Bright Mountain Media, Inc. - Quarter Report: 2020 March (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 June 29, 2020 there were 107,757,860 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, 2019, as filed with the Securities and Exchange Commission on May 14, 2020 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, “first quarter of 2020” refers to the three months ended March 31, 2020, “first quarter of 2019” refers to the three months ended March 31, 2019, “2020” refers to the year ending December 31, 2020 and “2019” refers to the year ended December 31, 2019. 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

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 Three Months Ended March 31, 2020 and 2019

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

March 31, 2020

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

March 31, 2020

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(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, was formed as a Florida limited liability company in May 2011. Its wholly owned subsidiary, Bright Mountain, LLC (“BMLLC”) F/K/A Daily Engage Media Group, LLC (“DEM”) was formed as a New Jersey limited liability company in February 2015. In August 2019 Bright Mountain Israel Acquisition, an Israeli company was formed and acquired the wholly owned subsidiary Slutzky & Winshman Ltd. (“S&W”) which then changed its name to Oceanside Media, see Note 4. Further, on November 18, 2019, Bright Mountain Media, Inc., through its wholly owned subsidiary BMTM2, Inc., a Florida corporation, merged with News Distribution Network, Inc., a Delaware company, which then changed its name to MediaHouse, Inc. 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 5.

Continuing Operations

Bright Mountain Media, Inc. is an end-to-end digital media and advertising services platform, connecting brands with targeted consumer demographics. Bright Mountain Media connects brands with targeted consumer demographics while maximizing revenue to publishers. Bright Mountain Media’s assets include the Bright Mountain, LLC ad network, MediaHouse (f/k/a NDN), Oceanside (f/k/a S&W Media), Wild Sky Media and 24 owned and/or managed websites.

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).

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 platform connects general advertisers with over 1,000 digital publications worldwide. Bright Mountain’s platform features timely, proprietary, and aggregated content covering current events and a variety of subjects that are targeted to specific demographics of the individual website. Our business strategy requires us to continue to provide this quality content to our markets as we grow our business, operations, and revenues.

On August 15, 2019, under the terms of the Share Exchange Agreement and Plan of Merger with S&W and its members, the Company acquired 100% of the membership interests of S&W. Launched in 2015. S&W provided digital performance-based marketing services to customers which include primarily advertisers and advertising agencies that promote or sell products and/or services to consumers through digital media.

On November 18, 2019, under the terms of the Share Exchange Agreement and Plan of Merger with NDN and its shareholders, the Company acquired 100% of the ownership interests of NDN. Launched in 2019 as a spin-off from Inform, Inc. NDN which was rebranded as MediaHouse partners with content producers and online news market websites to distribute video and banner advertisements throughout the United States of America.

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 of $3,459,020 and used net cash in operating activities of $1,369,272 for the three months ended March 31, 2020. The Company had an accumulated deficit of $23,904,009 at March 31, 2020. 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

March 31, 2020

(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 months ended March 31, 2020 and 2019 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, 2019 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, 2019, as filed with the SEC on May 14, 2020. 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 website visitors view or click 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

March 31, 2020

(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 $235,000. In connection with the acquisition of S&W in August 2019 a ROU asset and lease liability of approximately $353,000 was recognized on the consolidated balance sheet.

Use of Estimates

Our consolidated financial statements are prepared in accordance with US 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 US 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

March 31, 2020

(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 three months ended March 31, 2020, using significant unobservable inputs (Level 3):

Fair Value measurement using Level 3

Off balance sheet arrangements

Notes Payable and related potential liabilities are excluded from the balance sheet when there are significant uncertainties associated with the likelihood that the liabilities will be paid in full or until such time that the amount of the liability can be reasonably determined or estimated.

Due to uncertainties associated with certain Notes Payable resulting from the acquisition of S&W, see Note 4, the Company has not included the value of those Notes Payable within the purchase price and/or related assets acquired in the acquisition. These off-balance sheet arrangements are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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 30 or net 60 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made. As of March 31, 2020 and December 31, 2019, the Company has recorded an allowance for doubtful accounts of $472,986 and $505,401, respectively.

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 three - five years for office furniture and fixtures, and three 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

March 31, 2020

(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 months ended March 31, 2020 and 2019, $0 and $8,000 was capitalized for the purchase of a Facebook page, respectively.

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 March 31, 2020 and 2019, non-cash stock-based stock option compensation expense was $36,595 and $3,213, 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 March 31, 2020 and 2019, advertising, marketing and promotion expense was $11,856 and $6,000, respectively for continuing operations and $0 and $6,002 for discontinued operations, respectively.

Foreign currency translation

Assets and liabilities of the Company’s Israeli subsidiary are translated from Israeli shekels to United States dollars at exchange rates in effect at the balance sheet date. Income and expenses are translated at the exchange rates for the weighted average rates for the period. The translation adjustments for the reporting period will be included in our statements of comprehensive income. Based on the timing of the acquisition of the Israeli subsidiary, see Note 4, the impact of the currency exchange is immaterial for the three months ended March 31, 2020.

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

March 31, 2020

(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 March 31, 2020, tax years 2019, 2018, and 2017 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 Ad Exchange Networks and through our Owned and Operated Ad Exchange Network. There were two large customers which account for approximately 10.9% and 10.3% of the Ad Exchange Network Revenue for the three months ended March 31, 2020. None of the customers accounted for accounts receivable in excess of 10% at March 31, 2020. There is one large vendor who is owed approximately 12% of the accounts payable due.

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 March 31, 2020 and December 31, 2019, the Company had approximately $250,000 and $0, respectively, in cash balances above the FDIC insured limit. The Company performs ongoing evaluations of its trade accounts receivable customers and generally does not require collateral.

Concentration of Funding

During the three months ended March 31, 2020 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 March 31, 2020 and 2019, there were 2,017,727 and 1,797,000 common stock equivalent shares outstanding as stock options, respectively; 27,726,170 and 16,319,875 common stock equivalent shares outstanding from warrants to purchase common shares, respectively, 8,044,017 and 6,844,017 common stock equivalents from the conversion of preferred stock, respectively; and 80,000 and 0 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 and subscription revenue generated by the sale of access to career postings on one of our websites.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(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. The adoption of this guidance did not have an impact on the 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. The adoption of this guidance did not have an impact on the 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. The adoption of this guidance did not have an impact on our consolidated Financial Statements.

NOTE 4 – ACQUISITIONS

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 closed on August 15, 2019, and we acquired all of the outstanding shares of S&W. Subsequent to the transaction, the company was renamed and rebranded as Oceanside Media. Pursuant to the terms of the Merger Agreement, we issued 12,130,799 shares valued at $19,409,278 to owners and employees of Oceanside Media, contingent consideration of $750,000 paid through the delivery of unsecured, interest free, one and two year promissory notes (the “Closing Notes”), and 223,841 restricted stock units held in escrow for future vested stock options valued at $185,722. As of March 31, 2020, we are unable to quantify the likelihood of determining if the objectives will be met for payment of the first closing note.

Effective upon the Closing, we agreed to pay Spartan Capital Securities (“Spartan Capital”) a broker-dealer and member of FINRA a finder’s fee equal to issue 650,000 shares of our common stock valued at $1,040,000 and $650,000 cash. The shares were issued in February 2020 and the $165,000 was paid in March 2020. The amounts due were included in the accrued expenses as of December 31, 2019.

In accordance with ASC 805 “Business Combinations” the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. As further discussed in Note 15, the Company recognized a deferred tax liability associated with the intangible assets acquired.

The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition as follows:

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 4 – ACQUISITIONS (continued).  

The table below summarizes the value of the total consideration given in the transaction:

On November 18, 2019, the Company executed a Merger Agreement which merged Bright Mountain Media, Inc., a Florida corporation (“Bright Mountain Media”), through its wholly-owned subsidiary BMTM2, Inc., a Florida corporation with News Distribution Network, Inc. a Delaware Company (“NDN”). The subsidiary then changed its name to MediaHouse. Bright Mountain agreed to issue 22,180,761 shares of its common stock. Each share of NDN’s outstanding Series A-1 Preferred Stock and common stock, were cancelled and extinguished and converted into the right to receive shares of Bright Mountain’s common stock based upon a paid-in capital basis, and subject to a $1.75 conversion price of our common stock. For every $1.75 of paid-in capital by an NDN stockholder, the NDN stockholder received one share of Bright Mountain common stock. Moreover, All NDN warrants and options outstanding at the Effective Time of the Merger Agreement terminated and were cancelled unless exercised prior to the Effective Time of the Merger Agreement.

As it pertains to outstanding promissory notes and other obligations payable to NDN, Bridge notes in the current principal amount of $776,000 were convert into shares of Bright Mountain’s common stock at a conversion price of $0.50 per share, with one common stock warrant exercisable at $0.75 per share and one common stock warrant exercisable at $1.00 per share issued for each conversion share. The principal of the bridge notes was converted into shares of Bright Mountain’s common stock at a conversion price of $1.75 per share, and all accrued but unpaid interest were forgiven by the noteholders. Also of note is the open line of credit of approximately $660,000 due Mr. Greg Peters, NDN’s Chief Executive Officer, was converted into shares of Bright Mountain’s common stock at a conversion price of $0.50 per share, with one common stock warrant exercisable at $.75 per share and one common stock warrant exercisable at $1.00 per share issued for each conversion share.

The Total Consideration Shares are subject to lock up restrictions on resale as determined by Bright Mountain and 25% percent of the Total Consideration Shares were placed in escrow to satisfy certain obligations including, but not limited to, (i) the delivery of NDN audited financial statements, (ii) NDN having accounts receivable of at least $1,100,000 and (iii) certain NDN liabilities not to exceed $4,000,000. Effective upon the Closing, we agreed to pay Spartan Capital Securities LLC (“Spartan Capital”) a broker-dealer and member of FINRA a finder’s fee equal to issue 660,000 shares of our common stock valued at $1,082,400. The shares were issued in February 2020. The value of the shares were included in the accrued expenses as of December 31, 2019.

In accordance with ASC 805 “Business Combinations” the measurement period for the acquisition is for one year during which the Company may re-evaluate the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date. As discussed further in Note 15, the Company recognized a deferred tax liability associated with the intangible assets acquired.

The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition as follows:

The table below summarizes the value of the total consideration given in the transaction:

The following table sets forth a summary of the unaudited pro forma results of the Company as if the acquisitions of S&W and NDN, which was closed in August 2019 and November 2019, respectively, had taken place on the first day of the 2019. 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 period presented.

NOTE 5 – 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 Mountain 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 Mountain 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 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

March 31, 2020

(Unaudited)

NOTE 5 – 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.

During the quarter ended March 31, 2020, the Company settled the discontinued assets and liabilities and assumed the remaining cash. The detail of the consolidated balance sheet, the consolidated statement of operations and consolidated cash flow for the discontinued operations is as stated below:

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 6 – PREPAID COSTS AND EXPENSES.

At March 31, 2020 and December 31, 2019, prepaid expenses and other current assets consisted of the following:

NOTE 7 – PROPERTY AND EQUIPMENT.

At March 31, 2020 and December 31, 2019, property and equipment consisted of the following:

Depreciation expense for the three months ending March 31, 2020 and 2019, was $5,253 and $2,352, respectively.

NOTE 8 – WEBSITE ACQUISITION AND INTANGIBLE ASSETS.

At March 31, 2020 and December 31, 2019, respectively, website acquisitions, net consisted of the following:

At March 31, 2020 and December 31, 2019, respectively, intangible assets, net consisted of the following:

Amortization expense for the three months ended March 31, 2020 and 2019 was $952,622 and $35,813, respectively, related to both the website acquisition costs and the intangible assets.

During 2019, the Company rebranded Daily Engage to Bright Mountain and wrote off the $32,000 tradename asset of Daily Engage.

During 2019, the Company acquired S&W in which finite lived intangible assets of $4,655,700 and Goodwill of $15,666,783 were recognized, see Note 4.

During 2019, the Company acquired NDN in which finite lived intangible assets of $15,380,700 and Goodwill of $36,991,147 were recognized, see Note 4.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 9 – ACCRUED EXPENSES.

At March 31, 2020 and December 31, 2019, respectively, accrued expenses consisted of the following:

The accrued consulting fees on December 31, 2019 included $2,122,400 representing cash due of $165,000 and common stock of 650,000 and 660,000 shares to be issued to Spartan Capital Securities, LLC in the acquisition of S&W and MediaHouse, respectively. This liability including the share issuance and cash payment was settled during the three months ended March 31, 2020.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 10 – NOTES PAYABLE

Long-term debt to related parties

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 and $80,000 at March 31, 2020 and December 31, 2019, respectively and discounts recognized upon respective origination dates as a result of the beneficial conversion feature total $50,821 and $54,311. At March 31, 2020 and December 31, 2019, the total convertible notes payable to related party net of discounts was $29,179 and $25,689, respectively.

Interest expense for note payable to related party was $2,023 and $2,749 at March 31, 2020 and March 31, 2019, respectively and discount amortization was $3,490 and $3,452, respectively.

Long-term debt

In connection with the acquisition of BMLLC, 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 March 31, 2020 and December 31, 2019 were $165,163 and $165,163, respectively. This note was not paid off by the maturity date due to pending litigation. See further discussion in Note 11, under Legal.

At March 31, 2020 and December 31, 2019 a summary of the Company’s debt is as follows:

The minimum annual principal payments of notes payable at March 31, 2020 were:

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 2020 and 2019 of $194,592 and $179,844, respectively.

Total Premium Finance Loan Payable balance for the Company’s policies was $125,453 at March 31, 2020 and $179,844 at December 31, 2019.

NOTE 11 – 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. Rent is all-inclusive and includes electricity, heat, air-conditioning, and water.

The Company leases office space in Hertsliya, Israel under a long-term non-cancellable operating lease agreement expiring on December 18, 2021. The lease terms require base rent payments of approximately $10,896. Included in other assets is a required security deposit of $58,651.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 11 – COMMITMENTS AND CONTINGENCIES (continued).

The right of use asset and lease liability is as follows as of March 31, 2020 and December 31, 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 months ended March 31, 2020.

The maturity of the Company’s operating lease liability for the 12 months ended March 31:

The following summarizes additional information related to the operating lease:

For the three months ended March 31, 2020 and 2019, rent expense in continuing operations was $160,631 and $29,409, respectively. For the three months ended March 31, 2020 and 2019, rent expense included in discontinued operations was $0 and $37,042, respectively.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 11 – 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. The parties also agreed to settle all claims through the exchange of shares from Messrs. Harry G. Pagoulatos and George G. Rezitis for payment of $165,163. The payment for the shares will be made as Messrs. Harry G. Pagoulatos and George G. Rezitis shares are resold by the Company.

In connection with the BMLLC 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.

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 has not paid anything to Kubient, Inc. for the three months ended March 31, 2020 for its platform. The Company has ceased advertising services with Kubient and at March 31, 2020 the Company is owed $125,387 and a note receivable of $75,000 plus interest, and we have reserved a total of $136,000 against these balances.

On September 6, 2017 Bright Mountain Media, Inc. entered into a five-year Consulting Agreement with the Spartan Capital Securities, LLC (“Spartan Capital”), a broker-dealer and member of FINRA, which under its terms would not become effective until the closing of the private placement in which Spartan Capital served as placement agent as described below. The Consulting Agreement became effective on September 28, 2018 and, accordingly, Spartan Capital was engaged to provide advisory services including, but not limited to advice and input with respect to raising capital, assisting us with strategic introductions, and assisting management with enhancing corporate and shareholder value.

On September 6, 2017 we also entered into a five-year M&A Advisory Agreement with Spartan Capital which became effective on September 28, 2018 upon completion of the private placement for sixty months. Under the terms of the agreement, Spartan Capital will provide consulting services to us related to potential mergers or acquisitions, including candidates, valuations and transaction terms and structures.

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, were $1,035,000, of which $260,000 is considered short-term and is included in prepaid expenses and other current assets as of March 31, 2020. These prepaid expenses are being amortized over 60 months, the term of the respective agreements. The amortization expense was $77,500 and $77,500 for the three months ended March 31, 2020 and 2019, respectively.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 11 – COMMITMENTS AND CONTINGENCIES (continued).

For the 36 months from the final closing of this private placement, Spartan Capital has certain rights of first refusal if we decide to undertake a future private or public offering or if we decide to engage an investment banking firm.

The Company granted the purchasers in the offering demand and piggy-back registration rights with respect to the 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 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.

In conjunction with the intent to facilitate the uplisting, the Company agreed to compensate the law firm engaged for this service $70,000 to be paid in common stock upon the successful outcome of the uplisting. The fees associated with this service are considered a cost of the uplisting and will be considered part of the expenses associated with the transaction at such time.

The Company entered into an Executive Employment Agreement with our Chief Executive Officer, with an effective date of June 1, 2014. Under the terms of this agreement, the Company will compensate the Chief Executive Officer with a base salary of $75,000 annually, and he is entitled to receive discretionary bonuses as may be awarded by the Company’s board of directors from time to time. The initial term of the agreement is three years, and the Company may extend it for an additional one-year period upon written notice at least 180 days prior to the expiration of the term. The Company amended this agreement April 1, 2017 for an additional term of three years. The Chief Executive Officer’s base annual salary was increased to $165,000 upon recommendation of the Compensation Committee of the board of directors. The employment agreement contains customary non-compete and confidentiality provisions. The Company also agreed to indemnify the Chief Executive Officer pursuant to the provisions of the Company’s Amended and Restated Articles of Incorporation and Amended and Restated By-laws.

On March 25, 2020, the Board approved a new Employment Agreement with W. Kip Speyer, the Company’s Chairman and Chief Executive Officer. The Employment Agreement is to take effect on April 1, 2020. The Employment Agreement has a 3 year-term and will automatically renew for one-year periods unless either party notifies the other party, in writing, at least 90 days prior to the end of the Employment Period or the Renewal Period that the Agreement will not be renewed. The Company will pay Mr. Speyer an annual base salary of $325,000. Mr. Speyer may also receive an annual bonus in an amount to be determined by the Company’s Compensation Committee in their sole discretion. Mr. Speyer is entitled to participate in the Company benefit programs and he is entitled to reimbursement of out-of-pocket business expenses, including a monthly automobile allowance of $800. In the event that Mr. Speyer is terminated by the Company without cause, the Company will continue to pay his base salary in accordance with normal payroll practices through the end of his Employment Period, without renewal.

On March 25, 2020, the Board approved a new Employment Agreement with Greg Peters the Company’s President and Chief Operating Officer. The Employment Agreement is to take effect on April 1, 2020. The Employment Agreement has a year-term and will automatically renew for a one-year period unless either party notifies the other party, in writing, at least 90 days prior to the end of the Employment Period or the Renewal Period that the Agreement will not be renewed. The Company will pay Mr. Peters an annual base salary of $325,000. Mr. Peters may also receive an annual bonus in an amount to be determined by the Company’s Compensation Committee in their sole discretion. Mr. Peters is entitled to participate in the Company benefit programs and he is entitled to reimbursement of out-of-pocket business expenses, including reimbursement for mileage used during Company business in the automobile he owns or leases. In the event that Mr. Peters is terminated by the Company without cause, the Company will continue to pay his base salary in accordance with normal payroll practices through the end of his Employment Period, without renewal.

Our financial performance and operating results may be materially and adversely affected by the outbreak of the novel coronavirus (“COVID-19”). The recent global outbreak of COVID-19 has had an unfavorable impact on our business operations. The COVID-19 pandemic has caused disruptions in the services we provide. In addition, the COVID-19 pandemic has resulted in many states and countries imposing orders resulting in the closure of non-essential businesses – including many companies which advertise digitally. We cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of its impact on our business and our financial results. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations, financial condition, and liquidity may be materially and adversely affected as a result of prolonged disruptions in consumer spending, a lack of demand for our services, and other factors that we cannot foresee. The extent to which COVID-19 will impact our business and our financial results will depend on future developments which are highly uncertain and cannot be predicted.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 12 – 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-1 Convertible Preferred Stock (“Series A-1 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”).

On November 20, 2019 we filed Articles of Amendment to our Amended and Restated Articles of Incorporation, as amended, which returned 2,000,000 shares of previously designated 10% Series B Convertible Preferred Stock, 2,000,000 shares of previously designated 10% Series C Convertible Preferred Stock and 2,000,000 shares of previously designated 10% Series D Convertible Preferred Stock to the status of authorized but undesignated and unissued shares of our blank check preferred stock as there were no shares of any of these series outstanding and no intention to issue any such shares in the future. The returned series were replaced by 6,000,000 shares of 5% Series B-1 Convertible Preferred Stock.

At March 31, 2020, there were 1,200,000 shares of Series A-1 Stock and 2,500,000 shares of Series E Stock and 4,344,017 shares of Series F Stock issued and outstanding. There are no shares of Series B-1 Stock issued and outstanding

The Series A-1 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-1 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-1 Stock, payable annually the 10th business day of January. The shares of Series A-1 Stock are redeemable at the Company’s option upon 20 days’ notice for an amount equal to the amount of capital invested. On the 10th business day of January 2018 there were 10,000 shares of common stock dividends owed and payable to the Series A-1 Stockholder of record as dividends on the Series A-1 Stock. These preferred shares automatically converted into common shares on December 30, 2018 as defined above.

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

The remaining designations, rights and preferences of each of the Series A-1 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.

In 2019, Mr. W. Kip Speyer, the Company’s Chairman and Chief Executive Officer, purchased an aggregate of 1,200,000 shares of Series A-1 Stock at a purchase price of $0.50 per share.

In 2018, Mr. W. Kip Speyer, the Company’s Chairman and Chief Executive Officer, purchased an aggregate of 1,125,000 shares of Series E Stock at a purchase price of $0.40 per share.

Dividends paid for Series A-1, E and F Convertible Preferred Stock paid to Mr. W. Kip Speyer were $23,747 during the three months ended March 31, 2020 and for Series E and F Convertible Preferred Stock were $74,171 during the three months ended March 31, 2019.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 13 – COMMON STOCK.

A) Stock issued for Cash

During the first quarter of 2020, the Company sold an aggregate of 5,117,500 units of its securities to 57 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 $2,558,750. Each unit, which was sold at a purchase price of $0.50, 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. Spartan Capital, served as placement agent for the Company in this offering. As compensation for its services, Spartan Capital held back $383,813 for commissions, $165,000 to pay the accrued finder’s fee for the Oceanside acquisition, and $275,000 in other consulting fees, resulting in net cash received by the Company of $1,734,937. The Company issued Spartan Capital Placement Agents Warrants to purchase an aggregate of 511,750 shares of our common stock, including the cash commission and Placement Agent Warrants issued pursuant to the final closing on March 16, 2020 included in the Company’s consolidated statement of changes in shareholders’ equity for the three months ended March 31, 2020.

During 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 three months ended December 31, 2019.

During 2019, the Company sold an aggregate of 2,570,860 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 $1,285,530. 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. A total of 330,360 units were sold under the private placement dated July 15, 2019 units at a purchase price of $0.50 per share resulting in gross proceeds of $165,280. We used $148,662 of the proceeds to issue 6% promissory notes to Inform, Inc as a part of the potential acquisition. 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. A total of 980,000 warrants were issued to eleven investors in the first private placement who subscribed for the second warrant. Three investors did not subscribe for the second warrant.

During 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.

B) Stock issued for services

In February 2019, the Company issued 7,000 shares of our common stock to consultants for services rendered based on the fair value of the date of grant, or $1.00 a share valued at $7,000.

In July 2019, the Company issued 22,167 shares of our common stock to a consultant for services rendered based on the fair value of the date of grant, or $1.79 a share valued at $39,750.

In November 2019, the Company issued 63,000 shares of our common stock to a consultant for services rendered based on the fair value of the date of grant, or $1.50 a share valued at $94,455.

In February 2020, the Company issued 650,000 shares of our common stock to Spartan Capital for services rendered during 2019 based on the fair value of date of service, or $1.60 a share valued at $1,040,000.

In February 2020, the Company issued 660,000 shares of our common stock to Spartan Capital for services rendered during 2019 based on the fair value of date of service, or $1.64 a share valued at $1,082,400.

In March 2020, the Company issued 60,000 shares of our common stock to MZHCI, Inc for services rendered during 2020 based on the fair value of date of service, or $1.50 a share valued at $90,000.

C) Stock issued for acquisitions

On August 15, 2019, the Company issued 12,354,640 shares of its common stock in connection to the acquisition of Oceanside Media. The common shares were values at $19,409,278 or $1.57 per share.

On November 18, 2019, the Company acquired MediaHouse and agreed to issue 22,180,781 shares of common stock in the transaction. Although the transaction was recorded as of November 18, 2019, due to complications associated with the identification of the shareholders to receive the shares, the shares were not issued prior to December 31, 2019 and were issued in 2020. Accordingly, the shares are included within the shares outstanding, but not as issued as of December 31, 2019. The shares are valued at $45,952,684 or $1.64 per share.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 13 – COMMON STOCK (continued).

Stock Option Compensation

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

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

On April 20, 2011, the Company’s board of directors and majority stockholder adopted the 2011 Stock Option Plan (the “2011 Plan”), to be effective on January 3, 2011. The Company has reserved for issuance an aggregate of 900,000 shares of common stock under the 2011 Plan. The maximum aggregate number of shares of Company stock that shall be subject to Grants made under the Plan to any individual during any calendar year shall be 180,000 shares. On April 1, 2013, the Company’s board of directors and majority stockholder adopted the 2013 Stock Option Plan (the “2013 Plan”), to be effective on April 1, 2013. The Company has reserved for issuance an aggregate of 900,000 shares of common stock under the 2013 Plan. As of March 31, 2020, 9,000 shares were remaining under the 2011 Plan for future issuance. As of March 31, 2020, 25,000 shares were remaining under the 2013 Plan for future issuance.

On May 22, 2015, the Company’s board of directors and majority stockholder adopted the 2015 Stock Option Plan (the “2015 Plan”), to be effective on May 22, 2015. The Company has reserved for issuance an aggregate of 1,000,000 shares of common stock under the 2015 Plan. As of March 31, 2020, 420,000 shares were remaining under the 2015 Plan for the future issuance.

On November 7, 2019, the Company’s board of directors and majority stockholder adopted the 2019 Stock Option Plan (the “2019 Plan”), to be effective on November 7, 2019. The Company has reserved for issuance an aggregate of 5,000,000 shares of common stock under the 2019 Plan. As of March 31, 2020, 4,884,273 shares were remaining under the 2015 Plan for the future issuance.

The purpose of the 2011 Plan, 2013 Plan, 2015 Plan, and 2019 Plan (the “Plans” are to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. Under the 2015 Plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long-term incentive awards. The Company’s board of directors will administer the 2011 Plan until such time as such authority has been delegated to a committee of the board of directors. The material terms of each option granted pursuant to the 2011 Plan by the Company shall contain the following terms: (i) that the purchase price of each share purchasable under an incentive option shall be determined by the Committee at the time of grant, (ii) the term of each option shall be fixed by the Committee, but no option shall be exercisable more than 10 years after the date such option is granted and (iii) in the absence of any option vesting periods designated by the Committee at the time of grant, options shall vest and become exercisable in terms and conditions, consistent with the Plan, as may be determined by the Committee and specified in the Grant Instrument.

The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of our stock price over the expected option term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates.

The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors, which is subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes share-based compensation expense on a straight- line basis over the requisite service period for each award.

The expected life is computed using the simplified method, which is the average of the vesting term and the contractual term. The expected volatility is based on an average of similar public company’s historical volatility, as the Company’s common stock is quoted in the over the counter market on the OTCQB Tier of the OTC Markets, Inc. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected term of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.

The Company recorded $36,595 and $3,213 of stock option expense for the three months ended March 31, 2020 and 2019, respectively. The stock option expense for the three months ended March 31, 2020 and 2019, respectively has been recognized as a component of general and administrative expenses in the accompanying consolidated financial statements.

As of March 31, 2020, there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $320,161 to be recognized through March 2024.

A summary of the Company’s stock option activity during the three months ended March 31, 2020 is presented below:

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 13 – COMMON STOCK (continued).

Summarized information with respect to options outstanding under the two option plans at March 31, 2020 is as follows:

NOTE 14 – RELATED PARTIES.

On November 7, 2018 the Company entered into a Note Exchange Agreement with Mr. W. Kip Speyer, our CEO and member of our Board of Directors, pursuant to which we exchanged our convertible notes for three new series of preferred stock. See further discussion in Note 8 Notes Payable for more details regarding the Note Exchange Agreement and Exchange Transaction.

During November 2018, Mr. W. Kip Speyer, the Company’s Chairman and Chief Executive Officer, entered into two convertible note agreements with the company totaling $80,000. These notes have a conversion price of $0.40 per share and resulted in the recognition of a beneficial conversion feature recorded as a debt discount. These notes payable total $29,179 and $25,689 at March 31, 2020 and December 31, 2019. The notes are reported net of their unamortized debt discount of $50,821 and $54,311 as of March 31, 2020 and December 31, 2019, respectively.

During 2018, Mr. W. Kip Speyer, the Company’s Chairman and Chief Executive Officer, purchased an aggregate of 1,125,500 shares of the Company’s Series E Convertible Preferred Stock at a purchase price of $0.40 per share. The designations, rights and preferences of Series E Stock are described in Note 12.

During the three months ended March 31, 2020 and 2019 we paid cash dividends on the outstanding shares of the Company’s Series E and F Preferred Stock of $23,747 and $74,170, respectively held by affiliates of the Company.

NOTE 15 – INCOME TAXES.

At March 31, 2020 and December 31, 2019, the Company had no unrecognized tax benefits, no accrued interest and penalties, and no significant uncertain tax positions. No interest and penalties were recognized during the three months ended March 31, 2020 and 2019.

At March 31, 2020 and December 31, 2019, the Company had unused net operating loss (“NOL”) carry-forwards of $5,360,570 and $4,181,797, respectively. The valuation allowance associated with the deferred tax asset increased $1,471,912 during the three months ended March 31, 2020. The Company’s remaining unused NOLs that were generated prior to the operations and acquisitions in 2019 are subject to limitations under Section 382 of the Internal Revenue Code and are limited in the amount that can be utilized in any one year.

The deferred tax liability balance was $516,941 and $581,440 as of March 31, 2020 and December 31, 2019, respectively. The change in the balance of $64,499 represents the after tax impact of the amortization of the international intangible assets and the benefit of the tax loss .

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

(Unaudited)

NOTE 16 – SUBSEQUENT EVENTS.

During the period from April 1, 2020 through June 29, 2020 Bright Mountain Media, Inc. sold 1,025,000 units of our securities to 19 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 $512,500. Each unit was sold at $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. Spartan Capital Securities, LLC is serving as the Placement Agent for the Company in this offering. As compensation for services the Company has paid Spartan $51,250 commissions at 10% of the proceeds, $25,625 non-accountable expense at 5% of the proceeds. A total of 1,025,000 five-year warrants were issued to the investors to purchase one share of our common stock, exercisable at a $0.65 share price. The Placement Agent was issued a total of 102,500 five-year warrants to purchase one share of our common stock, exercisable at a $1.00 share price.

On April 24, 2020, Bright Mountain Media, Inc. (the “Company”) received loan proceeds of $464,800 (the “PPP Loan”) under the Paycheck Protection Program (the “PPP”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The PPP Loan is evinced by a promissory note (the “Promissory Note”) with Regions Bank and has a two-year term and bears interest at a rate of 1.0% per annum. Monthly principal and interest payments are deferred for six months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Promissory Note contains customary events of default provisions. Under the terms of the CARES Act, PPP Loan recipients can apply for and be granted forgiveness for all or a portion of loans granted under the PPP. No assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.

On May 14, 2020, the Company granted 75,000 stock options to an employee in connection with his employment.

On June 1, 2020, Bright Mountain Media, Inc. (“Bright Mountain”) entered into a membership interest purchase agreement (the “Purchase Agreement”) with Centre Lane Partners Master Credit Fund II, L.P. (“Centre Lane”) to purchase 100% of the membership interests of CL Media Holdings, LLC (“Wild Sky Media”). The purchase was completed on a debt-free, cash-free basis, free and clear of any liens and encumbrances. Bright Mountain issued 2,500,000 shares of its restricted common stock to Centre Lane and Centre Lane issued a first lien senior secured credit facility which consisted of $15.0 million of initial indebtedness, repayment of Wild Sky Media’s Fast Pay existing credit facility of approximately $900,000 and $500,000 expenses totaling $16,416,905. Per the credit facility with the seller, our loan payments begin 18 months from the time of the acquisition. There is no prepayment penalty associated with this credit facility. Certain future capital raises do require partial or full prepayments of the credit facility.

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 March 31, 2020 and 2019 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, 2019 as filed with the Securities and Exchange Commission on May 14, 2019 (the “2019 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 months ended March 31, 2020 and 2019 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, 2019 is derived from our audited consolidated financial statements appearing in the 2019 10-K.

Executive Overview of First Quarter 2020 Results

Our key user metrics and financial results for the first quarter of 2020, for the three months ended March 31, 2020, which include certain charges related to our financing with Spartan Capital, are more fully discussed and described herein and should be read in context with the disclosure on this page. The first quarter results are as follows:

User metrics:

First quarter 2020 financial results:

Overview

Bright Mountain Media, Inc. is an end-to-end digital media and advertising services platform, efficiently connecting brands with targeted consumer demographics. Through the removal of middlemen in the advertising services process, Bright Mountain Media efficiently connects brands with targeted consumer demographics while maximizing revenue to publishers. Bright Mountain Media’s assets include the Bright Mountain, LLC ad network, MediaHouse (f/k/a NDN), Oceanside (f/k/a S&W Media), Wild Sky Media and 24 owned and/or managed websites.

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’s platform will be a marketplace for publishers and advertisers where they will be able to choose from various features to maximize their earning potential. Advertisers have the ability to directly target desired demographics on publishers sites 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.

We have begun expansion with the recent acquisition of Wild Sky Media. Wild Sky Media offers massive global reach through hyper-engaging content and multicultural audiences. This is achieved through their six websites focused on the female demographic. The websites include Mom.com, Cafemom.com, LittleThings.com, mamaslatinas.com, revelist.com, and babynamewizard.com.

Key initiatives

Our growth strategy is based upon:

Results of operations

Revenues, Cost of Revenue, and Gross Profit Margins

Our advertising revenue for the first quarter of 2020 was 109.1% higher than the comparable period in 2019. Approximately $1,238,000 of the 2020 revenue is attributable to the acquisitions of Oceanside Media and approximately $373,000 of 2020 revenue is attributable to the acquisition of MediaHouse. Our legacy revenues decreased approximately $200,000 due to decreased advertising in the industry due to the emergence of the COVID-19 virus mid-quarter.

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

Selling, General and Administrative Expenses

Selling, general and administrative costs increased approximately $1,786,000 due to the operating activities of Oceanside Media and MediaHouse, which are not reflected in the prior period expenses. The Company also has increased its expenses associated with amortization of intangibles of approximately $917,000 with the Oceanside Media acquisition and the acquisition of MediaHouse, which closed subsequent to the end of the third quarter of 2019.

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.

Discontinued Operations

The Company discontinued its E-commerce business in the fourth quarter of 2018. The loss on discontinued operations was $0 and $115,464 for the three months ended March 31, 2020 and 2019, respectively. Revenues from discontinued operations significantly decreased during the period, from $98,000 in 2019 to $0 for the same period in 2020, Selling, general and administrative expenses related to these operations decreased from $131,000 in 2019 to $0 for the three months ended March 31, 2020.

Non-GAAP financial measure

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

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