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EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Bright Mountain Media, Inc.exhibit311september302018.htm
EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - Bright Mountain Media, Inc.exhibit321september302018.htm
EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - Bright Mountain Media, Inc.exhibit312september302018.htm
EX-10.4 - MATERIAL CONTRACTS - Bright Mountain Media, Inc.kubientnote-v1_1032018.htm
EX-10.2 - MATERIAL CONTRACTS - Bright Mountain Media, Inc.spartanfindersagreement_e.htm
EX-10.1 - MATERIAL CONTRACTS - Bright Mountain Media, Inc.lease-congressavenue_0716.htm
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2018
 
or
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________________ to __________________
 
Commission file number: 000-54887
 
Bright Mountain Media, Inc.
(Exact name of registrant as specified in its charter)
 
Florida
27-2977890
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
6400 Congress Avenue, Suite 2050, Boca Raton, Florida
33487
(Address of principal executive offices)
(Zip Code)
 
561-998-2440
(Registrant's telephone number, including area code)
 
not applicable
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
 
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)  Yes  No
 
As of November 20, 2018 the registrant had 57,288,864 shares of its common stock outstanding.
 
 
 
 
 
 
 
 
 
 
 
 
 
TABLE OF CONTENTS
 
 
 
Page No.
                    
PART I - FINANCIAL INFORMATION
                    
 
 
 
ITEM 1.
FINANCIAL STATEMENTS.
 4
 
 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 26
 
 
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 33
 
 
 
ITEM 4.
CONTROLS AND PROCEDURES.
 33
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
ITEM 1.
LEGAL PROCEEDINGS.
 34
 
 
 
ITEM 1A.
RISK FACTORS.
 34
 
 
 
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 34
 
 
 
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.
 34
 
 
 
ITEM 4.
MINE SAFETY DISCLOSURES.
 34
 
 
 
ITEM 5.
OTHER INFORMATION.
 35
 
 
 
ITEM 6.
EXHIBITS.
 35
  
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
Various statements in this report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived from utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to:
 
our history of losses and our ability to raise additional capital and continue as a going concern;
our ability to successfully integrate the operations of the Black Helmet Apparel business;
 
our ability to return revenues from our advertising segment to historic levels;
 
a failure to successfully transition to primarily advertising based revenue model;
 
the impact of seasonal fluctuations on our revenues;
 
once established, our failure to detect advertising fraud;
 
 
 
 
 2
 
 
 
 
 
 
 
 
 
our dependence on our relationships with Amazon, Shopify and PayPal;
 
our dependence on a limited number of vendors;
 
our dependence on our relationship with Google AdSense;
 
acquisitions of new businesses and our ability to integrate those businesses into our operations;
 
online security breaches;
 
failure to effectively promote our brand;
 
our ability to protect our content;
 
our ability to protect our intellectual property rights and our proprietary content;
 
the success of our technology development efforts;
 
additional competition resulting from our business expansion strategy;
 
liability related to content which appears on our websites;
 
regulatory risks;
 
dependence on executive officers and certain key employees and consultants;
 
our ability to hire qualified personnel;
 
third party content;
 
possible problems with our network infrastructure;
 
the historic illiquid nature of our common stock;
 
risks associated with securities litigation;
 
material weaknesses in our internal control over financial reporting;
 
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
the lack of cash dividends on our common stock;
 
provisions of our charter and Florida law which may have anti-takeover effects;
 
the impact of diversion of management’s time and increased legal fees as we pursue the litigation against the former owners of Daily Engage Media.
 
 
 
 
Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this report, including the Part II, Item 2, our Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on April 2, 2018 and our other filings with the Securities and Exchange Commission in their entirety. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.
 
OTHER PERTINENT INFORMATION
 
Unless specifically set forth to the contrary, when used in this report the terms “Bright Mountain”, the “Company,” “we”, “us”, “our” and similar terms refer to Bright Mountain Media, Inc., a Florida corporation, and its subsidiaries. In addition, when used in this report, “third quarter of 2018” refers to the three months ended September 30, 2018, "third quarter of 2017" refers to the three months ended September 30, 2017, “2018” refers to the year ending December 31, 2018 and “2017” refers to the year ended December 31, 2017. The information which appears on our website at www.brightmountainmedia.com is not part of this report.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
 
 
 
 
 
 
 
 
PART 1 - FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30,
 
 
December 31,
 
 
 
 
 
 
2018
 
 
2017
 
 
 
 
 
 
(unaudited)
 
 
 
 
 
 
 
              ASSETS
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
   Cash and Cash Equivalents
 
$
553,411
 
 
$
140,022
 
 
 
 
   Accounts Receivable, net
 
 
693,253
 
 
 
879,770
 
 
 
 
   Inventories, net
 
 
356,357
 
 
 
611,468
 
 
 
 
   Prepaid Expenses and Other Current Assets, net
 
 
343,833
 
 
 
145,732
 
 
 
 
      Total current assets
 
 
1,946,854
 
 
 
1,776,992
 
 
 
 
  Property and Equipment, net
 
 
68,702
 
 
 
89,500
 
 
 
 
   Website Acquisition Assets, net
 
 
192,535
 
 
 
393,417
 
 
 
 
   Intangible Assets, net
 
 
561,023
 
 
 
967,774
 
 
 
 
   Goodwill
 
 
988,926
 
 
 
446,426
 
 
 
 
   Prepaid Services and Consulting Agreements – Long Term
 
 
1,240,000
 
 
 
 
 
 
 
   Other Assets
 
 
40,670
 
 
 
44,608
 
 
 
 
Total assets
 
$
5,038,710
 
 
$
3,718,717
 
 
 
 
 
 
 
0
 
 
 
 
 
 
 
 
              LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
   Accounts Payable
 
$
628,920
 
 
$
1,172,827
 
 
 
 
   Accrued Expenses
 
 
303,478
 
 
 
90,000
 
 
 
 
   Accrued Interest – Related Party
 
 
16,550
 
 
 
 
 
 
 
   Premium Finance Loan Payable
 
 
11,092
 
 
 
63,133
 
 
 
 
   Deferred Rent - Short Term
 
 
3,097
 
 
 
2,468
 
 
 
 
   Deferred Revenues
 
 
5,965
 
 
 
9,735
 
 
 
 
   Long Term Debt, Current Portion
 
 
384,034
 
 
 
767,071
 
 
 
 
      Total current liabilities
 
 
1,353,136
 
 
 
2,105,234
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long term Deferred Rent
 
 
14,454
 
 
 
16,418
 
 
 
 
Long Term Debt to Related Parties, net
 
 
1,351,186
 
 
 
1,198,893
 
 
 
 
Long Term Debt, net of Current Portion
 
 
 
 
 
54,950
 
 
 
 
      Total liabilities
 
 
2,718,776
 
 
 
3,375,495
 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
 
 
 
 
Shareholders' Equity
 
 
 
 
 
 
 
 
 
 
 
   Preferred Stock, par value $0.01, 20,000,000 shares authorized,
 
 
 
 
 
 
 
 
 
 
 
      Series A, 2,000,000 shares designated, 100,000 and
 
 
 
 
 
 
 
 
 
 
 
         100,000 shares issued and outstanding
 
 
1,000
 
 
 
1,000
 
 
 
 
      Series B, 1,000,000 shares designated, 0 and
 
 
 
 
 
 
 
 
 
 
 
         0 shares issued and outstanding
 
 
 
 
 
 
 
 
 
      Series C, 2,000,000 shares designated, 0 and
 
 
 
 
 
 
 
 
 
 
 
         0 shares issued and outstanding
 
 
 
 
 
 
 
 
 
      Series D, 2,000,000 shares designated, 0 and
 
 
 
 
 
 
 
 
 
 
 
         0 shares issued and outstanding
 
 
 
 
 
 
 
 
 
      Series E, 2,500,000 shares designated,
 
 
 
 
 
 
 
 
 
 
 
         2,312,500 and 1,375,000 issued and outstanding
 
 
23,125
 
 
 
13,750
 
 
 
 
   Common stock, par value $0.01, 324,000,000 shares authorized,
 
 
 
 
 
 
 
 
 
 
 
      57,288,864 and 46,168,864 issued and outstanding
 
 
572,889
 
 
 
461,689
 
 
 
 
   Additional Paid-In Capital
 
 
16,295,502
 
 
 
11,685,685
 
 
 
 
   Accumulated Deficit
 
 
(14,572,582
)
 
 
(11,818,902
)
 
 
 
   Total shareholders' equity
 
 
2,319,934
 
 
 
343,222
 
 
 
 
Total liabilities and shareholders' equity
 
$
5,038,710
 
 
$
3,718,717
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements
 
 
5
 
 
 
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
 
For the Nine Months Ended
 
 
 
 
 
 
September 30,
 
 
September 30,
 
 
 
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Advertising
 
$
185,417
 
 
$
126,098
 
 
$
1,159,751
 
 
$
329,731
 
 
 
 
   Product
 
 
203,485
 
 
 
589,402
 
 
 
897,536
 
 
 
1,713,688
 
 
 
 
      Total revenues
 
 
388,902
 
 
 
715,500
 
 
 
2,057,287
 
 
 
2,043,419
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Advertising
 
 
117,175
 
 
 
11,669
 
 
 
810,744
 
 
 
24,031
 
 
 
 
   Product
 
 
142,234
 
 
 
387,360
 
 
 
672,751
 
 
 
1,116,465
 
 
 
 
     Total cost of revenue
 
 
259,409
 
 
 
399,029
 
 
 
1,483,495
 
 
 
1,140,496
 
 
 
 
      Gross profit
 
 
129,493
 
 
 
316,471
 
 
 
573,792
 
 
 
902,923
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
 
 
883,478
 
 
 
797,268
 
 
 
2,985,391
 
 
 
2,746,236
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      Loss from operations
 
 
(753,985
)
 
 
(480,797
)
 
 
(2,411,599
)
 
 
(1,843,313
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Interest income
 
 
1,153
 
 
 
232
 
 
 
2,169
 
 
 
451
 
 
 
 
   Interest expense
 
 
(16,014
)
 
 
(5,912
)
 
 
(41,217
)
 
 
(75,663
)
 
 
 
   Interest expense - related party
 
 
(101,526
)
 
 
(95,478
)
 
 
(303,033
)
 
 
(220,610
)
 
 
 
      Total other income (expense)
 
 
(116,387
)
 
 
(101,158
)
 
 
(342,081
)
 
 
(295,822
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
 
(870,372
)
 
 
(581,955
)
 
 
(2,753,680
)
 
 
(2,139,135
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock dividends
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Series A and Series E preferred stock
 
 
24,565
 
 
 
1,122
 
 
 
58,069
 
 
 
3,849
 
 
 
 
      Total preferred stock dividends
 
 
24,565
 
 
 
1,122
 
 
 
58,069
 
 
 
3,849
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to common shareholders
 
$
(894,937
)
 
$
(583,077
)
 
$
(2,811,749
)
 
$
(2,142,984
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted net loss per share
 
$
(0.02
)
 
$
(0.01
)
 
$
(0.06
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic and diluted
 
 
51,728,049
 
 
 
45,126,811
 
 
 
49,388,322
 
 
 
44,973,345
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements
 
 
6
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
 
 
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 
 
 
 
For the Nine Months Ended September 30, 2018
 
 
 
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
Total
 
 
 
 
 
Preferred Stock
 
 
Common Stock
 
Paid-in
 
Accumulated
 
 
Shareholders'
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
Capital
 
Deficit
 
 
Equity
 
 
 
Balance - December 31, 2017
 
 
1,475,000
 
 
$
14,750
 
 
 
46,168,864
 
 
$
461,689
 
 
$
11,685,685
 
 
$
(11,818,902
)
 
$
343,222
 
 
 
Common stock issued for 10% dividend payment pursuant
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 to Series A preferred stock Subscription Agreements
 
 
 
 
 
 
 
 
 
 
10,000
 
 
 
100
 
 
 
(100
 )
 
 
 
 
 
 
 
 
 
Issuance of Series E preferred stock ($0.40/share)
 
 
937,500
 
 
 
9,375
 
 
 
 
 
 
 
 
 
 
 
365,625
 
 
 
 
 
 
375,000
 
 
 
Series E 10% preferred stock dividend
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(58,069
)
 
 
 
 
 
(58,069
)
 
 
Stock option vesting expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19,961
 
 
 
 
 
 
19,961
 
 
 
Unit issued for cash ($0.40/share)
 
 
 
 
 
 
 
 
 
 
10,100,000
 
 
 
101,000
 
 
 
3,535,000
 
 
 
 
 
 
3,636,000
 
 
 
Shares issued to Spartan Capital for prepaid consulting contract
 
 
 
 
 
 
 
 
1,000,000
 
 
 
10,000
 
 
 
740,000
 
 
 
 
 
 
750,000
 
 
 
Stock issued for services
 
 
 
 
 
 
 
 
10,000
 
 
 
100
 
 
 
7,400
 
 
 
 
 
 
7,500
 
 
 
Net loss for the nine months ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,753,680
)
 
 
 (2,753,680
)
 
 
Balance – September 30, 2018
 
 
2,412,500
 
 
$
24,125
 
 
 
57,288,864
 
 
$
572,889
 
 
$
16,295,502
 
 
$
(14,572,582
)
 
$
2,319,934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
 
 
For the Nine Months Ended
 
 
 
September 30,
 
 
 
2018
 
 
2017
 
Cash flows from operating activities:
 
 
 
 
 
 
Net loss
 
$
(2,753,680
)
 
$
(2,139,135
)
        Adjustments to reconcile net loss to net cash used in operations:
 
 
 
 
 
 
 
 
Depreciation
 
 
20,661
 
 
 
18,925
 
Amortization of debt discount
 
 
160,355
 
 
 
151,843
 
Amortization of intangibles
 
 
262,633
 
 
 
227,418
 
Stock option compensation expense
 
 
19,961
 
 
 
95,821
 
Stock issued for services
 
 
7,500
 
 
 
25,860
 
Gain on sale of property and equipment
 
 
(749
)
 
 
 
Provision for bad debt
 
 
63,051
 
 
 
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 Accounts receivable
 
 
103,940
 
 
 
48,925
 
 Inventory
 
 
255,111
 
 
 
142,550
 
 Prepaid expenses and other current assets
 
 
(48,101
 
 
61,223
 
 Prepaid Services and Consulting contracts
 
 
(640,000
)
 
 
 
 
 Other assets
 
 
3,938
 
 
 
134,903
 
 Accounts payable
 
 
(543,891
)
 
 
(203,673
)
 Accrued expense
 
 
15,978
 
 
 
39,236
 
 Accrued interest - related party
 
 
16,550
 
 
 
10,958
 
 Deferred rents
 
 
(1,335
)
 
 
16,692
 
  Deferred revenue
 
 
(3,770
)
 
 
 
Net cash used in operating activities
 
 
(3,061,848
)
 
 
(1,368,454
)
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
Purchase of property and equipment
 
 
(1,213
)
 
 
(14,305
)
Cash received for sale of property and equipment
 
 
2,100
 
 
 
 
Cash paid for acquisition, net of cash received
 
 
 
 
 
(207,802
)
Net cash provided by (used in) investing activities
 
 
887
 
 
 
(222,107
)
 
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
Proceeds from issuance of preferred stock
 
 
375,000
 
 
 
200,000
 
Proceeds from issuance of common stock, net of commissions
 
 
3,636,000
 
 
 
50,000
 
Repayments on insurance premium notes payable
 
 
(52,041
)
 
 
(53,643
)
Dividend payments
 
 
(54,685
)
 
 
 
Principal repayment on notes payable
 
 
(429,924
)
 
 
(113,078
Long-term debt - related parties
 
 
-
 
 
 
1,460,000
 
Net cash provided by financing activities
 
 
3,474,350
 
 
 
1,543,279
 
 
 
 
 
 
 
 
 
 
Net increase (decrease) in cash
 
 
413,389
 
 
 
(47,282
)
Cash and cash equivalents at beginning of period
 
 
140,022
 
 
 
162,795
 
Cash and cash equivalents at end of period
 
$
553,411
 
 
$
115,513
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
 
 
 
 
 
    Cash paid for:
 
 
 
 
 
 
 
 
                Interest
 
$
158,192
 
 
$
92,783
 
 
 
 
 
 
 
 
 
 
Non-cash investing and financing activities
 
 
 
 
 
 
 
 
    Premium finance loan payable recorded as prepaid
 
$
 
 
$
18,885
 
    Beneficial conversion of debt discount to additional paid in capital
 
$
 
 
$
615,625
 
    Valuation of common stock warrants issued to Spartan Capital
 
$
380,409
 
 
$
 
    Accounts receivable charged against notes payable - Daily Engage Media
 
$
19,525
 
 
$
 
    Common stock issued for acquisition of Daily Engage Media
 
$
 
 
$
429,091
 
    Notes payable issued for acquisition of Daily Engage Media
 
$
 
 
$
380,000
 
    Adjustment to Goodwill for undisclosed liability assumed in the acquisition of Daily Engage Media
 
$
197,500
 
 
$
 
    Stock issued for prepaid services and consulting agreements
 
$
750,000
 
 
$
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements
 
 8
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
 
Organization and Nature of Operations
 
Bright Mountain Media, Inc. is a Florida corporation formed on May 20, 2010. Its wholly owned subsidiaries, Bright Mountain LLC, and The Bright Insurance Agency, LLC, were formed as Florida limited liability companies in May 2011. Its wholly owned subsidiary, Bright Watches, LLC was formed as a Florida limited liability company in December 2015, and its wholly owned subsidiary Daily Engage Media Group LLC (“Daily Engage Media”) was formed as a New Jersey limited liability company in February 2015. When used herein, the terms "BMTM, the "Company," "we," "us," "our" or "Bright Mountain" refers to Bright Mountain Media, Inc. and its subsidiaries.
 
Bright Mountain is a digital media holding company whose primary focus is connecting brands with consumers as a full advertising services platform. The Company’s assets include an ad network, an ad exchange platform and 25 websites (owned and/or managed) that provide content, services and products. In addition, the Bright Mountain Media ad exchange network will be fully developed and implemented in the fourth quarter of 2018. The websites are primarily geared for a young, male audience with several that focus on active, reserve and retired military audiences as well as law enforcement and first responders. With the acquisition of Daily Engage Media in September 2017, the Company has acquired the software and expertise to scale this side of the business. Two of our websites operate as e-commerce platforms, one of which, Bright Watches, is non-strategic to the current direction of our business.
 
In December 2016, we acquired the assets, constituting the Black Helmet Apparel business (“Black Helmet Apparel”), from Sostre Enterprises, Inc. Assets acquired included various website properties and content, social media content, inventory and other intellectual property rights.
 
On September 19, 2017, under the terms of an Amended and Restated Membership Interest Purchase Agreement with Daily Engage Media, and its members, the Company acquired 100% of the membership interests of Daily Engage Media. Launched in 2015, Daily Engage Media is an ad network that connects advertisers with approximately 200 digital publications worldwide.
 
Principles of Consolidation and Basis of Presentation
 
The condensed consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. The accompanying unaudited financial statements for the three and nine months ended September 30, 2018 and 2017 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 8 of Regulation S-X of the SEC. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States for complete consolidated financial statements. In the opinion of management, such condensed consolidated financial statements include all adjustments (consisting of normal recurring accruals) necessary for the fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations. The condensed consolidated results of operations for periods presented are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet information as of December 31, 2017 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC on April 2, 2018. The interim condensed consolidated financial statements should be read in conjunction with that report.
 
Reclassification
 
Certain reclassifications have been made to the December 31, 2017 consolidated balance sheet to conform to the September 30, 2018 consolidated balance sheet presentation. 
 
 
 
 
9
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
 
Use of Estimates
 
Our consolidated financial statements are prepared in accordance with GAAP. These accounting principles require management to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of our consolidated financial statements as well as reported amounts of revenue and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. Significant estimates included in the accompanying consolidated financial statements include revenue recognition, the fair value of acquired assets for purchase price allocation in business combinations, valuation of inventory, valuation of intangible assets, estimates of amortization period for intangible assets, estimates of depreciation period for fixed assets and the valuation of equity-based transactions.
 
Cash and Cash Equivalents
 
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
 
Fair Value of Financial Instruments and Fair Value Measurements
 
The Company measures its financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and the short-term portion of long-term debt, the carrying amounts approximate fair value due to their short maturities.
 
We adopted accounting guidance for financial and non-financial assets and liabilities in accordance with Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures.” This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
 
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.
 
 
10
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
 
Accounts Receivable
 
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.
 
The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 60 or net 90 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.
 
Inventories
 
Inventories consist of finished goods and are stated at the lower of cost or market using the first in, first out (FIFO) method. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
 
Revenue Recognition
 
The Company recognizes revenue on our products in accordance with ASC 605, “Revenue Recognition.” Under these guidelines, revenue is recognized on sales transactions when all of the following exist: persuasive evidence of an arrangement did exist; delivery of the product or advertising has occurred; the sales price to the buyer is fixed or determinable; and collectability is reasonably assured. The Company has several revenue streams generated directly from its website and specific revenue recognition criteria for each revenue stream is as follows:
 
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 from 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. The Company recognizes revenue based on monthly billings of ad network activity, with adjustments for invalid traffic.

Our advertising revenue generated from the Daily Engage and Bright Mountain businesses are consistent with the above section. However, the two scenarios that arise from revenue generation and recognition include our owned and operated website advertising revenue which requires little to no cost of revenue, as well as advertising on non-owned websites which creates costs to those website owners and the Company makes a range of 18% to 20% of the gross revenues on these contractual agreements.
 
 
11
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
 
Cost of Revenues
 
Components of costs of revenues for the products segment include product costs, shipping costs to customers and any inventory adjustments for product sales. Cost of revenue for the advertising segment consists of revenue share payments to media providers and website publishers that are directly related to a revenue generating event. The Company becomes obligated to make the revenue share payments in the period the advertising impressions, click throughs, actions or lead-based information are delivered or occur. The Daily Engage Media portion of the advertising segment cost of revenue consists of revenue share payments to media providers and website publishers that are directly related to a revenue generating event. The Company becomes obligated to make the revenue share payments in the period the advertising impressions, click throughs, actions or lead-based information are delivered or occur.
 
Shipping and Handling Costs
 
The Company includes shipping and handling fees billed to customers as revenues and shipping and handling costs for shipments to customers as cost of revenues.
 
Sales Return Reserve Policy
 
Our return policy generally allows our end users to return purchased products for refund or in exchange for new products. We estimate a reserve for sales returns, if any, and record that reserve amount as a reduction of sales and as a sales return reserve liability. Sales to consumers on our web site generally may be returned within a reasonable period of time.
 
Property and Equipment
 
Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of five to seven years for office furniture and equipment, and five years for computer equipment. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the improvements. Expenditures for maintenance and repairs along with fixed assets with a purchase price below our capitalization threshold of $500 are expensed as incurred.
 
Website Development Costs
 
The Company accounts for its website development costs in accordance with ASC 350-50, “Website Development Costs” (“ASC 350-50”). These costs, if any, are included in intangible assets in the accompanying consolidated financial statements or expensed immediately if the Company cannot support recovery of these costs from positive future cash flows.
 
ASC 350-50 requires the expensing of all costs of the preliminary project stage and the training and application maintenance stage and the capitalization of all internal or external direct costs incurred during the application and infrastructure development stage. Upgrades or enhancements that add functionality are capitalized while other costs during the operating stage are expensed as incurred. The Company amortizes the capitalized website development costs over an estimated life of five years.
 
For the three and nine months ended September 30, 2018 and 2017, all platform and website development costs have been expensed.
 
Amortization and Impairment of Long-Lived Assets
 
Amortization and impairment of long-lived assets are non-cash expenses relating primarily to intangible assets. The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10 “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
  
 
12
 
 
 
 
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
 
Website acquisition costs are amortized over three years and intangible assets are amortized over up to eight years. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. While it is likely that we will have significant amortization expense as we continue to acquire websites, we believe that intangible assets represent costs incurred by the acquired website to build value prior to acquisition and the related amortization and impairment charges of assets, if applicable, are not ongoing costs of doing business. Amortization expense is included in selling, general and administrative expenses on the accompanying condensed consolidated statement of operations.
 
Stock-Based Compensation
 
The Company accounts for stock-based instruments issued to employees for services in accordance with ASC 718 “Compensation – Stock Compensation.” ASC 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. The value of the portion of an employee award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50, “Equity-Based Payments to Non-Employees.” The Company uses the Black-Scholes option pricing model for estimating the fair value of stock options. The use of the option valuation model requires the input of the Company's stock price, as well as highly subjective assumptions, including the expected life of the option and the expected stock price volatility based on peer companies. Additionally, the recognition of expense requires the estimation of the number of awards that will ultimately vest and the number of awards that will ultimately be forfeited. The fair value of the Company's common stock, for purposes of determining the grant date fair value of option, has been determined by using the closing market price per share of common stock as quoted on the date of grant. Non- cash stock-based stock option compensation is expensed over the requisite service period and are included in selling, general and administrative expenses on the accompanying condensed consolidated statement of operations. The Company recorded $5,753 and $21,983 stock-based compensation expense for the three months ended September 30, 2018 and 2017 and $19,961 and $95,821 for the nine months ended September 30, 2018 and 2017, respectively.
 
Advertising, Marketing and Promotion Costs
 
Advertising, marketing and promotion expenses are expensed as incurred and are included in selling, general and administrative expenses on the accompanying statement of operations. For the three and nine months ended September 30, 2018 and 2017, advertising, marketing and promotion expense was $67,976 and $66,436 and $203,863 and $231,669, 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
 
 
13
 
 
 
 
 
 
 
 
 
 
 
 BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
 
unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
 
As of September 30, 2018, tax years 2017, 2016, and 2015 remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.
 
Basic and Diluted Net Earnings (Loss) Per Common Share
 
In accordance with ASC 260-10 “Earnings Per Share,” basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. As of September 30, 2018 and 2017, there were approximately 2,027,000 and 2,187,000 common stock equivalent shares outstanding as stock options, respectively and 10,100,000 and 0 common stock equivalent shares outstanding from warrants to purchase common shares, respectively, 2,412,500 and 1,475,000 common stock equivalents from the conversion of preferred stock, respectively, and 4,300,000 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 September 30, 2018. The product sales segment sells merchandise directly to customers thorough e-commerce distributor portals such as Amazon and eBay, and through our proprietary websites and our retail location. The advertising segment is focused on producing advertising revenue generated by users “clicking on” and/or viewing website advertisements utilizing several ad network partners and direct advertisers.
 
Recent Accounting Pronouncements
 
May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606).” ASU 2014-09, which has been modified on several occasions, provides new guidance designed to enhance the comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. The core principle of the new guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new guidance also requires disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. We have reviewed the provisions of this ASU and subsequent updates and evaluated the potential impact on our results of operations, cash flows or financial condition as well as related disclosures and management believes the impact will be nominal. 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, retrospectively, with a cumulative effect of initially applying ASC 606 recognized at the date of initial application.
  The Company’s revenue recognition is based on sales for advertising revenue with an adjustment for invalid traffic which would be determined based on known trends and historical data. The current historic data considers an adjustment of approximately 1 to 23% of revenues. The Company will also address future cash flow in determining its allowance for doubtful accounts.
 
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.
 
14
 
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
 
In February 2016, the FASB issued ASU 2016-02 “Leases,” which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine the impact on our results of operations, cash flows or financial condition.
 
In April 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments” ASU 2016- provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 with early adoption permitted. We do not believe this ASU will have an impact on our results of operation, cash flows, other than presentation, or financial condition.
 
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments – Credit Losses” which replaces the incurred loss model with a current expected credit loss (“CECL”) model. The CECL model applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet exposures. Under current U.S. GAAP, an entity reflects credit losses on financial assets measured on an amortized cost basis only when losses are probable and have been incurred, generally considering only past events and current conditions in making these determinations. ASU 2016-13 prospectively replaces this approach with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first acquired. Under the revised methodology, credit losses will be measured based on past events, current conditions and reasonable and supportable forecasts that affect the collectability of financial assets.
 
ASU 2016-13 also revises the approach to recognizing credit losses for available-for-sale securities by replacing the direct write-down approach with the allowance approach and limiting the allowance to the amount at which the security’s fair value is less than the amortized cost. In addition, ASU 2016-13 provides that the initial allowance for credit losses on purchased credit impaired financial assets will be recorded as an increase to the purchase price, with subsequent changes to the allowance recorded as a credit loss expense. ASU 2016-13 also expands disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for credit losses. The amendments of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted as of January 1, 2019. The Company is currently evaluating the impact the adoption of this new standard will have on its consolidated financial statements. 
 
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows –Restricted Cash” which requires entities to present the changes in total cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The new guidance also requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet if restricted cash and restricted cash equivalents are presented in a different line item in the balance sheet. The amendments of this Update, which should be applied using a retrospective transition method to each period presented, are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The adoption of this standard is not expected to have an impact on our statement of cash flows.
 
In January 2017, the FASB issued 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this ASU simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test and eliminating the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment. Instead, under this pronouncement, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment change for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects will be considered, if applicable. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.
 
 
15
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 2 - GOING CONCERN.
 
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company sustained a net loss of ($2,753,680) and used net cash in operating activities of ($3,061,848) for the nine months ended September 30, 2018. The Company had an accumulated deficit of ($14,572,582) at September 30, 2018. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital from investors and 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. While we have engaged a placement agent to assist us in raising capital, the placement agent is acting on a best efforts basis and there are no assurances we will be successful in raising additional capital during the balance of 2018 through the sale of our securities.
 
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
NOTE 3 – ACQUISITIONS.
 
On September 19, 2017 the Company, Daily Engage Media, and the owners of the membership interests in Daily Engage Media entered into an Amended and Restated Membership Interest Purchase Agreement (the “Daily Engage Purchase Agreement”) under which the Company acquired 100% of the membership interests of Daily Engage Media in exchange for common stock, promissory notes and the satisfaction of certain debt obligations of the acquired entity totaling approximately $888,000.
  
In accordance with ASC 805 “Business Combinations” the measurement period for the acquisition was for one year during which the Company reevaluated the assets acquired, liabilities assumed and the goodwill resulting from the transaction as well as the change in amortization as a result of changes in the provisional amounts as if the accounting had been completed at the acquisition date.
  
The allocation of the purchase price to the assets acquired and liabilities assumed based on management’s estimate of fair values at the date of acquisition and as restated was as follows:
 
 
 
 
At Acquisition
 
 
 
Liability Assumed
 
 
 
 
Adjustment
 
 
 
 
 
Measurement Date
 
Tangible assets acquired
 
$
361,770
 
 
$
 
 
 
$
 
 
 
 
$
361,770
 
Liabilities assumed
 
 
   (562,006
)
 
 
(197,500
)
(1)
 
 
 
 
 
 
 
(759,506
)
Net liabilities assumed
 
$
   (200,236
)
 
$
(197,500
)
 
 
$
 
 
 
 
$
(397,736
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exchange platform
 
$
50,000
 
 
$
 
 
 
$
(50,000
)
(2)
 
 
$
 
Tradename
 
 
150,000
 
 
 
 
 
 
 
(118,000
)
(2)
 
 
 
32,000
 
Customer relationships
 
 
250,000
 
 
 
 
 
 
 
(63,000
)
(2)
 
 
 
187,000
 
Non-compete agreements
 
 
192,000
 
 
 
 
 
 
 
(114,000
)
(2)
 
 
 
78,000
 
Unallocated purchase price
 
 
446,426
 
 
 
197,500
 
 
 
 
345,000
 
(2)
 
 
 
988,926
 
Total purchase price
 
$
1,088,426
 
 
$
197,500
 
 
 
$
 
 
 
 
$
1,285,926
 
 
(1)
During August 2018, the Company became aware of an additional liability in the form of a settlement of a legal claim for an unpaid vendor liability which was not disclosed to the Company at the time of the acquisition. The settlement claim of $197,500 is included in accrued expenses at September 30, 2018.
(2)
A valuation was performed at the end of the measurement period to determine the fair value of acquired intangible assets as defined in ASC 820-10. The valuation and corresponding measurement of assets acquired and liabilities assumed resulted in adjustments to the provisional amounts of intangible assets recognized at the original acquisition date.
 
The final accounting for the acquisition resulted in a decrease in accumulated amortization and amortization expense of approximately $61,000 as of and for the nine months ended September 30, 2018.
 
 
16
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 Daily Engage Media, which was closed in September 2017, had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the business been acquired as of the first day of the periods presented.
 
 
 
Three Months Ended
 
 
Nine Months Ended
 
 
 
September 30, 2017
 
 
September 30, 2017
 
Total revenue
 
$
1,076,113
 
 
$
3,442,272
 
Total expenses
 
 
(1,947,279
)
 
 
(5,846,274
)
Preferred stock dividend
 
 
(1,122
)
 
 
(3,849
)
Net loss attributable to common shareholders
 
$
(872,288
)
 
$
(2,407,851
)
Basic and diluted net loss per share
 
$
(0.02
)
 
$
(0.05
)
 
 
NOTE 4 – INVENTORIES.
 
At September 30, 2018 and December 31, 2017 inventories consisted of the following:
 
 
 
September 30,
2018
 
 
December 31,
2017
 
Product inventory: clocks and watches
 
$
183,909
 
 
$
453,852
 
Product inventory: other inventory
 
 
194,896
 
 
 
180,064
 
Total inventory balance
 
 
378,805
 
 
 
633,916
 
Less: inventory allowance for slow moving
 
 
(22,448
)
 
 
(22,448
)
Total inventory balance, net
 
$
356,357
 
 
$
611,468
 
 
 
 
 
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS.
 
At September 30, 2018 and December 31, 2017, prepaid expenses and other current assets consisted of the following:
 
 
 
September 30,
2018
 
 
December 31,
2017
 
Prepaid rent
 
$
2,954
 
 
$
50,417
 
Prepaid insurance
 
 
15,497
 
 
 
92,322
 
Prepaid inventory
 
 
15,382
 
 
 
2,993
 
Prepaid services and consulting agreements, current
 
 
310,000
 
 
 
 
 
 
$
343,833
 
 
$
145,732
 
 
 
 
17
 
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
 
NOTE 6 – PROPERTY AND EQUIPMENT.
 
At September 30, 2018 and December 31, 2017, property and equipment consisted of the following:
 
 
Useful Lives
 
September 30, 2018
 
 
December 31, 2017
 
Furniture and fixtures
3-5 years
 
$
78,857
 
 
$
78,994
 
Computer equipment
3 years
 
 
59,511
 
 
 
59,511
 
Leasehold improvements
5 years
 
 
39,384
 
 
 
39,384
 
Total property and equipment
 
 
 
177,752
 
 
 
177,889
 
Less: accumulated depreciation
 
 
 
(109,050
)
 
 
(88,389
)
Total property and equipment, net
 
 
$
68,702
 
 
$
89,500
 
 
Depreciation expense for the three and nine months ended September 30, 2018 and 2017, was $7,809 and $6,777 and $20,661 and $18,925, respectively.
 
NOTE 7 – WEBSITE ACQUISITION AND INTANGIBLE ASSETS.
 
At September 30, 2018 and December 31, 2017, respectively, website acquisitions, net consisted of the following:
 
 
 
September 30,
2018
 
 
December 31,
2017
 
Website Acquisition Assets
 
$
1,367,189
 
 
$
1,417,189
 
Less: accumulated amortization
 
 
(963,457
)
 
 
(812,575
)
Less: accumulated impairment loss
 
 
(211,197
)
 
 
(211,197
)
Website Acquisition Assets, net
 
$
192,535
 
 
$
393,417
 
 
At September 30, 2018 and December 31, 2017, respectively, intangible assets, net consisted of the following:
 
 
Useful Lives
 
September 30, 2018
 
 
December 31, 2017
 
Tradename
5 years
 
 
182,000
 
 
 
300,000
 
Customer relationships
5 years
 
 
439,000
 
 
 
502,000
 
Non-compete agreements
5-8 years
 
 
198,000
 
 
 
312,000
 
Total Intangible Assets
 
 
$
819,000
 
 
$
1,114,000
 
Less: accumulated amortization
 
 
 
(207,750
)
 
 
(95,999
)
Less: accumulated impairment loss
 
 
 
(50,227
)
 
 
(50,227
)
Intangible assets, net
 
 
$
561,023
 
 
$
967,774
 
 
Amortization expense for the three and nine-month periods ending September 30, 2018 and 2017 was $49,727 and $75,876 and $262,633 and $227,418, respectively, related to both the website acquisition costs and the intangible assets.
 
The final accounting for the acquisition of as noted in Note 3, resulted in a decrease in accumulated amortization and amortization expense and approximately $61,000 as of and for the nine months ended September 30, 2018.
 
 
 
 
18
 
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 8 – SEGMENT INFORMATION.
 
The Company has two identifiable segments as of September 30, 2018; products and advertising. The products segment sells merchandise directly to customers thorough e-commerce distributor portals such as Amazon and eBay, and through our proprietary websites and retail location. The advertising segment is focused on producing advertising revenue generated by users “clicking on” and/or viewing website advertisements utilizing several ad network partners and direct advertisers and subscription revenue generated by the sale of access to premium versions of our websites and to career postings on one of our websites. The subscription revenues are about 0.7% of the total advertising segment revenue. The following information represents segment activity for the three and nine month periods ended September 30, 2018 and 2017.
 
 
 
For the three months ended
 
 
For the three months ended
 
 
 
September 30, 2018
 
 
September 30, 2017
 
 
 
Products
 
 
Advertising
 
 
Total
 
 
Products
 
 
Advertising
 
 
Total
 
Revenues
 
$
203,485
 
 
$
185,417
 
 
$
388,902
 
 
$
589,402
 
 
$
126,098
 
 
$
715,500
 
Intangible amortization
 
$
21,694
 
 
$
28,033
 
 
$
49,727
 
 
$
31,267
 
 
$
44,609
 
 
$
75,876
 
Depreciation
 
$
3,025
 
 
$
4,784
 
 
$
7,809
 
 
$
6,468
 
 
$
309
 
 
$
6,777
 
Loss from operations
 
$
(328,942
)
 
$
(425,043
)
 
$
(753,985
)
 
$
(528,446
)
 
$
47,649
 
 
$
(480,797
)
Segment assets
 
$
1,264,661
 
 
$
3,774,049
 
 
$
5,038,710
 
 
$
1,393,662
 
 
$
2,062,153
 
 
$
3,455,815
 
Purchase of assets
 
$
1,213
 
 
$
 
 
$
1,213
 
 
$
 
 
$
207,802
 
 
$
207,802
 
 
  
 
 
For the nine months ended
 
 
For the nine months ended
 
 
 
September 30, 2018
 
 
September 30, 2017
 
 
 
Products
 
 
Advertising
 
 
Total
 
 
Products
 
 
Advertising
 
 
Total
 
Revenues
 
$
897,536
 
 
$
1,159,751
 
 
$
2,057,287
 
 
$
1,713,688
 
 
$
329,731
 
 
$
2,043,419
 
Intangible amortization
 
$
116,301
 
 
$
146,332
 
 
$
262,633
 
 
$
93,801
 
 
$
133,617
 
 
$
227,418
 
Depreciation
 
$
9,014
 
 
$
11,647
 
 
$
20,661
 
 
$
16,753
 
 
$
2,172
 
 
$
18,925
 
Loss from operations
 
$
(1,052,112
)
 
$
(1,359,487
)
 
$
(2,411,599
)
 
$
(1,373,721
)
 
$
(469,592
)
 
$
(1,843,313
)
Segment assets
 
$
1,264,661
 
 
$
3,774,049
 
 
$
5,038,710
 
 
$
1,393,662
 
 
$
2,062,153
 
 
$
3,455,815
 
Purchase of assets
 
$
1,213
 
 
 
 
 
$
1,213
 
 
$
14,305
 
 
 $
207,802
 
 
$
222,107
 
 
NOTE 9 – NOTES PAYABLE.
 
Long Term Debt to Related Parties
 
Between September 2016 and August 2017, the Company issued a series of convertible notes payable to an executive officer and member of our board of directors. The notes mature five years from issuance at which time all principal and interest are payable. Interest rates on the notes range from 6% to 12% and the notes are convertible at any time prior to maturity at conversion prices ranging from $0.40 to 0.50 per share. The Company recognized a beneficial conversion feature when the fair value of the underlying common stock to which the note is convertible into was in excess of the face value of the note. For notes payable, under this criteria, the intrinsic value of the beneficial conversion features was recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is being amortized to interest over the five-year life of the note using the effective interest method.
 
The principal balance of these notes payable was $2,035,000 at September 30, 2018 and December 31, 2017 and discounts recognized upon respective origination dates as a result of the beneficial conversion feature total $1,018,125. As of September 30, 2018, and December 31, 2017, the total convertible notes payable to related party net of discounts was $1,351,186 and $1,198,893, respectively. See further discussion regarding the above long-term debt to related parties in Note 13 Subsequent Events.
 
 
 
 
 
 
19
 
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
  NOTE 9 – NOTES PAYABLE (continued).
  
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 matured on June 30, 2018, and the parties have agreed to extend the maturity to December 31,2018. In the event of default of any loan provision, the lender can declare all or any portion of the unpaid principal and interest immediately due and payable. During the nine-month period ended September 30, 2018 the Company made payments of $350,000, reducing the note balance to $150,000. The Company and the lender extended the maturity date to December 31, 2018. The Company paid $11,004 and $43,252 interest payments for the three and nine months ended September 30, 2018, respectively.
 
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 matured on September 19, 2018 and the Company is in default pending the final outcome of the legal matters. The balance of the notes payable at September 30, 2018 and December 31, 2017 were $200,162 and $254,687, respectively. The Company applied payments made on behalf of the former company for the year ended December 31, 2017 of $125,313 and $19,525 for the nine months ended September 30, 2018. In April 2018 the Company paid principal payments of $2,500 to the four note holders, totaling $10,000 and in July 2018, the Company paid $25,000. The Company repaid $25,000 for the three months ended September 30, 2018 to one noteholder who extended the terms of the agreement with the Company for one year. The remaining balance will be paid over a seven-month period. See further discussion in Note 10, under Legal.
 
 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 September 30, 2018 and December 31, 2017, was $58,871 and $67,895 net of discounts of $3,637 and $11,820 respectively.
 
Interest expense on notes payable was $16,014 and $5,912 and $41,217 and $75,663 for the three and nine-month periods ended September 30, 2018 and 2017, respectively, inclusive of amortization of the debt discount of $2,728 and $2,728 and $8,062 and $3,637 for the three and nine months ended September 30, 2018 and 2017, respectively.
 
Interest expense on notes payable – related party was $101,526 and $95,478 and $303,033 and $220,610 for the three and nine month periods ended September 30, 2018 and 2017, respectively, inclusive of amortization of debt discount totaled $51,293 and $49,595 and $152,293 and $116,863, respectively.
 
 NOTE 10 – COMMITMENTS AND CONTINGENCIES.
 
The Company leases its corporate offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487 under a long-term non-cancellable lease agreement expiring on October 31, 2021. The lease terms required base rent payments of approximately $7,260 per month for the first twelve months commencing in September 2018, with a 3% escalation each year. Included in other assets is a required security deposit of $18,100. Rent is all-inclusive and includes electricity, heat, air-conditioning, and water.
 
The Company leases 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 $7,826 and $50,417 at September 30, 2018 and December 31, 2017, respectively.
 
The Company leases a warehouse facility in Orlando, Florida consisting of approximately 2,667 square feet. The lease commenced in April 2016, expiring in April 2021 with an initial base rental rate of $1,641 per month, and escalating at approximately 3% per year thereafter.
 
Rent expense for the three and nine months ended September 30, 2018 and 2017 was $68,664 and $72,155 and $206,590 and $190,080, respectively.
 
 
 
 
20
 
 
 
 
 
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
Legal
 
Effective July 18, 2018 we terminated the employment agreements with each of Messrs. Harry G. Pagoulatos and George G. Rezitis for cause. Messrs. Pagoulatos and Rezitis had been employed by us as chief operating officer and chief technology officer, respectively, of our Daily Engage Media subsidiary since our acquisition of that company in September 2017. Mr. Todd Speyer, our Vice President, Digital and a member of our board of directors, have assumed operating responsibilities for Daily Engage Media. While the malfeasance of Messrs. Harry G. Pagoulatos and George G. Rezitis giving rise to their for cause termination adversely affected our results of operations for the third quarter, we do not expect that these terminations will result in any material, long-term change in the operations of Daily Engage Media.
 
  In connection with the matters which lead to our termination for cause of Messrs. Pagoulatos and Rezitis described below, in July 2018 we filed a Verified Complaint for injunctive relief and damages against Messrs. Pagoulatos and Rezitis in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida (case number 502018CA008972XXXXMB) alleging their failure, among other things, to provide us with certain login codes and passwords as well as reporting other current information about Daily Engage Media's business. That matter was removed to the Southern District of Florida, United States District Court and ultimately stayed and closed pending a determination of jurisdiction by the pending New Jersey action described below.
 
In July of 2018, Messrs. Pagoulatos and Rezitis, along with a third party who had been a minority owner in Daily Engage Media prior to our acquisition of that company, filed a Complaint in the U.S. District Court, District of New Jersey (case number 2:18-cv-11357-ES-SCM) against our company and our Chief Executive Officer, seeking compensatory and punitive damages and attorneys' fees, among other items, and alleging, among other items, fraud and breach of contract. We vehemently deny all allegations in the complaint and believe them to be without merit. We filed a Motion to Dismiss this case for a multitude of reasons including, but not restricted to, failure to state a cause of action and jurisdictional and venue arguments as the acquisition and employment agreements provides that any dispute should be heard in either the state or local courts of Palm Beach County, Florida. At the appropriate juncture, we also intend to serve a Rule 11 Motion for Sanctions based upon the fact that the Complaint contains frivolous arguments or arguments with no evidentiary support.
 
In connection with the Daily Engage Media acquisition, the Company entered into three-year employment agreements with two former members of the entity. Under these agreements, the Company is obliged to pay base salaries of $65,000 and $70,000, respectively to the employees with an increase to $75,000 each in the second year of the agreement as well as bonuses to be paid at the discretion of the board of directors. See Legal discussion for further discussion.
 
As described above, the principles of Daily Engage Media failed to disclose an obligation of approximately $200,000. The obligation is included in accrued expenses at September 30, 2018 and the net assets acquired from Daily Engage Media have been adjusted as disclosed in Note 3. A lawsuit has been filed in New York state court to collect this obligation. We intend to vigorously defend this motion.
 
From time-to-time, we may be involved in litigation or be subject to claims arising out of our operations or content appearing on our websites in the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on our company because of defense and settlement costs, diversion of management resources and other factors. See Subsequent Events Note 13 for further discussion and Part II, Item 1, Legal Proceedings. 
 
Other Commitments
 
On September 5, 2018 the Company entered into a Master Services Agreement with Kubient, Inc. pursuant to which it will provide its programmatic technology platform to us on a non-exclusive basis for the purpose of managing our programmatic business partners. Kubient, Inc. will create a white label reporting portal for the Company and assist us in onboarding our existing RTB (real-time bidding) clients to the new Kubient platform. The Company did not pay anything to Kubient, Inc. for the three and nine months ended September 30, 2018.
 
Under the terms of the two-year agreement, we agreed to pay Kubient, Inc. a percentage of gross billable revenue for all of our RTB activity on the platform. The initial term of the agreement automatically renewed for additional one year term, unless terminated by either party upon 90 days prior notice of non-renewal. The agreement may be terminated by either party, without cause, after the first 90 days of the term upon 30-day notice to the other party. In addition, the agreement may be terminated by either party for breach if not cured on 30-day notice, or upon insolvency or bankruptcy proceedings against either party, subject to cure periods. The agreement contains customary confidentiality and intellectual property ownership provisions.
 
 
 
21
 
 
 
 
 
 
 BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 10 – COMMITMENTS AND CONTINGENCIES (continued).
 
Other Commitments (continued)
 
On September 28, 2018 Bright Mountain Media, Inc. entered into a non-binding letter of intent with Kubient, Inc. pursuant to which we may acquire Kubient, Inc. in an all stock transaction. Based in New York City, Kubient, Inc. is a video advertising technology company which offers a full stack programmatic platform designed to increase publisher revenue and lower advertiser cost across the video advertising ecosystem. The closing of the transaction is subject to customary conditions precedent including satisfactory due diligence by us, the execution of definitive agreements, including an employment agreement with Mr. Paul Roberts, the Chief Executive Officer of Kubient, Inc., and approval by the Kubient, Inc. stockholders.
 
On September 6, 2017 Bright Mountain Media, Inc. entered into a five year Consulting Agreement with the Spartan Capital Securities, LLC (“Spartan Capital”), a broker-dealer and member of FINRA, which under its terms would not become effective until the closing of the private placement in which Spartan Capital served as placement agent as described below. The Consulting Agreement became effective on September 28, 2018 and, accordingly, Spartan Capital was engaged to provide advisory services including, but not limited to advice and input with respect to raising capital, assisting us with strategic introductions, and assisting management with enhancing corporate and shareholder value. The consulting agreement calls for an initial fee of $200,000 as consideration for the termination of a prior agreement between the Company and Spartan. The consulting agreement also calls for payments of $5,000 per month for a term of 60 months to be prepaid upon the effective date of the agreement. In addition, the Company issued Spartan Capital 1,000,000 shares of our common stock valued at $750,000 (the “Consulting Shares”) in accordance with the consulting agreement.
 
On September 6, 2017 we also entered into a five-year M&A Advisory Agreement with Spartan Capital which became effective on September 28, 2018 upon the completion of the private placement for sixty months. Under the terms of the agreement, Spartan Capital will provide consulting services to us related to potential mergers or acquisitions, including candidates, valuations and transaction terms and structures. As consideration for the M&A advisory service we paid Spartan Capital a fee of $500,000 on the effective date of the agreement.
 
The $200,000 initial consulting fee was expensed upon payment and is included in selling, general and administrative expenses for the three and nine months ended September 30, 2018. Consulting fees consisting of $300,000 in cash and $750,000 in common stock as well as the $500,000 M&A advisory fee are considered prepaid expenses, of which $310,000 is considered short-term and is included in prepaid expenses and other current assets as of September 30, 2018. These prepaid expenses will be amortized over 60 months, the term of the respective agreements.
 
 For the 36 months from the final closing of this private placement, Spartan Capital has certain rights of first refusal if we decide to undertake a future private or public offering or if we decide to engage an investment banking firm.
 
The Company granted the purchasers in the offering demand and piggy-back registration rights with respect to the shares of our common stock included in the Units and the shares of common stock issuable upon the exercise of the Private Placement Warrants. In addition, the Company agreed to file a resale registration statement within 120 days following the final closing of this offering covering the shares of common stock issuable upon the exercise of the Private Placement Warrants included in the Units. If the Company should fail to timely file this resale registration statement, then within five business days of the end of month we will pay the holders an amount in cash, as partial liquidated damages, equal to 2% of the aggregate purchase price paid by the holder for each 30 days, or portion thereof, until the earlier of the date the deficiency is cured or the expiration of six months from filing deadline. The Company will keep any such registration statement effective until the earlier of the date upon which all such securities may be sold without registration under Rule 144 promulgated under the Securities Act or the date which is six months after the expiration date of the Private Placement Warrants. We are obligated to pay all costs associated with this registration statement, other than selling expenses of the holders.
 
 Additional terms of the Private Placement Warrants include:
 
standard anti-dilution provisions;
 
 
become subject to a “cashless exercise” under certain conditions; and
 
 
certain call provisions at $0.01 per warrant if our stock trades at or above $1.50 per share for 10 consecutive trading days with an average daily trading volume of not less than 30,000 shares during such 10 consecutive trading day period.
 
The exercise price of the Placement Agent Warrants is also subject to the proportional adjustment in the event of stock splits, stock dividends and similar corporate events, and may be exercised on a cashless basis. We also granted Spartan Capital piggy-back registration rights with respect to the shares of our common stock issuable upon the exercise of the Placement Agent Warrants.
 
 22
 
 
 
 
 
 
BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 2018, there were 100,000 shares of Series A Stock and 2,312,500 shares of Series E Stock issued and outstanding. There are no shares of Series B Stock, Series C Stock or Series D Stock issued and outstanding.
 
The Series A Stock is senior to all other classes of the Company's securities and has a stated value of $0.50 per share. Holders of shares of Series A Stock are entitled to the payment of a 10% dividend payable in shares of the Company’s common stock at a rate of one share of common stock for each 10 shares of Series A Stock, payable annually the 10th business day of January. The shares of Series A Stock are redeemable at the Company's option upon 20 days’ notice for an amount equal to the amount of capital invested. In January 2018 the Company paid 10,000 shares of common stock dividends to the Series A Stockholder of record as dividends on the Series A Stock.
 
On September 6, 2017, the board of directors designated 2,500,000 shares of Preferred Stock as Series E Stock, which such designation was amended on September 29, 2017. Holders of shares of Series E Stock are entitled to 10% dividends, payable monthly as may be permitted under Florida law out of funds legally available therefor. The shares of Series E Stock rank senior to any other class of our equity securities, except for the Series A Stock, have a liquidation preference of $0.40 per share and are not redeemable.
 
The remaining designations, rights and preferences of each of the Series A Stock and Series E Stock are identical, including (i) shares do not have voting rights, except as may be permitted under Florida law, (ii) are convertible into shares of our common stock at the holder's option on a one for one basis, (iii) are entitled to a liquidation preference equal to a return of the capital invested, and (iv) each share will automatically convert into shares of common stock five years from the date of issuance or upon a change in control. Both the voluntary and automatic conversion formulas are subject to proportional adjustment in the event of stock splits, stock dividends and similar corporate events.
 
  In September 2017, Mr. W. Kip Speyer, an executive officer and member of our board of directors, purchased an aggregate of 500,000 shares of Series E Stock at a purchase price of $0.40 per share. The Company used the proceeds from these sales for working capital. Dividends paid to Mr. W. Kip Speyer were $20,838 and $58,069 for the three and nine months ended September 30, 2018, respectively.
 
During the nine months ended September 30, 2018 periods, Mr. W. Kip Speyer, an executive officer and member of our board of directors, purchased an aggregate of 937,500 shares of Series E Stock at a purchase price of $0.40 per share. The Company used the proceeds from these sales for working capital.
 
Stock issued for cash
 
In August 2017 the Company issued 125,000 shares of its common stock for $50,000 or $0.40 per share to a private investor.
 
Between January 2018 and September 2018, the Company sold an aggregate of 10,100,000 units of its securities to 71 accredited investors in a private placement exempt from registration under the Securities Act in reliance on exemptions provided by Section 4(a)(2) and Rule 506(b) of Regulation D resulting in gross proceeds to the Company of $4,040,000.  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 served as placement agent for the Company in this offering.  As compensation for its services, the Company paid Spartan Capital commissions totaling $404,000, and issued Spartan Capital Placement Agents Warrants to purchase an aggregate of 1,010,000 shares of our common stock, including the cash commission and Placement Agent Warrants issued pursuant to the final closing on September 28, 2018 included in the Company’s condensed consolidated statement of changes in shareholders’ equity for the nine months ended September 30, 2018. We used $1.0 million of these proceeds from this final closing for the payment of the fees due Spartan Capital under the terms of the Consulting Agreement and M&A Advisory Agreement described above, and are using the balance for general working capital.
 
23
 
 
 
 
 
 
 
 
 
 
 
 BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 11 – SHAREHOLDERS’ EQUITY (continued).
 
Stock issued for cash (continued)
 
The Company issued Spartan Capital five-year placement agent warrants to purchase an aggregate of 1,010,000 shares of the Company's common stock at an exercise price of $0.65 per share. During the period January 2018 to March 2018, warrants to purchase an aggregate of 176,250 of the Company's common stock were valued at $95,552 using the Black-Scholes model to value the warrants based on a risk-free rate of l 0% based on recent borrowing costs and a volatility of 214%. The Company recorded the warrants as professional fees in the condensed consolidated statement of operations however management subsequently determined that based on the services specified in the agreement, the fees incurred from the warrant issuance were solely for the purpose of raising capital in connection with the private placement discussed above. As a result, the fees are considered an offering cost and should have been reflected as a component of shareholders' equity. The net impact of this adjustment on the interim period financials statements was not significant.
 
During the second and third quarters of 2018, upon reviewing similar companies in our industry, management determined that the volatility and risk-free rate utilized was significantly higher than our peers. The Company used a 2% risk-free interest rate and a volatility of approximately 62% for the valuation of the warrants issued during the period. Based on this, during the period from April 2018 to September 2018, warrants to purchase an aggregate of 833,750 of the Company's common stock were valued at $319,258. Management believes the current assumptions are more in-line with our peer group and closer to our anticipated results.
             
Stock issued for services
 
In September 2018, the Company issued 10,000 shares of common stock to a consultant for services rendered based on the fair value at the date of grant, or $0.75 per share valued at $7,500.
 
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.
 
As discussed further in Note 10, the Company issued 1,000,000 shares of common stock at $0.75 per share for consulting services.
 
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 $5,753 and $21,983 stock compensation for the three months ended September 30, 2018 and 2017 and $19,961 and $95,821 for the nine months ended September 30, 2018 and 2017, respectively. The stock compensation expense has been recognized as a component of selling, general and administrative expenses in the accompanying unaudited condensed consolidated financial statements.
 
As of September 30, 2018, there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $15,844 to be recognized through August 2020. As disclosed further in Note 10, the Company issued 1,000,000 shares of common stock at $0.75 per share for consulting services.
 
 
 
 
24
 
 
 
 
 
 
 
 BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 11 – SHAREHOLDERS’ EQUITY (continued).
 
A summary of the Company's stock option activity during the nine months ended September 30, 2018 is presented below:
 
 
 
Number of
Options
 
 
Weighted Average
Exercise
Price
 
 
Weighted Average
Remaining
Contractual
Term
 
 
Aggregate
Intrinsic
Value
 
Balance Outstanding, December 31, 2017
 
 
2,027,000
 
 
$
0.37
 
 
 
5.4
 
 
$
543,626
 
Granted
 
 
 
 
 
 
 
 
 
 
 
 
Exercised
 
 
 
 
 
 
 
 
 
 
 
 
Forfeited
 
 
 
 
 
 
 
 
 
 
 
 
Expired
 
 
 
 
 
 
 
 
 
 
 
 
Balance Outstanding, September 30, 2018
 
 
2,027,000
 
 
$
0.37
 
 
 
4.7
 
 
$
704,756
 
Exercisable at September 30, 2018
 
 
1,834,000
 
 
$
0.38
 
 
 
4.4
 
 
$
693,616
 
 
Summarized information with respect to options outstanding under the three option plans at September 30, 2018 is as follows:
 
 
 
 
 
Options Outstanding
 
 
Options Exercisable
 
 
Range or
Exercise Price
 
 
Number
Outstanding
 
 
Remaining
Average
Contractual Life
(In Years)
 
 
Weighted
Average
Exercise
Price
 
 
Number
Exercisable
 
 
Weighted
Average
Exercise
Price
 
 
Remaining Average
Conversion Life
(In Years)
 
 
 
0.14 - 0.24
 
 
 
720,000
 
 
 
0.8
 
 
$
0.14
 
 
 
720,000
 
 
$
0.14
 
 
 
.09
 
 
 
0.25 - 0.49
 
 
 
351,000
 
 
 
0.8
 
 
$
0.28
 
 
 
351,000
 
 
$
0.28
 
 
 
.08
 
 
 
0.50 - 0.85
 
 
 
956,000
 
 
 
3.1
 
 
$
0.67
 
 
 
763,000
 
 
$
0.66
 
 
 
2.7
 
 
 
 
 
 
 
2,027,000
 
 
 
4.7
 
 
$
0.37
 
 
 
1,834,000
 
 
$
0.38
 
 
 
4.4
 
 
NOTE 12 – CONCENTRATIONS.
 
The Company has historically purchased a substantial amount of its products from two vendors; Citizens Watch Company of America, Inc., and Bulova Corporation. During the nine months ended September 30, 2018, purchases from Botta, Citizens, Bulova and Pierre Laurent accounted for approximately 17%, 15%,19% and 11%, of the watch products purchased, respectively, as compared to 57% and 19%, for Citizens and Bulova, respectively, for the nine months ended September 30, 2017. 
 
Three Black Helmet Apparel vendors have been identified as having a high concentration. During the nine months ended September 30, 2018 purchases from Alpha Broder, Enemy Ink, and TSF Sportswear, LLC accounted for 11%, 25%, and 18% 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 and nine months ended September 30, 2018, PayPal and Amazon accounted for 23% and 8% and 55% and 22%, respectively, of our total product sales as compared to 41% and 44% and 41% and 53% in the three and nine months ended September 30, 2017, respectively. The Company replaced the DriveCMS software with Shopify in May 2018 to the Black Helmet website and the revenues attributable to this relationship were 65% and 37% for the three and nine months ended September 30, 2018, respectively.
 
 
 
25
 
 
 
 
 
 
 
  BRIGHT MOUNTAIN MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018
(Unaudited)
 
NOTE 12 – CONCENTRATIONS (continued).
 
Credit Risk
 
The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At September 30, 2018 one cash account had a balance of $487,079 and at December 31, 2017 the Company had no cash balances in excess of the FDIC insured limit.
 
Concentration of Funding
 
During the nine months ended September 30, 2018, the Company's funding was provided primarily through the sale of 10,100,0000 units of our securities to 71 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 $4,040,000.  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 served as placement agent for us in this offering.  As compensation for its services, we paid Spartan Capital cash commissions totaling $404,000 and issued five-year placement agent warrants to purchase an aggregate of 1,010,000 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 as well as payments to Spartan Capital for finder’s fees and M&A Advisory fees.
 
On September 6, 2017 Bright Mountain Media, Inc. entered into a five year Consulting Agreement with the Spartan Capital which under its terms would not become effective until the closing of the maximum offering of our securities in a private placement in which Spartan Capital served as placement agent as described below. On September 28, 2018 the Consulting Agreement became effective and Spartan Capital was engaged to provide such advisory services that we may reasonably request related to general corporate matters, including, but not limited to advice and input with respect to raising capital, assisting us with strategic introductions, and assisting management with enhancing corporate and shareholder value. As compensation for these services, on the effective date of the agreement we paid Spartan Capital $500,000. The Company issued Spartan Capital 1,000,000 shares of the Company’s common stock valued at $750,000 (the “Consulting Shares”) included in prepaid expenses and other assets.
 
On September 6, 2017 we also entered into a five-year M&A Advisory Agreement with Spartan Capital which became effective on September 28, 2018 following the sale of the maximum offering in the private placement described below. Under the terms of the agreement, Spartan Capital will provide consulting services to us related to potential mergers or acquisitions, including candidates, valuations and transaction terms and structures. As compensation, we paid Spartan Capital a fee of $500,000 on the effective date of the agreement.
 
Between January 2018 and September 2018, Mr. W. Kip Speyer, an executive officer and member of our board of directors, purchased an aggregate of 937,500 shares of our 10% Series E convertible preferred stock, resulting in gross proceeds to us of $375,000. 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. Dividends to Mr. W. Kip Speyer were $20,838 and $58,069 for the three and nine months ended September 30, 2018, respectively.
 
 
NOTE 13 – SUBSEQUENT EVENTS
 
On November 5, 2018 the Company filed Articles of Amendment to our Amended and Restated Articles of Incorporation, as amended, which:
 
returned 1,000,000 shares of previously designated 10% Series B Convertible Preferred Stock, 2,000,000 shares of previously designated 10% Series C Convertible Preferred Stock and 2,000,000 shares of previously designated 10% Series D Convertible Preferred Stock to the status of authorized but undesignated and unissued shares of our blank check preferred stock as there were no shares of any of these series outstanding and no intention to issue any such shares in the future; and
 
 
created three new series of preferred stock, 12% Series F-1 Convertible Preferred Stock (“Series F-1”) consisting of 2,177,233 shares, 6% Series F-2 Convertible Preferred Stock (“Series F-2”) consisting of 1,408,867 shares, and 10% Series F-3 Convertible Preferred Stock (“Series F-3”) consisting of 757,917 shares.
 
 
26
 
 
 
 
 
 
 
 
NOTE 13 – SUBSEQUENT EVENTS (continued).
 
 
The Series F-1 pays dividends at the rate of 12% per annum and automatically converts into shares of our common stock on April 10, 2022. The Series F-2 pays dividends at the rate of 6% per annum and automatically converts into shares of our common on July 27, 2022. The Series F-3 pays dividends at the rate of 10% per annum and automatically converts into shares of our common stock on August 30, 2022. In the event of a liquidation or winding up of our company, the shares have a liquidation preference of $0.50 per share for the Series F-1, $0.50 per share for the Series F-2 and $0.40 per share for the Series F-3.
 
The designations, rights and preferences of the Series F-1, Series F-2 and Series F-3 are identical, other than the dividend rate, liquidation preference and date of automatic conversion into shares of our common stock. Each of the series F preferred are convertible to one share of common stock at any time at the option of the holder. The shares have no voting rights and are not mandatorily redeemable. Dividends are payable monthly in arrears at their respective stated rates.
 
 
On November 7, 2018 the Company entered into a Note Exchange Agreement with Mr. W. Kip Speyer, our CEO and member of our Board of Directors, pursuant to which we exchanged our convertible notes for three new series of preferred stock as outlined below:
 
$1,075,000 principal amount and accrued but unpaid interest due Mr. Speyer under 12% Convertible Promissory Notes maturing between September 26, 2021 and April 10, 2022 for 2,177,233 shares of our newly created Series F-1 Convertible Preferred Stock in full satisfaction of those notes;
 
 
$660,000 principal amount and accrued but unpaid interest due Mr. Speyer under 6% Convertible Promissory Notes maturing between April 19, 2022 and July 27, 2022 for 1,408,867 shares of our newly created Series F-2 Convertible Preferred Stock in full satisfaction of those notes; and
 
 
$300,000 principal amount and accrued but unpaid interest due Mr. Speyer under 10% Convertible Promissory Notes maturing between August 1, 2022 and August 30, 2022 for 757,197 shares of our newly created Series F-3 Convertible Preferred Stock in full satisfaction of those notes.
 
The remaining discount attributed to these notes will be recognized to interest expense in the fourth quarter of 2018.
 
On November 12, 2018 the Company issued a 10% convertible promissory note in the amount of $30,000 that has a beneficial conversion to a related party, to our Chief Executive Officer.  The note matures five years from issuance and is convertible at the option of the holder into shares of common stock at any time prior to maturity at a conversion price of $0.40 per share.  A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the face value of the note.
 
On October 31, 2018, the Company entered into a Finder’s Agreement with the Spartan Capital which provides that, in consideration for Spartan Capital introducing Kubient, Inc. to us, Spartan Capital will be entitled to a non-refundable fee of $160,000 which will be payable within three days after the final closing of the full amount of the over-allotment option, and, if the acquisition of Kubient, Inc. is completed, Spartan Capital will be entitled to receive a number of shares of our common stock equal to 3% of the number of shares of our common stock issued to Kubient, Inc. or its shareholders in connection with the acquisition. In addition, if within three years from the date of the Finder’s
Agreement we complete a financing transaction for which a broker-dealer introduced to us by Spartan Capital serves as placement agent or underwriter, we will be required to pay Spartan Capital a cash fee equal to 2% of the aggregate proceeds raised in the financing and issue to Spartan Capital warrants to purchase a number of shares of our common stock equal to 2% of the number of shares of common stock (and/or shares of common stock issuable upon exercise of securities or upon conversion or exchange of convertible or exchangeable securities) sold in the offering. The Finder’s Agreement further provides that if within three years from the date of the Finder’s Agreement we complete a merger, acquisition or sale of stock or assets, joint venture, strategic alliance or similar transaction (the “Alternative Transaction”), regardless of whether Spartan Capital introduced the other party to the Alternative Transaction, then Spartan Capital will be entitled to a fee equal to 3% of the amount of the consideration paid or received by us or our shareholders in such transaction, which fee will be payable in shares of our common stock valued at the volume weighted average price of our common stock for the 10 trading days preceding the closing of the Alternative Transaction. The foregoing notwithstanding, if Spartan Capital has not introduced the other party to the Alternative Transaction to the Company, a fee shall only be paid if Spartan Capital has, on a continuous basis, provided substantive merger and acquisition support services and advice as reasonably requested by the Company.
 
 
27
 
 
 
 
 
 
 
 
 
 
 
On October 3, 2018 the Company lent Kubient, Inc. $75,000. The terms of the unsecured note provide that it pays interest at 6% per annum and the principal and interest is due on January 31,2019, provided, however, that if the share exchange or merger as contemplated by the non-binding letter of intent with Kubient, Inc. is consummated on or prior to the maturity date, the outstanding principal of the note shall be forgiven by us and the purchase price contemplated by the non-binding letter of intent will be reduced by 100,000 shares (i.e., $75,000 divided by $0.75 per share).
 
 
On October 31, 2018 Mr. W. Kip Speyer, an executive officer and member of our board of directors, purchased an 187,500 shares of our 10% Series E convertible preferred stock, resulting in gross proceeds to us of $75,000.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 28
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
The following discussion of our unaudited condensed consolidated financial condition and results of operations for the three months ended September 30, 2018 and 2017 should be read in conjunction with the unaudited condensed consolidated financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth later in this report under Part II, Item 1A. in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017 as filed with the Securities and Exchange Commission on April 2, 2018 (the “2017 10-K”) and our other filings with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All information in this section for the three and nine months ended September 30, 2018 and 2017 is unaudited and derived from the unaudited condensed consolidated financial statements appearing elsewhere in this report; unless otherwise noted, all information for the year ended December 31, 2017 is derived from our audited consolidated financial statements appearing in the 2017 10-K.
 
Executive Overview of Third Quarter 2018 Results
 
Our key user metrics and financial results for the third quarter of 2018, which include certain charges related to our financing with Spartan Capital, are more fully discussed and described on pages 32 and 33 and should be read in context with the disclosure on this page. The third quarter results are as follows:
 
User metrics:  
 
Quarterly ad impressions delivered were approximately 285 million in the third quarter of 2018, a 90% increase over the third quarter 2017 with most of the increase following our acquisition of Daily Engage Media.
 
Delivered over 57 million advertisements on our owned and managed websites.
 
Third quarter 2018 financial results:  
 
Advertising revenue increased 47% in the third quarter of 2018 from the third quarter of 2017;
 
Product sales revenue decreased 65.5% in the third quarter of 2018 from the third quarter of 2017 which reflects our shift in emphasis to our advertising segment;
 
Total revenue decreased 45.6% when compared to the third quarter of 2017;
 
Gross profit decreased 59.1% in the third quarter of 2018 from the third quarter of 2017 due to adverse conditions in Daily Engage Media and lower margins on product sales;
 
Selling, general and administrative expenses increased 10.8% in the third quarter 2018 compared to the third quarter of 2017;
 
Loss from operations was $753,985 for the third quarter of 2018 as compared to $480,797 for the comparable period in 2017;
 
Net loss attributable to common stockholders was $894,937 for the third quarter of 2018 as compared to $583,077 for the comparable period in 2017;
 
Adjusted EBITDA was $(682,042) for the third quarter of 2018 as compared to $(375,929) for the comparable period in 2017;
 
Net cash used in operations was $3,061,848 for the first nine months of 2018 as compared to $1,368,454 for the first nine months of 2017.
 
 
 
 
 
 
 
 
 
 
 
 
 
29
 
 
 
 
 
 
 
 
 
 Overview
 
Bright Mountain Media is a digital media holding company for online publications, advertising services and software primarily focused on serving large audience segments as well as brands trying to reach them. We do this by connecting advertisers and brands with consumers through a full suite of advertising services that incorporates an ad network, multiple real-time biding platforms and 25 websites (owned and managed) that provide content, services and products. Bright Mountain Media’s owned and managed websites primarily provide content and services to US military and veteran audiences, as well as first responders and their families. We have also recently begun expanding our footprint to provide advertising services to audiences and advertisers globally
 
We generate revenue from two segments: advertising and product sales. Advertising services 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. We also generate advertising services revenue from facilitating the real-time buying and selling of advertisements at scale between networks of buyers, often called DSPs (Demand Side Platforms) and sellers, often called SSPs (Supply Side Platforms). Product sales revenues, a de-emphasized business segment. Product sales revenues, a de-emphasized business segment, includes revenues from two of our websites that operate as e-commerce platforms, including Bright Watches and Black Helmet, as well as Bright Watches’ retail location. As described in “Key Initiatives” appearing later in this section, the operations of Bright Watches is non-strategic to our current business direction.
 
A key component of our growth is our continued transition to a full services advertising solutions company. Bright Mountain advertising solutions include a multiple real-time bidding platforms, one of which is operated by Kubient, Inc. On September 5, 2018, we entered into a Master Services Agreement with Kubient, Inc., a digital media holding company whose primary focus is connecting brands with consumers as a full advertising services platform, pursuant to which Kubient will provide its programmatic technology platform to us on a non-exclusive basis for the purpose of managing our programmatic business partners. Kubient, Inc. will create a white label reporting portal for us and assist us in onboarding our existing RTB (real-time bidding) clients to the new Kubient platform. Our management made the decision to engage Kubient, Inc. to provide these services to us because we believe it offers a superior solution. The services to be provided by Kubient, Inc. will be integrated into the technical and management consulting and other related services currently being provided to our advertising segment by a third-party contractor. In addition, on September 28, 2018, we entered into a non-binding letter of intent to acquire Kubient, Inc., whose real-time bidding platform provides a proprietary anti-fraud technology that protects advertisers from showing their ads to non-human audiences.
 
 When fully developed Bright Mountain’s full suite of advertising solutions will include:
 
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 geo-targeted, specific 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 advertiser and publisher platforms for extremely quick transactions and ad deployments.
 
This Bright Mountain Media full services advertising solution will be a marketplace for publishers and advertisers where they will be able to login and choose from various features to maximize their earning potential. Advertisers will be able to set their budget and choose where their ads will be seen using our filters or by connection directly with publishers through our platform. Publishers will be able to select a variety of ad units for their video, mobile, display and native advertisements and also have the ability to create their own unique ad formats.
 
As mentioned above, in addition to our niche market of US military and public safety sectors, we intend to broaden the scope of our partner publishers and publisher networks to include global audience segments across connected television, mobile devices, tablets and desktop computers.
 
Key initiatives
 
Our growth strategy is based upon:
 
completing and launching the Bright Mountain Media advertising solutions marketplace;
 
expanding our sales through organic growth;
 
30
 
 
 
 
 
 
 
continuing to pursue acquisition candidates that are strategic our business plan;
 
evaluating expenses attributed to our non-strategic business lines; and
 
 
 
continuing to automate our processes and reduce overhead where possible without impacting our customer experience
   
Key metrics
 
The following graph summarizes our quarterly revenue growth since the fourth quarter of 2012 thought the third quarter of 2018:
 
 
In addition, over the past quarters (third quarter in 2017 to the third quarter of 2018), we experienced a 90% increase in the number of total ad impressions delivered, with most of the increase following our acquisition of Daily Engage Media.. The change in ad impression over the past four consecutive quarters is conveyed in the following graph:
 
 
 
31
 
 
 
 
 
 
 
 
Results of operations
  
Revenue
 
 
 
For the three months ended
 
 
Nine months ended
 
 
 
September 30,
 
 
September 30,
 
 
 
2018
 
 
2017
 
 
Change
 
 
% Change
 
 
2018
 
 
2017
 
 
Change
 
 
% Change
 
Advertising
 
$
185,417
 
 
$
126,098
 
 
$
59,319
 
 
 
47.0
%
 $
 
1,159,751
 
 
$
329,731
 
 
$
830,020
 
 
 
251.7
%
Product sales
 
 
203,485
 
 
 
589,402
 
 
 
(385,917
)
 
 
(65.5)
%
  
897,536
 
 
 
1,713,688
 
 
 
(816,152
)
 
 
(47.6
)%
Total revenue
 
$
388,902
 
 
$
715,500
 
 
$
(326,598
)
 
 
(45.6)
$
2,057,287
 
 
$
2,043,419
 
 
$
13,868
 
 
 
0.7
%
 
While our advertising revenue for the third quarter of 2018 was higher than the comparable period in 2017, we only reported revenues from Daily Engage Media during the 2017 period from the date of acquisition (September 19, 2017) through September 30, 2017. Accordingly, a quarter to quarter comparison is not as meaningful as a comparison to the second quarter of 2018. Our advertising revenues for the third quarter of 2018 were 36% less than the second quarter of 2018. During the third quarter of 2018, our advertising revenues were adversely impacted as a result of the malfeasance of two former employees of Daily Engage Media as described later in this report under Part II, Item 1, Legal Proceedings. In