safe” places to go online where they can do everything from staying current on news and events affecting them, look for jobs, share information, communicate with the public, and purchase products. In addition to our corporate website, we own and/or manage 25 websites which are customized to provide our niche users, including active, reserve and retired military, law enforcement, first responders and other public safety employees with products, information and news that we believe may be of interest to them. We also own an ad network, Daily Engage Media, which was acquired in September 2017. We have placed a particular emphasis on providing quality content on our websites to drive traffic increases. Our websites feature timely, proprietary and aggregated content covering current events and a variety of additional subjects targeted to the specific demographics of the individual website. Our business strategy requires us to continue to provide this quality content to our niche markets and to grow our business, operations and revenues both organically and through acquisitions.

While we have had significant losses (a significant part of which was non-cash) since inception, these losses were anticipated and tied to the strategy described herein. We have invested in our infrastructure and acquisitions and placed an emphasis on providing quality content on our websites necessary to drive traffic to our websites. With the acquisition of Daily Engage Media and the recent completion of its RTB (real time bidding) exchange platform, we intend to launch the Bright Mountain Media Ad Exchange Network in the third quarter of 2018. This will advance our transition to a digital media company. We believe that with these actions our business, results of operations and financial condition will be positively impacted.

Acquisition of Daily Engage Media

In September 2017 pursuant to the terms of an Amended and Restated Membership Interest Purchase Agreement, we acquired 100% of the membership interests of Daily Engage Media.  The terms of this transaction are described later in this Memorandum. Launched in 2015, Daily Engage Media is an advertising network company that matches advertisers with publishers.  It offers video, display, mobile and native ads, providing focused promotion for advertisers of products and services while helping websites monetize their visitor traffic.  Its advertising exchange platform is being designed to be a trading desk for publishers and advertisers where they will be able to log-in and choose from various features.  Publishers will be able to select a variety of advertising units for their video, mobile, display and native advertisements and also have the ability to create their own unique advertising formats. Advertisers will be able to choose where their advertisements will be seen using our filters or by connection directly with the publisher through our platform.  Daily Engage Media's revenues for the year ended December 31, 2016 (audited) were $1,647,596 and it reported a net loss of $33,607.  

Since inception, Daily Engage Media has grown its business through aggressive sales efforts and branding, including:

1

Bright Mountain Media Ad Exchange Network

Subject to the availability of sufficient working capital, we expect to complete the development of the ad exchange platform that Daily Engage Media has under development and utilize that technology for the basis of launching our Bright Mountain Media Ad Exchange Network.  Our 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. Publishers will be able to select a variety of ad units for their video, mobile, display and native advertisements and have the ability to create their own unique ad formats. Advertisers will be able to choose where their ads will be seen using our filters or by connection directly with the publisher through our platform.

This new platform is expected to have a significant impact on our revenues and its capabilities will include:

The Bright Mountain Media Ad Exchange Network will be a custom-built platform, which will be user friendly for both the publisher and the advertiser. It will have technology that will allow ads to be served at the highest speeds in the industry and the ability to precisely geo target the area the ads will be shown.  

We believe that the acquisition of Daily Engage Media and the development of the ad exchange network has and will have the following benefits:

The key components of the Bright Mountain Media Ad Exchange Network are expected to include:

2

Our Strategy

We believe that the combination of our owned websites’ ad inventory with an ever-growing ad inventory from websites which we represent will uniquely position our company as the largest single source for brands and advertisers to reach these desired ‘hero’ audiences.

The Bright Mountain Media Ad Exchange Network, a programmatic and directly sold advertising network, is a key element to our strategy. The Ad Network will allow us to substantially increase the size of our audience within our niche demographic that can be sold to advertisers and brands. Programmatic advertising networks are designed to help marketers and their agencies connect with consumers through digital media at moments when that connection is most likely to be influential and most likely to achieve the advertiser’s objectives. Programmatic buying is the automated purchase of digital advertising inventory through a combination of machine-based transactions, data and algorithms. RTB, a subset of programmatic buying, is the real-time purchase and sale of advertising inventory on an impression-by-impression basis on ad exchanges. Programmatic buying and RTB are emerging and growing trends in the buying and selling of digital advertising inventory. The recognition by advertisers that an increased use of programmatic buying and RTB systems may constitute an effective way to achieve their campaign goals and cost savings, and the recognition by digital media property owners that they may achieve greater returns from an increased use of programmatic buying and RTB systems may prove beneficial to us. Daily Engage Media has just launched an RTB platform.

The Bright Mountain Media Ad Exchange Network is expected to market all the Bright Mountain Media owned advertising inventory together with similar websites in our demographic. We believe this strategy will create scale to attract interest from potential brands and advertisers, advertising networks and advertising exchanges. Simply put, the programmatic nature of this network will allow for:

To implement this strategy, subject to the availability of sufficient capital we intend to:

Terms of Daily Engage Media Acquisition

The consideration for the acquisition of Daily Engage Media was as follows:

In addition, at closing we satisfied $123,913 owed by Daily Engage Media to various lenders.

3

Under the terms of the Amended and Restated Purchase Agreement, upon Daily Engage Media achieving certain revenue and operating income tests as projected by the Daily Engage Media Members, we agreed to issue additional consideration as follows:

The Amended and Restated Purchase Agreement contained customary confidentiality and non-compete provisions, and we entered into a separate letter agreement with the third party which contained invention assignment and non-compete provisions.

Our websites and product offerings

Currently, in addition to our corporate website, www.brightmountainmedia.com, we own the following website properties which we have acquired or developed since 2013:

We also partner with four parties on five additional websites, havokjournal.com, Article107News.com, 24HourCampFire.com, and yuuut.com, under revenue sharing arrangements.

4

BrightWatches.com, BlackHelmet.com and GoPoliceBlotter.com are web-based “stores” where shoppers can purchase a variety of products including watches, clocks, apparel and accessories. We maintain an inventory of watches and clocks. The proprietary Black Helmet Apparel product line of clothing and accessories features designs that are hand drawn, unique and relay the fearless side of firefighting, including:

We sell these products through various distribution portals, which include Amazon and eBay, and through direct sales.  

In 2017 Black Helmet Apparel performed a market test for subscription sales to its customers for “mystery” boxes.  Based on the success of the market testing, the Company plans to begin offering this subscription to all customers in the second quarter of 2018.  We will be using software that allows us to match our products with our customer’s interests and focus on specific demographic groups that we feel will be most successful to the program.  The fee for the monthly subscription will be approximately $30.  We believe that this price point will allow us to reach a large audience, while maintaining profitable margins. Based on the variety of merchandise mentioned above, we feel our “mystery” boxes will be an attractive product line for our audience however there are no assurances that we will develop any significant revenues from this offering.

Intellectual Property

We currently rely on a combination of trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. We also enter into proprietary information and confidentiality agreements with our employees, consultants and commercial partners and control access to, and distribution of, our software documentation and other proprietary information. We own various service marks and trademarks, which are registered with the United States Patent and Trademark Office including the following:

“THE BRIGHT NETWORK” Design and Service Mark;

“THEBRIGHT.COM” Logo Trade Mark and Service Mark;

“BRIGHT MOUNTAIN” Service Mark; and

“BLACK HELMET” Trademark

In addition to www.brightmountainmedia.com and www.thebright.com, we own multiple domain names that we may or may not operate in the future.

Technology

Our top technical priority is the fast and reliable delivery of pages and ads to our users. Our systems are designed to handle traffic and network growth. We rely on multiple tiers of redundancy/failover and third-party content delivery network to achieve our goal of 24 hours, seven-days-a-week Website uptime. Regular automated backups protect the integrity of our data. Our servers are continuously monitored by numerous third-party and open-source monitoring and alerting tools.

5

Competition

The internet and industries that operate through it are intensely competitive. We compete with other companies that have significantly greater financial, technical, marketing, and distribution resources. Our competitors include FoxNews.com, Yahoo!, AOL and its subsidiary Huffington Post.  Yahoo!, AOL and Huffington Post were recently acquired by Verizon Communications as it looks for growth in the digital, mobile and video marketplace.

We believe that we can effectively compete in the marketplace for the following reasons:

Most of our competitors have significantly greater financial, technical, marketing and distribution resources as well as greater experience in the industry than we have. There are no assurances we will ever be able to effectively compete in our marketplace. Our websites may not be competitive with other technologies and/or our websites may be displaced by newer technology. If this happens, our sales and revenues will likely decline. In addition, our current and potential competitors may establish cooperative relationships with larger companies, to gain access to greater development or marketing resources. Competition may result in price reductions, reduced gross margins and loss of market share.

Government regulation

Aspects of the digital marketing and advertising industry and how our business operates are highly regulated. We are subject to a number of domestic and, to the extent our operations are conducted outside the U.S., foreign laws and regulations that affect companies conducting business on the internet and through other electronic means, many of which are still evolving and could be interpreted in ways that could harm our business. In particular, we are subject to rules of the Federal Trade Commission, or “FTC,” the Federal Communications Commission, or “FCC,” and potentially other federal agencies and state laws related to our advertising content and methods, the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or “CAN-SPAM Act,” which establishes certain requirements for commercial electronic mail messages and specifies penalties for the transmission of commercial electronic mail messages that follow a recipient’s opt-out request or are intended to deceive the recipient as to source or content, and federal and state regulations covering the treatment of member data that we collect from endorsers.

U.S. and foreign regulations and laws potentially affecting our business are evolving frequently. We currently have not developed our internal compliance program, nor do we have policies in place to monitor compliance. Instead, we rely on the policies of our publishing partners. If we are unable to identify all regulations to which our business is subject and implement effective means of compliance, we could be subject to enforcement actions, lawsuits and penalties, including but not limited to fines and other monetary liability or injunction that could prevent us from operating our business or certain aspects of our business. In addition, compliance with the regulations to which we are subject now or in the future may require changes to our products or services, restrict or impose additional costs upon the conduct of our business or cause users to abandon material aspects of our services. Any such action could have a material adverse effect on our business, results of operations and financial condition.

The FTC adopted “Guides Concerning the Use of Endorsements and Testimonials in Advertising” on October 5, 2009. These guides recommend that advertisers and publishers clearly disclose in third-party endorsements made online, such as in social media, if compensation was received in exchange for said endorsements. Because some of our marketing campaigns entail the engagement of consumers to refer other consumers in their social networks to view ads or take action, and both we and the consumer may earn cash and other incentives, any failure on our part to comply with these guides may be damaging to our business. We currently do not take any steps to monitor compliance with these guides. In the event of a violation, the FTC could potentially identify a violation of the guides, which could subject us to a financial penalty or loss of endorsers or advertisers.

6

In the area of information security and data protection, many states have passed laws requiring notification to users when there is a security breach for personal data, such as the 2002 amendment to California’s Information Practices Act, or requiring the adoption of minimum information security standards that are often vaguely defined and difficult to practically implement. The costs of compliance with these laws may increase in the future as a result of changes in interpretation. Furthermore, any failure on our part to comply with these laws may subject us to significant liabilities.

We are also subject to federal, state, and foreign laws regarding privacy and protection of user data. Any failure by us to comply with these privacy-related laws and regulations could result in proceedings against us by governmental authorities or others, which could harm our business. In addition, the interpretation of data protection laws, and their application to the internet is unclear and in a state of flux. There is a risk that these laws may be interpreted and applied in conflicting ways from state to state, country to country, or region to region, and in a manner that is not consistent with our current data protection practices. Complying with these varying requirements could cause us to incur additional costs and change our business practices. Further, any failure by us to adequately protect our members’ privacy and data could result in a loss of member confidence in our services and ultimately in a loss of members and customers, which could adversely affect our business.

Employees

At March 20, 2018 we had 19 full-time and five part-time employees. We also utilize the services of 22 independent contractors who provide content, operational and related website services.

ITEM 1A.

RISK FACTORS.

Before you invest in our securities, you should be aware that there are various risks in making any such investment. You should consider carefully these risk factors, together with all of the other information included in this report before you decide to purchase any of our securities. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected and you could lose your entire investment in our company.

RISKS RELATED TO OUR COMPANY

WE HAVE A HISTORY OF LOSSES.

We incurred net losses of $2,994,096 and $2,667,051, respectively, for 2017 and 2016. At December 31, 2017 we had an accumulated deficit of $11,818,902. While our revenues increased 90% for 2017 from 2016, our selling, general and administrative expenses, or “SG&A”, increased 19% in 2017 from 2016. Included in this increase in our SG&A in 2017 from 2016 is a 3% increase in non-cash expenses in 2017 from 2016 which was primarily attributable to amortization expense.  We anticipate that our operating expenses will continue to increase, and we may continue to incur losses in future periods until such time, if ever, as we are successful in significantly increasing our revenues and cash flow. There are no assurances that we will be able to significantly increase our revenues and cash flow to a level, which supports profitable operations and provides sufficient funds to pay our obligations.

OUR AUDITORS HAVE RAISED SUBSTANTIAL DOUBTS AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our consolidated financial statements have been prepared assuming we will continue as a going concern. We have experienced substantial and recurring losses from operations, which losses have caused an accumulated deficit of $11,818,902 at December 31, 2017. We have been and expect to continue funding our business until, if ever, we generate sufficient cash flow to internally fund our business, with and through sales of our securities. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We anticipate that our operating expenses will continue to increase, and we will continue to incur substantial losses in future periods until we are successful in significantly increasing our revenues and cash flow. There are no assurances that we will be able to increase our revenues and cash flow to a level, which supports profitable operations and provides sufficient funds to pay our obligations. If we are unable to meet those obligations, we could be forced to cease operations in which event investors would lose their entire investment in our company.

7

THERE ARE NO ASSURANCES WE WILL SUCCESSFULLY INTEGRATE THE DAILY ENGAGE MEDIA BUSINESSES INTO OUR BUSINESS, WHICH WOULD ADVERSELY AFFECT THE COMBINED COMPANY’S FUTURE RESULTS.

In September 2017 we closed our acquisition of Daily Engage Media. The success of this acquisition will depend, in large part, on the ability of the combined company to realize anticipated benefits from combining the businesses of the companies.  Our management has limited experience with integrating acquired companies' business and operations.  The failure to successfully integrate and to successfully manage the challenges presented by the integration process may result in the failure to achieve some or all the anticipated benefits of the transactions, which may have a material adverse effect on our operations and financial condition. Potential difficulties that may be encountered in the integration process include the following:

There are no assurances that the acquisition will ultimately result in the realization of the anticipated benefits.  If we are unable to realize the perceived benefits from these acquisition, we have in the past and may be required to in the future impair some or all of the goodwill associated with this acquisition which would materially adversely impact our results of operations in future periods.

WE COULD BECOME SUBJECT TO SEASONAL FLUCTUATIONS IN OUR REVENUES IN FUTURE PERIODS ATTRIBUTABLE TO ADVERTISING SALES BY DAILY ENGAGE MEDIA.

Typically advertising technology companies such as Daily Engage Media report a material portion of their revenues during the fourth calendar quarter as a result of holiday related ad spend.  It is anticipated that this seasonality will continue.  Because of seasonal fluctuations, there can be no assurance that the results of any particular quarter will be indicative of results for the full year or for future years.

8

THERE ARE NO ASSURANCES OUR TRANSITION TO AN ADVERTISING NETWORK REVENUE BASED MODEL WILL BE SUCCESSFUL.

During the fourth quarter of 2015, we began to transition our company to a digital media company that will generate most of its revenue from the sales of advertising on its websites thereby reducing our dependence on product sales revenues. While we believe that this natural evolution of our model will permit us to concentrate our efforts on growing our highest profit opportunities through the leverage of our website portfolios and growing internet audience, there are no assurances we will be successful in these efforts. In addition to increasing our dependence on our relationship with Google until such time as we are able to launch the Bright Mountain Media Ad Exchange Network, we will become subject to significant competition from a variety of companies on a global scale with few barriers to entry in our market and many of these competitors have better name recognition and are better capitalized than our company. As a result, we may not be able to keep pace with our competitors’ marketing campaigns, pricing policies, and technological advances. We will also be required to adapt to rapidly changing technologies and industry standards and continually improve the speed, performance, features, ease of use and reliability of our websites. This includes making our products and services compatible and maintaining compatibility with multiple operating systems, desktop and mobile devices, and evolving network infrastructure. If we are unable to effectively adapt to competitive factors and compete effectively in the marketplace, it would have a material adverse effect on our business, results of operations, financial condition and the price of our common stock.

WE DO NOT KNOW HOW LONG IT WILL TAKE US TO ESTABLISH THE BRIGHT MOUNTAIN MEDIA AD EXCHANGE NETWORKOR WHAT THE ULTIMATE COST WILL BE.

A key component of our strategy is the establishment of the Bright Mountain Media Ad Exchange Network, a programmatic advertising network which will both sell digital advertisements on our company owned websites as well as providing third party websites with modest traffic a means by which they may be able to sell their digital advertising inventory at higher rates based upon the highly targeted nature of our demographics. However, as our ability to launch the network is subject to the availability of sufficient working capital, we are unable to predict when the Bright Mountain Media Ad Exchange Network will be established or what the ultimate costs to us will be.

IF WE FAIL TO DETECT ADVERTISING FRAUD OR OTHER ACTIONS THAT IMPACT OUR ADVERTISING CAMPAIGN PERFORMANCE, WE COULD HARM OUR REPUTATION WITH ADVERTISERS OR AGENCIES, WHICH WOULD CAUSE OUR REVENUE AND BUSINESS TO SUFFER.

Once established, the Bright Mountain Media Ad Exchange Network will rely on our ability to deliver successful and effective advertising campaigns. Some of those campaigns may experience fraudulent and other invalid impressions, clicks or conversions that advertisers may perceive as undesirable, such as non-human traffic generated by machines that are designed to simulate human users and artificially inflate user traffic on websites. These activities could overstate the performance of any given advertising campaign and could harm our reputation. It may be difficult for us to detect fraudulent or malicious activity on websites where we do not own content and rely in part on our customers to control such activity. If we fail to detect or prevent fraudulent or other malicious activity, the affected advertisers may experience or perceive a reduced return on their investment and our reputation may be harmed. High levels of fraudulent or malicious activity could lead to dissatisfaction with our solutions, refusals to pay, refund or future credit demands or withdrawal of future business.

THE ACQUISITION OF NEW BUSINESSES IS COSTLY AND THESE ACQUISITIONS MAY NOT ENHANCE OUR FINANCIAL CONDITION.

A significant element of our growth strategy has been to acquire companies which complement our business. The process to undertake a potential acquisition can be time-consuming and costly. We have and continue to expect to expend significant resources to undertake business, financial and legal due diligence on our potential acquisition targets and there is no guarantee that we will acquire the company after completing due diligence. The process of identifying and consummating an acquisition could result in the use of substantial amounts of cash and exposure to undisclosed or potential liabilities of acquired companies. In some instances, we may be required to provide historic audited financial statements for up to two years for acquisition targets in compliance with the rules and regulations of the SEC. The necessity to provide these audited financial statements will increase the costs to us of consummating an acquisition or, if it is determined that the target company cannot obtain the requisite audited financials, we may be unable to pursue an acquisition which might otherwise be accretive to our business. In addition, even if we are successful in acquiring additional companies, there are no assurances that the operations of these businesses will enhance our future financial condition. To the extent that a business we acquire does not meet the performance criteria used to establish a purchase price, some or all of the goodwill related to that acquisition could be charged against our future earnings, if any.

9

ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS.

User confidence in our websites depends on maintaining strong security features. While we have not experienced any security breaches to date, experienced programmers or “hackers” could penetrate sectors of our systems. Because a hacker who is able to penetrate network security could misappropriate proprietary information or cause interruptions in our services, we may have to expend significant capital and resources to protect against or to alleviate problems caused by hackers. Additionally, we may not have a timely remedy against a hacker who is able to penetrate our network security. Such security breaches could materially affect our operations, damage our reputation and expose us to risk of loss or litigation. In addition, the transmission of computer viruses resulting from hackers or otherwise could expose us to significant liability. Our insurance policies may not be adequate to reimburse us for losses caused by security breaches. We also face risks associated with security breaches affecting third parties with whom we have relationships.

WE MUST PROMOTE THE BRIGHT MOUNTAIN BRAND TO ATTRACT AND RETAIN USERS, ADVERTISERS AND STRATEGIC PARTNERS.

The success of the Bright Mountain brand depends largely on our ability to provide high quality content which is of interest to our users. If our users do not perceive our existing content to be of high quality, or if we introduce new content or enter into new business ventures that are not favorably perceived by users, we may not be successful in promoting and maintaining the Bright Mountain brand. Any change in the focus of our operations creates a risk of diluting our brand, confusing users and decreasing the value of our website traffic base to advertisers. If we are unable to maintain or grow the Bright Mountain brand, our business would be severely harmed.

WE MAY EXPEND SIGNIFICANT RESOURCES TO PROTECT OUR CONTENT OR TO DEFEND CLAIMS OF INFRINGEMENT BY THIRD PARTIES, AND IF WE ARE NOT SUCCESSFUL WE MAY LOSE RIGHTS TO USE SIGNIFICANT MATERIAL OR BE REQUIRED TO PAY SIGNIFICANT FEES.

Our success and ability to compete are dependent on our proprietary content. We rely exclusively on copyright law to protect our content. While we actively take steps to protect our proprietary rights, these steps may not be adequate to prevent the infringement or misappropriation of our content, which could severely harm our business. In addition to content written by our employees, we also acquire content from various freelance providers and other third-party content providers. While we attempt to ensure that such content may be freely used by us, other parties may assert claims of infringement against us relating to such content. We may need to obtain licenses from others to refine, develop, market and deliver new content or services. We may not be able to obtain any such licenses on commercially reasonable terms or at all or rights granted pursuant to any licenses may not be valid and enforceable.

FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR CLAIMS BY OTHERS THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY RIGHTS COULD SUBSTANTIALLY HARM OUR BUSINESS.

Our website domain names are crucial to our business. However, as with phone numbers, we do not have and cannot acquire any property rights in an internet address. The regulation of domain names in the United States and in other countries is also subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we might not be able to maintain our domain names or obtain comparable domain names, which could harm our business. We also rely on a combination of trade secret laws and restrictions on disclosure to protect our intellectual property rights. Our success depends on the protection of the proprietary aspects of our technology as well as our ability to operate without infringing on the proprietary rights of others. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented or misappropriated. Others may independently discover our trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our intellectual property rights. Therefore, in certain jurisdictions, we may be unable to protect our technology and designs adequately against unauthorized third party use, which could adversely affect our ability to compete.

10

DEVELOPING AND IMPLEMENTING NEW AND UPDATED APPLICATIONS, FEATURES AND SERVICES FOR OUR WEBSITES MAY BE MORE DIFFICULT THAN EXPECTED, MAY TAKE LONGER AND COST MORE THAN EXPECTED AND MAY NOT RESULT IN SUFFICIENT INCREASES IN REVENUE TO JUSTIFY THE COSTS.

Attracting and retaining users of our websites requires us to continue to provide quality, targeted content and to continue to develop new and updated applications, features and services for our websites. If we are unable to do so on a timely basis or if we are unable to implement new applications, features and services without disruption to our existing ones, our ability to continue to expand our website traffic will be in jeopardy. The costs of development of these enhancements may negatively impact our ability to achieve profitability. There can be no assurance that the revenue opportunities from expanded website content, or updated technologies, applications, features or services will justify the amounts ultimately spent by us.

OUR TECHNOLOGY DEVELOPMENT EFFORTS MAY NOT BE SUCCESSFUL IN IMPROVING THE FUNCTIONALITY OF OUR NETWORK, WHICH COULD RESULT IN REDUCED TRAFFIC ON OUR WEBSITES.

If our websites do not work as intended, or if we are unable to upgrade the functionality of our websites as needed to keep up with the rapid evolution of technology for content delivery, our websites may not operate properly, which could harm our business. Additionally, software product design, development and enhancement involve creativity, expense and the use of new development tools and learning processes. Delays in software development processes are common, as are project failures, and either factor could harm our business.

OUR ABILITY TO DELIVER OUR CONTENT DEPENDS UPON THE QUALITY, AVAILABILITY, POLICIES AND PRICES OF CERTAIN THIRD-PARTY SERVICE PROVIDERS.

We rely on third parties to provide website hosting services. In certain instances, we rely on a single service provider for some of these services. In the event the provider were to terminate our relationship or stop providing these services, our ability to operate our websites could be impaired. Our ability to address or mitigate these risks may be limited. The failure of all or part of our website hosting services could result in a loss of access to our websites which would harm our results of operations.

WE MAY BE HELD LIABLE FOR CONTENT, BLOGS OR THIRD PARTY LINKS ON OUR WEBSITE OR CONTENT DISTRIBUTED TO THIRD PARTIES.

As a publisher and distributor of content over the internet, including blogs which appear on our websites and links to third-party websites that may be accessible through our websites, or content that includes links or references to a third-party’s website, we face potential liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature, content or ownership of the material that is published on or distributed from our websites. These types of claims have been brought, sometimes successfully, against online services, websites and print publications in the past. Other claims may be based on errors or false or misleading information provided on linked websites, including information deemed to constitute professional advice such as legal, medical, financial or investment advice. Other claims may be based on links to sexually explicit websites. Although we carry general liability insurance, our insurance may not be adequate to indemnify us for all liabilities imposed. Any liability that is not covered by our insurance or is in excess of our insurance coverage could severely harm our financial condition and business. Implementing measures to reduce our exposure to these forms of liability may require us to spend substantial resources and limit the attractiveness of our websites to users.

OUR MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE OUR ACQUISITIONS AND TO MANAGE OUR GROWTH AND WE MAY BE UNABLE TO FULLY REALIZE ANY ANTICIPATED BENEFITS OF THESE ACQUISITIONS.

We are subject to various risks associated with our growth strategy, including the risk that we will be unable to identify and recruit suitable acquisition candidates in the future or to integrate and manage the acquired companies. Acquired companies’ histories, the geographical location, business models and business cultures will be different from ours in many respects. Successful integration of these acquisitions is subject to a number of challenges, including:

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There can be no assurance that our efforts to integrate the operations of any acquired assets or companies will be successful, that we can manage our growth or that the anticipated benefits of these proposed acquisitions will be fully realized.

WE DEPEND ON THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER, OUR VICE PRESIDENT - DIGITAL AND THE MANAGEMENT AT DAILY ENGAGE MEDIA.  THE LOSS OF EITHER OF THEIR SERVICES COULD HARM OUR ABILITY TO OPERATE OUR BUSINESS IN FUTURE PERIODS.

Our success largely depends on the efforts, reputation and abilities of W. Kip Speyer, our Chief Executive Officer, and Todd F. Speyer, our Vice President - Digital. While we are a party to an employment agreement with Mr. Kip Speyer and do not expect to lose his services in the foreseeable future, the loss of the services of Mr.  Kip Speyer could materially harm our business and operations in future periods. We are not a party to an employment agreement with Mr. Todd Speyer, his son. While we do not expect to lose the services of Mr. Todd Speyer in the foreseeable future, if he should choose to leave our company our business and operations could be harmed until such time as we were able to engage a suitable replacement for him.

At the closing of our acquisition of Daily Engage Media, we entered into employment agreements with two of its principals, Mr. Harry G. Pagoulatos and Mr. George G. Rezitis, to ensure the continuity of operations of this new subsidiary.  Notwithstanding these employment agreements, either employee is free to terminate the agreement without cause upon 90 days’ notice to us.  While we do not expect to lose either of these employee's services in the foreseeable future, if we should lose the services of one or both of these individuals our ability to effectively operate and grow that portion of our business will be in jeopardy until such time as we are able to recruit and engage suitable replacements.

WE MUST HIRE, INTEGRATE AND/OR RETAIN QUALIFIED PERSONNEL TO SUPPORT OUR EXPECTED BUSINESS EXPANSION.

Our success also depends on our ability to attract, train and retain qualified personnel. In addition, because our users must perceive the content of our websites as having been created by credible and notable sources, our success also depends on the name recognition and reputation of our editorial staff. Competition for qualified personnel is intense and we may experience difficulty in hiring and retaining highly skilled employees with appropriate qualifications. If we fail to attract and retain qualified personnel, our business will suffer.

WE DELIVER ADVERTISEMENTS TO USERS FROM THIRD-PARTY AD NETWORKS WHICH EXPOSES OUR USERS TO CONTENT AND FUNCTIONALITY OVER WHICH WE DO NOT HAVE ULTIMATE CONTROL.

We display pay-per-click, banner, cost per acquisition “CPM”, direct, and other forms of advertisements to users that come from third-party ad networks. We do not control the content and functionality of such third-party advertisements and, while we provide guidelines as to what types of advertisements are acceptable, there can be no assurance that such advertisements will not contain content or functionality that is harmful to users. Our inability to monitor and control what types of advertisements get displayed to users could have a material adverse effect on our business, financial condition and results of operations.

OUR SERVICES MAY BE INTERRUPTED IF WE EXPERIENCE PROBLEMS WITH OUR NETWORK INFRASTRUCTURE.

The performance of our network infrastructure is critical to our business and reputation. Because our services are delivered solely through the internet, our network infrastructure could be disrupted by a number of factors, including, but not limited to:

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If our services were to be interrupted, it could cause loss of users, customers and business partners, which could have a material adverse.

OUR SYSTEMS MAY FAIL DUE TO NATURAL DISASTERS, TELECOMMUNICATIONS FAILURES AND OTHER EVENTS, ANY OF WHICH WOULD LIMIT USER TRAFFIC.

Our websites are hosted by third party providers. Any disruption of the computing platform at these third party providers could result in a service outage. Fire, floods, earthquakes, power loss, telecommunications failures, break-ins, supplier failure to meet commitments, and similar events could damage these systems and cause interruptions in the hosting of our websites. Computer viruses, electronic break-ins or other similar disruptive problems could cause users to stop visiting our website and could cause advertisers to terminate any agreements with us. In addition, we could lose advertising revenues during these interruptions and user satisfaction could be negatively impacted if the service is slow or unavailable. If any of these circumstances occurred, our business could be harmed. Our insurance policies may not adequately compensate us for losses that may occur due to any failures of or interruptions in our systems. We do not presently have a formal disaster recovery plan.

Our websites must accommodate high volumes of traffic and deliver frequently updated information. While we have not experienced any systems failures to date, it is possible that we may experience systems failures in the future and that such failures could harm our business. In addition, our users depend on internet service providers, online service providers and other website operators for access to our websites. Many of these providers and operators have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to our systems. Any of these system failures could harm our business.

PRIVACY CONCERNS COULD IMPAIR OUR BUSINESS.

We have a policy against using personally identifiable information obtained from users of our websites without the user’s permission. In the past, the Federal Trade Commission has investigated companies that have used personally identifiable information without permission or in violation of a stated privacy policy. If we use personal information without permission or in violation of our policy, we may face potential liability for invasion of privacy for compiling and providing information to our corporate customers and electronic commerce merchants. In addition, legislative or regulatory requirements may heighten these concerns if businesses must notify internet users that the data may be used by marketing entities to direct product promotion and advertising to the user. Other countries and political entities, such as the European Union, have adopted such legislation or regulatory requirements. The United States may adopt similar legislation or regulatory requirements in the future. If consumer privacy concerns are not adequately addressed, our business, financial condition and results of operations could be materially harmed.

WE ARE SUBJECT TO A NUMBER OF REGULATORY RISKS. ANY FAILURE TO COMPLY WITH THE VARIOUS REGULATIONS COULD ADVERSELY IMPACT OUR BUSINESS.

We are subject to a number of domestic and, to the extent our operations are conducted outside the U.S., foreign laws and regulations that affect companies conducting business on the internet and through other electronic means, many of which are still evolving and could be interpreted in ways that could harm our business. U.S. and foreign regulations and laws potentially affecting our business are evolving frequently. We currently have not developed our internal compliance program nor do we have policies in place to monitor compliance. Instead, we rely on the policies of our publishing partners. If we are unable to identify all regulations to which our business is subject and implement effective means of compliance, we could be subject to enforcement actions, lawsuits and penalties, including but not limited to fines and other monetary liability or injunction that could prevent us from operating our business or certain aspects of our business. In addition, compliance with the regulations to which we are subject now or in the future may require changes to our products or services, restrict or impose additional costs upon the conduct of our business or cause users to abandon material aspects of our services. Any such action could have a material adverse effect on our business, results of operations and financial condition.

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RISKS RELATED TO THE OWNERSHIP OF OUR SECURITIES

WE HAVE IDENTIFIED A MATERIAL WEAKNESS IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING AND MAY IDENTIFY ADDITIONAL MATERIAL WEAKNESSES IN THE FUTURE THAT MAY CAUSE US TO FAIL TO MEET OUR REPORTING OBLIGATIONS OR RESULT IN MATERIAL MISSTATEMENTS OF OUR FINANCIAL STATEMENTS. IF WE FAIL TO REMEDIATE ANY MATERIAL WEAKNESSES OR IF WE FAIL TO ESTABLISH AND MAINTAIN EFFECTIVE CONTROL OVER FINANCIAL REPORTING, OUR ABILITY TO ACCURATELY AND TIMELY REPORT OUR FINANCIAL RESULTS COULD BE ADVERSELY AFFECTED.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles, or “GAAP”. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment, our management has concluded that as of December 31, 2017, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of material weaknesses. We identified material weaknesses, which included:

While we have implemented a plan to remediate these weaknesses, we cannot assure you that we will be able to remediate these weaknesses, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. Our failure to remediate the material weaknesses identified above or the identification of additional material weaknesses in the future, could adversely affect our ability to report financial information, including our filing of quarterly or annual reports with the SEC on a timely and accurate basis. Moreover, our failure to remediate the material weaknesses identified above or the identification of additional material weaknesses could prohibit us from producing timely and accurate financial statements, which may adversely affect the market price of shares of our common stock.

BECAUSE WE DO NOT ANTICIPATE PAYING ANY CASH DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE, CAPITAL APPRECIATION, IF ANY, WILL BE YOUR SOLE SOURCE OF POTENTIAL GAIN.

We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our shares of common stock and warrants will be your sole source of gain for the foreseeable future.

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SOME PROVISIONS OF OUR CHARTER DOCUMENTS AND FLORIDA LAW MAY HAVE ANTI-TAKEOVER EFFECTS THAT COULD DISCOURAGE AN ACQUISITION OF US BY OTHERS, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR SHAREHOLDERS AND MAY PREVENT ATTEMPTS BY OUR SHAREHOLDERS TO REPLACE OR REMOVE OUR CURRENT MANAGEMENT.

Provisions in our amended and restated articles of incorporation and amended and restated bylaws, as well as provisions of Florida law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our shareholders, or remove our current management. These include provisions that:

These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, who are responsible for appointing the members of our management. Section 607.0902 of the Florida Business Corporation Act provides provisions which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our shareholders. As permitted under Florida law, we have elected not to be governed by this statute. Any provision of our amended and restated articles of incorporation, amended and restated bylaws or Florida law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of common stock or warrants, and could also affect the price that some investors are willing to pay for our shares of common stock or warrants.

OUR COMPANY HAS A CONCENTRATION OF STOCK OWNERSHIP AND CONTROL, WHICH MAY HAVE THE EFFECT OF DELAYING, PREVENTING, OR DETERRING A CHANGE OF CONTROL.

Our common stock ownership is highly concentrated. Mr. W. Kip Speyer, our Chief Executive Officer and Chairman of the Board, together with members of our board of directors and a principal shareholder, beneficially owns approximately 71% of our total outstanding shares of common stock. As a result of the concentrated ownership of the stock, Mr. Speyer and our Board may be able to control all matters requiring shareholder approval, including the election of directors and approval of mergers and other significant corporate transactions. This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company. It could also deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and it may affect the market price of our common stock.

THE CONVERSION OF OUR OUTSTANDING 10% SERIES A CONVERTIBLE PREFERRED STOCK AND/OR 10% SERIES E CONVERTIBLE PREFERRED STOCK, OR THE PAYMENT OF STOCK DIVIDENDS ON THE SHARES OF 10% SERIES A CONVERTIBLE PREFERRED STOCK SHARES WILL BE DILUTIVE TO OUR COMMON SHAREHOLDERS.

At March 21, 2018 we had 100,000 shares of our 10% Series A convertible preferred stock outstanding and 1,875,000 shares of our 10% Series E convertible preferred stock. These shares are convertible into shares of our common stock on a one for one basis at the option of the holder up to the fifth anniversary of the date of issuance, at which time they are automatically converted into common stock if not previously converted. The conversion of these shares of preferred stock will result in the issuance of an additional 1,975,000 shares of our common stock. In addition, the designations, rights and preferences of the 10% Series A convertible preferred stock provide that a 10% annual dividend is payable in shares of our common stock at a rate of one share of common stock for each 10 shares of preferred stock outstanding. These dividends are payable in January of each year. The issuance of shares of our common stock upon the conversion of the 10% Series A convertible preferred stock and/or as payment of dividends on the shares will be dilutive to our existing shareholders and could adversely impact the market price of our common stock, should a market be developed of which there is no assurance.

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ITEM 1B.

UNRESOLVED STAFF COMMENTS.

Not applicable to a smaller reporting company.

ITEM 2.

DESCRIPTION OF PROPERTY.

We lease our corporate offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487 under a long-term non-cancellable lease agreement, which contains renewal options. The lease, which was entered into on August 25, 2014 was amended on July 30, 2015 to increase the original approximate 2,014 square feet to approximately 4,450 square feet.  The term of the lease was extended and will terminate on March 14, 2019 at a current base rent of $9,527 per month.

We lease retail space for our product sales division at 4900 Linton Boulevard, Bay 17A, Delray Beach, Florida 33445 under a long-term, non-cancellable lease agreement, which contains renewal options. The lease, which was entered into on August 25, 2014, is for approximately 2,150 square feet for a term of 36 months in Delray Beach, Florida at a base rent of approximately $2,329 per month. The rent commencement date is October 1, 2014 and was initially set to expire on September 30, 2017. In January 2017, this lease was modified and extended concurrent with the expansion of our retail space in the same location.  

In January 2017, we entered into an additional lease and modified and extended our existing lease for our retail site. The new lease agreement provides for an additional 2,720 square feet adjacent to our existing Delray Beach, Florida location commencing February 1, 2017, expiring January 31, 2022. We also prepaid $96,940 in future rents on the facility through the funding of certain leasehold improvements. Simultaneously, we modified our existing lease on the initial space, extending this lease to coincide with the new space, expiring January 31, 2022, at an initial base rental of $1,757 per month, escalating 3% per year thereafter.

In December 2016, we assumed the lease of the Black Helmet Apparel business warehouse facility consisting of approximately 2,667 square feet. The lease was renewed for a three-year term in April 2016 with an initial base rental rate of $1,641 per month.

ITEM 3.

LEGAL PROCEEDINGS.

From time-to-time, we may be involved in litigation or be subject to claims arising out of our operations or content appearing on our websites in the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business.  Regardless of the outcome, litigation can have an adverse impact on our company because of defense and settlement costs, diversion of management resources and other factors.

ITEM 4.

MINE SAFETY DISCLOSURES.

Not applicable to our company.

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PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is currently quoted on the OTCQB Tier of the OTC Markets under the symbol "BMTM." Although our common stock has been quoted in the over the counter market since December 27, 2013, the first trade did not occur until May 2014. Our common stock is thinly traded. The reported high and low bid prices for the common stock are shown below for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

The last sale price of our common stock as reported on the OTCQB on March 20, 2018, the last reported transaction, was $0.55 per share. As of March 21, 2018, there were approximately 75 record owners of our common stock.

Dividend Policy

We have never paid cash dividends on our common stock. Payment of dividends will be within the sole discretion of our board of directors and will depend, among other factors, upon our earnings, capital requirements and our operating and financial condition. In addition, under Florida law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Florida statutes, or if there is no such surplus, out of our net profits for the year in which the dividend is declared and/or the preceding year. If, however, the capital of our company computed in accordance with the relevant Florida statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits any dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.

Recent sales of unregistered securities

In 2018 we issued 10,000 shares of our common stock as a dividend on the outstanding shares of our 10% Series A convertible preferred stock in accordance with the designations, rights and preferences of such preferred stock.  The recipient was an accredited investor and the issuance was exempt from registration under Securities Act in reliance on an exemption provided by Section 4(a)(2) of that act.

Between January 2018 and March 2018 we sold an aggregate of 1,762,500 units of our securities to 10 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 $705,000.  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, 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 $70,500 and issued it five year placement agent warrants to purchase an aggregate of 147,000 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 March 2018, Mr. W. Kip Speyer, an executive officer and member of our board of directors, an aggregate of 500,000 shares of our 10% Series E convertible preferred stock, resulting in gross proceeds to us of $200,000. 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.

Purchases of equity securities by the issuer and affiliated purchasers

None.

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ITEM 6.

SELECTED FINANCIAL DATA.

Not applicable to a smaller reporting company.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our consolidated financial condition and results of operations for the years ended December 31, 2017 and 2016 should be read in conjunction with the audited consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors appearing elsewhere in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

Bright Mountain Media is a digital media holding company for online assets targeting and servicing the military and public safety markets. Last year, including Daily Engage Media from September 19, 2017, we delivered approximately 1,115,600,000 advertising impressions.  These impressions include both our targeted demographic and the larger general demographic from Daily Engage Media.  Our owned websites are dedicated to providing “those that keep us safe” places to go online where they can do everything from stay current on news and events affecting them, look for jobs, share information, communicate with the public, and purchase products. We own 24 websites and manage five additional websites, for a total of 29 websites, which are customized to provide our niche users, including active, reserve and retired military, law enforcement, first responders and other public safety employees with information, news and entertainment across various platforms that has proven to be of interest and engaging to them. Now coupled with our recently acquired wholly owned subsidiary Daily Engage Media, we have evolved to place our emphasis on not only providing quality content on our websites to drive traffic increases, but to increase the advertising revenue we generate from companies and brands looking to reach our audiences. Daily Engage Media is an ad network that connects general use advertisers with approximately 200 digital publications worldwide. Bright Mountain websites feature timely, proprietary and aggregated content covering current events and a variety of additional subjects targeted to the specific primarily young male demographics of the individual website. Our business strategy requires us to continue to provide this quality content to our niche markets as we integrate Daily Engage Media’s experience and expertise in connecting digital readers and advertisers to grow our business, operations and revenues. Presently, we generate revenue from two segments: product sales and advertising. Our focus at this time is to launch a full-scale ad exchange network platform, the Bright Mountain Media Ad Exchange Network. We believe that this new platform will become our core business and will have a significant impact on our future business and operations.

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A key component of our growth is our transition to an ad exchange network. Our ad exchange network creates revenue from other publisher’s content in our market in the form of a revenue share based on ad impressions we deliver. For this reason, the managerial focus will be in increasing our total impressions delivered to grow our total advertising revenue. From the fourth quarter in 2016 to the fourth quarter of 2017, we experienced an 2,633% increase in the number of total ad impressions delivered including impressions from Daily Engage Media from September 19, 2017 to December 31, 2017.  Ad impression growth over the past five consecutive quarters is conveyed in the following graph:

The Bright Mountain Media Ad Exchange Network will include a real-time bidding Ad Exchange. This new platform is expected to have capabilities including the following:

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. 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. Advertisers will be able to choose where their ads will be seen using our filters or by connection directly with the publisher through our platform.

Our niche market for the military and public safety sectors consists of a targeted U.S. demographic of in excess of 40 million users including their spouses. Adding their parents and other family members increases the U.S. targeted market to approximately 100 million users. We also believe there are another estimated 100-plus million military and public safety personnel and their families and veterans internationally.

As a homogeneous group, our user profile should be attractive to local, national and international companies whose advertising budgets are shifting from print media, radio and television to the internet. We believe that the market for the military and public safety providers is fragmented, and that we have an opportunity to become a leading player in the market through growth, consolidation and the Bright Mountain Media Ad Exchange Network which will be specifically targeted to our niche demographics.

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Our ability to fully implement this strategy and launch the Bright Mountain Media Ad Exchange Network is dependent upon our ability to raise additional sufficient capital. Historically we have been dependent upon loans and equity purchases from our Chief Executive Officer and, to a lesser extent in prior years from other accredited investors, to provide sufficient funds to meet our working capital needs. During the year ended December 31, 2017 we raised $1,460,000 of working capital through the issuance of convertible notes to our Chief Executive Officer, and an additional $600,000 through the sale of our equity securities, including $550,000 from the shares of our 10% Series E convertible preferred stock to our Chief Executive Officer and a member of our board of directors.  In addition, and as described earlier in this report under Item 5., subsequent to December 31, 2017 our Chief Executive Officer purchased an additional $200,000 in shares of our 10% Series E convertible preferred stock and we raised a total of $705,000 through the sale of our securities in a private placement and expect additional investments will continue throughout the period of the offering.

While we estimate that we need a minimum of $1,800,000 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 Daily Engage Media 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 privately on a best efforts basis, we do not have any firm commitments for this capital and 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 Daily Engage Media, 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.  

Going Concern

For the year ended December 31, 2017, we reported a net loss of $2,994,096, cash used in operating activities of $1,732,618 and we had an accumulated deficit of $11,818,902 at December 31, 2017. 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.

Results of Operations

Revenue

Presently, we generate revenue from two segments: product sales and advertising which includes advertising revenue and subscriptions. Revenues related to product sales increased approximately 72% during the year ended December 31, 2017 from the comparable period in 2016.  This increase is attributable to our acquisition of the Black Helmet Apparel business in mid-December 2016. Sales by our Black Helmet Apparel business totaled $1,141,481 during the year ended December 31, 2017, with the remaining product sales in 2017 attributable to sales of clocks and watches and other apparel of $1,435,850. Historically, our product sales were related to sales of clocks and watches, and we expanded this revenue source through our acquisition of Black Helmet Apparel’s assets in December 2016.  2017 is the first full year of operations by us of the Black Helmet Apparel assets.  Our sales of clocks and watches increased 4% to $1,387,941 in 2017 as compared to 2016.  As described earlier in this report, during the second quarter of 2018 we expect to launch our “mystery” box subscription sales model and concentrate our focus in our clock and watch product sales on a limited number of items in an effort to reduce our inventory and carrying costs of those products, which are not a continuing focus of this segment of our business.

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Advertising revenues increased approximately 154%in 2017 over 2016 which is attributable to Daily Engage Media sales of $716,082 for the period of September 19, 2017 through December 31, 2017 following the acquisition in mid-September 2017. With our operational focus on this segment of our business, subject to the availability of sufficient working capital we expect that Daily Engage Media’s revenues will increase in 2018.

Cost of Sales

The increase in our costs of sales in 2017 from 2016 is attributable to increases in both our reportable segments.  Costs of sales as a percentage of product sales increased 1.2% from period to period as a result of the variance in the gross profit margin in the Black Helmet Apparel product line.  Historically, we recognized a very low cost of sales for our advertising segment. Cost of sales as a percentage of advertising sales increased substantially in 2017 as compared to 2016 which is directly attributable to our acquisition of Daily Engage Media in the third quarter of 2017.  Following this transaction, we now incur costs of sales associated with this segment which includes revenue share payments to media providers and website publishers.  As we have limited operating history associated with Daily Engage Media, we are unable to predict gross margin trends in future periods.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by approximately 19% for 2017 compared to 2016. Our selling, general and administrative expenses were 100% of our total revenues for 2017 as compared to 160% for 2016.

A significant portion of our selling, general and administrative expenses between periods was attributable to non-cash expenses recognized during 2017 and 2016, including primarily amortization expense attributable to intangible assets acquired and amortization of debt discounts of $519,864 and $573,190, respectively. In addition, stock options compensation expense totaled $108,090 and $147,472 for 2017 and 2016, respectively, and non-cash impairment expense of $70,404 and $95,773, respectively. During 2017 our payroll costs increased due to the staffing requirements related to the acquisition of Black Helmet Apparel and Daily Engage Media. Advertising and marketing expenses increased significantly year over year which is attributable to our acquisition of Black Helmet Apparel business during the fourth quarter 2016. For 2017 and 2016, advertising, marketing and promotion expense was $307,621 and $35,387, respectively. The business model for Black Helmet Apparel relies heavily on advertising and on-line promotion to drive product sales.

Selling, general and administrative expenses are expected to continue to increase in a controlled manor as we execute our planned growth strategy of increasing website visits both organically and through targeted acquisitions and providing the needed administrative support for the increased level of activities. During the third and fourth quarters of 2017 staff was added to the accounting department to improve controls over its accounting and reporting processes.

Total other income (expense)

Total other income (expense) primarily reflects interest expense associated with our borrowings under a non-convertible and several convertible notes. Our Chief Executive Officer loaned us an additional $1,460,000 during 2017 under a series of 6% to 12% convertible notes bringing the total notes payable to him at December 31, 2017 to $1,198,893 net of the related note discount. Interest under these notes totaled $323,112, inclusive of $168,613 in amortization of the related debt discount for 2017. In addition, we recorded interest of $51,389 during 2017 on a $500,000 note payable issued in November 2016. This note was amended in September 2017 to reduce the interest rate from 25% to 10% and extend the maturity date to December 31, 2017, and was further amended in March 2018, effective December 31, 2017, to extend the maturity date to April 30, 2018.

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Quarterly results of operating data

The following table sets forth our unaudited quarterly statements of operations data for three months ended December 31, 2017 and 2016. We have prepared the quarterly data on a consistent basis with the audited consolidated financial statements included in this report. In the opinion of management, the financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this report. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

Selling, general and administrative expenses for the fourth quarter of 2017 increased by $59,894 over the same period in 2016. This increase is related to additional costs from recent acquisitions and the additional personnel it will take to make these businesses successful.

Liquidity and capital resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of December 31, 2017, we had a balance of cash and cash equivalents of $140,022 and a working capital deficit of $399,610 as compared to cash and cash equivalents of $162,795 and working capital of $355,344 at December 31, 2016. Our current assets increased 12.5% at December 31, 2017 from December 31, 2016 which reflects the substantial increase in accounts receivable from our acquisition of Daily Engage Media in September 2017, offset with a large decrease in watch and apparel inventory. Our current liabilities increased 77.8% at December 31, 2017 from December 31, 2016 which primarily reflects a large increase in accounts payable related to the acquisition of Daily Engage Media as well as an increase in notes payable due to a non-related third party. In 2017, following the acquisition of Daily Engage Media, the $380,000 principal amount notes payable to the sellers were subsequently been reduced by $125,313 to reflect post-closing working capital adjustments.  During 2017 and 2016 our average monthly negative cash flow was approximately $150,000. 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 December 31, 2017.

During 2017 we raised $1,460,000 through the issuance of convertible promissory notes to Mr. Speyer, our Chief Executive Officer, and raised an additional $600,000 through sales of equity securities, including $550,000 through the sale of shares of our 10% Series E convertible preferred stock to Mr. Speyer and another member of our board of directors and $50,000 through the sale of shares of our common stock to a third party.  Subsequent to December 31, 2017 we have raised an additional $705,000 in gross proceeds in a private placement of our securities and $200,000 through additional sales of shares of our Series E 10% convertible preferred stock to Mr. Speyer.  We do not have any external sources of liquidity. In addition to the amounts owed Mr. Speyer under the convertible promissory notes which mature between September 2021 and August 2022, in November 2016 we borrowed $500,000 from an unrelated third party under an unsecured promissory note which initially matured in November 2017. On September 30,2017, the note was amended, extending the maturity to December 31,2017 and reducing the interest rate from 25% to 10%. In addition, the note holder reduced the accrued interest due under the note from approximately $106,000 to $50,000 at September 20,2017. On March 20, 2018, effective as of December 31, 2017, the maturity date of the note was further extended to April 30, 2018. Presently, we do not have sufficient funds to satisfy this unsecured obligation when it becomes due, however, we expect to be able to extend the maturity date of the note.

Our operations do not provide sufficient cash to pay our cash operating expenses. If we are unable to increase our revenues to a level which provides sufficient funds to pay our operating expenses without relying upon loans and equity purchases from related parties, as well as to pay our obligations as they become due, our ability to continue to as a going concern are in jeopardy.

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Cash flows

Net cash flows used in operating activities totaled $1,732,618 and $1,860,515 for 2017 and 2016, respectively. During 2017, we used cash primarily to fund our net loss of $2,994,096 for the period as well as increases in accounts receivable, accounts payable and accrued interest, including to a related party. Cash used during 2016 was used primarily to fund our net loss of $2,667,051during the period.

Net cash flows used in investing activities totaled $224,429 and $669,114 for 2017 and 2016, respectively. Cash used included the purchase of fixed assets in 2017 of $16,628 and cash used in the acquisition of Daily Engage Media, net of $207,801.  Net cash used in investing activities in 2016 included $607,463, net, attributable to acquisitions and $61,651 attributable to the purchase of fixed assets.

Net cash flows provided from financing activities totaled $1,934,274 and $2,276,237 during 2017 and 2016, respectively. In both periods, cash was provided from the sale of our securities, net of repayments of debt obligations and the payable of cash dividends on our 10% Series E convertible preferred stock to related parties.

Non-GAAP Measures

We introduced adjusted EBITDA, a non-GAAP financial measure, beginning with the fourth quarter of 2014.

We report adjusted EBITDA as a supplemental measure to U.S. generally accepted accounting principles (“GAAP”). This measure is one of the primary metrics by which we evaluate the performance of our business, on which our internal budgets are based. We believe that investors have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. We endeavor to compensate for the limitations of the non-GAAP measure presented by providing the comparable GAAP measure with equal or greater prominence and description of the reconciling items, including quantifying such items to derive the non-GAAP measure. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measure.

Our adjusted EBITDA is defined as operating income/loss excluding:

We believe this measure is useful for analysts and investors as this measure allows a more meaningful year-to-year comparison of our performance. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole. The above items are excluded from adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, adjusted EBITDA corresponds more closely to the cash operating income/loss generated from our business. Adjusted EBITDA has certain limitations in that it does not take into account the impact to our statement of operations of certain expenses.

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The following is an unaudited reconciliation of net (loss) to adjusted EBITDA for the periods presented:

Critical accounting policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition, valuation of inventory, intangible assets, and equity based transactions. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 1 to our audited consolidated financial statements appearing elsewhere in this report.

Recent accounting pronouncements

The recent accounting standards that have been issued or proposed by the Financial Accounting Standards Board (FASB) or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.  These recent accounting pronouncements are described in Note 1 to our notes to consolidated financial statements appearing later in this report.

Off balance sheet arrangements

As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for a smaller reporting company.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Please see our Financial Statements beginning on page F-1 of this annual report.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

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ITEM 9A.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under Exchange Act. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer who also serves as our principal financial and accounting officer, concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting described below. A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.

Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013). Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls. Based on this assessment, our management has concluded that as of December 31, 2017, our internal control over financial reporting was not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles as a result of material weaknesses. This identified material weaknesses, which include:

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We will continue to monitor and evaluate the effectiveness of our internal control over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow. We do not, however, expect that the material weaknesses in our disclosure controls will be remediated until such time as we have added to our accounting and administrative staff allowing improved internal control over financial reporting.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.

OTHER INFORMATION.

None.

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PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Executive Officers and Directors

W. Kip Speyer has been our CEO, President and Chairman of the Board since May 2010 and has been serving as our principal financial and accounting officer on an interim basis. From 2005 to 2009 Mr. Speyer served as a director, the president and chief executive officer of Speyer Door and Window, LLC, which was sold to Haddon Windows, LLC (SecuraSeal, LLC, AccuWeld Corporation) in December 2009. From October 2002 to May 2005 Mr. Speyer had been a private investor. Mr. Speyer was president and chief executive officer of Intelligent Systems Software, Inc. from October 2000 through June 2002, whereby Mr. Speyer became chief executive officer of ICAD, Inc. (ICAD: NASDAQ) which was a combination of ISSI and Howtek, Inc. (HOWT:NASDAQ). Mr. Speyer was the president and chief executive officer of Galileo Corporation (GAEO: NASDAQ) from 1998 to 1999. Galileo Corporation changed its name to NetOptix (OPTX: NASDAQ) and was merged with Corning Corporation (GLW: NYSE) in a stock purchase in May 2000. From 1996 to 1998 Mr. Speyer was the president of Leisegang Medical Group, three medical device companies owned by Galileo Corporation. Prior to joining Galileo Corporation, Mr. Speyer founded Leisegang Medical, Inc. and served as its president and chief executive officer from 1986 to 1996. Leisegang Medical, Inc. was a company specializing in medical devices for women’s health. Mr. Speyer is a graduate of Northeastern University, Boston, Massachusetts, where he earned a Bachelor of Science Degree in Business Administration in 1972. Mr. W. Kip Speyer is active in many local charities and is the father of Mr. Todd F. Speyer, our Vice President, Digital and a director. Mr. Speyer’s experience as the Chief Executive Officer and/or Chairman of the Board of Directors of other public companies were factors considered by our board of directors in concluding that he should be serving as a director of our company.

Todd F. Speyer has been a member of the board of directors and an employee of our company since January 2011, currently serving as our Vice President, Digital. Mr. Speyer is responsible for the content and operations of our owned websites. For the previous five and one half years, he has been responsible for the integration of all website organic growth and acquisitions, including content, design and visitor traffic. Previously, Mr. Speyer was our Director of Business Development, helping locate acquisitions and shaping the website portfolio. Mr. Speyer graduated from Florida State University in 2004 with a Bachelor of Arts Degree in English Literature. Mr. Todd F. Speyer is the son of Mr. W. Kip Speyer, our CEO, President and Chairman. Mr. Speyer’s website development experience as well as his marketing experience were factors considered by our board of directors in concluding that he should be serving as a director of our company.

Richard Rogers has been a member of our board of directors since July 2013. For more than the past five years, Mr. Rogers has been the president and chief executive officer of On Course Insurance, Inc., which provides custom insurance analysis to create the appropriate customer solution for its clients. As an independent agency, On Course Insurance represents multiple insurance carriers. Mr. Rogers has been in the insurance industry since 1985. Mr. Rogers is a graduate of West Chester University and earned his Bachelor of Science Degree in pre-law in 1978. Mr. Rogers' business experience, with a concentration in a regulated industry, was the factor considered by our board of directors in concluding that he should be serving as a director of our company.

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Todd F. Davenport has been a director since February 2012. Mr. Davenport is an accomplished executive with significant domestic and international marketing, sales and general managerial experience. He most recently served as President and CEO of Oxira Medical, Inc., Boca Raton, FL from 2008 to 2012. Oxira Medical, Inc., formerly known as Breeze Medical, Inc., was a pre-commercialization stage company targeting the development of catheter-based medical products to be used in the treatment of coronary arteries. Mr. Davenport was recruited by the Board of Cardio Optics, Inc. to be its President and CEO, where he worked from 2005 to 2007. Prior to that he was President, CEO and co-founder of Viacor, Inc. from 2000 to 2004. During this time he was the co-inventor of eight issued U.S. patents. Mr. Davenport graduated from Kent State University with a Bachelor of Science in Journalism. Mr. Davenport's marketing, sales and executive experience were factors considered by our board of directors in concluding that he should be serving as a director of our company.

Charles H. Lichtman has been a member of our board of directors since October 2014. For more than the past 10 years he has been a partner at the law firm of Berger Singerman in its Fort Lauderdale, Florida office. Mr. Lichtman’s practice focuses on complex commercial litigation and trial practice. He has significant experience in large fraud, corporate shareholder, finance and receivership/trustee cases of all types and he is admitted to practice before the U.S. Supreme Court. Mr. Lichtman received an A.B. Double Major with honors from Indiana University and Juris Doctorate from DePaul University, College of Law. Mr. Lichtman's professional experience as an attorney was the factor considered by our board of directors in concluding that he should be serving as a director of our company.

Charles B. Pearlman is a partner with Pearlman Law Group LLP. He has practiced law for more than 45 years and has extensive experience in the areas of corporate and securities law including mergers and acquisitions, public and private capital raising transactions, mergers and acquisitions, and venture capital.  Mr. Pearlman has represented both corporate clients and investment banking firms. While attending law school, Mr. Pearlman worked for the New York Stock Exchange and a NYSE member firm. Upon graduation, he served as a trial attorney and ultimately Chief Attorney with the United States Securities and Exchange Commission. As part of his practice, Mr. Pearlman also represents corporations and individuals who are the subject of an investigation by the Securities and Exchange Commission, FINRA and state securities departments.  Mr. Pearlman received his Juris Doctor from Brooklyn Law School in New York and a Bachelor of Science from the University of Pennsylvania.  Mr. Pearlman is admitted to practice in Florida and New York and his professional affiliations include The Florida Bar, the Broward County Bar Association, and the American Bar Association.  Pearlman Law Group LLP has acted as corporate/securities counsel for us.

There are no family relationships between any of the executive officers and directors other than as set forth above. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified. If any director resigns, dies or is otherwise unable to serve out his or her term, or if the board increases the number of directors, the board may fill any vacancy by a vote of a majority of the directors then in office, although less than a quorum exists. A director elected to fill a vacancy shall serve for the unexpired term of his or her predecessor. Vacancies occurring by reason of the removal of directors without cause may only be filled by vote of the shareholders.

Key Employees

While not executive officers or directors of our company, the following individuals are expected to make significant contributions to us.  

Harry G. Pagoulatos.  Mr. Pagoulatos, 44, has served as the Chief Operating Officer of Daily Engage Media since September 2017. He is the founder of Daily Engage Media and served as its chief financial officer from 2015 until our acquisition of the company in September 2017. From August 2010 until November 2015 he was the owner of Encore Ticket Store, an Internet sales company. Mr. Pagoulatos received a B.S. in Chemical Engineering from the New Jersey Institute of Technology.

George G. Rezitis.  Mr. Rezitis, 39, has served as Chief Technology Officer of Daily Engage Media since September 2017. He served as chief operating officer of Daily Engage Media from January 2016 until our acquisition of the company in September 2017. From January 2010 until October 2015 he was self-employed in affiliate marketing.

Leadership structure, independence of directors and risk oversight

Mr. W. Kip Speyer serves as both our Chief Executive Officer and Chairman of our board of directors. Messrs. Rogers, Davenport and Lichtman are considered independent directors within the meaning of Rule 5605 of the NASDAQ Marketplace Rules, but none are considered a “lead” independent director.

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Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including credit risk, interest rate risk, liquidity risk, operational risk, strategic risk and reputation risk. Management is responsible for the day-to-day management of risks we face, while the board, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the board of directors has the responsibility to satisfy itself that the risk management process designed and implemented by management are adequate and functioning as designed. To do this, the chairman of the board meets regularly with management to discuss strategy and the risks facing our company. Senior management attends the board meetings and is available to address any questions or concerns raised by the board on risk management and any other matters. The chairman of the board and independent members of the board work together to provide strong, independent oversight of our company’s management and affairs through its standing committees and, when necessary, special meetings of independent directors.

Committees of our board of directors

In May 2015 our board of directors established a standing Audit Committee and a standing Compensation Committee. In August, 2016 our board of directors established a standing Corporate Governance and Nominating Committee. Each committee has a written charter. The charters are available on our website at www.brightmountainmedia.com.  All committee members are required to be independent directors. Information concerning the current membership and function of each committee is as follows:

Audit Committee

The Audit Committee assists the board in fulfilling its oversight responsibility relating to:

The Audit Committee is composed of three directors, each of whom has been determined by the board of directors to be independent within the meaning of Rule 5605 of the NASDAQ Marketplace Rules. None of the members of the Audit Committee are qualified as an “audit committee financial expert” as defined by the SEC.

Compensation Committee

The Compensation Committee assists the board in:

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The Compensation Committee is charged with ensuring that our compensation programs are competitive, designed to attract and retain highly qualified directors, officers and employees, encourage high performance, promote accountability and assure that employee interests are aligned with the interests of our shareholders. The Compensation Committee is composed of two directors, both of whom have been determined by the board of directors to be independent within the meaning of Rule 5605 of the NASDAQ Marketplace Rules.

Corporate Governance and Nominating Committee

The Corporate Governance and Nominating Committee:

The purpose of the Corporate Governance and Nominating Committee is to assess the performance of the board and to make recommendations to the board from time to time, or whenever it shall be called upon to do so, regarding nominees for the board and to ensure our compliance with appropriate corporate governance policies and procedures. The Corporate Governance and Nominating Committee is composed of two directors, both of whom have been determined by the board of directors to be independent within the meaning of Rule 5605 of the NASDAQ Marketplace Rules.

Shareholder nominations

Shareholders who would like to propose a candidate may do so by submitting the candidate’s name, resume and biographical information to the attention of our Corporate Secretary. All proposals for nomination received by the Corporate Secretary will be presented to the Corporate Governance and Nominating Committee for appropriate consideration. It is the policy of the Corporate Governance and Nominating Committee to consider director candidates recommended by shareholders who appear to be qualified to serve on our board of directors. The Corporate Governance and Nominating Committee may choose not to consider an unsolicited recommendation if no vacancy exists on the board of directors and the committee does not perceive a need to increase the size of the board of directors. In order to avoid the unnecessary use of the Corporate Governance and Nominating Committee’s resources, the committee will consider only those director candidates recommended in accordance with the procedures set forth below. To submit a recommendation of a director candidate to the Corporate Governance and Nominating Committee, a shareholder should submit the following information in writing, addressed to the Corporate Secretary of Bright Mountain at our main office:

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Code of Ethics and Conduct

We have adopted a Code of Ethics and Conduct which applies to our board of directors, our executive officers and our employees. The Code of Ethics and Conduct outlines the broad principles of ethical business conduct we adopted, covering subject areas such as:

A copy of our Code of Ethics and Conduct is available without charge, to any person desiring a copy, by written request to us at our principal offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487.

Director compensation

 During 2017 members of our board of directors did not receive compensation for services as directors.  In December 2017 our board of directors adopted a compensation policy for our independent directors for 2018. Under the terms of the 2018 director compensation policy, independent directors will receive $500 in cash for each board meeting attended and members of any committee of the board receive an additional $250 per committee meeting attended.  Our non-independent directors are not compensated for their services.

The following table provides information concerning the compensation paid to our independent directors for their services as members of our board of directors for 2017. The information in the following table excludes any reimbursement of out-of-pocket travel and lodging expenses which we may have paid:

Director Compensation

———————

⁽¹⁾

Dr. Pohlman served as a member of our board of directors until June 2017.

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Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during 2017, except Mr. Kip Speyer who failed to timely file four Form 4 reporting four acquisitions.  These reports have been subsequently filed.

ITEM 11.

EXECUTIVE COMPENSATION.

The following table summarizes all compensation recorded by us in the past two years for:

For definitional purposes, these individuals are sometimes referred to as the “named executive officers.” The amounts included in the “Stock Awards” column represent the aggregate grant date fair value of the shares of our common stock, computed in accordance with ASC Topic 718. The assumptions made in the valuations of the stock awards are included in Note 12 of the notes to our consolidated financial statements appear later in this report.

Summary Compensation Table

Employment agreement with W. Kip Speyer

We have entered into an Executive Employment Agreement with W. Kip Speyer, our Chief Executive Officer, with an effective date of June 1, 2014. Under the terms of this agreement, he is serving as Chairman of the Board, Chief Executive Officer and President of our company. On April 1, 2017, we entered into an amendment to his employment agreement which extended the term for an additional three years, set his base compensation at $165,000 per annum and provided the ability to earn a performance bonus beginning for 2017 based upon annual revenues above $3,000,000 per year and the certain earnings before interest, taxes and depreciation, or “EBITDA,” goals as follows: (i) for annual revenues of $3,000,000 to $3,500,000, a bonus of 25% of his then base salary; (ii) for annual revenues of $3,500,001 to $4,000,000 and a minimum EBITDA of $100,000, a bonus of 40% of his then base salary; (iii) for annual revenues of $4,000,0001 to $4,500,000 and a minimum EBITDA of $150,000, a bonus of 65% of his then base salary; and (iv) for annual revenues of $4,500,001 or greater and a minimum EBITDA of $175,000, a bonus of 80% of this then base salary.

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The agreement with Mr. Speyer will terminate upon his death or disability. In the event of a termination upon his death, we are obligated to pay his beneficiary or estate an amount equal to one year base salary plus any earned bonus at the time of his death. In the event the agreement is terminated as a result of his disability, as defined in the agreement, he is entitled to continue to receive his base salary for a period of one year. We are also entitled to terminate the agreement either with or without case, and he is entitled to voluntarily terminate the agreement upon one year’s notice to us. In the event of a termination by us for cause, as defined in the agreement, or voluntarily by Mr. Speyer, we are obligated to pay him the base salary through the date of termination. In the event we terminate the agreement without cause, we are obligated to give him one years’ notice of our intent to terminate and, at the end of the one-year period, pay an amount equal to two times his annual base salary together with any bonuses which may have been earned as of the date of termination. A constructive termination of the agreement will also occur if we materially breach any term of the agreement or if a successor to our company fails to assume our obligations under Mr. Speyer’s employment agreement. In that event, he will be entitled to the same compensation as if we terminated the agreement without cause.  The employment agreement contains customary non-compete and confidentiality provisions. We have also agreed to indemnify Mr. Speyer pursuant to the provisions of our amended and restated articles of incorporation and amended and restated by-laws.

Daily Engage Media Management Employment Agreements

In connection with our acquisition of Daily Engage Media we entered into three year employment agreements with Messrs. Pagoulatos and Rezitis.  The terms of the employment agreements are identical except for the amount of base salary each individual will receive.  We agreed to pay Mr. Pagoulatos an annual base salary of $60,000 during the first year of the term of his employment agreement, which increases to $75,000 annually for the remainder of the term.  We agreed to pay Mr. Rezitis an annual base salary of $70,000 during the first year of the term of his employment agreement, which increases to $75,000 annually for the remainder of the term.  Both employees are entitled to receive a discretionary bonus as may be awarded by our board of directors in their sole discretion, as well as participation in executive benefit programs we may offer, paid vacation and reimbursement for business expenses.

The employment agreements contain customary confidentiality, non-compete and indemnification provisions.  

Outstanding equity awards at fiscal year-end

The following table provides information concerning unexercised stock options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2017, together with unexercised stock options, stock that has not vested and equity incentive plan awards for each of our other executive officers outstanding as of December 31, 2017:

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ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

At March 21, 2018, we had 47,941,364 shares of our common stock issued and outstanding. The following table sets forth information regarding the beneficial ownership of our common stock as of that date by:

Unless specified below, the business address of each shareholder is c/o 6400 Congress Avenue, Suite 2050, Boca Raton, FL 33487. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

———————

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Securities authorized for issuance under equity compensation plans

The following table sets forth securities authorized for issuance under any equity compensation plans approved by our shareholders as well as any equity compensation plans not approved by our shareholders as of December 31, 2017.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Except as set forth below, we were not a party to any related party transactions during the last two years or the subsequent interim period, other than the issuance of convertible notes to Mr. Speyer, our Chief Executive Officer, and purchase of our securities by him, members of our board of directors and a principal shareholder as described in the notes to our consolidated financial statements appearing elsewhere in this report, which such purchases were on the same terms and conditions as made available to unaffiliated third parties in the various private offerings. Included in those purchases in 2017 were shares of our 10% Series E convertible preferred stock by Mr. Kip Speyer and another member of our board of directors. In accordance with the designations, rights and preferences of such shares, we paid related parties cash dividends of $11,303 during 2017. In addition, we paid Mr. Speyer cash interest on the convertible notes of $160,000 during 2017. Subsequent to the end of 2017, Charles B. Pearlman, Esq. was appointed to our board of directors to fill a vacancy. Mr. Pearlman’s law firm has served as corporate/securities counsel for our company since inception Mr. Pearlman’s firm billed us $108,333 and $98,406 in legal fees in 2017 and 2016, respectively.

Director independence

Messrs. Rogers, Davenport and Lichtman are considered “independent” within the meaning of meaning of Rule 5605 of the NASDAQ Marketplace Rules.

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES.

The following table shows the fees that were billed for the audit and other services provided by for 2017 and 2016.

Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

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Audit-Related Fees — This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements or acquisition audits and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.

Tax Fees — This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees — This category consists of fees for other miscellaneous items.

Our board of directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Audit Committee of the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Audit Committee. The audit and tax fees paid to the auditors with respect to 2017 and 2016 were pre-approved by the Audit Committee.

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PART IV

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints W. Kip Speyer his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including amendments) to this Annual Report on Form 10-K for the year ended December 31, 2017, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.