ITEM
1.
FINANCIAL
STATEMENTS.
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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ASSETS
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Current assets
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Cash
and Cash Equivalents
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$
166,267
|
$
140,022
|
|
Accounts
Receivable, net
|
878,879
|
879,770
|
|
Inventories,
net
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511,925
|
611,468
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Prepaid
Expenses and Other Current Assets
|
109,001
|
145,732
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|
Total current
assets
|
1,666,072
|
1,776,992
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Property and Equipment, net
|
84,186
|
89,500
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Website
Acquisition Assets, net
|
332,795
|
393,417
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Intangible
Assets, net
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915,673
|
967,774
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Goodwill
|
446,426
|
446,426
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Other
Assets
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46,588
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44,608
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Total Assets
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$
3,491,740
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$
3,718,717
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current Liabilities
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Accounts
Payable
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$
1,098,766
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$
1,172,827
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Accrued
Expenses
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85,185
|
90,000
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Premium
Finance Loan Payable
|
40,909
|
63,133
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Deferred
Rent - Short Term
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3,779
|
2,468
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Deferred
Revenues
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8,236
|
9,735
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Long Term Debt, Current Portion
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769,527
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767,071
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Total Current
Liabilities
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2,006,402
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2,105,234
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Long
term Deferred Rent
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15,184
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16,418
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Long
Term Debt to Related Parties, net
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1,249,100
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1,198,893
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Long
Term Debt, net
of current portion
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-
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54,950
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Total Liabilities
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3,270,686
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3,375,495
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Commitments and contingencies
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Shareholders' Equity
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Preferred
Stock, par value $0.01, 20,000,000 shares authorized,
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600,000
and 100,000 shares issued and outstanding
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Series
A, 2,000,000 shares designated, 100,000 and
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100,000
shares issued and outstanding
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1,000
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1,000
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Series
B, 1,000,000 shares designated, 0 and
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0
shares issued and outstanding
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—
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—
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Series
C, 2,000,000 shares designated, 0 and
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0
shares issued and outstanding
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—
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—
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Series
D, 2,000,000 shares designated, 0 and
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0
shares issued and outstanding
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—
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—
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Series
E, 2,500,000 shares designated, 1,875,000 and
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1,375,000
issued and outstanding
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18,750
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13,750
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Common
Stock, par value $0.01, 324,000,000 shares authorized,
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47,941,364
and 44,901,531 issued and outstanding
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479,414
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461,689
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Additional
Paid-in Capital
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12,585,594
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11,685,685
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Accumulated
Deficit
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(12,863,704
)
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(11,818,902
)
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Total
Shareholders' Equity
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221,054
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343,222
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Total Liabilities and Shareholders' Equity
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$
3,491,740
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$
3,718,717
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See accompanying notes to unaudited condensed consolidated
financial statements
4
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the Three Months Ended
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Revenues
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Product
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$
375,286
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$
551,355
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Advertising
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683,058
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109,743
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Total
revenues
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1,058,344
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661,098
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Cost
of revenue
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Products
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291,565
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372,546
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Advertising
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510,704
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3,510
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Total
Cost of revenue
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802,269
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376,056
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Gross
profit
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256,075
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285,042
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Selling,
general and administrative expenses
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1,185,954
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884,203
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Loss
from operations
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(929,879
)
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(599,161
)
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Other
income (expense)
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Interest
income
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288
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82
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Interest
expense
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(15,353
)
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(35,160
)
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Interest
expense - related party
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(99,858
)
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(49,008
)
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Total
other income (expense)
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(114,923
)
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(84,086
)
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Net
Loss
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(1,044,802
)
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(683,247
)
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Preferred
stock dividends
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Series
A and Series E preferred stock
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14,763
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1,973
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Net
loss attributable to common shareholders
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$
(1,059,565
)
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$
(685,220
)
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Basic
and diluted net loss per share
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$
(0.02
)
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$
(0.02
)
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Weighted
average shares O/S - basic and diluted
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45,807,289
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44,913,531
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See accompanying notes to unaudited condensed consolidated
financial statements
5
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS'
EQUITY
For the Three months ended March 31, 2018
(Unaudited)
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Balance -
December 31, 2017
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1,475,000
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$
14,750
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46,168,864
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$
461,689
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$
11,685,685
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$
(11,818,902
)
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$
343,222
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Common stock
issued for 10% dividend payment pursuant
to Series A
preferred stock Subscription Agreements
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10,000
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100
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(100
)
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-
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Issuance of
Series E preferred stock ($0.40/share)
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500,000
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5,000
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195,000
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200,000
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Series E 10%
preferred stock dividend
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(14,763
)
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(14,763
)
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Stock option
vesting expense
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7,344
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7,344
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Warrants
issued for services
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95,552
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95,552
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Units issued
for cash ($0.40/share)
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1,762,500
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17,625
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616,876
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634,501
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Net loss for
the three months ended March 31, 2018
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(1,044,802
)
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(1,044,802
)
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Balance -
March 31, 2018
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1,975,000
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$
19,750
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47,941,364
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$
479,414
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$
12,585,594
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$
(12,863,704
)
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$
221,054
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See accompanying notes to unaudited condensed consolidated
financial statements
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
MARCH 31, 2018
(Unaudited)
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For
the Three months ended
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Cash flows from operating activities:
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Net
loss
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$
(1,044,802
)
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$
(683,247
)
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Adjustments
to reconcile net loss to net cash and cash equivalents used in
operations:
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Depreciation
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6,339
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5,489
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Amortization
of debt discount
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47,712
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28,887
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Amortization
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112,723
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75,806
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Stock
option compensation expense
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7,344
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38,259
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Common
stock and warrants issued for services
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95,552
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3,060
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Provision
for bad debts
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(26,281
)
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—
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Changes in operating assets and liabilities:
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Accounts
receivable
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27,172
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88,667
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Inventories
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99,543
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(82,021
)
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Prepaid
expenses and other current assets
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36,731
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63,077
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Other
assets
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(1,980
)
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(36,332
)
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Accounts
payable and accrued expense
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(78,876
)
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42,105
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Deferred
rents
|
77
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11,192
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Deferred
revenues
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(1,499
)
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—
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Net
cash used in operating activities
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(720,245
)
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(445,058
)
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Cash flows from investing activities:
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Purchase
of property and equipment
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(1,023
)
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(8,035
)
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Net
cash used in investing activities
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(1,023
)
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(8,035
)
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Cash flows from financing activities:
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Proceeds
from issuance of common units, net
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634,501
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—
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Proceeds
from issuance of preferred stock
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200,000
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—
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Repayments
on insurance premium notes payable
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(22,224
)
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(25,242
)
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Dividend
payments
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(14,763
)
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—
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Principal
payment on long-term debt - Non-Related party
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(50,000
)
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—
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Long-term
debt - Related parties
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—
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350,000
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Net
cash provided by financing activities
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747,513
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324,758
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Net
increase (decrease) in cash
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26,245
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(128,335
)
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Cash
and cash equivalents at beginning of period
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140,022
|
162,795
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Cash
and cash equivalents at end of period
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$
166,267
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$
34,460
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Supplemental disclosure of cash flow information
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Cash
paid for:
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Interest
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$
51,647
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$
20,216
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Income
taxes
|
$
—
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$
—
|
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|
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Non-cash investing and financing activities
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Premium
finance loan payable recorded as prepaid
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$
66,131
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$
28,401
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Debt
discount on convertible notes payable
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$
—
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$
245,000
|
See accompanying notes to unaudited condensed consolidated
financial statements
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES.
Organization and Nature of Operations
Bright
Mountain Media, Inc. is a Florida corporation formed on May 20,
2010. Its wholly owned subsidiaries, Bright Mountain LLC, and The
Bright Insurance Agency, LLC, were formed as Florida limited
liability companies in May 2011. Its wholly owned subsidiary,
Bright Watches, LLC was formed as a Florida limited liability
company in December 2015, and Daily Engage Media Group LLC
(“Daily Engage Media”) was formed as a New Jersey
limited liability company in February 2015. When used herein, the
terms "BMTM, " the "Company," "we," "us," "our" or "Bright
Mountain" refers to Bright Mountain Media, Inc. and its
subsidiaries.
Bright
Mountain Media is a digital media holding company whose primary
focus is connecting brands with consumers as a full advertising
services platform. The Company’s assets include an ad
network, an ad exchange platform and 25 websites (owned and/or
managed) that provide content, services and products. In addition,
the Bright Mountain Media Ad Exchange Network will be fully
developed and implemented in the third quarter of 2018. The
websites are primarily geared for a young, male audience with
several that focus on active, reserve and retired military
audiences as well as law enforcement and first responders. With the
acquisition of Daily Engage Media, the Company has acquired the
software, expertise and human resources to scale this side of the
business. Two of our websites operate as eCommerce platforms, one
of which, Bright Watches, is non strategic to the current direction
of our business.
In
December 2016, we acquired the assets, constituting the Black
Helmet Apparel business (“Black Helmet Apparel”), from
Sostre Enterprises, Inc. Assets acquired included various website
properties and content, social media content, inventory and other
intellectual property rights.
On
September 19, 2017, under the terms of an Amended and Restated
Membership Interest Purchase Agreement with Daily Engage Media, and
its members, the Company acquired 100% of the membership interests
of Daily Engage Media. Launched in 2015, Daily Engage Media is an
ad network that connects advertisers with approximately 200 digital
publications worldwide.
Principles of Consolidation and Basis of
Presentation
The
condensed consolidated financial statements include the accounts of
the Company and all of its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated in the
condensed consolidated financial statements. The accompanying
unaudited financial statements for the three months ended March 31,
2018 and 2017 have been prepared in accordance with generally
accepted accounting principles applicable to interim financial
information and the requirements of Form 10-Q and Article 10 of
Regulation S-X of the SEC. Accordingly, they do not include all of
the information and disclosures required by accounting principles
generally accepted in the United States for complete consolidated
financial statements. In the opinion of management, such condensed
consolidated financial statements include all adjustments
(consisting of normal recurring accruals) necessary for the fair
presentation of the condensed consolidated financial position and
the condensed consolidated results of operations. The condensed
consolidated results of operations for periods presented are not
necessarily indicative of the results to be expected for the full
year. The condensed consolidated balance sheet information as of
December 31, 2017 was derived from the audited consolidated
financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2017. The interim
condensed consolidated financial statements should be read in
conjunction with that report.
Reclassification
Certain
reclassifications have been made to the December 31, 2017
consolidated balance sheet to conform to the March 31, 2018
consolidated balance sheet presentation.
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 and the valuation of equity
based transactions.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(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 Accounting
Standards Codification (“ASC”) 820
“
Fair
Value Measurements and Disclosures
.” This standard defines fair value,
provides guidance for measuring fair value and requires certain
disclosures. This standard does not require any new fair value
measurements, but rather applies to all other accounting
pronouncements that require or permit fair value measurements. This
guidance does not apply to measurements related to share-based
payments. This guidance discusses valuation techniques, such as the
market approach (comparable market prices), the income approach
(present value of future income or cash flow), and the cost
approach (cost to replace the service capacity of an asset or
replacement cost). The guidance utilizes a fair value hierarchy
that prioritizes the inputs to valuation techniques used to measure
fair value into three broad levels. The following is a brief
description of those three levels:
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.
The
determination of past due status for the Daily Engage Media
customers is based on the contractual payment terms of each
customer, which are generally net 60, net 90, or net 120 days. Once
collection efforts by the Company and its collection agency are
exhausted, the determination for charging off uncollectible
receivables is made. It is common in this industry to have accounts
receivable invoices age 60 to 90 days past the customer terms. This
is the result of the generally smaller size customers that we have
and they usually have to wait until they get paid for them to issue
payment to us. We work closely with all of our customers and
monitor the aging of the receivables on a weekly basis to ensure
our comfort that we will get paid. This is a time consuming
process, as we have to evaluate and analyze most customers on an
individual basis due to different circumstances and relationships
we have with each of them.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued).
Inventories
Inventories
consist of finished goods and are stated at the lower of cost or
market using the first in, first out (FIFO) method. Provisions have
been made to reduce excess or obsolete inventories to their net
realizable value.
Revenue Recognition
The Company recognizes revenue on our products in
accordance with ASC 605, “
Revenue
Recognition
.” Under these
guidelines, revenue is recognized on sales transactions when all of
the following exist: persuasive evidence of an arrangement did
exist; delivery of the product or advertising has occurred; the
sales price to the buyer is fixed or determinable; and
collectability is reasonably assured. The Company has several
revenue streams generated directly from its website and specific
revenue recognition criteria for each revenue stream is as
follows:
●
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 and;
●
Advertising
revenues are generated by users “clicking” on website
advertisements utilizing several ad network partners. Revenues are
recognized net of their fees for Company owned websites upon
receipt of payment by the ad network partner since the revenue is
not determinable until it is received.
Our
advertising revenue generated from the Daily Engage and Bright
Mountain Media businesses are consistent with the above section.
However, the two scenarios that arise from revenue generation and
recognition include our owned and operated website advertising
revenue which requires little to no cost of revenue, as well as
advertising on non-owned websites which creates costs to those
website owners and the Company makes approximately 20% gross
profit.
Cost of Revenues
Components of costs
of revenues for the products segment include product costs,
shipping costs to customers and any inventory adjustments for
product sales. Cost of revenue for the advertising segment consists
of revenue share payments to media providers and website publishers
that are directly related to a revenuegenerating event. The
Company becomes obligated to make the revenue share payments in the
period the advertising impressions, clickthroughs, actions or
leadbased information are delivered or occur. The Daily
Engage portion of the advertising segment cost of revenue consists
of revenue share payments to media providers and website publishers
that are directly related to a revenuegenerating event. The
Company becomes obligated to make the revenue share payments in the
period the advertising impressions, clickthroughs, actions or
leadbased information are delivered or occur.
Shipping and Handling Costs
The
Company includes shipping and handling fees billed to customers as
revenues and shipping and handling costs for shipments to customers
as cost of revenues.
Sales Return Reserve Policy
Our
return policy generally allows our end users to return purchased
products for refund or in exchange for new products. We estimate a
reserve for sales returns, if any, and record that reserve amount
as a reduction of sales and as a sales return reserve liability.
Sales to consumers on our web site generally may be returned within
a reasonable period of time.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(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 with a purchase price below our
capitalization threshold of $500 are expensed as
incurred.
Website Development Costs
The Company accounts for its website development
costs in accordance with ASC 350-50, “
Website Development
Costs
” (“ASC
350-50”). These costs, if any, are included in intangible
assets in the accompanying consolidated financial statements or
expensed immediately if the Company cannot support recovery of
these costs from positive future cash flows.
ASC
350-50 requires the expensing of all costs of the preliminary
project stage and the training and application maintenance stage
and the capitalization of all internal or external direct costs
incurred during the application and infrastructure development
stage. Upgrades or enhancements that add functionality are
capitalized while other costs during the operating stage are
expensed as incurred. The Company amortizes the capitalized website
development costs over an estimated life of five
years.
For the
three months ended March 31, 2018 and 2017, all platform and
website development costs have been expensed.
Amortization and Impairment of Long-Lived Assets
Amortization and impairment of long-lived assets
are non-cash expenses relating primarily to intangible assets. The
Company accounts for long-lived assets in accordance with the
provisions of ASC 360-10 “
Accounting for the Impairment
or Disposal of Long-Lived Assets
.” This statement requires that long-lived
assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be
recoverable.
Website
acquisition costs are amortized over three years and intangible
assets 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. Amortization expense is included in selling, general and
administrative expenses on the accompanying condensed consolidated
statement of operations.
Stock-Based Compensation
The Company accounts for stock-based instruments
issued to employees for services in accordance with ASC 718
“
Compensation – Stock
Compensation
.” ASC 718
requires companies to recognize in the statement of operations the
grant-date fair value of stock options and other equity based
compensation issued to employees. The value of the portion of an
employee award that is ultimately expected to vest is recognized as
an expense over the requisite service periods using the
straight-line attribution method. The Company accounts for
non-employee share-based awards in accordance with the measurement
and recognition criteria of ASC 505-50, “
Equity-Based Payments to
Non-Employees
.” The
Company 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, 2018 and 2017, non-cash
stock-based stock option compensation expense was $7,344 and
$38,259, respectively.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(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, 2018 and 2017, advertising, marketing and promotion
expense was $60,923 and $92,288, 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, 2018, tax years 2017, 2016, and 2015 remain open for
IRS audit. The Company has received no notice of audit or any
notifications from the IRS for any of the open tax
years.
Basic and Diluted Net Earnings (Loss) Per Common Share
In accordance with ASC 260-10
“
Earnings Per
Share
,” basic net
earnings (loss) per common share is computed by dividing the net
earnings (loss) for the period by the weighted average number of
common shares outstanding during the period. Diluted earnings
(loss) per share are computed using the weighted average number of
common and dilutive common stock equivalent shares outstanding
during the period. As of March 31, 2018 and 2017, there were
approximately 2,072,000 and 2,281,000 common stock equivalent
shares outstanding as stock options, respectively, 1,475,000 and
100,000 common stock equivalents from the conversion of preferred
stock, respectively, and 4,070,000 and 1,850,000 common stock
equivalents from the conversion of notes payable, respectively.
Equivalent shares were not utilized, as the effect is
anti-dilutive.
Segment Information
In accordance with the provisions of ASC 280-10,
“
Disclosures about Segments of
an Enterprise and Related Information
”, the Company is required to report
financial and descriptive information about its reportable
operating segments. The Company has two identifiable operating
segments based on the activities of the Company in accordance with
the ASC 280-10 The Company's two segments are product sales and
advertising as of March 31, 2018. The product sales segment sells
merchandise directly to customers thorough e-commerce distributor
portals such as Amazon and eBay and through our proprietary
websites and our retail location. The advertising segment is
focused on producing advertising revenue generated by users
“clicking on” and/or viewing website advertisements
utilizing several ad network partners and direct advertisers and
subscription revenue generated by the sale of access to premium
versions of our websites and to career postings on one of our
websites. The subscription revenues are about .66% of the total
advertising segment revenue.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued).
Recent Accounting Pronouncements
May
2014, the FASB issued ASU 2014-09, "Revenue from Contracts with
Customers (Topic 606).” ASU 2014-09, which has been modified
on several occasions, provides new guidance designed to enhance the
comparability of revenue recognition practices across entities,
industries, jurisdictions and capital markets. The core principle
of the new guidance is that an entity recognizes revenue to depict
the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods and services. The new
guidance also requires disclosures about the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts
with customers. We are currently reviewing the provisions of
this ASU and subsequent updates and evaluating the potential impact
on our results of operations, cash flows or financial condition as
well as related disclosures. As an emerging growth company, we have
elected to adopt this guidance under the private company
guidelines, which will go into effect on January 1,
2019.
In July 2015, FASB issued ASU No.
2015-11
,
“Inventory (Topic 330): Simplifying the Measurement of
Inventory
”. The
amendments in this ASU do not apply to inventory that is measured
using last-in, first-out (LIFO) or the retail inventory method. The
amendments apply to all other inventory, which includes inventory
that is measured using first-in, first-out (FIFO) or average cost.
An entity should measure inventory within the scope of this Update
at the lower of cost and net realizable value. Net realizable value
is the estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and
transportation. Subsequent measurement is unchanged for inventory
measured using LIFO or the retail inventory
method
.
For public business entities, this ASU is
effective for fiscal years beginning after December 15, 2016,
including interim periods within those fiscal years. For all other
entities, this ASU is effective for fiscal years beginning after
December 15, 2016, and interim periods within fiscal years
beginning after December 15, 2017. The amendments in this ASU
should be applied prospectively with earlier application permitted
as of the beginning of an interim or annual reporting
period.
The adoption of ASU No. 2015-11 did not have a
material effect on our condensed consolidated financial
statements.
In February 2016, the FASB issued ASU 2016-02
“
Leases
,” which will amend current lease accounting
to require lessees to recognize (i) a lease liability, which is a
lessee’s obligation to make lease payments arising from a
lease, measured on a discounted basis, and (ii) a right-of-use
asset, which is an asset that represents the lessee’s right
to use, or control the use of, a specified asset for the lease
term. ASU 2016-02 does not significantly change lease accounting
requirements applicable to lessors; however, certain changes were
made to align, where necessary, lessor accounting with the lessee
accounting model. This standard will be effective for fiscal years
beginning after December 15, 2018, including interim periods within
those fiscal years. We are currently reviewing the provisions of
this ASU to determine the impact on our results of operations, cash
flows or financial condition.
In April 2016, the FASB issued ASU No.
2016-15,
“Classification of
Certain Cash Receipts and Cash Payments”
ASU 2016- provides guidance regarding the
classification of certain items within the statement of cash flows.
ASU 2016-15 is effective for annual periods beginning after
December 15, 2017 with early adoption permitted. We do not believe
this ASU will have an impact on our results of operation, cash
flows, other than presentation, or financial
condition.
In June 2016, the FASB issued ASU 2016-13
“Financial
Instruments – Credit Losses”
which replaces the incurred loss model with a
current expected credit loss (“CECL”) model. The CECL
model applies to financial assets subject to credit losses and
measured at amortized cost and certain off-balance sheet exposures.
Under current U.S. GAAP, an entity reflects credit losses on
financial assets measured on an amortized cost basis only when
losses are probable and have been incurred, generally considering
only past events and current conditions in making these
determinations. ASU 2016-13 prospectively replaces this approach
with a forward-looking methodology that reflects the expected
credit losses over the lives of financial assets, starting when
such assets are first acquired. Under the revised methodology,
credit losses will be measured based on past events, current
conditions and reasonable and supportable forecasts that affect the
collectability of financial assets.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued).
ASU 2016-13 also revises the approach to
recognizing credit losses for available-for-sale securities by
replacing the direct write-down approach with the allowance
approach and limiting the allowance to the amount at which the
security’s fair value is less than the amortized cost. In
addition, ASU 2016-13 provides that the initial allowance for
credit losses on purchased credit impaired financial assets will be
recorded as an increase to the purchase price, with subsequent
changes to the allowance recorded as a credit loss expense. ASU
2016-13 also expands disclosure requirements regarding an
entity’s assumptions, models and methods for estimating the
allowance for credit losses. The amendments of this Update are
effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2019. Early adoption is
permitted as of January 1, 2019. The Company is currently
evaluating the impact the adoption of this new standard will have
on its consolidated financial statement
s.
In November 2016, the FASB issued ASU
2016-18,
“Statement of Cash Flows
–Restricted Cash”
which requires entities to present the changes in
total cash, cash equivalents, restricted cash and restricted cash
equivalents in the statement of cash flows. The new guidance also
requires a reconciliation of the totals in the statement of cash
flows to the related captions in the balance sheet if restricted
cash and restricted cash equivalents are presented in a different
line item in the balance sheet. The amendments of this Update,
which should be applied using a retrospective transition method to
each period presented, are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15,
2017. Early adoption is permitted. The adoption of this standard is
not expected to have an impact on our statement of cash
flows.
In January 2017, the FASB issued 2017-04,
Intangibles -
Goodwill and Other
(Topic 350):
Simplifying the Test for Goodwill Impairment. The amendments in
this ASU simplify the subsequent measurement of goodwill by
eliminating Step 2 from the goodwill impairment test and
eliminating the requirement for a reporting unit with a zero or
negative carrying amount to perform a qualitative assessment.
Instead, under this pronouncement, an entity would perform its
annual, or interim, goodwill impairment test by comparing the fair
value of a reporting unit with its carrying amount and would
recognize an impairment change for the amount by which the carrying
amount exceeds the reporting unit’s fair value; however, the
loss recognized is not to exceed the total amount of goodwill
allocated to that reporting unit. In addition, income tax effects
will be considered, if applicable. This ASU is effective for fiscal
years, and interim periods within those fiscal years, beginning
after December 15, 2019. Early adoption is permitted. The Company
is currently evaluating the impact of this ASU on its consolidated
financial statements and related disclosures.
NOTE 2 - GOING CONCERN.
The
accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company sustained a net loss of
$1,044,802 and used net cash in operating activities of $720,245
for the three months ended March 31, 2018. The Company had an
accumulated deficit of $12,863,704 at March 31, 2018. These factors
raise substantial doubt about the ability of the Company to
continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate revenues and its
ability to continue receiving investment capital from related
parties to sustain its current level of operations.
Management
plans to continue to raise additional capital through private
placements and is exploring additional avenues for future
fund-raising through both public and private sources.
The
condensed consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of
liabilities that might be necessary should the Company be unable to
continue as a going concern.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 3 – ACQUISITIONS
On
September 19, 2017 the parties entered into an Amended and Restated
Membership Interest Purchase Agreement under which the Company
acquired 100% of the membership interests of Daily Engage Media in
exchange for common stock, promissory notes and the satisfaction of
certain debt obligations of the acquired entity totaling
approximately $1,088,000.
Under
the terms of the Daily Engage Purchase Agreement, upon Daily Engage
Media achieving certain revenue and operating income tests, we
agreed to issue additional consideration as follows:
●
if
Daily Engage Media's revenues are at least $20,228,954, and it has
operating income of at least $3,518,623 (the "Year-One Daily Engage
Target") during the first 12 months following the closing date (the
"Year-One Earn out Period") as determined by us in accordance with
GAAP, we agreed to pay former members and executives collectively
an additional $500,000 in cash and issue an additional 1,008,547
shares of our common stock (the "Year-One Earn out
Shares");
●
if
Daily Engage Media's revenues are at least $60,385,952, and
operating income of at least $11,380,396 (the "Year-Two Daily
Engage Target") during the first 12 months following the Year-One
Earnout Period (the "Year-Two Earnout Period") as determined by us
in accordance with GAAP, we agreed to pay the pay former members
and executives an additional $500,000 in cash and issue an
additional 796,221 shares of our common stock (the "Year-Two
Earnout Shares"). In addition, if the Year-Two Daily Engage Target
is met, at the time of payment of the Year-Two Earnout Shares and
the year-two earnout cash, the former members and executives
collectively will also be entitled to receive the Year-One Earnout
Shares and the year-one earnout cash to the extent not previously
received; and
●
if
Daily Engage Media's revenues are at least $96,512,204, and it has
operating income of at least $18,524,967 (the "Year-Three Daily
Engage Target") during the 12 months following the Year-Two Earnout
Period (the "Year-Three Earnout Period") as determined by us in
accordance with GAAP, we agreed to pay former members and
executives an additional $550,000 in cash and issue an additional
723,523 shares of our common stock (the "Year-Three Earnout
Shares"). In addition, if the Year-Three Daily Engage Target is
met, at the time of payment of the Year-Three Earnout Shares and
the year-three earnout cash, the pay former members and executives
collectively will also be entitled to receive the Year-One Earnout
Shares, the year-one earnout cash, the Year-Two Earnout Shares and
the year-two earnout cash, to the extent not previously
received.
The
preliminary allocation of the purchase price to the assets acquired
and liabilities assumed based on the estimated fair values was as
follows:
|
Tangible
assets acquired
|
$
361,770
|
|
Liabilities
assumed
|
(562,006
)
|
|
Net
liabilities assumed
|
$
(200,236
)
|
|
|
|
|
Exchange
platform
|
$
50,000
|
|
Tradename
|
150,000
|
|
Customer
relationships
|
250,000
|
|
Non-compete
agreements
|
192,000
|
|
Goodwill
|
446,426
|
|
Total
purchase price
|
$
1,088,426
|
The
final accounting for the acquisition is expected to be completed in
the third quarter of 2018
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 3 – ACQUISITIONS (continued).
Pro forma results
The following table sets forth a summary of the unaudited pro forma
results of the Company as if the acquisition of the assets
constituting the Daily Engage Media business, which was closed in
September 2017, had taken place on the first day of the periods
presented. These combined results are not necessarily indicative of
the results that may have been achieved had the assets been
acquired as of the first day of the periods presented.
|
|
|
|
|
|
|
Total
revenue
|
$
1,224,716
|
|
Total
expenses
|
(1,871,679
)
|
|
Preferred
stock dividend
|
(1,973
)
|
|
Net
loss attributable to common shareholders
|
$
(648,936
)
|
|
Basic
and diluted net loss per share
|
$
(0.01
)
|
NOTE 4 – INVENTORIES.
At March 31, 2018 and December 31, 2017 inventories consisted of
the following:
|
|
|
|
|
Product
inventory: clocks and watches
|
$
351,361
|
$
453,852
|
|
Product
inventory: other inventory
|
183,012
|
180,064
|
|
Total
inventory balance
|
534,373
|
633,916
|
|
Less:
Inventory allowance for slow moving
|
(22,448
)
|
(22,448
)
|
|
Total
inventory balance, net
|
$
511,925
|
$
611,468
|
NOTE 5 – PREPAID COSTS AND EXPENSES.
At
March 31, 2018 and December 31, 2017, prepaid expenses and other
current assets consisted of the following:
|
|
|
|
|
Prepaid
rent
|
$
39,877
|
$
50,417
|
|
Prepaid
insurance
|
66,131
|
92,322
|
|
Prepaid
inventory
|
2,993
|
2,993
|
|
Prepaid
expenses and other current assets
|
$
109,001
|
$
145,732
|
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 6 – PROPERTY AND EQUIPMENT.
At
March 31, 2018 and December 31, 2017, property and equipment
consisted of the following:
|
|
Useful Lives
|
|
|
|
Furniture
and fixtures
|
3-5
years
|
$
79,993
|
$
78,994
|
|
Computer
equipment
|
3
years
|
59,510
|
59,511
|
|
Leasehold
improvements
|
5
years
|
39,385
|
39,384
|
|
Total
fixed assets
|
|
178,888
|
177,889
|
|
Less:
accumulated depreciation
|
|
(94,702
)
|
(88,389
)
|
|
Total
fixed assets, net
|
|
$
84,186
|
$
89,500
|
Depreciation
expense for the three months ending March 31, 2018 and 2017, was
$6,339 and $5,489, respectively.
NOTE 7 – Website Acquisition and Intangible
Assets
At
March 31, 2018 and December 31, 2017, respectively, website
acquisitions, net consisted of the following:
|
|
|
|
|
Website
Acquisition Assets
|
$
1,417,189
|
$
1,417,189
|
|
Less:
accumulated amortization
|
(873,197
)
|
(812,575
)
|
|
Less:
accumulated impairment loss
|
(211,197
)
|
(211,197
)
|
|
Website
Acquisition Assets, net
|
$
332,795
|
$
393,417
|
At
March 31, 2018 and December 31, 2017, respectively, intangible
assets, net consisted of the following:
|
|
Useful Lives
|
|
|
|
Tradename
|
5
years
|
$
300,000
|
$
300,000
|
|
Customer
relationships
|
5
years
|
502,000
|
502,000
|
|
Non-compete
agreements
|
5-8
years
|
312,000
|
312,000
|
|
Total
Intangible Assets
|
|
$
1,114,000
|
$
1,114,000
|
|
Less:
accumulated amortization
|
|
(148,100
)
|
(95,999
)
|
Less:
accumulated impairment loss
|
|
(50,227
)
|
(50,227
)
|
|
Intangible
assets, net
|
|
$
915,673
|
$
967,774
|
Amortization
expense for the three month periods ending March 31, 2018 and 2017
was $112,723 and $75,806, respectively, related to both the website
acquisition costs and the intangibles.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 8 – SEGMENT INFORMATION.
The
Company has two identifiable segments as of March 31, 2018;
products and advertising. The products segment sells merchandise
directly to customers thorough e-commerce distributor portals such
as Amazon and eBay and through our proprietary websites and retail
location. The advertising segment is focused on producing
advertising revenue generated by users “clicking on”
and/or viewing website advertisements utilizing several ad network
partners and direct advertisers and subscription revenue generated
by the sale of access to premium versions of our websites and to
career postings on one of our websites. The subscription revenues
are about 0.7% of the total advertising segment revenue The
following information represents segment activity for the three
month periods ended March 31, 2018 and 2017.
|
|
As of and for the three months ended
|
As of and for the three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
375,286
|
$
683,058
|
$
1,058,344
|
$
551,355
|
$
109,743
|
$
661,098
|
|
Website
amortization
|
26,615
|
86,108
|
112,723
|
—
|
75,806
|
75,806
|
|
Depreciation
|
2,248
|
4,091
|
6,339
|
4,578
|
911
|
5,489
|
|
Loss
from operations
|
(336,815
)
|
(593,064
)
|
(929,879
)
|
(461,912
)
|
(137,249
)
|
(599,161
)
|
|
Segment
assets
|
1,128,652
|
2,363,088
|
3,491,740
|
1,438,646
|
1,306,714
|
2,745,360
|
|
Purchase
of assets
|
$
—
|
$
1,023
|
$
1,023
|
$
8,035
|
$
—
|
$
8,035
|
NOTE 9 – NOTES PAYABLE.
Long Term Debt to Related Parties
Between
September 2016 and August 2017, the Company issues a series of
convertible notes payable to the Chairman of the Board of
Directors. The notes mature five years from issuance at which time
all principle and interest are payable. Interest rates on the notes
range from 6% to 12% and the notes are convertible at any time
prior to maturity at conversion prices ranging from $0.40 to 0.50
per share. The Company recognized a beneficial conversion feature
when the fair value of the underlying common stock to which the
note is convertible into was in excess of the face value of the
note. For notes payable under this criteria, the intrinsic value of
the beneficial conversion features was recorded as a debt discount
with a corresponding amount to additional paid in capital. The debt
discount is being amortized to interest over the five year life of
the note using the effective interest method.
The
principal balance of these notes payable was $2,035,000 at March
31, 2018 and December 31, 2017 and discounts recognized upon
respective origination dates as a result of the beneficial
conversion feature total $1,018,125. As of March 31, 2018 and
December 31, 2017, the total convertible notes payable to related
party net of discounts was $1,249,100 and $1,198,893,
respectively.
Amortization
of debt discount totaled $50,207 and $26,159 at March 31, 2018 and
2017, respectively. There was no accrued interest expense as of
March 31, 2018 and December 31, 2017. Interest expense on the
convertible notes payable was $49,651 and $22,849, for the periods
ended March 31, 2018 and 2017 respectively.
Notes Payable
On
November 30, 2016, the Company entered into a promissory note
agreement with an unaffiliated party in the principal amount
of
$500,000. The note
is unsecured and carries an interest rate of 10% per annum and
matures on June 30, 2018. In the event of default of any loan
provision, the lender can declare all or any portion of the unpaid
principal and interest immediately due and payable. During March
2018 the Company made a payment of $50,000, reducing the note
balance to $450,000.
In
connection with the acquisition of Daily Engage Media, the Company
issued promissory notes totaling $380,000. The notes have no stated
interest rate and mature on September 19, 2018. The balance of the
notes payable at March 31, 2018 and December 31, 2017 was
$254,687.
The
Company has a note payable originating from a prior website
acquisition. At the time of the acquisition, the Company agreed to
pay $150,000, payable monthly in an amount equal to 30% of the net
revenues from the website, when collected, with the total amount of
the earn out to be paid by January 4, 2019. The Company recorded
the future monthly payments
totaling
$150,000 at a present value of $117,268, net of a discount of
$32,732. The present value was calculated at a discount rate of 12%
using the estimate future revenues. The balance of the note payable
at March 31, 2018 and December 31, 2017, was $73,932 and $67,895
net of discounts of $9,092 and $11,820 respectively.
Interest
expense on notes payable was $15,353 and $35,160 for the periods
ended March 31, 2018 and 2017, respectively.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 10 – COMMITMENTS AND CONTINGENCIES.
The
Company leases its corporate offices at 6400 Congress Avenue, Suite
2050, Boca Raton, Florida 33487 under a long-term non-cancellable
lease agreement expiring on March 14, 2019. The lease terms
required base rent payments of approximately $9,000 per month for
the first twelve months commencing in October 2014, with a 3%
escalation each year. An additional security deposit of $2,500 was
required. Rent is all-inclusive and includes electricity, heat,
air-conditioning, and water.
The
Company leases retail space for its product sales division at 4900
Linton Boulevard, Bay 17A, Delray Beach, FL 33445 under a two
long-term, non-cancellable lease agreement, which contain renewal
options. The leases commenced in January 2017 and are in effect for
a period of five years. Minimum base rentals total approximately
$6,000 per month, escalating 3% per year thereafter. The Company
also provided a $10,000 security deposit and prepaid $96,940 in
future rents on the facility through the funding of certain
leasehold improvements. Prepaid rent totaled $39,877 and $50,417 at
March 31, 2018 and December 31, 2017, respectively.
The
Company leases a warehouse facility in Orlando, Florida consisting
of approximately 2,667 square feet. The lease commenced in April
2016, expiring in April 2018 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, 2018 and 2017 was
$64,090 and $60,676, 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, 2018 and 2017, the Company entered into
agreements with third party vendors to supply website content and
data, website software development, advertising, public relations,
and legal services. All of these commitments contain provisions
whereby either party may terminate the agreement with specified
notice, normally 30 days, and with no further obligation on the
part of either party.
Total
payments for the three month periods ended March 31, 2018 and 2017
were $52,500 and $52,500, respectively.
Effective
June 1, 2014, the Company entered into an employment agreement with
its Chief Executive Officer. The agreement calls for current base
salary of $165,000 per year plus bonuses as awarded by the Board of
Director’s. The agreement terminates upon the CEO’s
death or disability in the event of which, the Company is obliged
to pay one year salary and in the event of death, any unpaid
bonuses. Both the Company and the CEO can terminate the agreement
and in the case of termination without cause on the part of the
Company, the CEO will be entitled to twice his salary plus unpaid
bonuses earned.
On
April 1, 2017, we entered into an amendment to his employment
agreement which extended the term for an additional three years,
set his base compensation at $165,000 per annum and provided the
ability to earn a performance bonus beginning for 2017 based upon
annual revenues above $3,000,000 per year and the certain earnings
before interest, taxes and depreciation, or “EBITDA,”
goals as follows: (i) for annual revenues of $3,000,000 to
$3,500,000, a bonus of 25% of his then base salary; (ii) for annual
revenues of $3,500,001 to $4,000,000 and a minimum EBITDA of
$100,000, a bonus of 40% of his then base salary; (iii) for annual
revenues of $4,000,0001 to $4,500,000 and a minimum EBITDA of
$150,000, a bonus of 65% of his then base salary; and (iv) for
annual revenues of $4,500,001 or greater and a minimum EBITDA of
$175,000, a bonus of 80% of this then base salary.
Mr.
Speyer earned a performance bonus of $41,250 for 2017.
In
connection with the Daily Engage Media acquisition, the Company
entered into three year employment agreements with two former
members of the entity. Under the two agreements the Company is
obliged to pay base salaries of $65,000 and $70,000, respectively
to the employees with an increase to $75,000 each in the second
year of the agreement as well as bonuses to be paid at the
discretion of the Board of Directors.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 11 – SHAREHOLDERS’ EQUITY.
Preferred Stock
The
Company has authorized 20,000,000 shares of preferred stock with a
par value of $0.01 (the "Preferred Stock"), issuable in such series
and with such designations, rights and preferences as the board of
directors may determine. The Company's board of directors has
previously designated five series of preferred stock, consisting of
10% Series A Convertible Preferred Stock ("Series A Stock"), 10%
Series B Convertible Preferred Stock ("Series B Stock"), 10% Series
C Convertible Preferred Stock ("Series C Stock"), 10% Series D
Convertible Preferred Stock ("Series D Stock") and 10% Series E
Convertible Preferred Stock ("Series E Stock"). At March 31, 2018,
there were 100,000 shares of Series A Stock and 1,875,000 shares of
Series E Stock issued and outstanding. There are no shares of
Series B Stock, Series C Stock or Series D Stock issued and
outstanding.
The
Series A Stock is senior to all other classes of the Company's
securities and has a stated value of $0.50 per share. Holders of
shares of Series A Stock are entitled to the payment of a 10%
dividend payable in shares of the Company’s common stock at a
rate of one share of common stock for each 10 shares of
Series A Stock, payable annually the 10th business day of
January. The shares of Series A Stock are redeemable at the
Company's option upon 20 days’ notice for an amount equal to
the amount of capital invested. 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 2018 there
were 10,000 shares of common stock dividends owed and payable to
the Series A Stockholder of record as dividends on the
Series A Stock.
On
September 6, 2017, the board of directors designated 2,500,000
shares of Preferred Stock as Series E Stock, which such designation
was amended on September 29, 2017. Holders of shares of Series E
Stock are entitled to 10% dividends, payable monthly as may be
permitted under Florida law out of funds legally available
therefor. The shares of Series E Stock rank senior to any other
class of our equity securities, except for the Series A Stock, have
a liquidation preference of $0.40 per share and are not
redeemable.
The
remaining designations, rights and preferences of each of the
Series A Stock and Series E Stock are identical, including (i)
shares do not have voting rights, except as may be permitted under
Florida law, (ii) are convertible into shares of our common stock
at the holder's option on a one for one basis, (iii) are entitled
to a liquidation preference equal to a return of the capital
invested, and (iv) each share will automatically convert into
shares of common stock five years from the date of issuance or upon
a change in control. Both the voluntary and automatic conversion
formulas are subject to proportional adjustment in the event of
stock splits, stock dividends and similar corporate
events.
In
September 2017, Mr. W. Kip Speyer, the Company’s Chairman and
Chief Executive Officer, purchased an aggregate of 500,000 shares
of Series E Stock at a purchase price of $0.40 per share. The
Company used the proceeds from these sales for working
capital.
During
the January 1, 2018 to March 31, 2018 period, Mr. W. Kip Speyer,
the Company’s Chairman and Chief Executive Officer, purchased
an aggregate of 500,000 shares of Series E Stock at a purchase
price of $0.40 per share. The Company used the proceeds from these
sales for working capital.
Stock issued for cash
In
August 2017 the Company issued 125,000 shares of its common stock
for $50,000 or $0.40 per share to a private investor.
Between
January 2018 and March 2018 the Company sold an aggregate of
1,762,500 units of its securities to 10 accredited investors in a
private placement resulting in gross proceeds to the Company of
$705,000. Each unit, which was sold at a purchase price of
$0.40, consisted of one share of common stock and one five year
warrant to purchase one share of common stock at an exercise price
of $0.65 per share. Spartan Capital Securities, LLC, a
broker-dealer and member of FINRA, served as placement agent for
the Company in this offering. As compensation for its
services, the Company paid Spartan Capital Securities, LLC cash
commissions totaling $70,500 and issued it five year placement
agent warrants to purchase an aggregate of 147,000 shares of the
Company’s common stock at an exercise price of $0.65 per
share. These warrants were valued, in aggregate, at $95,552 using
the Black-Scholes model. The five-year exercise period was used as
the term and a 10% interest rate was used in the valuation. The
historical volatility of approximately 214% was based on a term of
approximately four years, which was a look-back to the earliest
stock price information available.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
Stock issued for services
On
January 16, 2017, the Company issued to a consultant 3,600 shares
of its common stock at $0.85 per share, or $3,060, for services
rendered. The Company valued these common shares based on the fair
value at the date of grant.
On
April 25, 2017 the Company issued 28,500 shares of its common stock
with a fair value of $22,800 on the date of issuance for
compensation to employees and officers.
Stock issued for dividends
In
January 2018, the Company issued 10,000 shares of its common stock
as dividends to the holder of its Series A preferred
stock.
Stock issued for acquisition
On
September 19, 2017, the Company issued 1,100,233 shares of its
common stock with a fair value of $429,091 for the acquisition of
Daily Engage Media.
Stock Incentive Plan and Stock Option Grants to Employees and
Directors
The
Company recorded $7,344 and $38,259 stock compensation for the
three months ended March 31, 2018 and 2017, respectively. The stock
compensation expense has been recognized as a component of general
and administrative expenses in the accompanying unaudited condensed
consolidated financial statements.
As
of March 31, 2018 there were total unrecognized compensation costs
related to non-vested share-based compensation arrangements of
$27,745 to be recognized through August 2020.
A
summary of the Company's stock option activity during the three
months ended March 31, 2018 is presented below:
|
|
|
Weighted Average
Exercise
Price
|
Weighted Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|
Balance
Outstanding, December 31, 2017
|
2,027,000
|
$
0.37
|
6.8
|
$
73,770
|
|
Granted
|
—
|
—
|
—
|
—
|
|
Exercised
|
—
|
—
|
—
|
—
|
|
Forfeited
|
—
|
—
|
—
|
—
|
|
Expired
|
—
|
—
|
—
|
—
|
|
Balance
Outstanding, March 31, 2018
|
2,027,000
|
$
0.37
|
5.2
|
$
82,735
|
|
Exercisable
at March 31, 2018
|
1,801,500
|
$
0.31
|
3.8
|
|
Summarized
information with respect to options outstanding under the three
option plans at March 31, 2018 is as follows:
|
|
|
|
|
|
|
Remaining
Average
Contractual Life (In Years)
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Exercise
Price
|
Remaining Average Conversion Life (In Years)
|
|
0.14 - 0.24
|
720,000
|
1.0
|
$
0.14
|
720,000
|
$
0.14
|
1.1
|
|
0.25 - 0.49
|
351,000
|
0.9
|
$
0.28
|
351,000
|
$
0.28
|
1.6
|
|
0.50 - 0.85
|
956,000
|
3.3
|
$
0.67
|
730,500
|
$
0.66
|
1.2
|
|
|
2,027,000
|
5.2
|
|
1,801,500
|
|
3.8
|
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
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,
2018, purchases from Citizens and Bulova accounted for less than
10% of the watch products purchased as compared to 25% and 16%,
respectively, for the three months ended March 31,
2017.
Three
Black Helmet Apparel vendors have been identified as having a high
concentration. During the three-months ended March 31, 2018
purchases from AlphaBroder, Enemy Ink, and TSF Sportswear, LLC
accounted for 23%, 31%, and 17% of the Black Helmet products
purchased, respectively.
Although
we continue to add additional product vendors and we continue to
expand our product line and vendor relationships, due to continued
high concentration and reliance on these three vendors, the loss of
one of these two vendors could adversely affect the Company's
operations.
The
Company generates revenues from two segments: product sales and
advertising. The sharp increase in PayPal/eBay concentration is due
to our acquisition of the Black Helmet Apparel business in December
2016. Due to high concentration and reliance on these portals, the
loss of a working relationship with either of these two portals
could adversely affect the Company's operations. In addition,
a substantial amount of payments for our products sold are
processed through PayPal and Amazon. A disruption in PayPal or
Amazon payment processing could have an adverse effect on the
Company's operations and cash flow. During the three months
ended March 31, 2018, Paypal and Amazon accounted for 25% and 0.1%,
respectively, of our total product sales as compared to 43% and 44%
in the three months ended March 31, 2017.
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, 2018
and December 31, 2017, respectively, the Company had no cash
balances in excess of the FDIC insured limit.
Concentration of Funding
During
the three months ended March 31, 2018, the Company's funding was
provided primarily through the sale of 1,762,500 units of our
securities to 10 accredited investors in a private placement exempt
from registration under the Securities Act in reliance on
exemptions provided by Section 4(a)(2) of the act and Rule 506(b)
of Regulation D, resulting in gross proceeds to us of $705,000.
Each Unit, which was sold at a purchase price of $0.40,
consisted of one share of common stock and one five year warrant to
purchase one share of common stock at an exercise price of $0.65
per share. Spartan Capital Securities, LLC, a broker-dealer
and member of FINRA, served as placement agent for us in this
offering. As compensation for its services, we paid Spartan
Capital Securities, LLC cash commissions totaling $70,500 and
issued it five year placement agent warrants to purchase an
aggregate of 147,000 shares of our common stock at an exercise
price of $0.65 per share. After payment of our offering
expenses including legal, accounting, printing and other related
expenses, we are using the net proceeds for working
capital.
Between
January 2018 and March 2018, Mr. W. Kip Speyer, an executive
officer and member of our board of directors, an aggregate of
500,000 shares of our 10% Series E convertible preferred stock,
resulting in gross proceeds to us of $200,000. We did not pay any
commissions or finders fees, and the sales were made to Mr. Speyer,
an accredited investor, in transactions exempt from registration
under the Securities Act in reliance on exemptions provided by
Section 4(a)(2) of that act.
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018
(Unaudited)
NOTE 13 – SUBSEQUENT EVENTS.
On
April 2, 2018, April 20, 2018, and May 10, 2018 the Company sold an
aggregate of 1,437,500 units of its securities to 6 accredited
investors in a private placement resulting in gross proceeds to the
Company of $575,000. Each unit, which was sold at a purchase price
of $0.40, consisted of one share of common stock and one five year
warrant to purchase one share of common stock at an exercise price
of $0.65 per share. Spartan Capital Securities, LLC, a
broker-dealer and member of FINRA, served as placement agent for
the Company in this offering. As compensation for its services, the
Company paid Spartan Capital Securities, LLC cash commissions
totaling $57,500 and issued it five year placement agent warrants
to purchase an aggregate of 143,750 shares of the Company’s
common stock at an exercise price of $0.65 per share.
On
April 13, 2018 Mr. W. Kip Speyer, the Company’s Chairman and
Chief Executive Officer, purchased an aggregate of 62,500 shares of
Series E Stock at a purchase price of $0.40 per share. The
designations, rights and preferences of Series E Stock as described
in Note 11. The Company used the proceeds from these sales for
working capital.
On
April 24, 2018 we made a principle payment of $25,000 on the
promissory note agreement with an unaffiliated party, further
reducing the outstanding note balance to $425,000.
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
operation
s for the three months
ended March 31, 2018 and 2017 should be read in conjunction with
the unaudited condensed consolidated financial statements and the
notes to those statements that are included elsewhere in this
report. Our discussion includes forward-looking statements based
upon current expectations that involve risks and uncertainties,
such as our plans, objectives, expectations and intentions. Actual
results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a
number of factors, including those set forth under Item 1A. Risk
Factors in our Annual Report on Form 10-K for the year ended
December 31, 2017 as filed with the Securities and Exchange
Commission on April 2, 2018. We use words such as
“anticipate,” “estimate,”
“plan,” “project,”
“continuing,” “ongoing,”
“expect,” “believe,” “intend,”
“may,” “will,” “should,”
“could,” and similar expressions to identify
forward-looking statements.
Overview
Bright
Mountain Media is a digital media holding company for online
publications, services and software primarily focused on serving a
young, male audience as well as brands trying to reach them. We do
this by connecting advertisers and brands with consumers through a
full advertising services platform that incorporates an ad network,
an ad exchange and 25 websites (owned and operated) that provide
content, services and products. In the first quarter of 2018, we
delivered over 95 million advertisements on web properties we own
and manage. Through our ad network and ad exchange we delivered
approximately 804.3 million ads in the first quarter 2018. Bright
Mountain Media’s owned and operated websites primarily
provide content to active, reserve and retired military audiences
as well as law enforcement and first responders and their families.
Two of our websites operate as eCommerce platforms, one of which,
Bright Watches, is non strategic to the current direction of the
business.
A
key component of our growth is our continued transition to a full
services advertising platform. The ad platform generates revenue
from advertisements (ad impressions) placed on our owned and
managed sites, as well as from advertisements we place on partner
websites, for which we earn a share of the revenue. For this
reason, the managerial focus will be on increasing the total number
of ad impressions delivered to continue growing our total
advertising revenue. Over the past quarters (second quarter in 2017
to the first quarter of 2018), we experienced a 495% increase in
the number of total ad impressions delivered, with most of the
income following our acquisition of Daily Engage Media. Ad
impression growth over the past four consecutive quarters is
conveyed in the following graph:
The
Bright Mountain Media advertising services platform will include a
real-time bidding Ad Exchange when fully developed and implemented.
When fully developed, this new platform is expected to have the
following capabilities:
●
The ability for
advertisers to login and purchase advertising space on a variety of
digital publications;
●
Leading targeting
technology, allowing advertisers to pinpoint their marketing
efforts to reach the military and public safety demographics across
desktop, tablet, and mobile devices;
●
The ability to
handle any ad format, including video, display, and native
advertisements;
●
Ad serving and
self-service features for publishers and advertisers;
and
●
Server-to-server
integration with other ad exchanges for extremely quick
transactions with advertisers on other platforms.
This
Bright Mountain Media Ad Exchange Network will be a trading desk
for publishers and advertisers where they will be able to login and
choose from various features to maximize their earning potential.
Advertisers will be able to set their budget and choose where their
ads will be seen using our filters or by connection directly with
publishers through our platform. Publishers will be able to select
a variety of ad units for their video, mobile, display and native
advertisements and also have the ability to create their own unique
ad formats.
In
addition to our niche market of military and public safety sectors,
we intend to broaden the scope of our partner publishers to include
a young male audience, aged 18 to 54, of which there is a
population of over 100 million individuals in the United States
alone, according to the latest U.S Census Bureau report from
2010.
As
a demographic group, we believe that this profile should be
attractive to local, national and international companies whose
advertising budgets are shifting from print media, radio and
television to the internet.
Our
ability to fully implement the Bright Mountain Media Ad Exchange
Network and maximize the value of our comprehensive assets is
dependent upon our ability to raise additional sufficient capital.
Historically we have been dependent upon loans and equity purchases
from our Chief Executive Officer and, to a lesser extent in prior
years from other accredited investors, to provide sufficient funds
to meet our working capital needs. Beginning in the fourth quarter
of 2017 we also expanded our sources to working capital through
sales of equity securities in a private placement to accredited
investors. During the three months ended March 31, 2018 we raised
$200,000 of working capital from our Chief Executive Officer and we
raised an additional $705,000 through the sale of our securities in
a private placement. Subsequent to March 31, 2018 additional funds
of $575,000 were raised in connection with sales of equity
securities in this private placement. While we estimate that we
need a minimum of $1,800,000 in additional working capital to
provide sufficient funds to pay our operating expenses and fund our
development over the next 12 months, we believe that if we are
successful the anticipated revenues from our advertising segment
will have a significant impact on our revenues and results of
operations in future periods. While we have engaged a placement
agent to assist us in raising capital privately on a best efforts
basis, we do not have any firm commitments for this capital and any
delay in raising sufficient funds will delay the implementation of
our business strategy and could adversely impact our ability to
significantly increase our revenues in future periods. In addition,
if we are unable to raise the necessary additional working capital,
absent a significant increase in our revenues, most particularly
from our advertising segment, 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, 2018, we reported a net loss of
$1,044,802, cash used in operating activities of $720,245 and we
had an accumulated deficit of $12,863,704 at March 31, 2018. The
report of our independent registered public accounting firm on our
audited consolidated financial statements at December 31, 2017 and
2016 and for the years then ended contains an explanatory paragraph
regarding substantial doubt of our ability to continue as a going
concern based upon our net losses, cash used in operations and
accumulated deficit. These factors, among others, raise substantial
doubt about our ability to continue as a going concern. Our
unaudited condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. There are no assurances we will be successful in our
efforts to generate revenues or report profitable operations or to
continue as a going concern, in which event investors would lose
their entire investment in our company.
Results of operations
|
|
Three months ended
March 31,
2018
|
Three months ended
March 31,
2017
|
|
|
Product
sales revenue
|
$
375,286
|
$
551,355
|
(32
)
|
|
Advertising
revenue
|
683,058
|
109,743
|
522
|
|
Total
revenues
|
$
1,058,344
|
$
661,098
|
60
|
|
Cost
of
revenue
– products
|
291,565
|
372,546
|
(22
)
|
|
Cost
of
revenue
- products as a percentage of product
sales
|
78
%
|
68
%
|
|
|
Cost
of
revenue
- advertising
|
510,704
|
3,510
|
|
|
Cost
of
revenue
– advertising as a percent of advertising
revenue
|
75
%
|
3
%
|
|
|
Gross
profit
|
$
256,075
|
$
285,042
|
(10
)
|
|
Gross
profit as a percentage of total revenues
|
24
%
|
43
%
|
|
|
Selling,
general and administrative expenses
|
$
1,185,954
|
$
884,203
|
34
|
|
(Loss)
from operations
|
$
(929,879
)
|
$
(599,161
)
|
55
|
|
|
|
|
|
Revenue
Presently,
we generate revenue from two segments: product sales and
advertising which includes advertising revenue and subscriptions.
Advertising revenues increased 522% for the three months ended
March 31, 2018 over the comparable period in 2017 which is
attributable to the impact of the acquisition of Daily Engage Media
in mid-September 2017. Sales by the Daily Engage business totaled
$636,511 during the first three months of 2018 compared to their
pre-acquisition sales of $563,618 for the first three months of
2017, as included in our pro-forma disclosure in Note 3 –
Acquisitions. While there can be no assurance, we expect a similar
increase quarter-over-quarter during the remainder of 2018
resulting from this acquisition.
Consistent
with our business model, which now focuses on our advertising
segment, revenues related to product sales decreased during the
three months ended March 31, 2018 from the comparable period in
2017. In particular the decrease in watch sales is a result of the
watch business focusing on higher margin sales of watches as well
as the focus of the Black Helmet business on the future launch of
its subscription sales program that will begin offering
“mystery” boxes to its customers. This sales program is
scheduled to be fully implemented in July 2018.
The table below
provides the revenue and cost of revenue for the two business
segments.
|
|
For
the three months ended
|
For
the three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
375,286
|
$
683,058
|
$
1,058,344
|
$
551,355
|
$
109,743
|
$
661,098
|
|
Cost
of Revenue
|
291,565
|
510,704
|
802,269
|
372,546
|
3,510
|
376,056
|
|
Gross
Profit
|
$
83,721
|
$
172,354
|
$
256,075
|
$
178,809
|
$
106,233
|
$
285,042
|
Cost of Revenue
Cost
of revenue as a percentage of product sales increased overall in
the first quarter of 2018 compared to the comparable period in 2017
as a result of the variance in the gross profit margin in the Black
Helmet product line.
Historically,
with respect to our advertising segment, we did not recognize any
cost of sales for this segment. However, as a result of the
expansion of the operations in this segment during the fourth
quarter of 2017, we now incur costs of sales associated with this
segment which includes revenue share payments to media providers
and website publishers.
See the table above
for the cost of revenue for the two business
segments.
Selling, General and Administrative Expenses
Selling,
general and administrative expenses increased by approximately 34%
for the three months ended March 31, 2018 from the comparable
period in 2017. Our selling, general and administrative expenses
were 112% and 134% of our total revenues for the three months ended
March 31, 2018 and 2017, respectively.
A
significant portion of our selling, general and administrative
expenses between periods was attributable to non-cash expenses
recognized during the three months ended March 31, 2018 and 2017
including amortization expense attributable to intangible assets
acquired of $112,723 and $75,806, respectively, and amortization of
debt discounts of $47,712 and $28,887. In addition, stock options
compensation expense totaled $7,344 and $38,259 in the first three
months of 2018 and 2017, respectively. For the three months ended
March 31, 2018 and 2017, advertising, marketing and promotion
expense was $60,923 and $92,288, respectively. A large portion of
the increase is related to the costs of operating Daily Engage
Media and the required working capital it takes to grow the
business
Selling,
general and administrative expenses are expected to continue to
increase as we execute our planned growth strategy of implementing
the Bright Mountain Media Ad Exchange Network which will include
additional administrative support. Subject to the availability of
additional working capital, the Company also intends to add
administrative staff to its accounting department to improve
controls over its accounting and reporting processes.
Total other income (expense)
Total
other income (expense) primarily reflects interest expense
associated with our borrowings under a nonconvertible notes
payable. Interest under these notes totaled $115,211 and $84,168,
inclusive of $52,025 in amortization of the related debt discount,
for the three months ended March 31, 2018 and 2017, respectively.
The decrease in the interest over the two periods is related to an
amendment of a note payable in September 2017, where the interest
rate was reduced from 25% to 10% and the amortization of discounts
on convertible notes.
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
|
|
|
|
|
unaudited
|
|
|
|
Net
(loss)
|
$
(1,044,802
)
|
$
(683,247
)
|
|
plus:
|
|
|
|
Stock
compensation expense
|
7,344
|
38,259
|
|
Stock
issued for services
|
95,552
|
3,060
|
|
Adjusted
net (loss):
|
$
(941,906
)
|
$
(641,928
)
|
|
Depreciation
expense
|
6,339
|
5,489
|
|
Amortization
expense
|
112,723
|
75,806
|
|
Amortization
on debt discount
|
47,712
|
28,887
|
|
|
12,347
|
55,281
|
|
Adjusted
EBITDA:
|
(762,785
)
|
$
(476,465
)
|
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, 2018 the Company had a balance
of cash of $166,267 and working capital deficit of $340,330 as
compared to cash
of
$140,022 and working capital deficit of $383,192 at December 31,
2017. The increases in cash and reduction in the working capital
deficit is a result of funding from our private placement
memorandum during the first quarter of 2018, that will continue to
provide funding throughout the second quarter. Our current assets
decreased 6.2% at March 31, 2018 from December 31, 2017 which is
mostly reflective of our decrease in watch inventory, with a slight
offset for the increase in cash. Our current liabilities decreased
by 7.1% at March 31, 2018 from December 31, 2017 which primarily
reflects a decrease in accounts payable, accrued expenses and
premium finance loan payable, offset by a slight increase in our
note payables.
During
the first quarter of 2018 and 2017 our average monthly negative
cash flow was approximately $240,000 and $150,000, respectively. As
we continue our efforts to grow our business we expect that our
monthly cash operating overhead will continue to increase as we add
personnel, although at a lesser rate, and we are not able at this
time to quantify the amount of this expected increase. In the first
quarter of 2018 we implemented policies and procedures around cash
collections to prevent the aging of accounts receivables that was
experienced in 2017. Cash collection efforts have been successful,
and we feel that we have appropriately reserved for uncollectible
amounts at March 31, 2018.
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 or equity investments from a related
party, as well as to pay our obligations as they become due, our
ability to continue to as a going concern is in
jeopardy.
Cash flows
Net
cash flows used in operating activities totaled $720,245 and
$445,058 for the three month periods ending March 31, 2018 and
2017, respectively. During the three months ended March 31, 2018,
we used cash primarily to fund our net loss of $1,044,802 for the
period, with an offset for the reduction in inventory purchases and
increase in accounts payable for the period offset by a decrease in
accounts receivable. 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.
Net
cash flows used in investing activities totaled $1,023 and $8,035
for the first three months of 2018 and 2017, respectively. This
decrease is attributable to less fixed asset purchases in the 2018
period.
Net
cash flows provided from financing activities totaled $747,513 and
$324,758 during the three month periods ending March 31, 2018 and
2017, respectively. During the three months of 2018 the Company
raised $705,000 through a the sale of equity securities in a
private placement memorandum and $200,000 through the sale of
shares of 10% Series E convertible preferred stock to our CEO, and
we paid cash dividends of $14,763 to Mr. Speyer on shares of
preferred stock owned by him and made repayments of $26,191 in
insurance premium financing notes. 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.
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, who also serves as our
principal financial and accounting officer,, concluded that our
disclosure controls and procedures were not effective such that the
information relating to our company, required to be disclosed in
our Securities and Exchange Commission reports (i) is recorded,
processed, summarized and reported within the time periods
specified in SEC rules and forms and (ii) is accumulated and
communicated to our management, including our Chief Executive
Officer, to allow timely decisions regarding required disclosure as
a result of 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, 2017. 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.