UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)


þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2017


or


¨

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from __________________ to __________________

 

Commission file number: 000-54887


[bmtm_10q001.jpg]


Bright Mountain Media, Inc.

(Exact name of registrant as specified in its charter)


Florida

27-2977890

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)


6400 Congress Avenue, Suite 2050, Boca Raton, Florida

33487

(Address of principal executive offices)

(Zip Code)


561-998-2440

(Registrant's telephone number, including area code)


not applicable

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


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


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


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


Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

o

 

 

Emerging growth company

þ


If an emerging growth company, indicate by checkmark if the registrant has not elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 7(a)(2)(B) of the Securities Act: o


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


As of May 22, 2017 the issuer had 44,943,631 shares of its common stock outstanding.

 

 

 




 


TABLE OF CONTENTS


 

 

Page No.

                    

PART I - FINANCIAL INFORMATION

                    

 

 

 

ITEM 1.

FINANCIAL STATEMENTS.

1

 

 

 

ITEM 2.

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

23

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

28

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES.

28

 

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

ITEM 1.

LEGAL PROCEEDINGS.

29

 

 

 

ITEM 1A.

RISK FACTORS.

29

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

29

 

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

29

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES.

29

 

 

 

ITEM 5.

OTHER INFORMATION.

29

 

 

 

ITEM 6.

EXHIBITS.

29


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION


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

 

 

·

our history of losses and our ability to continue as a going concern;

 

·

our ability to successfully integrate the operations of the Black Helmet Apparel business;

 

·

our ability to close the Daily Engage Media acquisition and launch the Bright Mountain Media Ad Network;

 

·

a failure to successfully transition to primarily advertising based revenue model;

 

·

the impact of seasonal fluctuations on our revenues;

 

·

once established, our failure to detect advertising fraud;

 

·

our dependence on our relationships with Amazon, eBay and PayPal;

 

·

our dependence on a limited number of vendors;

 

·

our dependence on our relationship with Google AdSense;

 

·

acquisitions of new businesses and our ability to integrate those businesses into our operations;

 

·

online security breaches;

 

·

failure to effectively promote our brand;

 

·

our ability to protect our content;

 

·

our ability to protect our intellectual property rights and our proprietary content;

 

·

the success of our technology development efforts;

 

·

additional competition resulting from our business expansion strategy;

 

·

liability related to content which appears on our websites;



i



 




 

·

regulatory risks;

 

·

dependence on executive officers and certain key employees and consultants;

 

·

our ability to hire qualified personnel;

 

·

third party content;

 

·

possible problems with our network infrastructure;

 

·

the historic illiquid nature of our common stock;

 

·

risks associated with securities litigation;

 

·

material weaknesses in our internal control over financial reporting;

 

·

the lack of cash dividends on our common stock;

 

·

provisions of our charter and Florida law which may have anti-takeover effects;

 

·

control of our company by our management; and

 

·

the dilutive effect of conversion of our 10% Series A convertible preferred stock and/or the payment of stock dividends on those shares to our common shareholders.


Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report, our Annual Report on Form 10-K for the year ended December 31, 2016 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 formerly known as Bright Mountain Acquisition Corporation, and its subsidiaries. In addition, when used in this report, “first quarter of 2017” refers to the three months ended March 31, 2017, "first quarter of 2016" refers to the three months ended March 31, 2016, “2017” refers to the year ending December 31, 2017 and “2016” refers to the year ended December 31, 2016.


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





ii



 


PART 1 - FINANCIAL INFORMATION


ITEM 1.

FINANCIAL STATEMENTS.


BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

(formerly known as Bright Mountain Acquisition Corporation and subsidiaries)

 CONDENSED CONSOLIDATED BALANCE SHEETS


 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash

 

$

34,460

 

 

$

162,795

 

Accounts Receivable

 

 

68,346

 

 

 

157,013

 

Prepaid Expenses and Other Current Assets

 

 

120,290

 

 

 

132,950

 

Inventories

 

 

1,209,093

 

 

 

1,127,072

 

Total current assets

 

 

1,432,189

 

 

 

1,579,830

 

 

 

 

 

 

 

 

 

 

Fixed Assets, net

 

 

101,547

 

 

 

99,001

 

Website Acquisition Assets, net

 

 

891,308

 

 

 

967,114

 

Tradenames

 

 

150,000

 

 

 

150,000

 

Other Assets

 

 

170,316

 

 

 

184,400

 

Total Assets

 

$

2,745,360

 

 

$

2,980,345

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts Payable

 

$

663,909

 

 

$

654,140

 

Accrued Interest

 

 

42,361

 

 

 

11,111

 

Accrued Interest to Related Party

 

 

9,407

 

 

 

5,592

 

Premium Finance Loan Payable

 

 

28,401

 

 

 

53,643

 

Deferred Rent

 

 

6,015

 

 

 

 

Note Payable

 

 

500,000

 

 

 

500,000

 

Total Current Liabilities

 

 

1,250,093

 

 

 

1,224,486

 

 

 

 

 

 

 

 

 

 

Long Term Deferred Rent

 

 

5,177

 

 

 

 

Long Term Debt to Related Parties, net

 

 

317,064

 

 

 

185,905

 

Total Liabilities

 

 

1,572,334

 

 

 

1,410,391

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (See Note 9)

 

 

 

 

 

 

 

 

Shareholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, par value $0.01, 20,000,000 shares authorized, 100,000 and 100,000 shares issued and outstanding

 

 

 

 

 

 

 

 

Series A, 2,000,000 shares designated, 100,000 and 100,000 shares issued and outstanding

 

 

1,000

 

 

 

1,000

 

Series B, 1,000,000 shares designated, 0 and 0 shares issued and outstanding

 

 

 

 

 

 

Series C, 2,000,000 shares designated, 0 and 0 shares issued and outstanding

 

 

 

 

 

 

Series D, 2,000,000 shares designated, 0 and 0 shares issued and outstanding

 

 

 

 

 

 

Common stock, par value $0.01, 324,000,000 shares authorized, 44,915,131 issued and outstanding and 44,901,531 issued and outstanding, respectively

 

 

449,152

 

 

 

449,016

 

Additional paid-in capital

 

 

10,230,927

 

 

 

9,944,744

 

Accumulated Deficit

 

 

(9,508,053

)

 

 

(8,824,806

)

Total shareholders' equity

 

 

1,173,026

 

 

 

1,569,954

 

Total liabilities and shareholders' equity

 

$

2,745,360

 

 

$

2,980,345

 





See accompanying notes to unaudited condensed consolidated financial statements


1



 


BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

(formerly known as Bright Mountain Acquisition Corporation and subsidiaries)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

Product Sales

 

$

551,355

 

 

$

347,779

 

Revenues from services

 

 

109,743

 

 

 

76,636

 

Total revenues

 

 

661,098

 

 

 

424,415

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

376,056

 

 

 

270,535

 

Gross profit

 

 

285,042

 

 

 

153,880

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

884,203

 

 

 

786,714

 

Loss from operations

 

 

(599,161

)

 

 

(632,834

)

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

82

 

 

 

4

 

Interest expense

 

 

(35,160

)

 

 

(16,127

)

Interest expense - related party

 

 

(49,008

)

 

 

 

Total other income (expense)

 

 

(84,086

)

 

 

(16,123

)

 

 

 

 

 

 

 

 

 

Net loss before income taxes

 

 

(683,247

)

 

 

(648,957

)

Income taxes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(683,247

)

 

 

(648,957

)

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

 

 

 

 

 

 

Series A, Series B, Series C and Series D preferred stock

 

 

1,973

 

 

 

90,102

 

Total preferred stock dividends

 

 

1,973

 

 

 

90,102

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common shareholders

 

$

(685,220

)

 

$

(739,059

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.02

)

 

$

(0.02

)

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

44,913,531

 

 

 

36,477,625

 





See accompanying notes to unaudited condensed consolidated financial statements


2



 


BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES

(formerly known as Bright Mountain Acquisition Corporation and subsidiaries)

 CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS' EQUITY

For the Three Months Ended March 31, 2017

(Unaudited)


 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2016

 

 

100,000

 

 

$

1,000

 

 

 

44,901,531

 

 

$

449,016

 

 

$

9,944,744

 

 

$

(8,824,806

)

 

$

1,569,954

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services ($0.850/share)

 

 

 

 

 

 

 

 

 

 

3,600

 

 

 

36

 

 

 

3,024

 

 

 

 

 

 

 

3,060

 

Common stock issued for 10% dividend payment pursuant to Series A preferred stock

 

 

 

 

 

 

 

 

 

 

10,000

 

 

 

100

 

 

 

(100

)

 

 

 

 

 

 

 

Stock option compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38,259

 

 

 

 

 

 

 

38,259

 

Beneficial conversion feature

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

245,000

 

 

 

 

 

 

 

245,000

 

Net loss for the three months ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(683,247

)

 

 

(683,247

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – March 31, 2017

 

 

100,000

 

 

$

1,000

 

 

 

44,915,131

 

 

$

449,152

 

 

$

10,230,927

 

 

$

(9,508,053

)

 

$

1,173,026

 





See accompanying notes to unaudited condensed consolidated financial statements


3



 


BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
(formerly known as Bright Mountain Acquisition Corporation and subsidiaries)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(683,247

)

 

$

(648,957

)

Adjustments to reconcile net loss to net cash used in operations:

 

 

 

 

 

 

 

 

Depreciation

 

 

5,489

 

 

 

3,334

 

Amortization of debt discount

 

 

28,887

 

 

 

7,777

 

Amortization

 

 

75,806

 

 

 

62,843

 

Stock option compensation expense

 

 

38,259

 

 

 

17,573

 

Common stock issued for services

 

 

3,060

 

 

 

44,480

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

88,667

 

 

 

9,938

 

Inventory

 

 

(82,021

)

 

 

36,318

 

Prepaid expenses and other current assets

 

 

63,077

 

 

 

18,455

 

Accounts payable

 

 

7,040

 

 

 

(67,170

)

Accrued interest

 

 

31,250

 

 

 

 

Accrued interest - related party

 

 

3,815

 

 

 

 

Deferred rents

 

 

11,192

 

 

 

 

Other assets

 

 

(36,332

)

 

 

 

Net cash used in operating activities

 

 

(445,058

)

 

 

(515,409

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(8,035

)

 

 

(5,622

)

Purchase of websites

 

 

 

 

 

(119,500

)

Net cash used in investing activities

 

 

(8,035

)

 

 

(125,122

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Sale of common stock

 

 

 

 

 

350,000

 

Repayments on insurance premium notes payable

 

 

(25,242

)

 

 

(27,034

)

Long-term debt – Loan from related parties

 

 

350,000

 

 

 

100,000

 

Net cash provided by financing activities

 

 

324,758

 

 

 

422,966

 

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

 

(128,335

)

 

 

(217,565

)

Cash at beginning of period

 

 

162,795

 

 

 

416,187

 

Cash at end of period

 

$

34,460

 

 

$

198,622

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

20,216

 

 

$

8,350

 

Income taxes

 

$

 

 

$

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Premium finance loan payable recorded as prepaid

 

$

28,401

 

 

$

63,061

 

Payable for purchase of website

 

$

 

 

$

150,000

 

Debt discount on convertible notes payable

 

$

245,000

 

 

$

 






See accompanying notes to unaudited condensed consolidated financial statements


4



 


BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)


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

Organization and Nature of Operations

Bright Mountain Media, Inc., formerly known as Bright Mountain Acquisition Corporation, is a Florida corporation formed on May 20, 2010. It’s wholly owned subsidiaries, Bright Mountain LLC, and The Bright Insurance Agency, LLC, were formed as Florida limited liability companies in May 2011.  Its wholly owned subsidiary, Bright Watches, LLC was formed as a Florida Limited Liability Company in December 2015.  When used herein, the terms "BMTM," the "Company," "we," "us," "our" or "Bright Mountain" refers to Bright Mountain Media, Inc. and its subsidiaries.


The Company is a media holding company of online assets.  We sell various products through our proprietary websites and retail location, and through third party e-commerce distributor portals.  Our websites provide content designed to attract and retain targeted Internet audiences.  We generate revenues from two segments, product sales and services.  Services consists of advertising revenue and subscription revenue.  Our advertising revenue is generated primarily through the display of paid listings as well as display advertisements appearing on our websites.


On December 16, 2016, with an effective date of December 15, 2016, under the terms of an Asset Purchase Agreement, the Company acquired the assets, constituting the Black Helmet Apparel business (“Black Helmet”), from Sostre Enterprises, Inc.  Assets acquired included various website properties and content, social media content, inventory and other intellectual property rights.  The Black Helmet line of apparel features clothing and accessories focused on firefighters.


Basis of Presentation


The interim unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, all adjustments necessary to present fairly the consolidated results of operations and cash flows for the three months ended March 31, 2017 and the consolidated financial position as of March 31, 2017 have been made. The results of operations for such interim period are not necessarily indicative of the operating results expected for the full year.


Principles of Consolidation


The interim unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.


Use of Estimates


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




5



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


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


Cash and Cash Equivalents


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


Fair Value of Financial Instruments and Fair Value Measurements

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


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


 

Level 1:

Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

 

 

 

Level 2:

Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

 

 

 

Level 3:

Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use


Accounts Receivable


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


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


Inventories


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



6



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


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


Revenue Recognition


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


 

·

Sale of merchandise directly to consumers: The Company's product sales are recognized either FOB shipping point or FOB destination, dependent on the customer. Revenues are therefore recognized at point of ownership transfer, accordingly;

 

 

 

 

·

Advertising revenue is received directly form companies who pay the Company a monthly fee for advertising space;

 

 

 

 

·

Advertising revenues are generated by users “clicking” on website advertisements utilizing several ad network partners: Revenues are recognized, on a net basis, upon receipt of payment by the ad network partner since the revenue is not determinable until it is received; and

 

 

 

 

·

Subscription revenues are generated by the sale of access to career postings on one of our websites. The term of the subscriptions range from one month to twelve months. Revenues are recognized, on a net basis, over the term of the subscription period. All sales are final per the subscription Terms of Use.


The Company follows the guidance of ASC 605-50-25, “Revenue Recognition, Customer Payments.”  Accordingly, any incentives received from vendors are recognized as a reduction of the cost of products included in inventories. Promotional products or samples given to customers or potential customers are recognized as a cost of goods sold. Cash incentives provided to our customers are recognized as a reduction of the related sale price, and, therefore, are a reduction in sales.


Cost of Sales


Components of costs of sales include product costs, shipping costs to customers and any inventory adjustments.


Shipping and Handling Costs


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


Sales Return Reserve Policy


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


Product Warranty Reserve Policy


The Company is a retail distributor of products and warranties are the responsibility of the manufacturer. Therefore, the Company does not record a reserve for product warranty




7



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


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


Property and Equipment


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


Website Development Costs


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


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


As of March 31, 2017 and 2016, all website development costs have been expensed.


Amortization and Impairment of Long-Lived Assets


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


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 considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. While it is likely that we will have significant amortization expense as we continue to acquire websites, we believe that intangible assets represent costs incurred by the acquired website to build value prior to acquisition and the related amortization and impairment charges of assets, if applicable, are not ongoing costs of doing business. Non-cash amortization loss is included in selling, general and administrative expenses on the accompanying statement of operations. For the three months ended March 31, 2017 and 2016, non-cash amortization expense was $75,806 and $62,843, respectively.  


Stock-Based Compensation


The Company accounts for stock-based instruments 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 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 condensed consolidated statement of operations. For the three months ended March 31, 2017 and 2016, non-cash stock-based stock option compensation expense was $38,259 and $17,573, respectively.



8



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


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


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, 2017 and 2016, advertising, marketing and promotion expense was $92,288 and $7,050, respectively.


Income Taxes


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


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


As of March 31, 2017, tax years 2016, 2015, and 2014 remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.


Basic and Diluted Net Earnings (Loss) Per Common Share


In accordance with ASC 260-10 “Earnings Per Share,” basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. As of March 31, 2017 and 2016, there were approximately 2,281,000 and 1,847,000 common stock equivalent shares outstanding as stock options, respectively, 100,000 and 5,200,000 common stock equivalents from the conversion of preferred stock, respectively, and 1,850,000 and 600,000 common stock equivalents from the conversion of notes payable, respectively. Equivalent shares were not utilized, as the effect is anti-dilutive.




9



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


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


Segment Information


In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two identifiable operating segments based on the activities of the company in accordance with the ASC 280-10. The Company's two segments are product sales and services as of March 31, 2017. The product sales segment sells merchandise directly to customers thorough e-commerce distributor portals such as Amazon and eBay and through our proprietary websites and retail location. The services 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.


Recent Accounting Pronouncements


In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.”  The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605 "Revenue Recognition," and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35 "Revenue Recognition – Construction-Type and Production-Type Contracts." The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.


In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern,” which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures.  ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter.  Early application was permitted. The adoption of ASU 2014-15 did not have a material effect on our condensed consolidated financial statements.


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



10



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


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


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


In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of ASU No. 2016-9 did not have a material effect on our condensed consolidated financial statements.


In April 2016, the FASB issued ASU 2016–10 “Revenue from Contract with Customers (Topic 606): Identifying Performance Obligations and Licensing.” The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.


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


NOTE 2 - GOING CONCERN.


The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company sustained a net loss of $683,247 and used cash in operating activities of $445,058 for the three months ended March 31, 2017. The Company had an accumulated deficit of $9,508,053 at March 31, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company's continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from related parties to sustain its current level of operations.

 

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


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




11



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 3 – ACQUISITIONS.


On January 2, 2016, the Company closed the acquisition of warisboring.com pursuant to the terms and conditions of the Website Asset Purchase Agreement dated December 4, 2015 for an aggregate purchase price of $250,000.  The purchase price consisted of a cash payment of $100,000 at the January 4, 2016 closing and the balance of $150,000, payable monthly in an amount equal to 30% of the net revenues from the website, when collected, with the total amount of the earn out to be paid by January 4, 2019. The Company recorded the future monthly payments totaling $150,000 at a present value of $117,268, net of discount of $32,732.  The present value was calculated at a discount rate of 12% (which is the Company’s then most recent borrowing rate) using the estimated future revenues from the website to estimate the payment dates.  The estimated future revenues from the website were based on the average historical monthly revenues from the website prior to the Company’s acquisition.  During the three months ended March 31, 2017 and 2016, the Company amortized $2,728 and $2,728, respectively, of this discount. The acquisition was accounted following ASC 805 “Business Combinations.”  Under the purchase method of accounting, the transaction was valued for accounting purposes at $217,268, which was the fair value of warisboring.com. The Company has initially determined there was only two amortizable intangible assets. The acquisition date estimated fair value of the consideration transferred consisted of the following:


Customer and related relationships

 

$

39,578

 

Website

 

 

177,690

 

Total

 

$

217,268

 


The above estimated fair value of the intangible assets are based on a preliminary purchase price allocation prepared by management.  As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the asset acquired, with the corresponding offset to website.  After the preliminary purchase price allocation period, we record adjustments to assets acquired subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.  In the year following this transaction, we did not record any adjustments to our initial allocations.


On February 2, 2016, the Company entered into a Website Asset Purchase Agreement with unrelated third parties for a purchase price of $15,000 in cash.  The acquisition was accounted for following ASC 805 "Business Combinations."  The operations of the website prior to the Company's acquisition were immaterial; therefore, pro forma information was not presented. There were no costs of acquisition incurred as a result of this purchase.


On December 16, 2016, with an effective date of December 15, 2016 under the terms of the Asset Purchase Agreement, we acquired the assets constituting the Black Helmet apparel business from Sostre Enterprises, Inc., including various website properties and content, social media content, inventory and other intellectual property rights.  The consideration for the acquisition consisted of $250,000 in cash, 200,000 shares of our common stock valued at $170,000, the assumption of $40,000 in liabilities and the forgiveness of working capital advances we had previously made to the seller totaling $200,000.


A summary of assets acquired is as follows:


Inventory

 

$

58,000

 

Intangibles – website

 

 

80,000

 

Intangibles – trade name

 

 

150,000

 

Intangibles – customer relationships

 

 

252,000

 

Intangibles – non compete agreements

 

 

120,000

 

Total assets acquired

 

$

660,000

 




12



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 3 – ACQUISITIONS (continued).


Pro forma results


The following table sets forth the unaudited pro forma results of the Company as if the acquisition of the assets constituting the Black Helmet apparel business had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the assets been acquired as of the first day of the periods presented.


 

 

Three months ended

March 31,

2016

 

Total revenue

 

$

672,307

 

Total expenses

 

 

1,415,781

 

Preferred stock dividend

 

 

90,102

 

Net loss attributable to common shareholders

 

$

(833,576

)

Basic and diluted net loss per share

 

$

(0.02

)


At March 31, 2017 and December 31, 2016, respectively, website acquisition assets consisted of the following:


 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Website Acquisition Assets

 

$

1,739,179

 

 

$

1,739,179

 

Less: Accumulated Amortization

 

 

(656,851

)

 

 

(581,045

)

Less: Impairment Loss

 

 

(191,020

)

 

 

(191,020

)

Website Acquisition Assets, net

 

$

891,308

 

 

$

967,114

 


Non-cash amortization expense for the three months ended March 31, 2017 and 2016 was $75,806 and $62,843, respectively.


In connection with the acquisition of the Black Helmet apparel business, the Company recognized $150,000 attributable to tradenames acquired.


NOTE 4 – INVENTORIES.


At March 31, 2017 and December 31, 2016 inventories consisted of the following:


 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Product inventory: clocks and watches

 

$

969,764

 

 

$

982,283

 

Product inventory: other inventory

 

 

239,329

 

 

 

144,789

 

Total inventory balance

 

$

1,209,093

 

 

$

1,127,072

 


NOTE 5 – PREPAID COSTS AND EXPENSES.


At March 31, 2017 and December 31, 2016, prepaid expenses and other current assets consisted of the following:


 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

Prepaid Rent

 

$

58,851

 

 

$

46,523

 

Prepaid Insurance

 

 

61,439

 

 

 

84,825

 

Prepaid Inventory

 

 

 

 

 

1,602

 

Prepaid Expenses and Other Current Assets

 

$

120,290

 

 

$

132,950

 




13



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 6 – PROPERTY AND EQUIPMENT.


At March 31, 2017 and December 31, 2016, property and equipment consisted of the following:


 

 

March 31,

 

 

December 31,

 

 

Depreciable Life

 

 

 

2016

 

 

2015

 

 

(Years)

 

Furniture and Fixtures

 

$

71,977

 

 

$

70,108

 

 

7

 

Computer Equipment

 

 

56,142

 

 

 

56,142

 

 

5

 

Leasehold Improvements

 

 

41,177

 

 

 

35,011

 

 

10

 

Total Fixed Assets

 

 

169,296

 

 

 

161,261

 

 

 

 

 

Less: Accumulated Depreciation

 

 

(67,749

)

 

 

(62,260

)

 

 

 

 

Total Fixed Assets, net

 

$

101,547

 

 

$

99,001

 

 

 

 

 


Non-cash depreciation expense for the three months ending March 31, 2017 and 2016 was $5,489 and $3,334 respectively.


NOTE 7 – SEGMENT INFORMATION.


The Company has two identifiable segments as of March 31, 2017; products and services. The products segment sells merchandise directly to customers thorough e-commerce distributor portals such as Amazon and eBay and through our proprietary websites and retail location. The services 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.


The following information represents segment activity for the three month period ended March 31, 2017.  Comparable information is presented for the respective period in 2016:


 

 

For the three months ended

March 31, 2017

 

 

For the three months ended

March 31, 2016

 

 

 

Products

 

 

Services

 

 

Total

 

 

Products

 

 

Services

 

 

Total

 

Revenues

 

$

551,355

 

 

$

109,743

 

 

$

661,098

 

 

$

347,779

 

 

$

76,636

 

 

$

424,415

 

Website Amortization

 

$

 

 

$

75,806

 

 

$

75,806

 

 

$

 

 

$

62,843

 

 

$

62,843

 

Depreciation

 

$

4,578

 

 

$

911

 

 

$

5,489

 

 

$

2,712

 

 

$

622

 

 

$

3,334

 

Loss from operations

 

$

(461,912

)

 

$

(137,249

)

 

$

(599,161

)

 

$

(413,604

)

 

$

(219,230

)

 

$

(632,834

)

Segment Assets

 

$

1,438,646

 

 

$

1,306,714

 

 

$

2,745,360

 

 

$

1,337,082

 

 

$

871,946

 

 

$

2,209,028

 

Purchase of Assets

 

$

8,035

 

 

$

 

 

$

8,035

 

 

$

 

 

$

125,122

 

 

$

125,122

 


NOTE 8 – NOTES PAYABLE.


Beneficial Conversion Feature


Following the conversion of outstanding notes in August 2016, the Company issued a series of 12% convertible promissory notes that have conversion prices that create a beneficial conversion to related parties.  This note mature five years from issuance and are convertible at the option of the holder into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share.  A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the face value of the note.  In accordance with this guidance, the intrinsic value of the beneficial conversion features is recorded as a debt discount with a corresponding amount to additional paid in capital.  The debt discount is amortized to interest over the five-year life of the note using the effective interest method.




14



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 8 – NOTES PAYABLE (continued).


A summary of these note issuances at December 31, 2016 and March 31, 2017 is as follows:


Issuance Date

 

 

Maturity Date

 

 

Principal

 

 

Discount
Recognized

 

 

Amortization
Expense
2016

 

 

Carry
Amount at
December 31,
2016

 

 

Amortization
Three Months Ended
March 31,
2017

 

 

Carry
Amount at
March 31,
2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

09/26/16

 

 

09/26/21

 

 

$

100,000

 

 

$

70,000

 

 

$

3,692

 

 

$

33,692

 

 

$

3,500

 

 

$

37,192

 

10/14/16

 

 

10/14/21

 

 

 

100,000

 

 

 

70,000

 

 

 

3,024

 

 

 

33,024

 

 

 

3,500

 

 

 

36,524

 

10/31/16

 

 

10/31/21

 

 

 

100,000

 

 

 

70,000

 

 

 

2,372

 

 

 

32,372

 

 

 

3,500

 

 

 

35,872

 

11/03/16

 

 

11/03/21

 

 

 

50,000

 

 

 

35,000

 

 

 

1,120

 

 

 

16,120

 

 

 

1,750

 

 

 

17,870

 

11/11/16

 

 

11/11/21

 

 

 

100,000

 

 

 

70,000

 

 

 

1,934

 

 

 

31,934

 

 

 

3,500

 

 

 

35,434

 

11/21/16

 

 

11/21/21

 

 

 

50,000

 

 

 

35,000

 

 

 

775

 

 

 

15,775

 

 

 

1,750

 

 

 

17,525

 

12/15/16

 

 

12/15/21

 

 

 

75,000

 

 

 

52,500

 

 

 

488

 

 

 

22,988

 

 

 

2,625

 

 

 

25,613

 

01/19/17

 

 

01/19/22

 

 

 

100,000

 

 

 

70,000

 

 

 

 

 

 

 

 

 

2,823

 

 

 

32,823

 

02/06/17

 

 

02/06/22

 

 

 

100,000

 

 

 

70,000

 

 

 

 

 

 

 

 

 

2,061

 

 

 

32,061

 

02/24/17

 

 

02/24/22

 

 

 

50,000

 

 

 

35,000

 

 

 

 

 

 

 

 

 

208

 

 

 

15,208

 

03/07/17

 

 

03/07/22

 

 

 

100,000

 

 

 

70,000

 

 

 

 

 

 

 

 

 

942

 

 

 

30,942

 

 

 

 

  

 

 

$

925,000

 

 

$

647,500

 

 

$

13,405

 

 

$

185,905

 

 

$

26,159

 

 

$

317,064

 


Amortization of debt discount totaled $26,159 and $5,049 at March 31, 2017 and 2016, respectively.


On November 30, 2016, the Company entered into a promissory note agreement with an unaffiliated party in the principal amount of $500,000.  The note is unsecured, carries an interest rate of 25% per annum payable in arrears at maturity.  The note matures November 30, 2017 and may be prepaid at any time without notice or prepayment penalty.  In the event of default of any loan provision, the lender can declare all or any portion of the unpaid principal and interest immediately due and payable.  Accrued interest on this note totaled $42,361 at March 31, 2017.


NOTE 9 – COMMITMENTS AND CONTINGENCIES.


Leases


The Company leases its corporate offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487 under a long-term non-cancellable lease agreement, which contains renewal options. The lease, which was entered into on August 25, 2014 was amended on July 30, 2015 to increase the original approximate 2,014 square feet to approximately 4,450 square feet.  The term of the lease was extended and will terminate on March 14, 2019 at a current base rent of for a term of approximately $8,978 per month for the first twelve months with a 3% escalation each year. An additional security deposit of $2,500 was required. Rent is all-inclusive and includes electricity, heat, air-conditioning, and water. The original rent commencement date was October 11, 2014 and will expire on March 14, 2019.


The Company leases retail space for its product sales division at 4900 Linton Boulevard, Bay 17A, Delray Beach, FL 33445 under a long-term, non-cancellable lease agreement, which contains renewal options. The lease, which was entered into on August 25, 2014, is for approximately 2,150 square feet for a term of 36 months in Delray Beach, Florida at a base rent of approximately $2,329 per month for the first twelve months with a 3% escalation each year. A security deposit of $3,865, first month's prepaid rent of $3,865, and last month's prepaid rent of $4,015 was paid upon lease execution. The lease is a triple net lease. Common area maintenance is approximately $1,317 per month for the first twelve months with annual escalations not to exceed 4%. The rent commencement date was October 1, 2014 and was initially set to expire on September 30, 2017.  In January 2017, this lease was modified and extended concurrent with the expansion of our retail space in the same location.




15



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued).


In January 2017, the Company entered into an additional lease and modified and extended our existing lease for our retail site.  The new lease agreement provides for an additional 2,720 square feet adjacent to our existing Delray Beach FL location commencing February 1, 2017, and expiring January 31, 2022.  This lease provides for one months free rent, an initial monthly base rental of $1,757, representing a one-half reduction in rental payments for the first year as an accommodation.  Minimum base rental for year two is $3,513 per month, escalating 3% per year thereafter.  The Company also provided a $10,000 security deposit and prepaid $96,940 in future rents on the facility through the funding of certain leasehold improvements.  Prepaid rent totaled $95,183 at March 31, 2017. Simultaneously, the Company modified our existing lease on the initial space, extending this lease to coincide with the new space, expiring January 31, 2022, at an initial base rental of $2,471 per month, escalating 3% per year thereafter.


On December 16, 2016, with an effective date of December 15, 2016 under the terms of the Asset Purchase Agreement, we acquired the assets constituting the Black Helmet apparel business including various website properties and content, social media content, inventory and other intellectual property rights. (See Note 3)  We also acquired the right to assume the lease of their warehouse facility consisting of approximately 2,667 square feet.  The lease was renewed for a three year term in April 2016 with an initial base rental rate of $1,641 per month, and escalating at approximately 3% per year thereafter.


Rent expense for the three months ended March 31, 2017 and 2016 was $60,676 and $40,366, respectively.


Legal


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


Other Commitments


The Company entered into various contracts or agreements in the normal course of business, which may contain commitments. During the three months ended March 31, 2017 and 2016, the Company entered into agreements with third party vendors to supply website content and data, website software development, advertising, public relations, and legal services. All of these commitments contain provisions whereby either party may terminate the agreement with specified notice, normally 30 days, and with no further obligation on the part of either party.


During the years ended December 31, 2016 and 2015, the Company entered into agreements with third parties related to websites acquired during the respective periods as further discussed in Note 3. In connection with the two acquisitions made in 2016, the Company entered into a management agreement associated with the WarIsBoring website at $5,000 per month through November 18, 2018, and two service agreements in connection the Black Helmet Apparel acquisition at $6,250 per month, each, through December 15, 2019, plus the ability to earn bonuses ranging from $50,000 for the year ending December 31, 2017 to $100,000 for the year ending December 31, 2019 each based upon the satisfaction of certain revenue and gross margin targets.  Future contingent milestone payments under the acquisitions made in 2015 totaled approximately $210,000 and $210,000 for 2017 and 2016, respectively.

Total payments for the three month periods March 31, 2017 and 2016 were $52,500 and $44,000, respectively.


Contractual commitments remaining under various acquisition related agreements total: $245,000 in 2017; $205,000 in 2018; $144,000 in 2019 and $0 for 2020 and 2021, respectively.




16



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued).


The Company entered into an Executive Employment Agreement with our Chief Executive Officer, with an effective date of June 1, 2014. Under the initial terms of this agreement, the Company would 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 Chief Executive Officer's base annual salary was increased to $77,500 in January, 2015, $96,000 in July 2015, and to $125,000 effective October 1, 2015 upon recommendation of the Compensation Committee of the board of directors. In May 2016 the Chief Executive Officer orally agreed to a reduction in his base salary to $95,000 per annum.


The agreement will terminate upon the Chief Executive Officer's death or disability. In the event of a termination upon his death, the Company is obligated to pay his beneficiary or estate an amount equal to one year base salary plus any earned bonus at the time of his death. In the event the agreement is terminated as a result of his disability, as defined in the agreement, he is entitled to continue to receive his base salary for a period of one year. The Company is also entitled to terminate the agreement either with or without case, and the Chief Executive Officer is entitled to voluntarily terminate the agreement upon one year's notice to the Company. In the event of a termination by the Company for cause, as defined in the agreement, or voluntarily by the Chief Executive Officer, the Company is obligated to pay him the base salary through the date of termination. In the event the Company terminates the agreement without cause, the Company is obligated to give him one years' notice of the Company's intent to terminate and, at the end of the one year period, pay an amount equal to two times his annual base salary together with any bonuses which may have been earned as of the date of termination. A constructive termination of the agreement will also occur if the Company materially breaches any term of the agreement or if a successor company to the Company fails to assume the Company's obligations under the employment agreement. In that event, the Chief Executive Officer will be entitled to the same compensation as if the Company terminated the agreement without cause.


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 April 1, 2017 the Company entered into the First Amendment to the Executive Employment Agreement with our Chief Executive Officer.  Under the terms of the amendment, the term of his employment was extended to April 1, 2020, which may be further extended for additional one year periods upon 180 days notice by us to him.  Under the terms of the amendment, Mr. Speyer's base salary was increased to $165,000 annually and he is entitled to earn annual performance bonuses, beginning with the year ending December 31, 2017, ranging from 25% of his base salary to 80% of his base salary upon our achievement of certain annual revenue and EBITDA targets.  All other terms and conditions of his employment agreement remain in full force.  


NOTE 10 – RELATED PARTIES.


Beneficial Conversion Feature


Following the conversion of outstanding notes in August 2016, the Company issued a series of 12% convertible promissory notes that have conversion prices that create a beneficial conversion to related parties.  This note mature five years from issuance and are convertible at the option of the holder into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share.  A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the face value of the note.  In accordance with this guidance, the intrinsic value of the beneficial conversion features is recorded as a debt discount with a corresponding amount to additional paid in capital.  The debt discount is amortized to interest over the five-year life of the note using the effective interest method.




17



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 10 – RELATED PARTIES (continued).


A summary of these note issuances at December 31, 2016 and March 31, 2017 is as follows:


Issuance Date

 

 

Maturity Date

 

 

Principal

 

 

Discount
Recognized

 

 

Amortization
Expense
2016

 

 

Carry
Amount at
December 31,
2016

 

 

Amortization
Three Months Ended
March 31,
2017

 

 

Carry
Amount at
March 31,
2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

09/26/16

 

 

09/26/21

 

 

$

100,000

 

 

$

70,000

 

 

$

3,692

 

 

$

33,692

 

 

$

3,500

 

 

$

37,192

 

10/14/16

 

 

10/14/21

 

 

 

100,000

 

 

 

70,000

 

 

 

3,024

 

 

 

33,024

 

 

 

3,500

 

 

 

36,524

 

10/31/16

 

 

10/31/21

 

 

 

100,000

 

 

 

70,000

 

 

 

2,372

 

 

 

32,372

 

 

 

3,500

 

 

 

35,872

 

11/03/16

 

 

11/03/21

 

 

 

50,000

 

 

 

35,000

 

 

 

1,120

 

 

 

16,120

 

 

 

1,750

 

 

 

17,870

 

11/11/16

 

 

11/11/21

 

 

 

100,000

 

 

 

70,000

 

 

 

1,934

 

 

 

31,934

 

 

 

3,500

 

 

 

35,434

 

11/21/16

 

 

11/21/21

 

 

 

50,000

 

 

 

35,000

 

 

 

775

 

 

 

15,775

 

 

 

1,750

 

 

 

17,525

 

12/15/16

 

 

12/15/21

 

 

 

75,000

 

 

 

52,500

 

 

 

488

 

 

 

22,988

 

 

 

2,625

 

 

 

25,613

 

01/19/17

 

 

01/19/22

 

 

 

100,000

 

 

 

70,000

 

 

 

 

 

 

 

 

 

2,823

 

 

 

32,823

 

02/06/17

 

 

02/06/22

 

 

 

100,000

 

 

 

70,000

 

 

 

 

 

 

 

 

 

2,061

 

 

 

32,061

 

02/24/17

 

 

02/24/22

 

 

 

50,000

 

 

 

35,000

 

 

 

 

 

 

 

 

 

208

 

 

 

15,208

 

03/07/17

 

 

03/07/22

 

 

 

100,000

 

 

 

70,000

 

 

 

 

 

 

 

 

 

942

 

 

 

30,942

 

 

 

 

  

 

 

$

925,000

 

 

$

647,500

 

 

$

13,405

 

 

$

185,905

 

 

$

26,159

 

 

$

317,064

 


Amortization of debt discount totaled $26,159 and $5,049 at March 31, 2017 and 2016, respectively.


NOTE 11 – SHAREHOLDERS’ EQUITY.


Preferred Stock


The Company has authorized 20,000,000 shares of preferred stock with a par value of $0.01 (the "Preferred Stock"), issuable in such series and with such designations, rights and preferences as the board of directors may determine.


On November 1, 2013, the board of directors approved the designation of 2,000,000 shares of the Preferred Stock as 10% Series A Convertible Preferred Stock (“Series A Stock”). Holders of the Series A Stock are entitled to the payment of a 10% dividend payable in shares of the Company’s common stock at a rate of one share of common stock for each 10 shares of Series A Stock. Dividends are payable annually the 10th business day of January. Each holder of Series A Stock may convert all or part of the Series A Stock into shares of common stock on a share for share basis. Shares of Series A Stock rank superior to all other classes of stock upon liquidation.  Each share of Series A Stock will automatically convert into shares of common stock five years from the date of issuance or upon a change in control. On August 18, 2016, Series A Stockholders converted 1,800,000 shares of Series A Stock into 1,800,000 shares of common stock, leaving 100,000 Series A Stock outstanding. On the 10th business day of January 2017 there were 2,466 shares of common stock dividends owed and payable to the Series A Stockholders of record as dividends on the Series A Stock. The shares of Series A Stock is subject to adjustment of the conversion terms due to future mergers, sales and stock splits, if any.


Common Stock


Stock issued for services


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




18



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 11 – SHAREHOLDERS’ EQUITY (continued).


Stock issued for dividends


During the three months ended March 31, 2017, the Company issued 10,000 shares of its common stock as dividends to the holder of its Series A preferred stock. Holders of the Series A, Series B, Series C, and Series D 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 ten shares of Series A, Series B, Series C, or Series D Stock payable on the tenth business day of January commencing in 2017.


Stock Incentive Plan and Stock Option Grants to Employees and Directors


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 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.


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 ASC 505 “Equity” and ASC 718, including related amendments and interpretations. The related expense is recognized over the period the services are provided.


Stock Option Plans


The Company has adopted three stock option plans, the terms of which are substantially identical.  The purpose of each plan is 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 each 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 Compensation Committee of the Company's board of directors administers each plan. The material terms of each option which may be granted under each plan will 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.


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. As of March 31, 2017, 27,000 shares were remaining under the 2011 Plan for future issuance.


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. The maximum aggregate number of shares of Company stock that shall be subject to grants made under the 2013 Plan to any individual during any calendar year shall be 180,000 shares. As of March 31, 2017, 132,000 shares were remaining under the 2013 Plan for future issuance.




19



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 11 – SHAREHOLDERS’ EQUITY (continued).


On May 22, 2015, the Company's board of directors adopted the 2015 Stock Option Plan (the “2015 Plan”), to be effective on May 22, 2015.  Effective August 3, 2015, and as disclosed in the Company's Information Statement on Schedule 14C, the Company's majority shareholders ratified the adoption of the 2015 Plan.  The Company has reserved for issuance an aggregate of 1,000,000 shares of common stock under the 2015 Plan. The maximum aggregate number of shares of Company stock that shall be subject to grants made under the 2015 Plan to any individual during any calendar year shall be 100,000 shares. As of March 31, 2017, 385,000 shares were remaining under the 2015 Plan for future issuance.


On March 22, 2016 the Company granted 100,000 ten-year stock options, which have an exercise price of $0.695 per share to an executive officer and director.  The aggregate fair value of these options was computed at $39,901 or $0.3990 per option.


On March 22, 2016 the Company granted 46,000 ten-year stock options, which have an exercise price of $0.695 per share to a director.  The aggregate fair value of these options was computed at $18,354 or $0.3990 per option.


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 following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the three months ended March 31, 2017 and 2016:


No options were granted during the three months ended March 31, 2017.


 

 

Three Months Ended

March 31,

 

Assumptions:

 

2017

 

 

2016

 

Expected term (years)

 

 

 

 

 

6.8

 

Expected volatility

 

 

%

 

 

66

%

Risk-free interest rate

 

 

%

 

 

0.1 – 2.07

%

Dividend yield

 

 

%

 

 

0

%

Expected forfeiture rate

 

 

%

 

 

0

%


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 companies historical volatility.  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 $38,259 and $17,573 stock option expense for the three months ended March 31, 2017 and 2016, respectively.  The $38,259 non-cash stock option expense for the three months ended March 31, 2017 has been recognized as a component of general and administrative expenses in the accompanying unaudited condensed consolidated financial statements.


As of March 31, 2017 there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $180,733 to be recognized through August 2020.




20



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 11 – SHAREHOLDERS’ EQUITY (continued).


A summary of the Company's stock option activity during the three months ended March 31, 2017 is presented below:


 

 

Number of

Options

 

 

Weighted Average

Exercise

Price

 

 

Weighted Average

Remaining

Contractual

Term

 

 

Aggregate

Intrinsic

Value

 

Balance Outstanding, December 31, 2016

 

 

2,281,000

 

 

$

0.47

 

 

 

6.8

 

 

$

795,185

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

 

Balance Outstanding, March 31, 2017

 

 

2,281,000

 

 

$

0.47

 

 

 

6.6

 

 

$

775,585

 

Exercisable at March 31, 2017

 

 

1,508,000

 

 

$

0.32

 

 

 

5.3

 

 

$

719,373

 


Summarized information with respect to options outstanding under the two option plans at March 31, 2017 is as follows:


 

 

Options Outstanding

 

Options Exercisable

Range or

Exercise Price

 

Number

Outstanding

 

Remaining

Average

Contractual

Life (In Years)

 

Weighted

Average

Exercise

Price

 

Number

Exercisable

 

Weighted

Average

Exercise

Price

0.14 - 0.24

 

720,000

 

1.2

 

$

0.14

 

720,000

 

$

0.14

0.25 - 0.49

 

351,000

 

.98

 

$

0.28

 

324,000

 

$

0.28

0.50 - 0.85

 

1,210,000

 

4.5

 

$

0.70

 

464,000

 

$

0.61

 

 

2,281,000

 

6.6

 

$

0.47

 

1,508,000

 

$

0.32


NOTE 12 – CONCENTRATIONS.


The Company has historically purchases a substantial amount of its products from two vendors; Citizens Watch Company of America, Inc., and Bulova Corporation. During the three months ended March 31, 2017, purchases from Citizens accounted for 25% and purchases from Bulova accounted for 16%, of the total products purchased as compared to 33% and 23%, respectively, for the three months ended March 31, 2016.  Although we continue to add additional product vendors and we continue to expand our product line and vendor relationships, due to continued high concentration and reliance on these two vendors, the loss of one of these two vendors could adversely affect the Company's operations.


The Company generates revenues from two segments: product sales and services.  We sell many products through various distribution portals, which include Amazon and Paypal/eBay. During the three months ended March 31, 2017, these two portals accounted for 44% and 43%, respectively of our total product sales as compared to 70% and 4% in the three months ended March 31, 2016.  The sharp increase in Paypal/eBay concentration is due to our acquisition of the Black Helmet Apparel business in December 2016. Due to high concentration and reliance on these portals, the loss of a working relationship with either of these two portals could adversely affect the Company's operations.


A substantial amount of payments for our products sold are processed through PayPal. A disruption in PayPal payment processing could have an adverse effect on the Company's operations and cash flow.




21



BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

(Unaudited)

 


NOTE 12 – CONCENTRATIONS (continued).


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, 2017 and December 31, 2016, respectively, the Company had no cash balances in excess of the FDIC insured limit.


Concentration of Funding


During the three months ended March 31, 2017, the Company's funding was provided by the convertible notes to a related party officer and director. See Note 6.


NOTE 13 – SUBSEQUENT EVENTS.


On April 1, 2017, the Company entered into the First Amendment to the Executive Employment Agreement with W. Kip Speyer, our Chairman and Chief Executive Officer.  This amendment amends certain terms of the Executive Employment Agreement dated June 1, 2014 by and between the Company and Mr. Speyer.  Under the terms of the amendment, the term of his employment was extended to April 1, 2020, which may be further extended for additional one year periods upon 180 days notice by us to him.  Under the terms of the amendment, Mr. Speyer's base salary was increased to $165,000 annually and he is entitled to earn annual performance bonuses, beginning with the year ending December 31, 2017, ranging from 25% of his base salary to 80% of his base salary upon our achievement of certain annual revenue and EBITDA targets.  


Between April 3 2017 and April 19, 2017 Mr. W. Kip Speyer, an executive officer and director, lent us an aggregate of $150,000 under the terms of a series of 12% convertible promissory notes.  The notes are unsecured, mature five years from the date of issuance, and are convertible at any time at the option of the holder into shares of our common stock at a conversion price of $0.50 per share.  We did not pay any commissions or finders fees and the proceeds were used by us for working capital.


Between May 1, 2017 and May 11, 2017 Mr. Speyer also lent us $175,000 under the terms of a series of 6% convertible promissory note.  The notes are unsecured, mature five years from the date of issuance, and are convertible at any time at the option of the holder into shares of our common stock at a conversion price of $0.50 per share.  We did not pay any commissions or finders fees and the proceeds were used by us for working capital.


The notes have a conversion price that creates a beneficial conversion. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock into which the note is convertible exceeds the face amount of the note. In accordance with the guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the five-year life of the notes using the effective interest method.


On April 25, 2017 we issued an aggregate of 28,500 shares of our common stock valued at $22,800 to 19 of our employees, including our executive officers as additional compensation at the rate of 1,500 shares per employee.  The recipients were accredited or otherwise sophisticated investors who had access to business and financial information on our company.








22



 


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, 2017 and 2016 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the Securities and Exchange Commission.  We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.


Overview


We are a digital media holding company for online assets primarily targeted to the military and public safety sectors. We own websites, which are customized to provide our niche users, including active duty, reserve and retired military, law enforcement, and fire fighters with information and news that may be of interest to them. We generate revenues from two segments, product sales and services. Services consist of advertising revenue and subscriptions. Within our product sales segment, we generate product sales revenue through e-commerce distributors portals such as Amazon and eBay, and direct sales though proprietary websites and a retail location. The following graph provides historical quarterly total revenue in the respective periods presented:


[bmtm_10q003.gif]


Key first quarter of 2017 highlights include:


 

·

total revenue of $661,098, a revenue increase of 56% as compared to the first quarter of 2016;

 

·

services revenue growth of 43% for the first quarter of 2017 as compared to the first quarter of 2016; and

 

·

product sales revenue increased 59% in during the first quarter of 2017 from the comparable period in 2016.

 

 

 




23



 


Many of these increases are being powered by website traffic increases of 18% for the first quarter of 2017 compared to the first quarter of 2016 as a result of organic growth and acquisitions.  The following graph provides information on the quarterly traffic to our proprietary websites over the respective quarterly periods presented:


[bmtm_10q005.gif]


Since inception we have chosen to be a provider of quality website content to our niche market through our content staff of writers and others which, in our opinion, has been the principle reason for the growth in our website traffic.  2016 was a transitional year for our company as we invested in the infrastructure required to create more content, website traffic and expand our ability to sell our advertising inventory.  Historically, a majority of our revenues have come from product sales.  As a result of the consistent increase in both the overall site traffic as well as visitors to our websites, in late 2015 we began the multi-year transition to a media company that generates most of its revenue from the sales of advertising on its websites.  We believe that this natural evolution of our model will permit us to concentrate our efforts on growing our highest margin opportunities through the leverage of our website portfolios and growing Internet audience. Subject to availability of additional capital, we expect to begin adding more content staff including writers, graphic designers, videographers and social media personnel, as well as former military and public safety individuals to create additional content for our websites.  We believe these steps will help drive additional traffic to our websites which in turn will allow us to better leverage the highly targeted website traffic on our web properties and increase advertising revenues.


A key component of our growth also remains our acquisition strategy.  We remained committed to expanding our portfolio of web properties in 2017 and beyond with additional acquisitions that fit strategically into our business objectives. In 2016, we acquired www.warisboring.com and www.sargeslist.com. and in December 2016 we acquired the assets of the Black Helmet Apparel business. Following this transaction we have begun to leverage the unique designs and marketing aspects of Black Helmet Apparel to enhance and expand our online assets primarily targeted to the military and public safety sectors.


Our ability to continue our acquisition strategy, however, is dependent on our ability to raise additional working capital, both to fund the costs of the transactions as well as the integration and expansion of the acquired companies and web properties.  




24



 


In March 2017 we entered into an agreement to purchase Daily Engage Media, utilizing a portion of the proceeds of a pending firm commitment public offering of our securities.  Thereafter, utilizing technology which is being developed by Daily Engage Media and proceeds from the offering we expect to launch the Bright Mountain Media Ad Network.  Our ability to close the acquisition of Daily Engage Media and launch the advertising network is wholly dependent upon the closing of the pending public offering.  While it is being underwritten on a firm commitment basis, the underwriter is not contractually bound to purchase the securities and close the public offering until such time as we enter into an underwriting agreement which occurs immediately prior to the effectiveness of the registration statement filed with the SEC for the offering.  We are unsure as to the timing of the effectiveness of the registration statement.  It is possible that the underwriter will determine at some time in the future prior to the effectiveness of the registration statement not to proceed with the offering, in which event we would likely be unable to close the acquisition of Daily Engage Media and our goal of launching the Bright Mountain Media Ad Network would be indefinitely postponed.  If for any reason the underwriting is delayed or abandoned, we may seek alternative financing.  Accordingly, investors should not place undue reliance on the information in this report related to these future activities by us.


While we continue to increase our revenues, we reported a net loss of $683,247 for first quarter of 2017.  During 2017 and 2016 our average monthly negative cash flow was approximately $150,000.  During the first quarter 2017 we did experience an increase in our inventory levels particularly related to our Black Helmet Apparel business acquired in December 2016.  As we continue to grow our business we expect that our monthly cash operating overhead will continue to increase as we add personnel, although at a lesser rate, and we are not able at this time to quantify the amount of this expected increase.


We do not anticipate that we will generate sufficient revenue to fund our operations for the next 12 months. As a result, we will need to raise additional working capital to fund our ongoing operations as well as to provide additional funds for the further evolution of our business. During the first quarter of 2017 we raised $350,000 in capital through the sale of debt securities to a related party. We presently estimate we will need to raise at least $2,000,000 to satisfy our working capital needs for the next 12 months. As described elsewhere herein, we do not have any firm commitments for this necessary capital and there are no assurances we will be successful in raising the capital upon terms and conditions, which are acceptable to us, if at all. If we are unable to raise the necessary additional working capital, absent a significant increase in our revenues, of which there is no assurance, we will be unable to continue to grow our company and may be forced to reduce certain operating expenses in an effort to conserve our working capital.


Going Concern


For the three months ended March 31, 2017, we reported a net loss of $683,247, cash used in operating activities of $445,058 and we had an accumulated deficit of $9,508,053 at March 31, 2017.  The report of our independent registered public accounting firm on our audited consolidated financial statements at December 31, 2016 and 2015 and for the years then ended contains an explanatory paragraph regarding substantial doubt of our ability to continue as a going concern based upon our net losses, cash used in operations and accumulated deficit.  These factors, among others, raise substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. There are no assurances we will be successful in our efforts to generate revenues or report profitable operations or to continue as a going concern, in which event investors would lose their entire investment in our company.


Results of operations


 

 

First Quarter

2017

 

 

First Quarter

2016

 

 

% Change

 

Product sales

 

$

551,355

 

 

$

347,779

 

 

 

58.5

 

Revenues from services

 

 

109,743

 

 

 

76,636

 

 

 

43.2

 

Total revenues

 

$

661,098

 

 

$

424,415

 

 

 

55.8

 

Cost of sales - products

 

 

376,056

 

 

 

270,535

 

 

 

39.0

 

Cost of sales - products as a percentage of product sales

 

 

68.2

%

 

 

77.8

%

 

 

 

 

Gross profit

 

$

285,042

 

 

$

153,880

 

 

 

85.2

 

Gross profit as a percentage of total revenues

 

 

43.1

%

 

 

36.3

%

 

 

 

 

Selling, general and administrative expenses

 

 

884,203

 

 

 

786,714

 

 

 

12.4

 

(Loss) from operations

 

 

(599,161

)

 

$

(632,834

)

 

 

(5.3

)




25



 


Revenue


Revenues related to product sales increased approximately $204,000 during the first quarter 2017 over 2016.  This increase was attributable to our acquisition of the Black Helmet Apparel business in mid-December 2016.  Sales by our Black Helmet Apparel business totaled $243,667 during the first quarter 2017 compared to their pre-acquisition sales of $247,892 for the first quarter 2016, as included in our pro-forma disclosure in Note 3 – Acquisitions.While there can be no assurance, the Company expects similar increases quarter-over-quarter during 2017 resulting from this acquisition.  Revenues related to our watch sales declined approximately $34,000 for the first quarter 2017 compared to the same period in the preceeding year.  This decline is believed attributable to increased competitive pressures from on-line distribution outlets.


 Service revenues increased for the first quarter 2017 over the first quarter 2016 by approximately 43% primarily as a result of organic growth from our existing websites, reflecting an increase in visitor traffic and related revenues.  Subject to receipt of the necessary funding, the Company intends to continue to focus on this area, expanding additional revenues through increased web content and website acquisitions in our targeted market segment.   


Cost of Sales


Cost of sales as a percentage of product sales declined during the first quarter 2017 compared to the comparable period of the prior year. This decline was due in large part to the inclusion of Black Helmet Apparel revenues during the first quarter 2017, not included in 2016, with increased margins on products sold.  Prior to our acquisition of Black helmet Apparel, they had historically reported pre-acquisition margins of 40% for first quarter sales.  We do not incur any cost of sales related to our service revenues.


Selling, General and Administrative Expenses


Selling, general and administrative expenses increased by approximately $97,000, totaling $884,203 for the three months ended March 31, 2017, an 12.4% increase over the same period of the preceding year. While total costs increased, selling, general and administrative expenses as a percentage of total revenues declined from 185% to 134% between the periods.


A significant portion of our selling, general and administrative expenses between periods was attributable to non-cash expenses recognized during the first quarters 2017 and 2016 including amortization expense attributable to websites acquired and amortization of debt discounts of $75,806 and $28,887 and $62,843 and $7,777, respectively. In addition, stock options compensation expense totaled $38,259 and $17,573 in the first quarter 2017 and 2016, respectively. This increase in option compensation expense is expected to increase as we continue to seek to attract qualified employees while minimizing, as much as possible, cash demands related to increased staffing. During the first quarter 2016 we increased staffing to support targeted growth with salaries and employee medical expenses.  These costs totaled $364,737 during the first quarter 2016.  During the second quarter 2016, we implemented a partial staff reduction to reduce staffing and related costs.  Accordingly, payroll and related costs for the first quarter 2017 totaled $318,780, a 12.6% reduction over the prior year.  Advertising and marketing expenses increased sharply between the periods totaling $92,288 and $7,050 at March 31, 2017 and 2016, respectively.  This increase was attributable to our acquisition of Black Helmet Apparel business during the fourth quarter 2016.  The business model for this operation relies heavily on on-line promotion of products offered.  We anticipate these quarter-over-quarter increases to continue as the Company focuses on expanding the Black helmet customer base and promoting anticipated newly introduced products.


Selling, general and administrative expenses are expected to continue to increase in a controlled manor as we execute our planned growth strategy of increasing website visits both organically and through targeted acquisitions and providing the needed administrative support for the increased level of activities.  The Company also intends to add administrative staff to its accounting department to improve controls over its accouting and reporting processes.

 

Total other income (expense)


Total other income (expense) primarily reflects interest expense associated with our borrowings under a non-convertible and several convertible notes.  Our Chief Executive Officer loaned the Company an additional $350,000 during the first quarter 2017 under a series of 12% convertible notes bringing the total notes payable to him at March 31, 2017 to $925,000, $317,064 net of the related note discount.  Interest under these notes totaled $49,008, inclusive of $26,159 in amortization of the related debt discount, for the three months ended March 31, 2017.  In addition, the Company recorded interest of $31,500 on a $500,000 25% note payable issued in November 2016.




26



 


Non-GAAP financial measure


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


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


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


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


 

 

For the Three Months Ended

March 31,

 

(unaudited)

 

2017

 

 

2016

 

Net (loss)

 

$

(683,247

)

 

$

(648,957

)

plus:

  

 

 

 

 

 

 

  

Stock compensation expense

 

 

38,259

 

 

 

17,573

 

Stock issued for services

 

 

3,060

 

 

 

44,480

 

Adjusted net (loss):

 

$

(641,928

)

 

$

(586,904

)

Depreciation expense

 

 

5,489

 

 

 

3,334

 

Amortization expense

 

 

75,806

 

 

 

62,843

 

Amortization of debt discount

 

 

28,887

 

 

 

7,777

 

Interest expense

 

 

55,281

 

 

 

8,350

 

Adjusted EBITDA:

 

$

(476,465

)

 

$

(504,600

)


Liquidity and capital resources


Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for cash. As of March 31, 2017 the Company had a balance of cash and cash equivalents of $34,460 and working capital of $182,096 as compared to cash and cash equivalents of $162,795 and working capital of $355,344 at December 31, 2016.  Our current assets decreased 9% at March 31, 2017 from December 31, 2016 which reflects the decrease in cash, accounts receivable and prepaid expenses, offset by an increase in inventory.  Our current liabilities increased 2.1% at March 31, 2017 from December 31, 2016 which primarily reflects a decreases in premium finance loan payable, offset by increases in accrued interest, including to a related party.  We do not have any external sources of liquidity and are dependent upon loans from our Chief Executive Officer as described elsewhere herein.  In addition to the amounts owed Mr. Speyer, in November 2016 we borrowed $500,000 from an unrelated third party under a promissory note which matures in November 2017.  Our operations do not provide sufficient cash to pay our cash operating expenses.  If we are unable to increase our revenues to a level which provides sufficient funds to pay our operating expenses without relying upon loans from a related party, as well as to pay our obligations as they become due, our ability to continue to leverage our resources and implement our plans for continued growth are in jeopardy.


Cash flows


Net cash flows used in operating activities totaled $445,058 and $515,409 for the three month periods ending March 31, 2017 and 2016, respectively.   During the three months ended March 31, 2017, we used cash primarily to fund our net loss of $683,247 for the period as well as an increase in inventory of approximately $82,000.  The increase in inventory was attributable to our acquisition of the Black Helmet Apparel business acquired in December 2016.  Cash used during the three months ended March 31, 2016 was primarily attributable to operational losses during the period.


Net cash flows used in investing activities totaled $8,035 and $125,122 for the first quarter 2017 and 2016, respectively.  Cash used included the purchase of fixed assets of $8,035 and $5,622 in 2017 and 2016 and in 2016, $119,500 attributable to the purchase of two websites.




27



 


Net cash flows provided from financing activities totaled $324,758 and $422,966 during the three month periods ending March 31, 2017 and 2016, respectively.  During the first quarter 2017, the Company received $350,000 under a series of 12%, 5 year convertible notes issued to our Chief Executive Officer.  This figure was reduced by the repayments of $25,242 in insurance premium financing notes.  During the first quarter 2016, the Company sold $350,000 in common stock and $100,000 in 12%, 5 year convertible notes issued to our Chief Executive Officer.  This figure was reduced by the repayments of $27,034 in insurance premium financing notes.


Critical accounting policies


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


Recent accounting pronouncements


The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies as described in Note 1 appearing earlier in this report that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.


All other newly issued accounting pronouncements, but not yet effective, have been deemed either immaterial or not applicable.


Off balance sheet arrangements


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


ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for a smaller reporting company.


ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under Securities Exchange Act of 1934 (the “Exchange Act”). In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.


Based on their evaluation as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure as a result of continuing material weaknesses in our internal control over financial reporting as described in our Annual Report on Form 10-K for the year ended December 31, 2016.  A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.  


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


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




28



 


PART II - OTHER INFORMATION


ITEM 1.

LEGAL PROCEEDINGS.


None.


ITEM 1A.

RISK FACTORS.


Not applicable for a smaller reporting company.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.


Between January 2017 and April 2017 Mr. W. Kip Speyer, an executive officer and director, lent us an aggregate of $500,000 under the terms of 12% convertible promissory notes.  The notes are unsecured, mature five years from the date of issuance, and are convertible at any time at the option of the holder into shares of our common stock at a conversion price of $0.50 per share.  We did not pay any commissions or finders fees and the proceeds were used by us for working capital.  The recipient is an accredited investor and the issuances were exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") in reliance on an exemption provided by Section 4(a)(2) of that act.


In May 2017 Mr. Speyer also lent us $175,000 under the terms of a 6% convertible promissory note.  The notes are unsecured, mature five years from the date of issuance, and are convertible at any time at the option of the holder into shares of our common stock at a conversion price of $0.50 per share.  We did not pay any commissions or finders fees and the proceeds were used by us for working capital.  The recipient is an accredited investor and the issuance was exempt from registration under the Securities Act in reliance on an exemption provided by Section 4(a)(2) of that act.


In April 2017 we issued an aggregate of 28,500 shares of our common stock valued at $22,800 to 19 of our employees, including our executive officers as additional compensation at the rate of 1,500 shares per employee.  The recipients were accredited or otherwise sophisticated investors who had access to business and financial information on our company.  The issuances were exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) of that act.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.


None.


ITEM 4.

MINE SAFETY DISCLOSURES.


Not applicable to our company’s operations.


ITEM 5.

OTHER INFORMATION.


None.


ITEM 6.

EXHIBITS.


No.

     

Description

10.31

 

Membership Interest Purchase Agreement dated March 3, 2017, by and between Bright Mountain Media, Inc., Daily Engage Media Group LLC, Harry G. Pagoulatos, George G. Rezitis and Angelos Triantafillou (incorporated by reference to Exhibit 10.31 to the Current Report on Form 8-K filed March 9, 2017).

10.32

 

First Amendment to Executive Employment Agreement dated April 1, 2017 by and between Bright Mountain Media, Inc. and W. Kip Speyer (incorporated by reference to Exhibit 10.32 to the Current Report on Form 8-K filed April 6, 2017).±

31.1

  

Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer *

31.2

  

Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer *

32.1

  

Section 1350 Certification of Chief Executive Officer and Chief Financial Officer*

101.INS

  

XBRL Instance Document *

101.PRE

  

XBRL Taxonomy Extension Presentation Linkbase *

101.LAE

  

XBRL Taxonomy Extension Label Linkbase *

101.DEF

  

XBRL Taxonomy Extension Definition Linkbase *

101.SCH

  

XBRL Taxonomy Extension Schema *

101.CAL

  

XBRL Taxonomy Extension Calculation Linkbase *

———————

*

filed herewith

±

management contract



29



 


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 

BRIGHT MOUNTAIN MEDIA, INC.

 

 

May 22, 2017

By: 

/s/ W. Kip Speyer

 

 

W. Kip Speyer, Chief Executive Officer

 

 

 

May 22, 2017

By:

/s/ Dennis W. Healey

 

 

Dennis W. Healey, Chief Financial Officer










30