Bright Mountain Media, Inc. - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Commission File Number 000-54887

Bright Mountain Media, Inc.

(Exact Name of Registrant as Specified in its Charter)

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

Securities registered pursuant to Section 12(b) of the Act:

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 [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes [X] 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.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ]  No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of August 19, 2019 there were 78,723,364 shares of the issuer’s common stock issued and outstanding.

TABLE OF CONTENTS

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:

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, including the Part II, Item 2, our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on April 12, 2019 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 2019” refers to the three months ended June 30, 2019, “second quarter of 2018” refers to the three months ended June 30, 2018, “2019” refers to the year ending December 31, 2019 and “2018” refers to the year ended December 31, 2018. 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

See accompanying notes to unaudited condensed consolidated financial statements

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

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, 2019 and 2018

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

JUNE 30, 2019

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

JUNE 30, 2019

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(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 (“DEM”) was formed as a New Jersey limited liability company in February 2015. When used herein, the terms “BMTM, the “Company,” “we,” “us,” “our” or “Bright Mountain” refers to Bright Mountain Media, Inc. and its subsidiaries.

Discontinued Operations

Effective December 31, 2018 the Company discontinued the E-Commerce operations, the Products segment, as of December 31, 2018 per the determination of Management and the Board of Directors. Accordingly, the Company determined that the assets and liabilities of this reportable segment met the discontinued operations criteria in Accounting Standards Codification 205-20-45 and were classified as discontinued operations at December 31, 2018. See Discontinued Operations Note 4.

Continuing Operations

We are a digital media holding company for online assets targeting and servicing the military and public safety markets and as such we delivered impressions, which include both our targeted demographic and the larger general demographic from our ad network. Our owned websites are dedicated to providing “those that keep us safe” places to go online where they can do everything from stay current on news and events affecting them, look for jobs, share information, and communicate with the public. We own 19 websites and manage five additional websites, for a total of 24 websites, which are customized to provide our niche users, including active, reserve and retired military, law enforcement, first responders and other public safety employees with information, news and entertainment across various platforms that has proven to be of interest and engaging to them.

During the past several years the Company has evolved to place its emphasis on not only providing quality content on our websites to drive traffic increases, but to increase the advertising revenue we generate from companies and brands looking to reach our audiences. Our ad network connects general use advertisers with approximately 200 digital publications worldwide. Bright Mountain’s websites feature timely, proprietary and aggregated content covering current events and a variety of additional subjects that are targeted to the specific, primarily young male, demographics of the individual website. Our business strategy requires us to continue to provide this quality content to our niche markets as we grow our business, operations and revenues. The Company’s focus is to launch its full-scale Ad Network Business platform, the Bright Mountain Media Ad Network Business.

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

NOTE 2 - GOING CONCERN.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company sustained a net loss from continuing operations of $1,414,138, a loss of $187,670 from discontinued operations and used net cash in operating activities of $1,069,941 for the six months ended June 30, 2019. The Company had an accumulated deficit of $18,457,104 at June 30, 2019. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period. The Company’s continuation as a going concern is dependent upon its ability to generate revenues, control its expenses and its ability to continue obtaining investment capital and loans from related parties and outside investors to sustain its current level of operations.

Management continues raising capital through private placements and is exploring additional avenues for future fund-raising through both public and private sources. The Company is not currently involved in any binding agreements to raise public or private capital.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 2 – GOING CONCERN (continued).

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

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.

Principles of Consolidation and Basis of Presentation

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, 2019 and 2018 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, 2018 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, 2018, as filed with the SEC on April 12, 2019. The interim condensed consolidated financial statements should be read in conjunction with that report.

Revenue Recognition

On January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“Topic 606”) using the “modified retrospective” method, meaning the standard is applied only to the most current period presented in the financial statements. Furthermore, we elected to apply the standard only to those contracts which were not completed as of the date of the adoption. Results for reporting periods beginning on the date of adoption are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with accounting standards in effect for those periods. Following the adoption of Topic 606, the Company will continue to recognize revenue at a point-in-time when control of services is transferred to the customer. This is consistent with the Company’s previous revenue recognition accounting policy.

To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the advertising services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company assesses the advertising services promised within each contract and determines those that are performance obligations and assesses whether each promised advertising service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation based on relative fair values, when (or as) the performance obligation is satisfied.

The Company recognizes revenue from its own advertising platform, ad network partners and websites (“Ad Network”) through its publishing advertiser impressions and pay-for-click services. the Company’s owned and operated sites, our ad network, or platforms. Invalid traffic on the Ad Network may impact the amount collected and adjusted by our Ad Network.

The Company has one revenue stream generated directly from publishing advertisements, whether on the Company’s owned and operated sites, our ad network, or platforms. The revenue is earned when the users click on the published website advertisements. Specific revenue recognition criteria for the advertising revenue stream is as follows:

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

Leases

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. On January 1, 2019, the Company adopted the new lease standard using the optional transition method under which comparative financial information has not been restated and will continue to apply the provisions of the previous lease standard in its annual disclosures for the comparative periods. In addition, the new lease standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients. As such, the Company did not have to reassess whether expired or existing contracts are or contain a lease and did not have to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases.

The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption under which the Company will not recognize right of use (“ROU”) assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases. The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets (office building).

The Company determines if an arrangement is a lease at inception. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the remaining lease terms as of January 1, 2019. Since the Company’s lease agreements does not provide an implicit rate, the Company estimated an incremental borrowing rate based on the information available at January 1, 2019 in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as operating costs and property taxes are expensed as incurred.

On January 1, 2019, the Company recognized a ROU asset and a lease liability of approximately $245,000 on its consolidated balance sheet.

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 intangible assets, estimates of amortization period for intangible assets, estimates of depreciation period for fixed assets and the valuation of equity-based transactions, and the valuation allowance on deferred tax assets.

Cash and Cash Equivalents

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

Fair Value of Financial Instruments and Fair Value Measurements

FASB ASC 820 “Fair Value Measurement and Disclosures: (“ASU 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input significant to the fair value measurement.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

The Company measures its financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and the short-term portion of long-term debt, the carrying amounts approximate fair value due to their short maturities. We adopted accounting guidance for fair values measurements and disclosures (ASC 820). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

Financial instruments recognized in the consolidated balance sheets consist of cash, accounts receivable, prepaid expenses and other current assets, note receivable, accounts payable, accrued expenses and premium finance loan payable. The Company believes that the carrying value of its current financial instruments approximates their fair values due to the short-term nature of these instruments. The carrying value of long-term debt to related parties and long-term debt to others approximates the current borrowing rate for similar debt instruments.

The following are the major categories of liabilities measured at fair value on a recurring basis for the six months ended June 30, 2019, using significant unobservable inputs (Level 3):

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.

Property and Equipment

Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of seven years for office furniture and equipment, and five years for computer equipment. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the improvements.

Website Development Costs

The Company accounts for its website development costs in accordance with ASC 350-50, “Website Development Costs”. These costs, if any, are included in intangible assets in the accompanying consolidated financial statements.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

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, 2019 $8,000 and $8,000, respectively, was capitalized for the purchase of a Facebook page. During the three and six months ended June 30, 2018 all website costs were expensed.

Amortization and Impairment of Long-Lived Assets

Amortization and impairment of long-lived assets are non-cash expenses relating primarily to website acquisitions. The Company accounts for long-lived assets in accordance with the provisions of ASC 360, “Property, Plant and Equipment”. This requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Website acquisition costs are amortized over five years. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

While it is likely that we will have significant amortization expense as we continue to acquire websites, we believe that intangible assets represent costs incurred by the acquired website to build value prior to acquisition and the related amortization and impairment charges of assets, if applicable, are not ongoing costs of doing business.

Stock-Based Compensation

The Company accounts for stock-based instruments issued to employees for services in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. The value of the portion of an employee award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC Topic 505-50, “Equity-Based Payments to Non-Employees”. The Company estimates the fair value of stock options by using the Black-Scholes option-pricing model. Non-cash stock-based stock option compensation is expensed over the requisite service period and are included in selling, general and administrative expenses on the accompanying statement of operations. For the three months ended June 30, 2019 and 2018, non-cash stock-based stock option compensation expense was $9,898 and $6,864, respectively. For the six months ended June 30, 2019 and 2018, non-cash stock-based stock option compensation expense was $13,111 and $14,208, 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 months ended June 30, 2019 and 2018, advertising, marketing and promotion expense was $0 and $22,766, respectively for continuing operations and $886 and $52,180 for discontinued operations, respectively. For the six months ended June 30, 2019 and 2018, advertising, marketing and promotion expense was $6,000 and $22,785, respectively for continuing operations and $6,888 and $113,102 for discontinued operations, 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 in the period those differences are expected to reverse. A valuation allowance is provided to reduce net deferred tax assets to the amount that, based on available evidence, is more likely than not to be realized.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

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

As of June 30, 2019, tax years 2018, 2017, and 2016 remain open for Internal Revenue Service (“IRS”) audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.

Concentrations

The Company generates revenues from through an Ad Exchange Network and through our Owned and Operated Ad Exchange Network. There are two large customers who account for approximately 22% and 9% of the Ad Exchange Network Revenue for the three and six months ended June 30, 2019, respectively. One of those customers accounted for approximately 17% of the Accounts Receivable at June 30, 2019.

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, 2019 and December 31, 2018, the Company had approximately $0 and $706,000, respectively, in cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its trade accounts receivable customers and generally does not require collateral.

Concentration of Funding

During the three and six months ended June 30, 2019 a large portion of the Company’s funding was provided through the sale of shares of the Company’s common stock with related warrants.

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, 2019, and 2018 there were 1,797,000 and 2,027,000 common stock equivalent shares outstanding as stock options, respectively; 21,441,000 and 5,307,500 common stock equivalent shares outstanding from warrants to purchase common shares, respectively, 6,844,017 and 2,112,500 common stock equivalents from the conversion of preferred stock, respectively; and 0 and 4,070,000 common stock equivalents from the conversion of notes payable, respectively. Equivalent shares were not utilized as the effect is anti-dilutive.

Segment Information

The Company currently operates in one reporting segment. This segment is focused on producing advertising revenue generated by users “clicking” on website advertisements utilizing several ad network partners and direct advertisers.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).

Recent Accounting Pronouncements

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 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.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. We do not expect the adoption of this guidance to have a material impact on our consolidated Financial Statements.

Reclassification

Certain reclassifications have been made to the December 31, 2018 and June 30, 2018 consolidated financial statements to conform to the June 30, 2019 presentation.

NOTE 4 – DISCONTINUED OPERATIONS.

Management, prior to December 31, 2018 with the appropriate level or authority, determined to exit, effective December 31, 2018, its Black Helmet business line as a result of, among other things, the change in our strategic direction to a focus solely in our advertising segment. Historically revenues from our product sales segment including revenues from two of our websites that operate as e-commerce platforms, included Bright Watches and Black Helmet, as well as Bright Watches’ retail location.

Management, prior to December 31, 2018, with the appropriate level of authority, determined to discontinue the operations of Bright Mountain watches effective December 31, 2018. The decisions to exit all components of our product segment will result in these businesses being accounted for as discontinued operations. The Company has determined that the exit of the Bright Watches business requires the Company to liquidate the inventory and settle all obligations to wind down the business unit. The Company sold the remaining inventory during the six months ended June 30, 2019. Accordingly, the Company determined that the assets and liabilities of this reportable segment met the discontinued operations criteria in Accounting Standards Codification 205-20-45, as such the results have been classified as discontinued operations.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 4 – DISCONTINUED OPERATIONS (continued).

On March 8, 2019 the Black Helmet Apparel E-Commerce business was sold for $175,000. The Company received $20,000 at the closing and issued a 6% promissory note for $155,000 payable in twelve monthly payments of principal and interest. At December 31, 2018, approximately $180,000 of inventory was considered held for sale and included in discontinued operations.

On March 22, 2019 the Company sold the remaining Bright Watches inventory for approximately $7,000. At December 31, 2018 $7,454 of inventory, written down to fair market value, was considered held for sale and included in discontinued operations.

The detail of the consolidated balance sheets, the consolidated statements of operations and consolidated cash flows for the discontinued operations is as stated below:

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 5 – PREPAID COSTS AND EXPENSES.

At June 30, 2019 and December 31, 2018, prepaid expenses and other current assets consisted of the following:

NOTE 6 – PROPERTY AND EQUIPMENT.

At June 30, 2019 and December 31, 2018, property and equipment consisted of the following:

Depreciation expense for the three months ending June 30, 2019 and 2018, was $1,766 and $6,513, respectively.

Depreciation expense for the six months ending June 30, 2019 and 2018, was $4,118 and $9,490, respectively.

NOTE 7 – WEBSITE ACQUISITION AND INTANGIBLE ASSETS.

At June 30, 2019 and December 31, 2018, respectively, website acquisitions, net consisted of the following:

At June 30, 2019 and December 31, 2018, respectively, intangible assets, net consisted of the following:

Amortization expense for the three months ended June 30, 2019 and 2018 was $31,046 and $34,147, respectively, related to both the website acquisition costs and the intangible assets. Amortization expense for the six months ended June 30, 2019 and 2018 was $66,859 and $105,603, respectively, related to both the website acquisition costs and the intangible assets.

During 2019 the Company paid $8,000 for a Facebook page which will expand our social media audience and provide an opportunity to increase our advertising impressions. There were no outstanding assets, liabilities, or trademarks associated with this acquisition.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 8 – ACCRUED EXPENSES.

At June 30, 2019 and December 31, 2018, respectively, accrued expenses consisted of the following:

As further described Note 10, during the six months ended June 30, 2019 the Company reached a settlement of $75,000 for publisher payments in collections of $197,500 resulting in a gain on settlement of $122,500. During the six months ended June 30, 2019 payments of $35,000 were made.

Series E and F dividends totaling $24,723 and $6,616 for June 30, 2019 and 2018, respectively, have been included in accrued expenses.

The Company negotiates with its publishing partners regarding questionable traffic to arrive at traffic settlements. A total of $95,254 was accrued at June 30, 2019 and December 31, 2018 for these potential future settlements.

The Company accrued $88,020 in liquidation damages related to the late filing of the Resale Registration Statement discussed in Note 10.

NOTE 9 – NOTES PAYABLE.

Long Term Debt to Related Parties

During the period from September 2016 through August 2017, the Company issued 12%, 10% and 6% convertible promissory notes for a total amount of $2,035,000 to a related party. In November 2018, these notes were converted into 4,344,017 shares of Preferred Stock Series F.

During November 2018 the Company issued 10% convertible promissory notes in the amount of $80,000 to a related party, to our Chief Executive Officer. The notes mature five years from issuance and is convertible at the option of the holder into shares of common stock at any time prior to maturity at a conversion price of $0.40 per share. A beneficial conversion feature exists on the date the convertible notes were issued whereby the fair value of the underlying common stock to which the notes are convertible into is in excess of the face value of the note of $70,000.

The principal balance of these notes payable was $80,000 at June 30, 2019 and December 31, 2018, respectively and discounts recognized upon respective origination dates as a result of the beneficial conversion feature total $61,369 and $68,312. At June 30, 2019 and December 31, 2018, the total convertible notes payable to related party net of discounts was $18,631 and $11,688, respectively.

Interest expense for note payable to related party was $2,023 and $50,887 for the three months ended June 30, 2019 and 2018, respectively and discount amortization was $3,491 and $50,763, respectively. Interest expense for note payable to related party for the six months ended June 30, 2019 and 2018 was $4,772 and $100,537, respectively and discount amortization was $6,943 and $100,970, respectively.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 9 – NOTES PAYABLE (continued).

Long-term debt

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, 2019 and December 31, 2018, was $0 and $57,181 net of discounts of $0 respectively.

In connection with the acquisition of DEM, the Company issued promissory notes totaling $380,000. The notes have no stated interest rate and matured on September 19, 2018 and the Company is in default pending the final outcome of the legal matters. The balance of the notes payable at June 30, 2019 and December 31, 2018 were $165,162. This note was not paid off by the maturity date due to pending litigation. See further discussion in Note 11, under Legal.

At June 30, 2019 and December 31, 2018 a summary of the Company’s debt is as follows:

Interest expense for notes payable was $0 and $9,851 for the three months ended June 30, 2019 and 2018, respectively and discount amortization was $909 and $2,727, respectively. Interest expense for notes payable was $0 and $34,591 for the six months ended June 30, 2019 and 2018, respectively and discount amortization was $909 and $5,455, respectively.

Premium Finance Loan Payable

The Company generally finances its annual insurance premiums through the use of short-term notes, payable in 10 equal monthly installments. Coverages financed include Directors and Officers and Errors and Omissions with premiums financed in 2019 of $110,200 and $41,914, respectively.

Total Premium Finance Loan Payable balance for all of the Company’s policies was $44,545 at June 30, 2019 and $92,537 at December 31, 2018.

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 operating lease agreement expiring on October 31, 2021. The lease terms require base rent payments of approximately $7,260 plus sales tax per month for the first twelve months commencing in September 2018, with a 3% escalation each year. Included in other assets is a required security deposit of $18,100.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 10 – COMMITMENTS AND CONTINGENCIES (continued).

The right of use asset and lease liability is as follows as of June 30, 2019:

The Company’s non-lease components are primarily related to property maintenance and other operating services, which varies based on future outcomes and is recognized in rent expense when incurred and not included in the measurement of the lease liability. The Company did not have any variable lease payments for its operating lease for the three or six months ended June 30, 2019.

The maturity of the Company’s operating lease liability is as follows as of June 30:

The following summarizes additional information related to the operating lease:

The Company leased 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 contained renewal options. The leases commenced in January 2017 and are in effect for a period of five years. Minimum base rentals total approximately $6,000 per month, escalating 3% per year thereafter. The Company also provided a $10,000 security deposit and prepaid $96,940 in future rents on the facility through the funding of certain leasehold improvements. The Company discontinued all retail operations and has made a settlement with the landlord to terminate the lease of approximately $55,000 which is included in accrued expenses. See Discontinued Operations Note 4.

On December 16, 2016, under the terms of the Asset Purchase Agreement, we acquired the assets constituting the Black Helmet apparel business including various website properties and content, social media content, inventory and other intellectual property right. We also acquired the right to assume the lease of their warehouse facility consisting of approximately 2,667 square feet. The lease was renewed for a three-year term in April 2016 with an initial base rental rate of $1,641 per month, escalating at approximately 3% per year thereafter. The Company vacated the premises before June 30, 2019. See Discontinued Operations Note 4.

For the three months ended June 30, 2019 and 2018, rent expense in continuing operations was $5,518 and $66,275, respectively. For the three months ended June 30, 2019 and 2018, rent expense included in discontinued operations was $33,382 and $7,561, respectively. For the six months ended June 30, 2019 and 2018, rent expense in continuing operations was $34,927 and $99,578, respectively. For the six months ended June 30, 2019 and 2018, rent expense included in discontinued operations was $70,424 and $38,348, respectively.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 10 – COMMITMENTS AND CONTINGENCIES (continued).

Legal

Effective July 18, 2018 we terminated the employment agreements with each of Messrs. Harry G. Pagoulatos and George G. Rezitis for cause. Messrs. Pagoulatos and Rezitis had been employed by us as chief operating officer and chief technology officer, respectively, of our DEM 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 DEM. While the malfeasance of Messrs. Harry G. Pagoulatos and George G. Rezitis giving rise to their for-cause termination adversely affected our results of operations for the second and third quarters, we do not expect that these terminations will result in any material, long-term change in the operations of DEM.

In July of 2018, Messrs. Pagoulatos and Rezitis, along with a third party who had been a minority owner in DEM prior to our acquisition of that company, filed a Complaint in the U.S. District Court, District of New Jersey (case number 2: l 8-cv-11357-ES-SCM) against our Company and our Chief Executive Officer, seeking compensatory and punitive damages and attorneys’ fees, among other items, and alleging, among other items, fraud and breach of contract. We vehemently deny all allegations in the complaint and believe them to be without merit. We filed a Motion to Dismiss this case for a multitude of reasons including, but not restricted to, failure to state a cause of action and jurisdictional and venue arguments as the acquisition and employment agreements provides that any dispute should be heard in either the state or local courts of Palm Beach County, Florida. This Motion to Dismiss has been pending a decision since October 2018. At the appropriate juncture, we also intend to serve a Rule 11 Motion for Sanctions based upon the fact that the Complaint contains frivolous arguments or arguments with no evidentiary support.

In connection with the DEM acquisition, the Company entered into three-year employment agreements with two former members of the entity. Under these agreements, the Company was obliged to pay base salaries of $65,000 and $70,000, respectively to the employees with an increase to $75,000 each in the second year of the agreement as well as bonuses to be paid at the discretion of the board of directors.

As discussed in Note 8, the principals of DEM failed to disclose an obligation at closing. During the six months ended June 30, 2019 the Company reached a settlement with the collections lawyer to pay down the amount remaining in collections through equal monthly payments through February 1, 2020.

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.

Other Commitments

On September 5, 2018 the Company entered into a Master Services Agreement with Kubient, Inc. pursuant to which it will provide its programmatic technology platform to us on a nonexclusive basis for the purpose of managing our programmatic business partners. The Company did not pay anything to Kubient, Inc. during the six months ended June 30, 2019 for its platform. The Company has provided advertising services to Kubient and at June 30, 2019 the Company is owed $46,000 and a note receivable of $75,000 and we have reserved a total of $121,000 against these balances. On September 28, 2018 Bright Mountain Media, Inc. entered into a non-binding letter of intent with Kubient, Inc. pursuant to which we may acquire Kubient, Inc. in an all stock transaction. The Company has completed the due diligence process and has made a determination that it will not pursue the acquisition of Kubient, Inc.

On September 6, 2017 Bright Mountain Media, Inc. entered into a five-year Consulting Agreement with the Spartan Capital Securities, LLC (“Spartan Capital”), which became effective on September 28, 2018 and, accordingly, Spartan Capital was engaged to provide advisory services. The consulting agreement calls for payments of $5,000 per month for a term of 60 months to be prepaid upon the effective date of the agreement. In addition, the Company issued Spartan Capital 1,000,000 shares of our common stock (the “Consulting Shares”) in accordance with the consulting agreement.

On September 6, 2017 we also entered into a five-year M&A Advisory Agreement with Spartan Capital which became effective on September 28, 2018 for sixty months. Under the terms of the agreement, Spartan Capital will provide consulting services to us related to potential mergers or acquisitions. As consideration for the M&A advisory service we paid Spartan Capital a fee of $500,000 on the effective date of the agreement. Consulting fees consisting of $300,000 in cash and 1,000,000 shares of common stock valued at $750,000 as well as the $500,000 M&A advisory fee are considered prepaid expenses. Total prepaid service/consulting fees, net were $1,472,500, of which $310,000 is considered short-term and is included in prepaid expenses and other current assets as of December 31, 2018. These prepaid expenses are being amortized over 60 months, the term of the respective agreements. The amortization expense was $77,500 and $155,000 for the three and six months ended June 30, 2019, respectively.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 10 – COMMITMENTS AND CONTINGENCIES (continued).

The Company granted the purchasers in the offering demand and piggy-back registration rights with respect to the shares of our common stock included in the Units and the shares of common stock issuable upon the exercise of the Private Placement Warrants. In addition, the Company agreed to file a resale registration statement within 120 days following the final closing of this offering covering the shares of common stock issuable upon the exercise of the Private Placement Warrants included in the Units. If the Company should fail to timely file this resale registration statement, then within five business days of the end of month we will pay the holders an amount in cash, as partial liquidated damages, equal to 2% of the aggregate purchase price paid by the holder for each 30 days, or portion thereof, until the earlier of the date the deficiency is cured or the expiration of six months from filing deadline. The Company will keep any such registration statement effective until the earlier of the date upon which all such securities may be sold without registration under Rule 144 promulgated under the Securities Act or the date which is six months after the expiration date of the Private Placement Warrants. We are obligated to pay all costs associated with this registration statement, other than selling expenses of the holders. On April 25, 2019 we filed the Registration Statement and included in accrued expenses $88,020 for the liquidated damages due at June 30, 2019.

On December 11, 2018 we entered into an Uplisting Advisory and Consulting Agreement with Spartan Capital pursuant to which Spartan Capital will provide (i) advice and input with respect to strategies to accomplish an uplisting of our common stock to the Nasdaq Capital Market or NYSE American LLC or another national securities exchange, and the implementation of such strategies and making introductions to facilitate the uplisting, (ii) advice and input with respect to special situation and restructuring services, including debtor and creditor advisory services, and (iii) sell-side advisory services with respect to the sale and disposition of non-core businesses and assets, including facilitating due diligence and identifying potential buyers and strategic partners and positioning these businesses and assets to maximize value. We paid Spartan Capital a fee of $200,000 for its services under this agreement which is for a 12-month term beginning on the closing date of the offering. The agreement also provides that we will reimburse Spartan Capital for reasonable out-of-pocket expenses, which we must approve in advance. The Company has included the uplisting fee in prepaid expense at June 30, 2019 and December 31, 2018 of $100,000 and $200,000, respectively and it is amortized over a twelve-month period. For the three and six months ended June 30, 2019 and 2018 the Company recognized $50,000 and $100,000 and $0 and $0, respectively.

On June 10, 2019 the Company, and its to-be-formed wholly-owned subsidiary BMTM2, a Florida corporation (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Inform, Inc., a Delaware corporation (“Inform”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Inform will merge with and into the Merger Sub with the Merger Sub as the surviving entity (the “Merger”). Upon consummation of the Merger, the Merger Sub will continue as a wholly-owned subsidiary of Bright Mountain Media and the Merger Sub will continue the operations of Inform pre-closing. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”) Bright Mountain will issue up to an aggregate of 25,000,000 shares of its common stock (the “Total Consideration Shares”) and warrants to purchase up to 5,000,000 shares of Bright Mountain common stock. The Merger Agreement contains customary representations and warranties from each party to the agreement, and each party has agreed to customary covenants, including, among others, covenants relating to (1) the conduct of Inform’s business during the interim period between the execution of the Merger Agreement and the closing of the Merger, (2) mutual continued access to information regarding the other entity’s operations, and (3) Bright Mountain’s and Inform’s obligations to use their reasonable best efforts to take all steps necessary to consummate the Merger.

NOTE 11 – 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 A-1 Convertible Preferred Stock (“Series A-1 Stock”), 10% Series E Convertible Preferred Stock (“Series E Stock”), and 12%, 10% and 6% Series F Convertible Preferred Stock (“Series F Stock”).

Dividends paid for Series E Convertible Preferred Stock paid during the three and six months ended June 30, 2019 and 2018 was $25,205 and $49,863 and $19,133 and $33,996, respectively. Dividends paid during for Series F Convertible Preferred Stock paid during the three months and six months ended June 30, 2019 and 2018 was $50,613 and $100,126 and $0 and $0, respectively.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 11 – EQUITY (continued).

Common Stock

Between January 2019 and June 2019, the Company sold an aggregate of 163,750 units of its securities to 1 accredited investor in a private placement exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D resulting in gross proceeds to the Company of $58,950. Each unit, which was sold at a purchase price of $0.40, consisted of one share of common stock and one five-year warrant to purchase one share of common stock at an exercise price of $0.65 per share. Spartan Capital, served as placement agent for the Company in this offering. As compensation for its services, the Company paid Spartan Capital commissions and other fees totaling $6,550, and issued Spartan Capital Placement Agents Warrants to purchase an aggregate of 16,375 shares of our common stock, including the cash commission and Placement Agent Warrants issued pursuant to the final closing on January 9, 2019 included in the Company’s consolidated statement of changes in shareholders’ equity for the six months ended June 30, 2019.

Between January 2019 and June 2019, the Company sold an aggregate of 2,319,500 units of its securities to 20 accredited investors in two private placements exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D resulting in gross proceeds to the Company of $1,120,250. A total of 1,270,000 units were sold under the first private placement dated February 14, 2019 at a purchase price of $0.50 per share resulting in gross proceeds of $635,000. Each unit was sold at a purchase price of $0.50, and consisted of one share of common stock and one five-year warrant to purchase one share of common stock at an exercise price of $0.75 per share.  On April 22, 2019 the Company amended the private placement to include a second warrant to purchase one share of common stock at an exercise price of $1.00 per share. 970,500 units were sold at a purchase price of $0.50 per unit resulting in gross proceeds of $485,250.  We used $1,008,225 of the proceeds to issue 6% promissory notes to Inform, Inc as a part of the potential acquisition.  On July 15, 2019 these two offerings were terminated and replaced with a private placement offering units at a purchase price of $0.50 consisting of one share of common stock, one five-year warrant to purchase one share of common stock at an exercise price of $0.75 per share, and a second warrant to purchase one share of common stock at an exercise price of $1.00 per share. The investors in the first offering dated February 14, 2019 were required to subscribe for the second warrant offered in the April 22, 2019 amendment in a private placement dated July 11, 2019 which terminated on July 31, 2019 with no ability to extend.

Between February 2019 and June 2019, the Company sold an aggregate of 750,000 units of its securities to 3 accredited investors in a private placement exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D resulting in gross proceeds to the Company of $300,000. 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.

During the period January 2018 to June 2018, warrants to purchase an aggregate of 482,500 of the Company’s common stock were valued at $195,808. The Company initially 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 shareholder’s equity for the period ended June 30, 2018.

Stock Option Compensation

The Company accounts for stock option compensation issued to employees for services in accordance with ASC Topic 718, “Compensation – Stock Compensation”. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. The value of the portion of an employee award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU No. 2018- 07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.”. The Company estimates the fair value of stock options by using the Black-Scholes option-pricing model.

Stock options issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option, whichever is more reliably measurable in accordance with FASB ASC 505, Equity, and FASB ASC 718, including related amendments and interpretations. The related expense is recognized over the period the services are provided.

The Company recorded $9,898 and $6,864 of stock option expense for the three months ended June 30, 2019 and 2018 respectively. The Company recorded $13,111 and $14,208 of stock option expense for the six months ended June 30, 2019 and 2018 respectively. The stock option expense for the three months ended June 30, 2019 and 2018, respectively has been recognized as a component of general and administrative expenses in the accompanying consolidated financial statements.

As of June 30, 2019, there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $8,465 to be recognized through December 2020.

A summary of the Company’s stock option activity during the six months ended June 30, 2019 is presented below:

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 11 – EQUITY (continued).

Summarized information with respect to options outstanding under the two option plans at June 30, 2019 is as follows:

NOTE 12 – RELATED PARTIES.

During November 2018, Mr. W. Kip Speyer, the Company’s Chairman and Chief Executive Officer, entered into two convertible note agreements with the company totaling $80,000. These notes have a conversion price of $0.40 per share and resulted in the recognition of a beneficial conversion feature recorded as a debt discount. These notes payable total $15,140 and $11,688 at June 30, 2019 and December 31, 2018. The notes are reported net of their unamortized debt discount of $64,860 and $68,312 as of June 30, 2019 and December 31, 2018, respectively.

During the six months ended June 30, 2019 and 2018 we paid cash dividends on the outstanding shares of the Company’s Series E and F Preferred Stock of $149,989 and $33,996, respectively held by affiliates of the company.

NOTE 13 – NOTES RECEIVABLE.

In March 2019 we sold the assets which were used in our Black Helmet apparel E-Commerce business to an unaffiliated third party for $175,000, of which $20,000 was paid at closing and the balance is payable under the terms of a promissory note in the principal amount of $155,000 and bearing interest at 8% per annum. The note is secured by a guarantee of the principal of the purchaser. The term of the note is twelve months.

As of June 30, 2019 the Company has a total of $1,008,225 in Notes Receivable from Inform, Inc., a potential acquisition. The notes bear interest at 6% and mature on August 30, 2019. The Company is in negotiations with Inform, Inc. regarding the extension of the maturity date. The Company funded these notes though a Private Placement memorandum placement exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D. There is more information regarding these notes in Note 11.

A $75,000 note was issued to Kubient, Inc. during 2018 as a part of an acquisition which the Company withdrew from. The note has been defaulted on and has been sent to our collection agent, and as a result the Company has recorded a reserve of $56,250 on the note.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

(Unaudited)

NOTE 14 – SUBSEQUENT EVENTS.

On July 1, 2019, the Company hired a new Chief Financial Officer. In addition to the salary for the individual, the officer was granted 100,000 stock options vesting over a four year period.

Between January 2019 and June 2019, the Company sold an aggregate of 2,240,500 units of its securities to 20 accredited investors in two private placements exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D resulting in gross proceeds to the Company of $1,120,250. A total of 1,270,000 units were sold under the first private placement dated February 14, 2019 at a purchase price of $0.50 per share resulting in gross proceeds of $635,000. Each unit was sold at a purchase price of $0.50, and consisted of one share of common stock and one five-year warrant to purchase one share of common stock at an exercise price of $0.75 per share.  On April 22, 2019 the Company amended the private placement to include a second warrant to purchase one share of common stock at an exercise price of $1.00 per share. 970,500 units were sold at a purchase price of $0.50 per unit resulting in gross proceeds of $970,500.  We used $1,008,225 of the proceeds to issue 6% promissory notes to Inform, Inc as a part of the potential acquisition.  On July 15, 2019 these two offerings were terminated and replaced with a private placement offering units at a purchase price of $0.50 consisting of one share of common stock, one five-year warrant to purchase one share of common stock at an exercise price of $0.75 per share, and a second warrant to purchase one share of common stock at an exercise price of $1.00 per share.  The investors in the first offering dated February 14, 2019 were required to subscribe for the second warrant offered in the April 22, 2019 amendment in a private placement dated July 11, 2019 which terminated on July 31, 2019 with no ability to extend.

On July 15, 2019, as disclosed in Note 11, the two private placement offerings were terminated and replaced with a private placement offering units at a purchase price of $0.50 consisting of one share of common stock, one five-year warrant to purchase one share of common stock at an exercise price of $0.75 per share, and a second warrant to purchase one share of common stock at an exercise price of $1.00 per share. The investors in the first offering dated February 14, 2019 were required to subscribe for the second warrant offered in the April 22, 2019 amendment in a private placement dated July 11, 2019 which terminated on July 31, 2019 with no ability to extend. 

On July 31, 2019, the Company executed a Share Exchange Agreement and Plan of Merger (the “Merger Agreement”) with Slutzky & Winshman Ltd., an Israeli company (“S&W”) and the shareholders of S&W (the “Shareholders”). The Merger Agreement closed on August 15, 2019, and we acquired all of the outstanding shares of S&W (the “S&W Shares”) from the Shareholders in exchange for (i) an aggregate of 13,000,000 shares of our common stock (the “Consideration Shares”), and (ii) promissory notes (the “Notes”) in the aggregate principal amount of $750,000 (collectively, the “Purchase Price”). We also issued an aggregate of 60,000 shares of our common stock to the employees of S&W as compensation. At Closing, on August 15, 2019, the S&W Shares and the Consideration Shares were placed in escrow with a third-party escrow agent pending the Effective Time of the Merger (as hereinafter described). As required under Israeli law, following the Closing and upon receipt of regulatory approvals, including receipt of a merger certificate from the Israeli Companies Registrar and the expiration or termination of any waiting period under Israeli law; and assuming there are no statutes, judgments, injunctions orders or decrees prohibiting consummation of the transactions contemplated under the Merger Agreement (the “Effective Time”), the Merger Sub will merge with and into S&W with S&W as the surviving entity (the “Merger”).

As disclosed in Note 10, On June 10, 2019 the Company, and its to-be-formed wholly-owned subsidiary BMTM2, a Florida corporation (the “Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Inform, Inc., a Delaware corporation (“Inform”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Inform will merge with and into the Merger Sub with the Merger Sub as the surviving entity (the “Merger”). Upon consummation of the Merger, the Merger Sub will continue as a wholly-owned subsidiary of Bright Mountain Media and the Merger Sub will continue the operations of Inform pre-closing.

Subsequent to June 30, 2019, the Company has continued to sell 165,000 units of its securities to accredited investors in a private placement exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D resulting in gross proceeds to the Company of $82,500. Each unit, which was sold at a purchase price of $0.50, consisted of one share of common stock and two five-year warrant to purchase one share of common stock at an exercise price of $0.75 per share and one share of common stock at an exercise price of $1.00 per share. We used $74,250 of the proceeds to issue 6% promissory notes to Inform, Inc as a part of the potential acquisition.

On July 31, 2019, Bright Mountain Media, Inc. entered into two agreements with Spartan Capital Securities, LLC, a broker-dealer and member of FINRA (“Spartan Capital”). The agreements include an amendment and restatement of the five year M&A Advisory Agreement and an amendment to the Finder’s Agreement with Spartan Capital which were effective on September 28, 2018 and November 30, respectively. Under the terms of the amended and restated M&A agreement will become effective following the date when the Company receives a minimum of $1.5 million proceeds from a private placement of our securities, net of all commissions and expenses which may be payable to Spartan Capital. The term was extended to expire 60 months from the effective date and provides for an additional $250,000 of compensation to Spartan. The Finder’s Agreement Amendment, which will become effective following the satisfaction of the Financing Contingency, provides for the following additional compensation to Spartan Capital: a cash fee of $190,000 and 650,000 shares of our common stock (the “Finder’s Shares”), other than the Finder’s Shares, with such shares to be valued at the volume weighted average price of the common stock on the principal exchange or market on which our common stock is traded for the 10 trading days preceding the closing.

On August 1, 2019 the Company filed an Articles of Amendment to its Articles of Incorporation which returned 2,000,000 shares of previously designated 10% Series A Convertible Preferred Stock to the status of authorized but undesignated and unissued shares of our blank check preferred stock as there were no shares of this series outstanding and no intention to issue any such shares in the future and created a new series of preferred stock, 10% Series A-1 Convertible Preferred Stock (“Series A-1 Preferred”), consisting of 2,000,000 shares. The Series A-1 Preferred has a stated value of $0.50 per share and ranks senior to all other classes of the Company’s securities, will be entitled to a 10% cash dividend payable monthly in arrears, and are convertible into shares of our common stock on a one for one basis at the option of the holder, subject to automatic conversion by us upon either the five year anniversary of the date of issuance or in the event of a change of control of our company as defined in the designations. Additionally, the Company returned all of the previously designated Series B, Series C, and Series D Convertible Preferred Stock to the status of authorized but undesignated and unissued shares.

During the period from July 1, 2019 through August 9, 2019 Mr. W. Kip Speyer, an executive officer and member of our board of directors, purchased an aggregate of 200,000 shares of Series A-1 Preferred at a purchase price of $0.50 per share. Refer to the paragraph above for a description of the Series A-1 Preferred. The Company used the proceeds from these sales for working capital.

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, 2019 and 2018 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 later in this report under Part II, Item 1A. in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission on April 12, 2019 (the “2018 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 nine months ended June 30, 2019 and 2018 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, 2018 is derived from our audited consolidated financial statements appearing in the 2018 10-K.

Executive Overview of Second Quarter 2019 Results

Our key user metrics and financial results for the second quarter of 2019, both for the three and six months ended June 30, 2019, which include certain charges related to our financing with Spartan Capital, are more fully discussed and described on page 31 and should be read in context with the disclosure on this page. The second quarter results are as follows:

User metrics:

Second quarter 2019 financial results:

Overview

Bright Mountain Media is a digital media holding company for online publications, advertising services and software primarily focused on serving large audience segments as well as brands trying to reach them. We do this by connecting advertisers and brands with consumers through a full suite of advertising services that incorporates an ad network, multiple real-time biding platforms and 24 websites (owned and managed) that provide content, services and products. Bright Mountain Media’s owned and managed websites primarily provide content and services to US military and veteran audiences, as well as first responders and their families. We have also recently begun expanding our footprint to provide advertising services to audiences and advertisers globally.

We generate revenue sales of advertising services which generate revenue from advertisements (ad impressions) placed on our owned and managed sites, as well as from advertisements we place on partner websites, for which we earn a share of the revenue. We also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers, often called DSPs (Demand Side Platforms) and sellers, often called SSPs (Supply Side Platforms).

When fully developed Bright Mountain’s full suite of advertising solutions will include:

This Bright Mountain Media full services advertising solution will be a marketplace for publishers and advertisers where they will be able to login and choose from various features to maximize their earning potential. Advertisers will be able to set their budget and choose where their ads will be seen using our filters or by connection directly with publishers through our platform. Publishers will be able to select a variety of ad units for their video, mobile, display and native advertisements and have the ability to create their own unique ad formats.

As mentioned above, in addition to our niche market of US military and public safety sectors, we intend to broaden the scope of our partner publishers and publisher networks to include global audience segments across connected television, mobile devices, tablets and desktop computers.

Key initiatives

Our growth strategy is based upon:

Key metrics

In addition, during the three months ended June 30, 2019 we experienced approximately 1,163,000,000 as impressions delivered as compared to 336,000,000 for the same three month period in 2018, an increase of 246%.

Results of operations

Cost of Revenue and Gross Profit Margins

Our advertising revenue for the second quarter of 2019 was 85% higher than the comparable period in 2018 due to the increased activity with our existing customers and the acquisition of a significant key customer during the fourth quarter of 2018.

We incur costs of sales associated with the advertising revenue. These costs include revenue share payments to media providers and website publishers.

The gross profit margin decreased in the second quarter of 2019 due to increased platform fees.

Selling, General and Administrative Expenses

The components of selling, general and administration expense decreases are attributable to changes during 2019 including reductions in rent resulting from downsizing the office space and the closure offsite warehouse and retail locations. Along with the closure of the locations, the company reduced payroll associated with the locations. The Company also reduced its reliance on consultants in favor of in-house resources.

Selling, general and administrative expenses are expected to increase as we execute our planned growth strategy of launching and operating the Bright Mountain Media ad exchange network which will include additional administrative support. Subject to the availability of additional working capital, the Company also intends to add administrative staff to its accounting department to improve controls over its accounting and reporting processes. As the Company expands the size of the accounting department, the use of consultants is expected to decrease.

Total other income (expense)

Total other income (expense) for the six months ended June 30, 2019 and 2018 of $133,039 and $(225,694), respectively, primarily reflects a $122,500 extinguishment of the publisher payments liability. Interest expense related party and non-related party debt declined during the first quarter of 2019 due to the November 2018 exchange of the related party notes payable for preferred stock and repayment of debt.

Discontinued Operations

The Company discontinued its E-commerce business in the fourth quarter of 2018. The loss on discontinued operations was $187,670 and $37,188 for the six months ended June 30, 2019 and 2018, respectively. Revenues significantly declined during the period, from $694,051 in 2018 to $94,282 for the same period in 2019, gross profit margins declined from $163,533 in 2018 to $43,060 for the same period in 2019. Selling, general and administrative expenses increased from $200,734 in 2018 to $230,730 for the six months ended June 30, 2019. Expenses increased as the Company exited the business and closed operations.

Non-GAAP financial measure

We report adjusted net (loss) to measure our overall results because we believe it better reflects our net results by excluding the impact of non-cash equity-based compensation. We use Adjusted EBITDA to measure our operations by excluding interest and certain additional non-cash expenses. These measures are one of the primary metrics by which we evaluate the performance of our business, on which our internal budgets are based. We believe the presentation of adjusted net (loss) and Adjusted EBITDA enhances our investors’ overall understanding of the financial performance of our business.

We believe that investors should have access to the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP results.

We believe these measures are useful for analysts and investors as the measures allows a more meaningful year-to-year comparison of our performance. The items below are excluded from the Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income/loss generated from our business. Adjusted EBITDA has certain limitations in that it does not consider the impact to our statement of operations of certain expenses.

Non-GAAP financial measure (continued)

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