Bright Mountain Media, Inc. - Quarter Report: 2018 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2018

 

or

 

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________________ to __________________

 

Commission file number: 000-54887

 

Bright Mountain Media, Inc.

(Exact name of registrant as specified in its charter)

 

Florida	27-2977890
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

6400 Congress Avenue, Suite 2050, Boca Raton, Florida	33487
(Address of principal executive offices)	(Zip Code)

 

561-998-2440

(Registrant's telephone number, including area code)

 

not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☑
Emerging growth company	☑

 

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

 

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

 

As of August 20, 2018 the registrant had 51,003,864 shares of its common stock outstanding.

 

 

TABLE OF CONTENTS

 

		Page No.
	PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS.	4
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	26
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.	33
ITEM 4.	CONTROLS AND PROCEDURES.	33
	PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS.	34
ITEM 1A.	RISK FACTORS.	34
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	34
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES.	34
ITEM 4.	MINE SAFETY DISCLOSURES.	34
ITEM 5.	OTHER INFORMATION.	35
ITEM 6.	EXHIBITS.	35

  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

Various statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived from utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report, our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on April 2, 2018 and our other filings with the Securities and Exchange Commission in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

 

OTHER PERTINENT INFORMATION

 

Unless specifically set forth to the contrary, when used in this report the terms “Bright Mountain”, the “Company,” “we”, “us”, “our” and similar terms refer to Bright Mountain Media, Inc., a Florida corporation, and its subsidiaries. In addition, when used in this report, “second quarter of 2018” refers to the three months ended June 30, 2018, "second quarter of 2017" refers to the three months ended June 30, 2017, “2018” refers to the year ending December 31, 2018 and “2017” refers to the year ended December 31, 2017. The information which appears on our website at www.brightmountainmedia.com is not part of this report.

 

 

PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
	June 30,	December 31,
	2018	2017
	(unaudited)
ASSETS
Current assets
Cash and Cash Equivalents	$377,779	$140,022
Accounts Receivable, net	824,029	879,770
Inventories, net	409,977	611,468
Prepaid Expenses and Other Current Assets	60,328	145,732
Total current assets	1,672,113	1,776,992
Property and Equipment, net	76,510	89,500
Website Acquisition Assets, net	279,421	393,417
Intangible Assets, net	868,596	967,774
Goodwill	446,426	446,426
Other Assets	40,833	44,608
Total assets	$3,383,899	$3,718,717
	0
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts Payable	$901,517	$1,172,827
Accrued Expenses	108,420	90,000
Accrued Interest – Related Party	16,550	—
Premium Finance Loan Payable	21,639	63,133
Deferred Rent - Short Term	4,231	2,468
Deferred Revenues	7,187	9,735
Long Term Debt, Current Portion	577,420	767,071
Total Current Liabilities	1,636,964	2,105,234
Long term Deferred Rent	14,455	16,418
Long Term Debt to Related Parties, net	1,299,863	1,198,893
Long Term Debt, net of Current Portion	—	54,950
Total liabilities	2,951,282	3,375,495
Commitments and contingencies
Shareholders' Equity
Preferred Stock, par value $0.01, 20,000,000 shares authorized,
Series A, 2,000,000 shares designated, 100,000 and
100,000 shares issued and outstanding	1,000	1,000
Series B, 1,000,000 shares designated, 0 and
0 shares issued and outstanding	—	—
Series C, 2,000,000 shares designated, 0 and
0 shares issued and outstanding	—	—
Series D, 2,000,000 shares designated, 0 and
0 shares issued and outstanding	—	—
Series E, 2,500,000 shares designated,
2,012,500 and 1,375,000 issued and outstanding	20,125	13,750
Common stock, par value $0.01, 324,000,000 shares authorized,
51,003,864 and 46,168,864 issued and outstanding	510,039	461,689
Additional Paid-In capital	13,603,663	11,685,685
Accumulated Deficit	(13,702,210)	(11,818,902)
Total shareholders' equity	432,617	343,222
Total liabilities and shareholders' equity	$3,383,899	$3,718,717

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
	For the Three Months Ended		For the Six Months Ended
	June 30,		June 30,
	2018	2017	2018	2017
Revenues
Product	$318,765	$572,931	$694,051	$1,124,286
Advertising	291,276	93,890	974,334	203,633
Total revenues	610,041	666,821	1,668,385	1,327,919
Cost of revenue
Products	238,953	365,411	530,518	737,957
Advertising	182,865	—	693,569	3,510
Total cost of revenue	421,818	365,411	1,224,087	741,467
Gross profit	188,223	301,410	444,298	586,452
Selling, general and administrative expenses	1,011,510	1,064,765	2,101,912	1,948,968
Loss from operations	(823,287)	(763,355)	(1,657,614)	(1,362,516)
Other income (expense)
Interest income	729	137	1,017	219
Interest expense	(9,851)	(34,591)	(25,204)	(69,751)
Interest expense - related party	(101,650)	(76,124)	(201,507)	(125,132)
Total other income (expense)	(110,772)	(110,578)	(225,694)	(194,664)
Net Loss	(934,059)	(873,933)	(1,883,308)	(1,557,180)
Preferred stock dividends
Series A and Series E preferred stock	18,742	754	33,505	2,727
Total preferred stock dividends	18,742	754	33,505	2,727
Net loss attributable to common shareholders	$(952,801)	$(874,687)	$(1,916,813)	$(1,559,907)
Basic and diluted net loss per share	$(0.02)	$(0.02)	$(0.04)	$(0.03)
Weighted average shares outstanding - basic and diluted	48,192,461	44,936,196	48,192,461	44,925,043

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 2018
(Unaudited)
					Additional		Total
	Preferred Stock		Common Stock		Paid-in	Accumulated	Shareholders'
	Shares	Amount	Shares	Amount	Capital	Deficit	Equity
Balance - December 31, 2017	1,475,000	$14,750	46,168,864	$461,689	$11,685,685	$(11,818,902)	$343,222
Common stock issued for 10% dividend payment pursuant
to Series A preferred stock Subscription Agreements		-	10,000	100	(100)		-
Issuance of Series E preferred stock ($0.40/share)	637,500	6,375			248,625		255,000
Series E 10% preferred stock dividend					(33,505)		(33,505)
Stock option vesting expense					14,208		14,208
Unit issued for cash ($0.40/share)			4,825,000	48,250	1,688,750		1,737,000
Net loss for the six months ended June 30, 2018						(1,883,308)	(1,883,308)
Balance - June 30, 2018	2,112,500	$21,125	51,003,864	$510,039	$13,603,663	$(13,702,210)	$432,617
See accompanying notes to unaudited condensed consolidated financial statements

 

 

Bright Mountain Media, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the Six months ended
	June 30,
	2018	2017
Cash flows from operating activities:
Net loss	$(1,883,308)	$(1,557,180)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation	12,852	12,148
Amortization of debt discount	106,425	67,268
Amortization of intangibles	213,174	151,542
Stock option compensation expense	14,208	73,838
Common stock and warrants issued for the brokers	—	25,860
Gain on sale of property and equipment	(749)	—
Provision for bad debt	49,139	—
Changes in operating assets and liabilities:
Accounts receivable	(12,922)	33,499
Inventory	201,491	60,497
Prepaid expenses and other current assets	85,404	52,848
Other assets	3,775	108,903
Accounts payable and accrued expense	(275,511)	(63,416)
Accrued interest	18,420	62,847
Accrued interest - related party	16,550	6,858
Deferred rents	(201)	15,976
Deferred revenue	(2,548)	—
Net cash used in operating activities	(1,453,801)	(948,512)
Cash flows from investing activities:
Purchase of property and equipment	(1,213)	(14,305)
Cash received for sale of property and equipment	2,100	—
Net cash provided by (used in) investing activities	887	(14,305)
Cash flows from financing activities:
Proceeds from issuance of preferred stock	255,000	—
Proceeds from issuance of common stock, net of commissions	1,737,000	—
Repayments on insurance premium notes payable	(41,494)	(48,949)
Dividend payments	(33,505)	—
Principal payment on Notes Payable	(226,330)	—
Long-term debt - Related parties	—	950,000
Net cash provided by financing activities	1,690,671	901,051
Net increase (decrease) in cash	237,757	(61,766)
Cash and cash equivalents at beginning of period	140,022	162,795
Cash and cash equivalents at end of period	$377,779	$101,029
Supplemental disclosure of cash flow information
Cash paid for:
Interest	$104,710	$52,400
Non-cash investing and financing activities
Premium finance loan payable recorded as prepaid	$—	$42,362
Debt discount on convertible notes payable	$—	$522,500
Valuation of common stock warrants issued to Spartan	$161,407	—
Accounts receivable charged against notes payable - Daily Engage Media	$19,525	$—

 

See accompanying notes to unaudited condensed consolidated financial statements

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

 

Organization and Nature of Operations

 

Bright Mountain Media, Inc. is a Florida corporation formed on May 20, 2010. Its wholly owned subsidiaries, Bright Mountain LLC, and The Bright Insurance Agency, LLC, were formed as Florida limited liability companies in May 2011. Its wholly owned subsidiary, Bright Watches, LLC was formed as a Florida limited liability company in December 2015, and its wholly owned subsidiary Daily Engage Media Group LLC (“Daily Engage Media”) was formed as a New Jersey limited liability company in February 2015. When used herein, the terms "BMTM, the "Company," "we," "us," "our" or "Bright Mountain" refers to Bright Mountain Media, Inc. and its subsidiaries.

 

Bright Mountain is a digital media holding company whose primary focus is connecting brands with consumers as a full advertising services platform. The Company’s assets include an ad network, an ad exchange platform and 25 websites (owned and/or managed) that provide content, services and products. In addition, the Bright Mountain Media Ad Exchange Network will be fully developed and implemented in the fourth quarter of 2018. The websites are primarily geared for a young, male audience with several that focus on active, reserve and retired military audiences as well as law enforcement and first responders. With the acquisition of Daily Engage Media in September 2017, the Company has acquired the software and expertise to scale this side of the business. Two of our websites operate as e-commerce platforms, one of which, Bright Watches, is non-strategic to the current direction of our business.

 

In December 2016, we acquired the assets, constituting the Black Helmet Apparel business (“Black Helmet Apparel”), from Sostre Enterprises, Inc. Assets acquired included various website properties and content, social media content, inventory and other intellectual property rights.

 

On September 19, 2017, under the terms of an Amended and Restated Membership Interest Purchase Agreement with Daily Engage Media, and its members, the Company acquired 100% of the membership interests of Daily Engage Media. Launched in 2015, Daily Engage Media is an ad network that connects advertisers with approximately 200 digital publications worldwide.

 

Principles of Consolidation and Basis of Presentation

 

The condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The accompanying unaudited financial statements for the three and six months ended June 30, 2018 and 2017 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet information as of December 31, 2017 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on April 2, 2018. The interim condensed consolidated financial statements should be read in conjunction with that report.

 

Reclassification

 

Certain reclassifications have been made to the December 31, 2017 consolidated balance sheet to conform to the June 30, 2018 consolidated balance sheet presentation. 

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

 

Use of Estimates

 

Our consolidated financial statements are prepared in accordance with GAAP. These accounting principles require management to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of our consolidated financial statements as well as reported amounts of revenue and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. Significant estimates included in the accompanying consolidated financial statements include revenue recognition, the fair value of acquired assets for purchase price allocation in business combinations, valuation of inventory, valuation of intangible assets, estimates of amortization period for intangible assets, estimates of depreciation period for fixed assets and the valuation of equity based transactions.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

 

Fair Value of Financial Instruments and Fair Value Measurements

 

The Company measures its financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and the short-term portion of long-term debt, the carrying amounts approximate fair value due to their short maturities.

 

We adopted accounting guidance for financial and non-financial assets and liabilities in accordance with Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures.” This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

 

 

 

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

 

Accounts Receivable

 

Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.

 

The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 60 or net 90 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.

 

Inventories

 

Inventories consist of finished goods and are stated at the lower of cost or market using the first in, first out (FIFO) method. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.

 

Revenue Recognition

 

The Company recognizes revenue on our products in accordance with ASC 605, “Revenue Recognition.” Under these guidelines, revenue is recognized on sales transactions when all of the following exist: persuasive evidence of an arrangement did exist; delivery of the product or advertising has occurred; the sales price to the buyer is fixed or determinable; and collectability is reasonably assured. The Company has several revenue streams generated directly from its website and specific revenue recognition criteria for each revenue stream is as follows:

 

 

 



Our advertising revenue generated from the Daily Engage and Bright Mountain businesses are consistent with the above section. However, the two scenarios that arise from revenue generation and recognition include our owned and operated website advertising revenue which requires little to no cost of revenue, as well as advertising on non-owned websites which creates costs to those website owners and the Company makes a range of 18% to 20% of the gross revenues on these contractual agreements.

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

 

Cost of Revenues

 

Components of costs of revenues for the products segment include product costs, shipping costs to customers and any inventory adjustments for product sales. Cost of revenue for the advertising segment consists of revenue share payments to media providers and website publishers that are directly related to a revenue generating event. The Company becomes obligated to make the revenue share payments in the period the advertising impressions, click throughs, actions or lead-based information are delivered or occur. The Daily Engage Media portion of the advertising segment cost of revenue consists of revenue share payments to media providers and website publishers that are directly related to a revenue generating event. The Company becomes obligated to make the revenue share payments in the period the advertising impressions, click throughs, actions or lead-based information are delivered or occur.

 

Shipping and Handling Costs

 

The Company includes shipping and handling fees billed to customers as revenues and shipping and handling costs for shipments to customers as cost of revenues.

 

Sales Return Reserve Policy

 

Our return policy generally allows our end users to return purchased products for refund or in exchange for new products. We estimate a reserve for sales returns, if any, and record that reserve amount as a reduction of sales and as a sales return reserve liability. Sales to consumers on our web site generally may be returned within a reasonable period of time.

 

Property and Equipment

 

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of five to seven years for office furniture and equipment, and five years for computer equipment. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the improvements. Expenditures for maintenance and repairs along with fixed assets with a purchase price below our capitalization threshold of $500 are expensed as incurred.

 

Website Development Costs

 

The Company accounts for its website development costs in accordance with ASC 350-50, “Website Development Costs” (“ASC 350-50”). These costs, if any, are included in intangible assets in the accompanying consolidated financial statements or expensed immediately if the Company cannot support recovery of these costs from positive future cash flows.

 

ASC 350-50 requires the expensing of all costs of the preliminary project stage and the training and application maintenance stage and the capitalization of all internal or external direct costs incurred during the application and infrastructure development stage. Upgrades or enhancements that add functionality are capitalized while other costs during the operating stage are expensed as incurred. The Company amortizes the capitalized website development costs over an estimated life of five years.

 

For the three and six months ended June 30, 2018 and 2017, all platform and website development costs have been expensed.

 

Amortization and Impairment of Long-Lived Assets

 

Amortization and impairment of long-lived assets are non-cash expenses relating primarily to intangible assets. The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10 “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

  

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

 

Website acquisition costs are amortized over three years and intangible assets are amortized over up to eight years. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. While it is likely that we will have significant amortization expense as we continue to acquire websites, we believe that intangible assets represent costs incurred by the acquired website to build value prior to acquisition and the related amortization and impairment charges of assets, if applicable, are not ongoing costs of doing business. Amortization expense is included in selling, general and administrative expenses on the accompanying condensed consolidated statement of operations.

 

Stock-Based Compensation

 

The Company accounts for stock-based instruments issued to employees for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. The value of the portion of an employee award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50, “Equity-Based Payments to Non-Employees.” The Company uses the Black-Scholes option pricing model for estimating the fair value of stock options. The use of the option valuation model requires the input of the Company's stock price, as well as highly subjective assumptions, including the expected life of the option and the expected stock price volatility based on peer companies. Additionally, the recognition of expense requires the estimation of the number of awards that will ultimately vest and the number of awards that will ultimately be forfeited. The fair value of the Company's common stock, for purposes of determining the grant date fair value of option, has been determined by using the closing market price per share of common stock as quoted on the date of grant. Non- cash stock-based stock option compensation is expensed over the requisite service period and are included in selling, general and administrative expenses on the accompanying condensed consolidated statement of operations. The Company recorded $7,340 and $58,379 stock-based compensation expense for the three months ended June 30, 2018 and 2017 and $14,208 and $73,838 for the 6 months ended June 30, 2018 and 2017, respectively.

 

Advertising, Marketing and Promotion Costs

 

Advertising, marketing and promotion expenses are expensed as incurred and are included in selling, general and administrative expenses on the accompanying statement of operations. For the three and six months ended June 30, 2018 and 2017, advertising, marketing and promotion expense was $74,964 and $72,945 and $135,887 and $165,233, respectively.

 

Income Taxes

 

We use the asset and liability method to account for income taxes. Under this method, deferred income taxes are determined based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements which will result in taxable or deductible amounts in future years and are measured using the currently enacted tax rates and laws. A valuation allowance is provided to reduce net deferred tax assets to the amount that, based on available evidence, is more likely than not to be realized.

 

The Company follows the provisions of ASC 740-10 “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

 

unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.

 

As of June 30, 2018, tax years 2017, 2016, and 2015 remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.

 

Basic and Diluted Net Earnings (Loss) Per Common Share

 

In accordance with ASC 260-10 “Earnings Per Share,” basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. As of June 30, 2018 and 2017, there were approximately 2,027,000 and 2,177,000 common stock equivalent shares outstanding as stock options, respectively and 5,307,500 and 0 common stock equivalent shares outstanding from warrants to purchase common shares, respectively, 2,112,500 and 100,000 common stock equivalents from the conversion of preferred stock, respectively, and 4,070,000 and 3,050,000 common stock equivalents from the conversion of notes payable, respectively. Equivalent shares were not utilized, as the effect is anti-dilutive.

 

Segment Information

 

In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two identifiable operating segments based on the activities of the Company in accordance with the ASC 280-10 The Company's two segments are product sales and advertising as of June 30, 2018. The product sales segment sells merchandise directly to customers thorough e-commerce distributor portals such as Amazon and eBay, and through our proprietary websites and our retail location. The advertising segment is focused on producing advertising revenue generated by users “clicking on” and/or viewing website advertisements utilizing several ad network partners and direct advertisers.

 

Recent Accounting Pronouncements

 

May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606).” ASU 2014-09, which has been modified on several occasions, provides new guidance designed to enhance the comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance also requires disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We are currently reviewing the provisions of this ASU and subsequent updates and evaluating the potential impact on our results of operations, cash flows or financial condition as well as related disclosures. As an emerging growth company, we have elected to adopt this guidance under the private company guidelines, which will go into effect on January 1, 2019.

 

In July 2015, FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory”. The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The adoption of ASU No. 2015-11 did not have a material effect on our condensed consolidated financial statements.

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

 

In February 2016, the FASB issued ASU 2016-02 “Leases,” which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine the impact on our results of operations, cash flows or financial condition.

 

In April 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” ASU 2016- provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 with early adoption permitted. We do not believe this ASU will have an impact on our results of operation, cash flows, other than presentation, or financial condition.

 

In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” which replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet exposures. Under current U.S. GAAP, an entity reflects credit losses on financial assets measured on an amortized cost basis only when losses are probable and have been incurred, generally considering only past events and current conditions in making these determinations. ASU 2016-13 prospectively replaces this approach with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first acquired. Under the revised methodology, credit losses will be measured based on past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets.

 

ASU 2016-13 also revises the approach to recognizing credit losses for available-for-sale securities by replacing the direct write-down approach with the allowance approach and limiting the allowance to the amount at which the security’s fair value is less than the amortized cost. In addition, ASU 2016-13 provides that the initial allowance for credit losses on purchased credit impaired financial assets will be recorded as an increase to the purchase price, with subsequent changes to the allowance recorded as a credit loss expense. ASU 2016-13 also expands disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for credit losses. The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as of January 1, 2019. The Company is currently evaluating the impact the adoption of this new standard will have on its consolidated financial statements. 

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows –Restricted Cash” which requires entities to present the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new guidance also requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet if restricted cash and restricted cash equivalents are presented in a different line item in the balance sheet. The amendments of this Update, which should be applied using a retrospective transition method to each period presented, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The adoption of this standard is not expected to have an impact on our statement of cash flows.

 

In January 2017, the FASB issued 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and eliminating the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment. Instead, under this pronouncement, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment change for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects will be considered, if applicable. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 2 - GOING CONCERN.

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company sustained a net loss of ($1,883,308) and used net cash in operating activities of ($1,453,801) for the six months ended June 30, 2018. The Company had an accumulated deficit of ($13,702,210) at June 30, 2018. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital from related parties to sustain its current level of operations.

 

Management plans to continue to raise additional capital through private placements and is exploring additional avenues for future fund-raising through both public and private sources.

 

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 3 – ACQUISITIONS.

 

On September 19, 2017 the Company, Daily Engage Media, and the owners of the membership interests in Daily Engage Media entered into an Amended and Restated Membership Interest Purchase Agreement (the “Daily Engage Purchase Agreement”) under which the Company acquired 100% of the membership interests of Daily Engage Media in exchange for common stock, promissory notes and the satisfaction of certain debt obligations of the acquired entity totaling approximately $888,000.

 

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

 

 

 

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 3 – ACQUISITIONS (continued).

 

The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on the estimated fair values was as follows:

 

Tangible assets acquired	$361,770
Liabilities assumed	(562,006)
Net liabilities assumed	$(200,236)
Exchange platform	$50,000
Tradename	150,000
Customer relationships	250,000
Non-compete agreements	192,000
Unallocated purchase price	446,426
Total purchase price	$1,088,426

 

The final accounting for the acquisition is expected to be completed in the third quarter of 2018.

 

Pro forma results

 

The following table sets forth a summary of the unaudited pro forma results of the Company as if the acquisition of the Daily Engage Media, which was closed in September 2017, had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the business been acquired as of the first day of the periods presented.

 

	Three Months Ended	Six Months Ended
	June 30, 2017	June 30, 2017
Total revenue	$1,141,444	$2,366,160
Total expenses	(2,159,054)	(4,030,733)
Preferred stock dividend	(754)	(2,727)
Net loss attributable to common shareholders	$(1,018,364)	$(1,667,300)
Basic and diluted net loss per share	$(0.02)	$(0.04)

 

NOTE 4 – INVENTORIES.

 

At June 30, 2018 and December 31, 2017 inventories consisted of the following:

 

	June 30, 2018	December 31, 2017
Product inventory: clocks and watches	$235,834	$453,852
Product inventory: other inventory	196,591	180,064
Total inventory balance	432,425	633,916
Less: inventory allowance for slow moving	(22,448)	(22,448)
Total inventory balance, net	$409,977	$611,468

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS.

 

At June 30, 2018 and December 31, 2017, prepaid expenses and other current assets consisted of the following:

 

	June 30, 2018	December 31, 2017
Prepaid rent	$18,686	$50,417
Prepaid insurance	39,941	92,322
Prepaid inventory	1,701	2,993
	$60,328	$145,732

 

NOTE 6 – PROPERTY AND EQUIPMENT.

 

At June 30, 2018 and December 31, 2017, property and equipment consisted of the following:

 

	Useful Lives	June 30, 2018	December 31, 2017
Furniture and fixtures	3-5 years	$78,856	$78,994
Computer equipment	3 years	59,511	59,511
Leasehold improvements	5 years	39,384	39,384
Total property and equipment		177,751	177,889
Less: accumulated depreciation		(101,241)	(88,389)
Total property and equipment, net		$76,510	$89,500

 

Depreciation expense for the three and six months ending June 30, 2018 and 2017, was $6,513 and $6,659 and $12,852 and $12,148, respectively.

 

NOTE 7 – WEBSITE ACQUISITION AND INTANGIBLE ASSETS.

 

At June 30, 2018 and December 31, 2017, respectively, website acquisitions, net consisted of the following:

 

	June 30, 2018	December 31, 2017
Website Acquisition Assets	$1,417,189	$1,417,189
Less: accumulated amortization	(926,571)	(812,575)
Less: accumulated impairment loss	(211,197)	(211,197)
Website Acquisition Assets, net	$279,421	$393,417

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 7 – WEBSITE ACQUSITION AND INTANGIBLE ASSETS (continued).

 

At June 30, 2018 and December 31, 2017, respectively, intangible assets, net consisted of the following:

 

	Useful Lives	June 30, 2018	December 31, 2017
Tradename	5 years	$300,000	$300,000
Customer relationships	5 years	502,000	502,000
Non-compete agreements	5-8 years	312,000	312,000
Total Intangible Assets		$1,114,000	$1,114,000
Less: accumulated amortization		(195,177)	(95,999)
Less: accumulated impairment loss		(50,227)	(50,227)
Intangible assets, net		$868,596	$967,774

 

Amortization expense for the three and six month periods ending June 30, 2018 and 2017 was $100,317 and $75,806 and $213,174 and $151,542, respectively, related to both the website acquisition costs and the intangibles.

 

NOTE 8 – SEGMENT INFORMATION.

 

The Company has two identifiable segments as of June 30, 2018; products and advertising. The products segment sells merchandise directly to customers thorough e-commerce distributor portals such as Amazon and eBay, and through our proprietary websites and retail location. The advertising segment is focused on producing advertising revenue generated by users “clicking on” and/or viewing website advertisements utilizing several ad network partners and direct advertisers and subscription revenue generated by the sale of access to premium versions of our websites and to career postings on one of our websites. The subscription revenues are about 0.7% of the total advertising segment revenue. The following information represents segment activity for the three and six month periods ended June 30, 2018 and 2017.

 

	For the three months ended			For the three months ended
	June 30, 2018			June 30, 2017
	Products	Advertising	Total	Products	Advertising	Total
Revenues	$318,765	$291,276	$610,041	$572,931	$93,890	$666,821
Intangible amortization	$41,732	$58,585	$100,317	$—	$75,806	$75,806
Depreciation	$3,099	$3,414	$6,513	$5,707	$952	$6,659
Loss from operations	$(342,487)	$(480,800)	$(823,287)	$(445,896)	$(317,459)	$(763,355)
Segment assets	$1,127,473	$2,256,426	$3,383,899	$1,728,881	$784,566	$2,513,447
Purchase of assets	$1,213	$—	$1,213	$14,305	$—	$14,305

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

 

 

NOTE 9 – NOTES PAYABLE.

 

Long Term Debt to Related Parties

Between September 2016 and August 2017, the Company issued a series of convertible notes payable to an executive officer and member of our board of directors. The notes mature five years from issuance at which time all principal and interest are payable. Interest rates on the notes range from 6% to 12% and the notes are convertible at any time prior to maturity at conversion prices ranging from $0.40 to 0.50 per share. The Company recognized a beneficial conversion feature when the fair value of the underlying common stock to which the note is convertible into was in excess of the face value of the note. For notes payable under this criteria, the intrinsic value of the beneficial conversion features was recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is being amortized to interest over the five-year life of the note using the effective interest method.

The principal balance of these notes payable was $2,035,000 at June 30, 2018 and December 31, 2017 and discounts recognized upon respective origination dates as a result of the beneficial conversion feature total $1,018,125. As of June 30, 2018 and December 31, 2017, the total convertible notes payable to related party net of discounts was $1,299,863 and $1,198,893, respectively.

 

Notes Payable

 

On November 30, 2016, the Company entered into a promissory note agreement with an unaffiliated party in the principal amount of $500,000. The note is unsecured and carries an interest rate of 10% per annum and matures on June 30, 2018, and the parties have agreed to extend the maturity to December 31,2018. In the event of default of any loan provision, the lender can declare all or any portion of the unpaid principal and interest immediately due and payable. During the six month period ended June 30, 2018 the Company made payments of $205,000, reducing the note balance to $295,000. The Company and the lender have reached an oral agreement, whereby the lender will extend the maturity date to December 31, 2018 and the Company will pay the lender $150,000 in the third quarter of 2018 and the remaining balance plus accrued interest by December 31, 2018. The Company paid $50,000 in July 2018, in accordance with this agreement. 

 

In connection with the acquisition of Daily Engage Media, the Company issued promissory notes totaling $380,000. The notes have no stated interest rate and mature on September 19, 2018. The balance of the notes payable at June 30, 2018 and December 31, 2017 was $225,162 and $254,687, respectively. The Company applied payments made on behalf of the former company for the year ended December 31, 2017 of $125,313 and $19,525 for the six months ended June 30, 2018. In April 2018 the Company paid principal payments of $2,500 to the four note holders, totaling $10,000 and in July 2018, the Company paid $25,000.

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 9 – NOTES PAYABLE (continued).

 

The Company has a note payable originating from a prior website acquisition. At the time of the acquisition, the Company agreed to pay $150,000, payable monthly in an amount equal to 30% of the net revenues from the website, when collected, with the total amount of the earn out to be paid by January 4, 2019. The Company recorded the future monthly payments totaling $150,000 at a present value of $117,268, net of a discount of $32,732. The present value was calculated at a discount rate of 12% using the estimate future revenues. The balance of the note payable at June 30, 2018 and December 31, 2017, was $56,172 and $67,895 net of discounts of $6,364 and $11,820 respectively.

 

Interest expense on notes payable was $9,851 and $34,591 and $25,204 and $69,751 for the three and six month periods ended June 30, 2018 and 2017, respectively. Amortization of the debt discount of $2,727 and $5,455 and $106,425 and $67,268 for the three and six months ended June 30, 2018 and 2017, respectively.

 

Interest expense on notes payable – related party was $101,650 and $76,124 and $201,507 and $125,132 for the three and six month periods ended June 30, 2018 and 2017, respectively, inclusive of amortization of debt discount totaled $50,763 and $41,109 and $100,970 and $67,268, respectively.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES.

 

The Company leases its corporate offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487 under a long-term non-cancellable lease agreement expiring on March 14, 2019. The lease terms required base rent payments of approximately $9,000 per month for the first twelve months commencing in October 2014, with a 3% escalation each year. An additional security deposit of $2,500 was required. Rent is all-inclusive and includes electricity, heat, air-conditioning, and water.

 

The Company leases retail space for its product sales division at 4900 Linton Boulevard, Bay 17A, Delray Beach, FL 33445 under a two long-term, non-cancellable lease agreement, which contain renewal options. The leases commenced in January 2017 and are in effect for a period of five years. Minimum base rentals total approximately $6,000 per month, escalating 3% per year thereafter. The Company also provided a $10,000 security deposit and prepaid $96,940 in future rents on the facility through the funding of certain leasehold improvements. Prepaid rent totaled $18,686 and $50,417 at June 30, 2018 and December 31, 2017, respectively.

 

The Company leases a warehouse facility in Orlando, Florida consisting of approximately 2,667 square feet. The lease commenced in April 2016, expiring in April 2021 with an initial base rental rate of $1,641 per month, and escalating at approximately 3% per year thereafter.

 

Rent expense for the three and six months ended June 30, 2018 and 2017 was $73,836 and $57,249 and $137,926 and $117,925, respectively.

 

Legal

 

From time-to-time, we may be involved in litigation or be subject to claims arising out of our operations or content appearing on our websites in the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on our company because of defense and settlement costs, diversion of management resources and other factors. See Subsequent Events Note 13 for further discussion and Part II, Item 1. Legal Proceedings

 

 

Other Commitments

 

The Company entered into various contracts or agreements in the normal course of business, which may contain commitments. During the three and six months ended June 30, 2018 and 2017, the Company entered into agreements with third party vendors to supply website content and data, website software development, advertising, public relations, and legal services. All of these commitments contain provisions whereby either party may terminate the agreement with specified notice, normally 30 days, and with no further obligation on the part of either party.

 

Total payments for the three and six month periods ended June 30, 2018 and 2017 were $80,877 and $37,500 and $112,810 and $90,000, respectively.

 

Effective June 1, 2014, the Company entered into an employment agreement with its Chief Executive Officer (“CEO”). The agreement calls for current base salary of $165,000 per year plus bonuses as awarded by the Board of Director’s. The agreement terminates upon the CEO’s death or disability in the event of which, the Company is obliged to pay one year salary and in the event of death, any unpaid bonuses. Both the Company and the CEO can terminate the agreement and in the case of termination without cause on the part of the Company, the CEO will be entitled to twice his salary plus unpaid bonuses earned.

 

On April 1, 2017, we entered into an amendment to his employment agreement which extended the term for an additional three years, set his base compensation at $165,000 per annum and provided the ability to earn a performance bonus beginning for 2017 based upon annual revenues above $3,000,000 per year and the certain earnings before interest, taxes and depreciation, or “EBITDA,” goals as follows: (i) for annual revenues of $3,000,000 to $3,500,000, a bonus of 25% of his then base salary; (ii) for annual revenues of $3,500,001 to $4,000,000 and a minimum EBITDA of $100,000, a bonus of 40% of his then base salary; (iii) for annual revenues of $4,000,0001 to $4,500,000 and a minimum EBITDA of $150,000, a bonus of 65% of his then base salary; and (iv) for annual revenues of $4,500,001 or greater and a minimum EBITDA of $175,000, a bonus of 80% of this then base salary.

 

Mr. Speyer earned a performance bonus of $41,250 for 2017.

 

In connection with the Daily Engage Media acquisition, the Company entered into three-year employment agreements with two former members of the entity. Under these agreements, the Company is obliged to pay base salaries of $65,000 and $70,000, respectively to the employees with an increase to $75,000 each in the second year of the agreement as well as bonuses to be paid at the discretion of the board of directors. See Subsequent Events Note 13 for further discussion.

 

NOTE 11 – SHAREHOLDERS’ EQUITY.

 

Preferred Stock

 

The Company has authorized 20,000,000 shares of preferred stock with a par value of $0.01 (the "Preferred Stock"), issuable in such series and with such designations, rights and preferences as the board of directors may determine. The Company's board of directors has previously designated five series of preferred stock, consisting of 10% Series A Convertible Preferred Stock ("Series A Stock"), 10% Series B Convertible Preferred Stock ("Series B Stock"), 10% Series C Convertible Preferred Stock ("Series C Stock"), 10% Series D Convertible Preferred Stock ("Series D Stock") and 10% Series E Convertible Preferred Stock ("Series E Stock"). At June 30, 2018, there were 100,000 shares of Series A Stock and 2,012,500 shares of Series E Stock issued and outstanding. There are no shares of Series B Stock, Series C Stock or Series D Stock issued and outstanding.

 

The Series A Stock is senior to all other classes of the Company's securities and has a stated value of $0.50 per share. Holders of shares of Series A Stock are entitled to the payment of a 10% dividend payable in shares of the Company’s common stock at a rate of one share of common stock for each 10 shares of Series A Stock, payable annually the 10th business day of January. The shares of Series A Stock are redeemable at the Company's option upon 20 days’ notice for an amount equal to the amount of capital invested. In January 2018 the Company paid 10,000 shares of common stock dividends to the Series A Stockholder of record as dividends on the Series A Stock.

 

On September 6, 2017, the board of directors designated 2,500,000 shares of Preferred Stock as Series E Stock, which such designation was amended on September 29, 2017. Holders of shares of Series E Stock are entitled to 10% dividends, payable monthly as may be permitted under Florida law out of funds legally available therefor. The shares of Series E Stock rank senior to any other class of our equity securities, except for the Series A Stock, have a liquidation preference of $0.40 per share and are not redeemable.

 

The remaining designations, rights and preferences of each of the Series A Stock and Series E Stock are identical, including (i) shares do not have voting rights, except as may be permitted under Florida law, (ii) are convertible into shares of our common stock at the holder's option on a one for one basis, (iii) are entitled to a liquidation preference equal to a return of the capital invested, and (iv) each share will automatically convert into shares of common stock five years from the date of issuance or upon a change in control. Both the voluntary and automatic conversion formulas are subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 11 – SHAREHOLDERS’ EQUITY (continued).

 

In September 2017, Mr. W. Kip Speyer, an executive officer and member of our board of directors, purchased an aggregate of 500,000 shares of Series E Stock at a purchase price of $0.40 per share. The Company used the proceeds from these sales for working capital.

 

During the six months ended June 30, 2018 periods, Mr. W. Kip Speyer, an executive officer and member of our board of directors, purchased an aggregate of 637,500 shares of Series E Stock at a purchase price of $0.40 per share. The Company used the proceeds from these sales for working capital.

 

Stock issued for cash

 

In August 2017 the Company issued 125,000 shares of its common stock for $50,000 or $0.40 per share to a private investor.

 

Between January 2018 and June 2018, the Company sold an aggregate of 4,825,000 units of its securities to 28 accredited investors in a private placement resulting in gross proceeds to the Company of $1,930,000.  Each unit, which was sold at a purchase price of $0.40, consisted of one share of common stock and one five-year warrant to purchase one share of common stock at an exercise price of $0.65 per share.  Spartan Capital Securities, LLC (“Spartan”), a broker-dealer and member of FINRA, served as placement agent for the Company in this offering.  As compensation for its services, the Company paid Spartan commissions totaling $193,000, included in the Company’s condensed consolidated statement of changes in shareholders’ equity for the six months ended June 30, 2018.

 

In, addition, the Company issued Spartan five-year placement agent warrants to purchase an aggregate of 482,500 shares of the Company's common stock at an exercise price of $0.65 per share. During the period January 2018 to March 2018, warrants to purchase an aggregate of 176,250 of the Company's common stock were valued at $95,552 using the Black-Scholes model to value the warrants based on a risk-free rate of l 0% based on recent borrowing costs and a volatility of 214%. The Company recorded the warrants as professional fees in the condensed consolidated statement of operations however management subsequently determined that based on the services specified in the agreement, the fees incurred from the warrant issuance were solely for the purpose of raising capital in connection with the private placement discussed above. As a result, the fees are considered an offering cost and should have been reflected as a component of shareholders' equity for the period ended June 30, 2018. The net impact of this adjustment on the interim period financials statements was not significant.

 

During the 2nd quarter of 2018, upon reviewing similar companies in our industry, management determined that the volatility and risk-free rate utilized was significantly higher than our peers. The Company used a 2% risk-free interest rate and a volatility of approximately 62% for the valuation of the warrants issued during the period. Based on this, during the period from April 2018 to June 2018, warrants to purchase an aggregate of 306,250 of the Company's common stock were valued at $100,256. Management believes the current assumptions are more in-line with our peer group and closer to our anticipated results.

 

Stock issued for services

 

On January 16, 2017, the Company issued to a consultant 3,600 shares of its common stock at $0.85 per share, or $3,060, for services rendered. The Company valued these common shares based on the fair value at the date of grant.

 

On April 25, 2017 the Company issued 28,500 shares of its common stock with a fair value of $22,800 on the date of issuance for compensation to employees and officers.

 

Stock issued for dividends

 

In January 2018, the Company issued 10,000 shares of its common stock as dividends to the holder of its Series A preferred stock.

 

Stock issued for acquisition

 

On September 19, 2017, the Company issued 1,100,233 shares of its common stock with a fair value of $429,091 for the acquisition of Daily Engage Media.

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 11 – SHAREHOLDERS’ EQUITY (continued).

 

Stock Incentive Plan and Stock Option Grants to Employees and Directors

 

The Company recorded $7,344 and $26,195 stock compensation for the three months ended June 30, 2018 and 2017 and $14,208 and $53,653 for the six months ended June 30, 2018 and 2017, respectively. The stock compensation expense has been recognized as a component of selling, general and administrative expenses in the accompanying unaudited condensed consolidated financial statements.

 

As of June 30, 2018 there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $21,599 to be recognized through August 2020.

 

A summary of the Company's stock option activity during the six months ended June 30, 2018 is presented below:

 

	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance Outstanding, December 31, 2017	2,027,000	$0.37	5.4	$543,626
Granted	—	—	—	—
Exercised	—	—	—	—
Forfeited	—	—	—	—
Expired	—	—	—	—
Balance Outstanding, June 30, 2018	2,027,000	$0.37	4.9	$654,446
Exercisable at June 30, 2018	1,801,500	$0.38	4.6	$643,871

 

Summarized information with respect to options outstanding under the three option plans at June 30, 2018 is as follows:

 

	Options Outstanding			Options Exercisable
Range or Exercise Price	Number Outstanding	Remaining Average Contractual Life (In Years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price	Remaining Average Conversion Life (In Years)
0.14 - 0.24	720,000	0.9	$0.14	720,000	$0.14	1.0
0.25 - 0.49	351,000	0.8	$0.28	351,000	$0.28	.09
0.50 - 0.85	956,000	3.2	$0.67	730,500	$0.66	2.7
	2,027,000	4.9	$0.37	1,801,500	$0.38	4.6

 

NOTE 12 – CONCENTRATIONS.

 

The Company has historically purchased a substantial amount of its products from two vendors; Citizens Watch Company of America, Inc., and Bulova Corporation. During the six months ended June 30, 2018, purchases from Botta, Citizens, Bulova and Pierre Laurent accounted for approximately 17%, 15%,19% and 11%, of the watch products purchased, respectively, as compared to 57% and 19%, for Citizens and Bulova, respectively, for the six months ended June 30, 2017. 

 

Three Black Helmet Apparel vendors have been identified as having a high concentration. During the six months ended June 30, 2018 purchases from Pukka, Enemy Ink, and TSF Sportswear, LLC accounted for 10%, 27%, and 25% of the Black Helmet products purchased, respectively.

 

Although we continue to add additional product vendors and we continue to expand our product line and vendor relationships, due to continued high concentration and reliance on these three vendors, the loss of one of these two vendors could adversely affect the Company's operations.

 

 

BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(Unaudited)

 

NOTE 12 – CONCENTRATIONS (continued).

 

The Company generates revenues from two segments: product sales and advertising. The sharp increase in PayPal/eBay concentration is due to our acquisition of the Black Helmet Apparel business in December 2016. Due to high concentration and reliance on these portals, the loss of a working relationship with either of these two portals could adversely affect the Company's operations.  In addition, a substantial amount of payments for our products sold are processed through PayPal and Amazon. A disruption in PayPal or Amazon payment processing could have an adverse effect on the Company's operations and cash flow.  During the three and six months ended June 30, 2018, PayPal and Amazon accounted for 77% and 23% and 75% and 25%, respectively, of our total product sales as compared to 41% and 44% and 41% and 53% in the three and six months ended June 30, 2017, respectively. The Company replaced the DriveCMS software with Shopify in May 2018 to the Black Helmet website and the revenues attributable to this relationship were 30% for the three months ended June 30, 2018.

 

Credit Risk

 

The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At June 30, 2018 and December 31, 2017, respectively, the Company had no cash balances in excess of the FDIC insured limit.

 

Concentration of Funding

 

During the six months ended June 30, 2018, the Company's funding was provided primarily through the sale of 4,825,000 units of our securities to 28 accredited investors in a private placement exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) of the act and Rule 506(b) of Regulation D, resulting in gross proceeds to us of $1,930,000.  Each Unit, which was sold at a purchase price of $0.40, consisted of one share of common stock and one five year warrant to purchase one share of common stock at an exercise price of $0.65 per share.  Spartan, a broker-dealer and member of FINRA, served as placement agent for us in this offering.  As compensation for its services, we paid Spartan cash commissions totaling $193,000 and issued five-year placement agent warrants to purchase an aggregate of 482,500 shares of our common stock at an exercise price of $0.65 per share.  After payment of our offering expenses including legal, accounting, printing and other related expenses, we are using the net proceeds for working capital.

 

Between January 2018 and June 2018, Mr. W. Kip Speyer, an executive officer and member of our board of directors, an aggregate of 637,500 shares of our 10% Series E convertible preferred stock, resulting in gross proceeds to us of $255,000. We did not pay any commissions or finders fees, and the sales were made to Mr. Speyer, an accredited investor, in transactions exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) of that act.

 

NOTE 13 – SUBSEQUENT EVENTS.

 

On July 13, 2018 and August 15, 2018 Mr. W. Kip Speyer, an executive officer and member of our board of directors, purchased an aggregate of 200,000 shares of Series E Stock at a purchase price of $0.40 per share. The designations, rights and preferences of Series E Stock as described in Note 11. The Company used the proceeds from these sales for working capital.

 

Effective July 18, 2018 we terminated the employment agreements with each of Messrs. Harry G. Pagoulatos and George G. Rezitis for cause. Messrs. Pagoulatos and Rezitis had been employed by us as chief operating officer and chief technology officer, respectively, of our Daily Engage Media subsidiary since our acquisition of that company in September 2017. Mr. Todd Speyer, our Vice President, Digital and a member of our board of directors, has assumed operating responsibilities for Daily Engage Media. We do not expect that these terminations will result in any material, long-term change in the operations of Daily Engage Media.

 

In connection with the matters which lead to our termination for cause of Messrs. Pagoulatos and Rezitis, in July 2018 we filed a verified complaint for injunctive relief and damages against Messrs. Pagoulatos and Rezitis in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida alleging their failure, among other things, to provide us with certain login codes and passwords as well as reporting other current information about Daily Engage Media’s business. In this matter, we are seeking an injunction and monetary damages and intend to aggressively pursue our remedies.

 

 

In July 2018 Messrs. Pagoulatos and Rezitis, along with a third party who had been a minority owner in Daily Engage Media prior to our acquisition of that company, filed a complaint in the U.S. District Court, District of New Jersey, against the Company and our CEO, seeking compensatory and punitive damages and attorneys’ fees, among other items, and alleging, among other items, fraud and breach of contract. While we vehemently deny all allegations in the complaint and deem them to be baseless, we will immediately pursue a change of venue to Palm Beach County, Florida, the venue specified in both the acquisition agreement for the Daily Engage Media transaction as well as the employment agreements with Messrs. Pagoulatos and Rezitis. At the appropriate juncture, we also intend to serve a Rule 11 Motion for sanctions based upon the fact that the complaint contains frivolous arguments and/or arguments with no evidentiary support.

 

The Company intends to evaluate the intangible assets specifically related to the non-compete for the above individuals during the third quarter of 2018. The Company does not intend to accrue any liability for severance compensation to these individuals under their employment agreements, as they were “terminated for cause” within the terms of their respective employment agreements.

 

In July 2018, the Company paid $25,000 to four noteholders related to our acquisition of Daily Engage Media prior to the terminations discussed above. Three of the four promissory notes issued in the acquisition are not anticipated to be settled pending the settlement of, conclusion of, litigation described under Part II, Item 1 Legal Matters and Note 10.

 

On July 12, 2018 the Company paid $50,000 on the $500,000 Promissory Note in accordance with the oral agreement to extend the Note to December 31, 2018.  The oral agreement also stipulates that the Company will pay the lender $150,000 in the third quarter of 2018 and the remaining balance plus accrued interest on the maturity date.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion of our unaudited condensed consolidated financial condition and results of operations for the three months ended June 30, 2018 and 2017 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on April 2, 2018 (the “2017 10-K”) and our other filings with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All information in this section for the three and six months ended June 30, 2018 and 2017 is unaudited and derived from the unaudited condensed consolidated financial statements appearing elsewhere in this report; unless otherwise noted, all information for the year ended December 31, 2017 is derived from our audited consolidated financial statements appearing in the 2017 10-K.

 

Executive Overview of Second Quarter 2018 Results

 

Our key user metrics and financial results for the second quarter of 2018 are as follows:

 

User metrics: