See accompanying notes to unaudited condensed consolidated financial statements
See accompanying notes to unaudited condensed consolidated financial statements
See accompanying notes to unaudited condensed consolidated financial statements
See accompanying notes to unaudited condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Organization and Nature of Operations
Bright Mountain Media, Inc., formerly known as Bright Mountain Acquisition Corporation, is a Florida corporation formed on May 20, 2010. 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. When used herein, the terms "BMTM," the "Company," "we," "us," "our" or "Bright Mountain" refers to Bright Mountain Media, Inc. and its subsidiaries.
The Company is a media holding company of online assets. We sell various products through our proprietary websites and retail location, and through third party e-commerce distributor portals. Our websites provide content designed to attract and retain targeted Internet audiences. We generate revenues from two segments, product sales and services. Services consists of advertising revenue and subscription revenue. Our advertising revenue is generated primarily through the display of paid listings as well as display advertisements appearing on our websites.
On December 16, 2016, with an effective date of December 15, 2016, under the terms of an Asset Purchase Agreement, the Company acquired the assets, constituting the Black Helmet Apparel business (Black Helmet), from Sostre Enterprises, Inc. Assets acquired included various website properties and content, social media content, inventory and other intellectual property rights. The Black Helmet line of apparel features clothing and accessories focused on firefighters.
Basis of Presentation
The interim unaudited condensed consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). In the opinion of the Companys management, all adjustments necessary to present fairly the consolidated results of operations and cash flows for the three months ended March 31, 2017 and the consolidated financial position as of March 31, 2017 have been made. The results of operations for such interim period are not necessarily indicative of the operating results expected for the full year.
Principles of Consolidation
The interim unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
Our consolidated financial statements are prepared in accordance with Accounting Principles Generally Accepted in the United States (GAAP). These accounting principles require management to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of our consolidated financial statements as well as reported amounts of revenue and expenses during the periods presented. Our consolidated financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management's judgment in its application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. Significant estimates included in the accompanying consolidated financial statements include revenue recognition, the fair value of acquired assets for purchase price allocation in business combinations, valuation of inventory, valuation of intangible assets, estimates of amortization period for intangible assets, estimates of depreciation period for fixed assets, valuation of equity based transactions, and the valuation allowance on deferred tax assets.
5
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Fair Value of Financial Instruments and Fair Value Measurements
The Company measures its financial assets and liabilities in accordance with GAAP. For certain of our financial instruments, including cash, accounts payable, accrued expenses, and the short-term portion of long-term debt, the carrying amounts approximate fair value due to their short maturities.
We adopted accounting guidance for financial and non-financial assets and liabilities in accordance with ASC 820
Fair Value Measurements and Disclosures
. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
|
|
|
|
Level 1:
|
Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
|
|
Level 2:
|
Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
|
|
|
Level 3:
|
Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use
|
Accounts Receivable
Accounts receivable are recorded at fair value on the date revenue is recognized. The Company provides allowances for doubtful accounts for estimated losses resulting from the inability of its customers to repay their obligation. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to repay, additional allowances may be required. The Company provides for potential uncollectible accounts receivable based on specific customer identification and historical collection experience adjusted for existing market conditions. If market conditions decline, actual collection experience may not meet expectations and may result in decreased cash flows and increased bad debt expense.
The policy for determining past due status is based on the contractual payment terms of each customer, which are generally net 60 or net 90 days. Once collection efforts by the Company and its collection agency are exhausted, the determination for charging off uncollectible receivables is made.
Inventories
Inventories consist of finished goods and are stated at the lower of cost or market using the first in, first out (FIFO) method. Provisions have been made to reduce excess or obsolete inventories to their net realizable value.
6
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
Revenue Recognition
The Company recognizes revenue on our products in accordance with ASC 605,
Revenue Recognition
. Under these guidelines, revenue is recognized on sales transactions when all of the following exist: persuasive evidence of an arrangement did exist; delivery of product has occurred; the sales price to the buyer is fixed or determinable; and collectability is reasonably assured. The Company has several revenue streams generated directly from its website and specific revenue recognition criteria for each revenue stream is as follows:
|
|
|
|
·
|
Sale of merchandise directly to consumers: The Company's product sales are recognized either FOB shipping point or FOB destination, dependent on the customer. Revenues are therefore recognized at point of ownership transfer, accordingly;
|
|
|
|
|
·
|
Advertising revenue is received directly form companies who pay the Company a monthly fee for advertising space;
|
|
|
|
|
·
|
Advertising revenues are generated by users clicking on website advertisements utilizing several ad network partners: Revenues are recognized, on a net basis, upon receipt of payment by the ad network partner since the revenue is not determinable until it is received; and
|
|
|
|
|
·
|
Subscription revenues are generated by the sale of access to career postings on one of our websites. The term of the subscriptions range from one month to twelve months. Revenues are recognized, on a net basis, over the term of the subscription period. All sales are final per the subscription Terms of Use.
|
The Company follows the guidance of ASC 605-50-25,
Revenue Recognition, Customer Payments
. Accordingly, any incentives received from vendors are recognized as a reduction of the cost of products included in inventories. Promotional products or samples given to customers or potential customers are recognized as a cost of goods sold. Cash incentives provided to our customers are recognized as a reduction of the related sale price, and, therefore, are a reduction in sales.
Cost of Sales
Components of costs of sales include product costs, shipping costs to customers and any inventory adjustments.
Shipping and Handling Costs
The Company includes shipping and handling fees billed to customers as revenues and shipping and handling costs for shipments to customers as cost of revenues.
Sales Return Reserve Policy
Our return policy generally allows our end users to return purchased products for refund or in exchange for new products. We estimate a reserve for sales returns, if any, and record that reserve amount as a reduction of sales and as a sales return reserve liability. Sales to consumers on our web site generally may be returned within a reasonable period of time.
Product Warranty Reserve Policy
The Company is a retail distributor of products and warranties are the responsibility of the manufacturer. Therefore, the Company does not record a reserve for product warranty
7
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives of the related assets of five to seven years for office furniture and equipment, and five years for computer equipment. Leasehold improvements are amortized over the lesser of the lease term or the useful life of the improvements. Expenditures for maintenance and repairs along with fixed assets below our capitalization threshold of $500 are expensed as incurred.
Website Development Costs
The Company accounts for its website development costs in accordance with Accounting Standards Codification (ASC) ASC 350-50,
Website Development Costs
(ASC 350-50). These costs, if any, are included in intangible assets in the accompanying consolidated financial statements or expensed immediately if the Company cannot support recovery of these costs from positive future cash flows.
ASC 350-50 requires the expensing of all costs of the preliminary project stage and the training and application maintenance stage and the capitalization of all internal or external direct costs incurred during the application and infrastructure development stage. Upgrades or enhancements that add functionality are capitalized while other costs during the operating stage are expensed as incurred. The Company amortizes the capitalized website development costs over an estimated life of five years.
As of March 31, 2017 and 2016, all website development costs have been expensed.
Amortization and Impairment of Long-Lived Assets
Amortization and impairment of long-lived assets are non-cash expenses relating primarily to website acquisitions. The Company accounts for long-lived assets in accordance with the provisions of ASC 360-10
Accounting for the Impairment or Disposal of Long-Lived Assets
. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Website acquisition costs are amortized over five years. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. While it is likely that we will have significant amortization expense as we continue to acquire websites, we believe that intangible assets represent costs incurred by the acquired website to build value prior to acquisition and the related amortization and impairment charges of assets, if applicable, are not ongoing costs of doing business. Non-cash amortization loss is included in selling, general and administrative expenses on the accompanying statement of operations. For the three months ended March 31, 2017 and 2016, non-cash amortization expense was $75,806 and $62,843, respectively.
Stock-Based Compensation
The Company accounts for stock-based instruments issued to employees for services in accordance with ASC Topic 718
Compensation Stock Compensation
. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The value of the portion of an employee award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC Topic 505-50,
Equity-Based Payments to Non-Employees
. The Company estimates the fair value of stock options by using the Black-Scholes option-pricing model. Non- cash stock-based stock option compensation is expensed over the requisite service period and are included in selling, general and administrative expenses on the accompanying condensed consolidated statement of operations. For the three months ended March 31, 2017 and 2016, non-cash stock-based stock option compensation expense was $38,259 and $17,573, respectively.
8
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
Advertising, Marketing and Promotion Costs
Advertising, marketing and promotion expenses are expensed as incurred and are included in selling, general and administrative expenses on the accompanying statement of operations. For the three months ended March 31, 2017 and 2016, advertising, marketing and promotion expense was $92,288 and $7,050, respectively.
Income Taxes
We use the asset and liability method to account for income taxes. Under this method, deferred income taxes are determined based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements which will result in taxable or deductible amounts in future years and are measured using the currently enacted tax rates and laws. A valuation allowance is provided to reduce net deferred tax assets to the amount that, based on available evidence, is more likely than not to be realized.
The Company follows the provisions of ASC 740-10
Accounting for Uncertain Income Tax Positions.
When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements
in the period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The
portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as
a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would
be payable to the taxing authorities upon examination.
As of March 31, 2017, tax years 2016, 2015, and 2014 remain open for IRS audit. The Company has received no notice of audit or any notifications from the IRS for any of the open tax years.
Basic and Diluted Net Earnings (Loss) Per Common Share
In accordance with ASC 260-10
Earnings Per Share
, basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. As of March 31, 2017 and 2016, there were approximately 2,281,000 and 1,847,000 common stock equivalent shares outstanding as stock options, respectively, 100,000 and 5,200,000 common stock equivalents from the conversion of preferred stock, respectively, and 1,850,000 and 600,000 common stock equivalents from the conversion of notes payable, respectively. Equivalent shares were not utilized, as the effect is anti-dilutive.
9
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
Segment Information
In accordance with the provisions of ASC 280-10,
Disclosures about Segments of an Enterprise and Related Information
, the Company is required to report financial and descriptive information about its reportable operating segments. The Company has two identifiable operating segments based on the activities of the company in accordance with the ASC 280-10. The Company's two segments are product sales and services as of March 31, 2017. The product sales segment sells merchandise directly to customers thorough e-commerce distributor portals such as Amazon and eBay and through our proprietary websites and retail location. The services segment is focused on producing advertising revenue generated by users clicking on website advertisements utilizing several ad network partners and direct advertisers and subscription revenue generated by the sale of access to career postings on one of our websites.
Recent Accounting Pronouncements
In June 2014, FASB issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers
.
The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605 "
Revenue Recognition
," and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35 "
Revenue Recognition Construction-Type and Production-Type Contracts
." The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09.
We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements - Going Concern
, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entitys ability to continue as a going concern within one year after the date the financial statements are issued and provide related disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods thereafter. Early application was permitted. The adoption of ASU 2014-15 did not have a material effect on our condensed consolidated financial statements.
In July 2015, FASB issued ASU No. 2015-11
, Inventory (Topic 330): Simplifying the Measurement of Inventory
more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method
.
For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period.
The adoption of ASU No. 2015-11 did not have a material effect on our condensed consolidated financial statements.
10
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued).
In February 2016, the FASB issued ASU 2016-02
Leases
, which will amend current lease accounting to require lessees to recognize (i) a lease liability, which is a lessees 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 lessees right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 does not significantly change lease accounting requirements applicable to lessors; however, certain changes were made to align, where necessary, lessor accounting with the lessee accounting model. This standard will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In March 2016, the FASB issued ASU 2016-09,
Compensation Stock Compensation: Improvements to Employee Share-Based Payment Accounting
, which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.
The adoption of ASU No. 2016-9 did not have a material effect on our condensed consolidated financial statements.
In April 2016, the FASB issued ASU 201610
Revenue from Contract with Customers
(Topic 606):
Identifying Performance Obligations and Licensing.
The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entitys promise to grant a license provides a customer with either a right to use the entitys intellectual property (which is satisfied at a point in time) or a right to access the entitys intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
In April 2016, the FASB issued ASU No. 2016-15,
Classification of Certain Cash Receipts and Cash Payments
ASU 2016- provides guidance regarding the classification of certain items within the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 with early adoption permitted. We do not believe this ASU will have an impact on our results of operation, cash flows, other than presentation, or financial condition.
NOTE 2 - GOING CONCERN.
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company sustained a net loss of $683,247 and used cash in operating activities of $445,058 for the three months ended March 31, 2017. The Company had an accumulated deficit of $9,508,053 at March 31, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company's continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital and loans from related parties to sustain its current level of operations.
Management plans to continue to raise additional capital through private placements and is exploring additional avenues for future fund-raising through both public and private sources.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
11
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 3 ACQUISITIONS.
On January 2, 2016, the Company closed the acquisition of warisboring.com pursuant to the terms and conditions of the Website Asset Purchase Agreement dated December 4, 2015 for an aggregate purchase price of $250,000. The purchase price consisted of a cash payment of $100,000 at the January 4, 2016 closing and the balance of $150,000, payable monthly in an amount equal to 30% of the net revenues from the website, when collected, with the total amount of the earn out to be paid by January 4, 2019. The Company recorded the future monthly payments totaling $150,000 at a present value of $117,268, net of discount of $32,732. The present value was calculated at a discount rate of 12% (which is the Companys then most recent borrowing rate) using the estimated future revenues from the website to estimate the payment dates. The estimated future revenues from the website were based on the average historical monthly revenues from the website prior to the Companys acquisition. During the three months ended March 31, 2017 and 2016, the Company amortized $2,728 and $2,728, respectively, of this discount. The acquisition was accounted following ASC 805
Business Combinations
. Under the purchase method of accounting, the transaction was valued for accounting purposes at $217,268, which was the fair value of warisboring.com. The Company has initially determined there was only two amortizable intangible assets. The acquisition date estimated fair value of the consideration transferred consisted of the following:
|
|
|
|
|
Customer and related relationships
|
|
$
|
39,578
|
|
Website
|
|
|
177,690
|
|
Total
|
|
$
|
217,268
|
|
The above estimated fair value of the intangible assets are based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the asset acquired, with the corresponding offset to website. After the preliminary purchase price allocation period, we record adjustments to assets acquired subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined. In the year following this transaction, we did not record any adjustments to our initial allocations.
On February 2, 2016, the Company entered into a Website Asset Purchase Agreement with unrelated third parties for a purchase price of $15,000 in cash. The acquisition was accounted for following ASC
805 "Business Combinations."
The operations of the website prior to the Company's acquisition were immaterial; therefore, pro forma information was not presented. There were no costs of acquisition incurred as a result of this purchase.
On December 16, 2016, with an effective date of December 15, 2016 under the terms of the Asset Purchase Agreement, we acquired the assets constituting the Black Helmet apparel business from Sostre Enterprises, Inc., including various website properties and content, social media content, inventory and other intellectual property rights. The consideration for the acquisition consisted of $250,000 in cash, 200,000 shares of our common stock valued at $170,000, the assumption of $40,000 in liabilities and the forgiveness of working capital advances we had previously made to the seller totaling $200,000.
A summary of assets acquired is as follows:
|
|
|
|
|
Inventory
|
|
$
|
58,000
|
|
Intangibles website
|
|
|
80,000
|
|
Intangibles trade name
|
|
|
150,000
|
|
Intangibles customer relationships
|
|
|
252,000
|
|
Intangibles non compete agreements
|
|
|
120,000
|
|
Total assets acquired
|
|
$
|
660,000
|
|
12
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 3 ACQUISITIONS (continued).
Pro forma results
The following table sets forth the unaudited pro forma results of the Company as if the acquisition of the assets constituting the Black Helmet apparel business had taken place on the first day of the periods presented. These combined results are not necessarily indicative of the results that may have been achieved had the assets been acquired as of the first day of the periods presented.
|
|
|
|
|
|
|
Three months ended
March 31,
2016
|
|
Total revenue
|
|
$
|
672,307
|
|
Total expenses
|
|
|
1,415,781
|
|
Preferred stock dividend
|
|
|
90,102
|
|
Net loss attributable to common shareholders
|
|
$
|
(833,576
|
)
|
Basic and diluted net loss per share
|
|
$
|
(0.02
|
)
|
At March 31, 2017 and December 31, 2016, respectively, website acquisition assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Website Acquisition Assets
|
|
$
|
1,739,179
|
|
|
$
|
1,739,179
|
|
Less: Accumulated Amortization
|
|
|
(656,851
|
)
|
|
|
(581,045
|
)
|
Less: Impairment Loss
|
|
|
(191,020
|
)
|
|
|
(191,020
|
)
|
Website Acquisition Assets, net
|
|
$
|
891,308
|
|
|
$
|
967,114
|
|
Non-cash amortization expense for the three months ended March 31, 2017 and 2016 was $75,806 and $62,843, respectively.
In connection with the acquisition of the Black Helmet apparel business, the Company recognized $150,000 attributable to tradenames acquired.
NOTE 4 INVENTORIES.
At March 31, 2017 and December 31, 2016 inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Product inventory: clocks and watches
|
|
$
|
969,764
|
|
|
$
|
982,283
|
|
Product inventory: other inventory
|
|
|
239,329
|
|
|
|
144,789
|
|
Total inventory balance
|
|
$
|
1,209,093
|
|
|
$
|
1,127,072
|
|
NOTE 5 PREPAID COSTS AND EXPENSES.
At March 31, 2017 and December 31, 2016, prepaid expenses and other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Prepaid Rent
|
|
$
|
58,851
|
|
|
$
|
46,523
|
|
Prepaid Insurance
|
|
|
61,439
|
|
|
|
84,825
|
|
Prepaid Inventory
|
|
|
|
|
|
|
1,602
|
|
Prepaid Expenses and Other Current Assets
|
|
$
|
120,290
|
|
|
$
|
132,950
|
|
13
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 6 PROPERTY AND EQUIPMENT.
At March 31, 2017 and December 31, 2016, property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
Depreciable Life
|
|
|
|
2016
|
|
|
2015
|
|
|
(Years)
|
|
Furniture and Fixtures
|
|
$
|
71,977
|
|
|
$
|
70,108
|
|
|
7
|
|
Computer Equipment
|
|
|
56,142
|
|
|
|
56,142
|
|
|
5
|
|
Leasehold Improvements
|
|
|
41,177
|
|
|
|
35,011
|
|
|
10
|
|
Total Fixed Assets
|
|
|
169,296
|
|
|
|
161,261
|
|
|
|
|
|
Less: Accumulated Depreciation
|
|
|
(67,749
|
)
|
|
|
(62,260
|
)
|
|
|
|
|
Total Fixed Assets, net
|
|
$
|
101,547
|
|
|
$
|
99,001
|
|
|
|
|
|
Non-cash depreciation expense for the three months ending March 31, 2017 and 2016 was $5,489 and $3,334 respectively.
NOTE 7 SEGMENT INFORMATION.
The Company has two identifiable segments as of March 31, 2017; products and services. The products segment sells merchandise directly to customers thorough e-commerce distributor portals such as Amazon and eBay and through our proprietary websites and retail location. The services segment is focused on producing advertising revenue generated by users clicking on website advertisements utilizing several ad network partners and direct advertisers and subscription revenue generated by the sale of access to career postings on one of our websites.
The following information represents segment activity for the three month period ended March 31, 2017. Comparable information is presented for the respective period in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
March 31, 2017
|
|
|
For the three months ended
March 31, 2016
|
|
|
|
Products
|
|
|
Services
|
|
|
Total
|
|
|
Products
|
|
|
Services
|
|
|
Total
|
|
Revenues
|
|
$
|
551,355
|
|
|
$
|
109,743
|
|
|
$
|
661,098
|
|
|
$
|
347,779
|
|
|
$
|
76,636
|
|
|
$
|
424,415
|
|
Website Amortization
|
|
$
|
|
|
|
$
|
75,806
|
|
|
$
|
75,806
|
|
|
$
|
|
|
|
$
|
62,843
|
|
|
$
|
62,843
|
|
Depreciation
|
|
$
|
4,578
|
|
|
$
|
911
|
|
|
$
|
5,489
|
|
|
$
|
2,712
|
|
|
$
|
622
|
|
|
$
|
3,334
|
|
Loss from operations
|
|
$
|
(461,912
|
)
|
|
$
|
(137,249
|
)
|
|
$
|
(599,161
|
)
|
|
$
|
(413,604
|
)
|
|
$
|
(219,230
|
)
|
|
$
|
(632,834
|
)
|
Segment Assets
|
|
$
|
1,438,646
|
|
|
$
|
1,306,714
|
|
|
$
|
2,745,360
|
|
|
$
|
1,337,082
|
|
|
$
|
871,946
|
|
|
$
|
2,209,028
|
|
Purchase of Assets
|
|
$
|
8,035
|
|
|
$
|
|
|
|
$
|
8,035
|
|
|
$
|
|
|
|
$
|
125,122
|
|
|
$
|
125,122
|
|
NOTE 8 NOTES PAYABLE.
Beneficial Conversion Feature
Following the conversion of outstanding notes in August 2016, the Company issued a series of 12% convertible promissory notes that have conversion prices that create a beneficial conversion to related parties. This note mature five years from issuance and are convertible at the option of the holder into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the face value of the note. In accordance with this guidance, the intrinsic value of the beneficial conversion features is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest over the five-year life of the note using the effective interest method.
14
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 8 NOTES PAYABLE (continued).
A summary of these note issuances at December 31, 2016 and March 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance Date
|
|
|
Maturity Date
|
|
|
Principal
|
|
|
Discount
Recognized
|
|
|
Amortization
Expense
2016
|
|
|
Carry
Amount at
December 31,
2016
|
|
|
Amortization
Three Months Ended
March 31,
2017
|
|
|
Carry
Amount at
March 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/26/16
|
|
|
09/26/21
|
|
|
$
|
100,000
|
|
|
$
|
70,000
|
|
|
$
|
3,692
|
|
|
$
|
33,692
|
|
|
$
|
3,500
|
|
|
$
|
37,192
|
|
10/14/16
|
|
|
10/14/21
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
3,024
|
|
|
|
33,024
|
|
|
|
3,500
|
|
|
|
36,524
|
|
10/31/16
|
|
|
10/31/21
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
2,372
|
|
|
|
32,372
|
|
|
|
3,500
|
|
|
|
35,872
|
|
11/03/16
|
|
|
11/03/21
|
|
|
|
50,000
|
|
|
|
35,000
|
|
|
|
1,120
|
|
|
|
16,120
|
|
|
|
1,750
|
|
|
|
17,870
|
|
11/11/16
|
|
|
11/11/21
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
1,934
|
|
|
|
31,934
|
|
|
|
3,500
|
|
|
|
35,434
|
|
11/21/16
|
|
|
11/21/21
|
|
|
|
50,000
|
|
|
|
35,000
|
|
|
|
775
|
|
|
|
15,775
|
|
|
|
1,750
|
|
|
|
17,525
|
|
12/15/16
|
|
|
12/15/21
|
|
|
|
75,000
|
|
|
|
52,500
|
|
|
|
488
|
|
|
|
22,988
|
|
|
|
2,625
|
|
|
|
25,613
|
|
01/19/17
|
|
|
01/19/22
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
2,823
|
|
|
|
32,823
|
|
02/06/17
|
|
|
02/06/22
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
2,061
|
|
|
|
32,061
|
|
02/24/17
|
|
|
02/24/22
|
|
|
|
50,000
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
15,208
|
|
03/07/17
|
|
|
03/07/22
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
942
|
|
|
|
30,942
|
|
|
|
|
|
|
|
$
|
925,000
|
|
|
$
|
647,500
|
|
|
$
|
13,405
|
|
|
$
|
185,905
|
|
|
$
|
26,159
|
|
|
$
|
317,064
|
|
Amortization of debt discount totaled $26,159 and $5,049 at March 31, 2017 and 2016, respectively.
On November 30, 2016, the Company entered into a promissory note agreement with an unaffiliated party in the principal amount of $500,000. The note is unsecured, carries an interest rate of 25% per annum payable in arrears at maturity. The note matures November 30, 2017 and may be prepaid at any time without notice or prepayment penalty. In the event of default of any loan provision, the lender can declare all or any portion of the unpaid principal and interest immediately due and payable. Accrued interest on this note totaled $42,361 at March 31, 2017.
NOTE 9 COMMITMENTS AND CONTINGENCIES.
Leases
The Company leases its corporate offices at 6400 Congress Avenue, Suite 2050, Boca Raton, Florida 33487 under a long-term non-cancellable lease agreement, which contains renewal options. The lease, which was entered into on August 25, 2014 was amended on July 30, 2015 to increase the original approximate 2,014 square feet to approximately 4,450 square feet. The term of the lease was extended and will terminate on March 14, 2019 at a current base rent of for a term of approximately $8,978 per month for the first twelve months with a 3% escalation each year. An additional security deposit of $2,500 was required. Rent is all-inclusive and includes electricity, heat, air-conditioning, and water. The original rent commencement date was October 11, 2014 and will expire on March 14, 2019.
The Company leases retail space for its product sales division at 4900 Linton Boulevard, Bay 17A, Delray Beach, FL 33445 under a long-term, non-cancellable lease agreement, which contains renewal options. The lease, which was entered into on August 25, 2014, is for approximately 2,150 square feet for a term of 36 months in Delray Beach, Florida at a base rent of approximately $2,329 per month for the first twelve months with a 3% escalation each year. A security deposit of $3,865, first month's prepaid rent of $3,865, and last month's prepaid rent of $4,015 was paid upon lease execution. The lease is a triple net lease. Common area maintenance is approximately $1,317 per month for the first twelve months with annual escalations not to exceed 4%. The rent commencement date was October 1, 2014 and was initially set to expire on September 30, 2017. In January 2017, this lease was modified and extended concurrent with the expansion of our retail space in the same location.
15
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 9 COMMITMENTS AND CONTINGENCIES (continued).
In January 2017, the Company entered into an additional lease and modified and extended our existing lease for our retail site. The new lease agreement provides for an additional 2,720 square feet adjacent to our existing Delray Beach FL location commencing February 1, 2017, and expiring January 31, 2022. This lease provides for one months free rent, an initial monthly base rental of $1,757, representing a one-half reduction in rental payments for the first year as an accommodation. Minimum base rental for year two is $3,513 per month, escalating 3% per year thereafter. The Company also provided a $10,000 security deposit and prepaid $96,940 in future rents on the facility through the funding of certain leasehold improvements. Prepaid rent totaled $95,183 at March 31, 2017. Simultaneously, the Company modified our existing lease on the initial space, extending this lease to coincide with the new space, expiring January 31, 2022, at an initial base rental of $2,471 per month, escalating 3% per year thereafter.
On December 16, 2016, with an effective date of December 15, 2016 under the terms of the Asset Purchase Agreement, we acquired the assets constituting the Black Helmet apparel business including various website properties and content, social media content, inventory and other intellectual property rights. (See Note 3) We also acquired the right to assume the lease of their warehouse facility consisting of approximately 2,667 square feet. The lease was renewed for a three year term in April 2016 with an initial base rental rate of $1,641 per month, and escalating at approximately 3% per year thereafter.
Rent expense for the three months ended March 31, 2017 and 2016 was $60,676 and $40,366, respectively.
Legal
From time-to-time, we may be involved in litigation or be subject to claims arising out of our operations or content appearing on our websites in the normal course of business. Although the results of litigation and claims cannot be predicted with certainty, we currently believe that the final outcome of these ordinary course matters will not have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse impact on our company because of defense and settlement costs, diversion of management resources and other factors.
Other Commitments
The Company entered into various contracts or agreements in the normal course of business, which may contain commitments. During the three months ended March 31, 2017 and 2016, the Company entered into agreements with third party vendors to supply website content and data, website software development, advertising, public relations, and legal services. All of these commitments contain provisions whereby either party may terminate the agreement with specified notice, normally 30 days, and with no further obligation on the part of either party.
During the years ended December 31, 2016 and 2015, the Company entered into agreements with third parties related to websites acquired during the respective periods as further discussed in Note 3. In connection with the two acquisitions made in 2016, the Company entered into a management agreement associated with the WarIsBoring website at $5,000 per month through November 18, 2018, and two service agreements in connection the Black Helmet Apparel acquisition at $6,250 per month, each, through December 15, 2019, plus the ability to earn bonuses ranging from $50,000 for the year ending December 31, 2017 to $100,000 for the year ending December 31, 2019 each based upon the satisfaction of certain revenue and gross margin targets. Future contingent milestone payments under the acquisitions made in 2015 totaled approximately $210,000 and $210,000 for 2017 and 2016, respectively.
Total payments for the three month periods March 31, 2017 and 2016 were $52,500 and $44,000, respectively.
Contractual commitments remaining under various acquisition related agreements total: $245,000 in 2017; $205,000 in 2018; $144,000 in 2019 and $0 for 2020 and 2021, respectively.
16
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 9 COMMITMENTS AND CONTINGENCIES (continued).
The Company entered into an Executive Employment Agreement with our Chief Executive Officer, with an effective date of June 1, 2014. Under the initial terms of this agreement, the Company would compensate the Chief Executive Officer with a base salary of $75,000 annually, and he is entitled to receive discretionary bonuses as may be awarded by the Company's board of directors from time to time. The initial term of the agreement is three years, and the Company may extend it for an additional one-year period upon written notice at least 180 days prior to the expiration of the term. The Chief Executive Officer's base annual salary was increased to $77,500 in January, 2015, $96,000 in July 2015, and to $125,000 effective October 1, 2015 upon recommendation of the Compensation Committee of the board of directors. In May 2016 the Chief Executive Officer orally agreed to a reduction in his base salary to $95,000 per annum.
The agreement will terminate upon the Chief Executive Officer's death or disability. In the event of a termination upon his death, the Company is obligated to pay his beneficiary or estate an amount equal to one year base salary plus any earned bonus at the time of his death. In the event the agreement is terminated as a result of his disability, as defined in the agreement, he is entitled to continue to receive his base salary for a period of one year. The Company is also entitled to terminate the agreement either with or without case, and the Chief Executive Officer is entitled to voluntarily terminate the agreement upon one year's notice to the Company. In the event of a termination by the Company for cause, as defined in the agreement, or voluntarily by the Chief Executive Officer, the Company is obligated to pay him the base salary through the date of termination. In the event the Company terminates the agreement without cause, the Company is obligated to give him one years' notice of the Company's intent to terminate and, at the end of the one year period, pay an amount equal to two times his annual base salary together with any bonuses which may have been earned as of the date of termination. A constructive termination of the agreement will also occur if the Company materially breaches any term of the agreement or if a successor company to the Company fails to assume the Company's obligations under the employment agreement. In that event, the Chief Executive Officer will be entitled to the same compensation as if the Company terminated the agreement without cause.
The employment agreement contains customary non-compete and confidentiality provisions. The Company also agreed to indemnify the Chief Executive Officer pursuant to the provisions of the Company's Amended and Restated Articles of Incorporation and Amended and Restated By-laws.
On April 1, 2017 the Company entered into the First Amendment to the Executive Employment Agreement with our Chief Executive Officer. Under the terms of the amendment, the term of his employment was extended to April 1, 2020, which may be further extended for additional one year periods upon 180 days notice by us to him. Under the terms of the amendment, Mr. Speyer's base salary was increased to $165,000 annually and he is entitled to earn annual performance bonuses, beginning with the year ending December 31, 2017, ranging from 25% of his base salary to 80% of his base salary upon our achievement of certain annual revenue and EBITDA targets. All other terms and conditions of his employment agreement remain in full force.
NOTE 10 RELATED PARTIES.
Beneficial Conversion Feature
Following the conversion of outstanding notes in August 2016, the Company issued a series of 12% convertible promissory notes that have conversion prices that create a beneficial conversion to related parties. This note mature five years from issuance and are convertible at the option of the holder into shares of common stock at any time prior to maturity at a conversion price of $0.50 per share. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the face value of the note. In accordance with this guidance, the intrinsic value of the beneficial conversion features is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest over the five-year life of the note using the effective interest method.
17
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 10 RELATED PARTIES (continued).
A summary of these note issuances at December 31, 2016 and March 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance Date
|
|
|
Maturity Date
|
|
|
Principal
|
|
|
Discount
Recognized
|
|
|
Amortization
Expense
2016
|
|
|
Carry
Amount at
December 31,
2016
|
|
|
Amortization
Three Months Ended
March 31,
2017
|
|
|
Carry
Amount at
March 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
09/26/16
|
|
|
09/26/21
|
|
|
$
|
100,000
|
|
|
$
|
70,000
|
|
|
$
|
3,692
|
|
|
$
|
33,692
|
|
|
$
|
3,500
|
|
|
$
|
37,192
|
|
10/14/16
|
|
|
10/14/21
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
3,024
|
|
|
|
33,024
|
|
|
|
3,500
|
|
|
|
36,524
|
|
10/31/16
|
|
|
10/31/21
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
2,372
|
|
|
|
32,372
|
|
|
|
3,500
|
|
|
|
35,872
|
|
11/03/16
|
|
|
11/03/21
|
|
|
|
50,000
|
|
|
|
35,000
|
|
|
|
1,120
|
|
|
|
16,120
|
|
|
|
1,750
|
|
|
|
17,870
|
|
11/11/16
|
|
|
11/11/21
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
1,934
|
|
|
|
31,934
|
|
|
|
3,500
|
|
|
|
35,434
|
|
11/21/16
|
|
|
11/21/21
|
|
|
|
50,000
|
|
|
|
35,000
|
|
|
|
775
|
|
|
|
15,775
|
|
|
|
1,750
|
|
|
|
17,525
|
|
12/15/16
|
|
|
12/15/21
|
|
|
|
75,000
|
|
|
|
52,500
|
|
|
|
488
|
|
|
|
22,988
|
|
|
|
2,625
|
|
|
|
25,613
|
|
01/19/17
|
|
|
01/19/22
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
2,823
|
|
|
|
32,823
|
|
02/06/17
|
|
|
02/06/22
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
2,061
|
|
|
|
32,061
|
|
02/24/17
|
|
|
02/24/22
|
|
|
|
50,000
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
15,208
|
|
03/07/17
|
|
|
03/07/22
|
|
|
|
100,000
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
942
|
|
|
|
30,942
|
|
|
|
|
|
|
|
$
|
925,000
|
|
|
$
|
647,500
|
|
|
$
|
13,405
|
|
|
$
|
185,905
|
|
|
$
|
26,159
|
|
|
$
|
317,064
|
|
Amortization of debt discount totaled $26,159 and $5,049 at March 31, 2017 and 2016, respectively.
NOTE 11 SHAREHOLDERS EQUITY.
Preferred Stock
The Company has authorized 20,000,000 shares of preferred stock with a par value of $0.01 (the "Preferred Stock"), issuable in such series and with such designations, rights and preferences as the board of directors may determine.
On November 1, 2013, the board of directors approved the designation of 2,000,000 shares of the Preferred Stock as 10% Series A Convertible Preferred Stock (Series A Stock). Holders of the Series A Stock are entitled to the payment of a 10% dividend payable in shares of the Companys common stock at a rate of one share of common stock for each 10 shares of Series A Stock. Dividends are payable annually the 10th business day of January. Each holder of Series A Stock may convert all or part of the Series A Stock into shares of common stock on a share for share basis. Shares of Series A Stock rank superior to all other classes of stock upon liquidation. Each share of Series A Stock will automatically convert into shares of common stock five years from the date of issuance or upon a change in control. On August 18, 2016, Series A Stockholders converted 1,800,000 shares of Series A Stock into 1,800,000 shares of common stock, leaving 100,000 Series A Stock outstanding. On the 10th business day of January 2017 there were 2,466 shares of common stock dividends owed and payable to the Series A Stockholders of record as dividends on the Series A Stock. The shares of Series A Stock is subject to adjustment of the conversion terms due to future mergers, sales and stock splits, if any.
Common Stock
Stock issued for services
On January 16, 2017, the Company issued to a consultant 3,600 shares of its common stock at $0.85 per share, or $3,060, for services rendered. The Company valued these common shares based on the fair value at the date of grant.
18
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 11 SHAREHOLDERS EQUITY (continued).
Stock issued for dividends
During the three months ended March 31, 2017, the Company issued 10,000 shares of its common stock as dividends to the holder of its Series A preferred stock. Holders of the Series A, Series B, Series C, and Series D Stock are entitled to the payment of a 10% dividend payable in shares of the Companys common stock at a rate of one share of common stock for each ten shares of Series A, Series B, Series C, or Series D Stock payable on the tenth business day of January commencing in 2017.
Stock Incentive Plan and Stock Option Grants to Employees and Directors
The Company accounts for stock option compensation issued to employees for services in accordance with ASC Topic 718,
Compensation Stock Compensation
. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The value of the portion of an employee award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC Topic 505-50,
Equity-Based Payments to Non-Employees
. The Company estimates the fair value of stock options by using the Black-Scholes option-pricing model.
Stock options issued to consultants and other non-employees as compensation for services provided to the Company are accounted for based on the fair value of the services provided or the estimated fair market value of the option, whichever is more reliably measurable in accordance with ASC 505
Equity and ASC 718
,
including related amendments and interpretations. The related expense is recognized over the period the services are provided.
Stock Option Plans
The Company has adopted three stock option plans, the terms of which are substantially identical. The purpose of each plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. Under each plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long-term incentive awards. The Compensation Committee of the Company's board of directors administers each plan. The material terms of each option which may be granted under each plan will contain the following terms: (i) that the purchase price of each share purchasable under an incentive option shall be determined by the Committee at the time of grant, (ii) the term of each option shall be fixed by the Committee, but no option shall be exercisable more than 10 years after the date such option is granted, and (iii) in the absence of any option vesting periods designated by the Committee at the time of grant, options shall vest and become exercisable in terms and conditions, consistent with the plan, as may be determined by the Committee and specified in the grant instrument.
On April 20, 2011, the Company's board of directors and majority stockholder adopted the 2011 Stock Option Plan (the 2011 Plan), to be effective on January 3, 2011. The Company has reserved for issuance an aggregate of 900,000 shares of common stock under the 2011 Plan. The maximum aggregate number of shares of Company stock that shall be subject to Grants made under the Plan to any individual during any calendar year shall be 180,000 shares. As of March 31, 2017, 27,000 shares were remaining under the 2011 Plan for future issuance.
On April 1, 2013, the Company's board of directors and majority stockholder adopted the 2013 Stock Option Plan (the 2013 Plan), to be effective on April 1, 2013. The Company has reserved for issuance an aggregate of 900,000 shares of common stock under the 2013 Plan. The maximum aggregate number of shares of Company stock that shall be subject to grants made under the 2013 Plan to any individual during any calendar year shall be 180,000 shares. As of March 31, 2017, 132,000 shares were remaining under the 2013 Plan for future issuance.
19
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 11 SHAREHOLDERS EQUITY (continued).
On May 22, 2015, the Company's board of directors adopted the 2015 Stock Option Plan (the 2015 Plan), to be effective on May 22, 2015. Effective August 3, 2015, and as disclosed in the Company's Information Statement on Schedule 14C, the Company's majority shareholders ratified the adoption of the 2015 Plan. The Company has reserved for issuance an aggregate of 1,000,000 shares of common stock under the 2015 Plan. The maximum aggregate number of shares of Company stock that shall be subject to grants made under the 2015 Plan to any individual during any calendar year shall be 100,000 shares. As of March 31, 2017, 385,000 shares were remaining under the 2015 Plan for future issuance.
On March 22, 2016 the Company granted 100,000 ten-year stock options, which have an exercise price of $0.695 per share to an executive officer and director. The aggregate fair value of these options was computed at $39,901 or $0.3990 per option.
On March 22, 2016 the Company granted 46,000 ten-year stock options, which have an exercise price of $0.695 per share to a director. The aggregate fair value of these options was computed at $18,354 or $0.3990 per option.
The Company estimates the fair value of share-based compensation utilizing the Black-Scholes option pricing model, which is dependent upon several variables such as the expected option term, expected volatility of our stock price over the expected option term, expected risk-free interest rate over the expected option term, expected dividend yield rate over the expected option term, and an estimate of expected forfeiture rates.
The Company believes this valuation methodology is appropriate for estimating the fair value of stock options granted to employees and directors, which is subject to ASC Topic 718 requirements. These amounts are estimates and thus may not be reflective of actual future results, nor amounts ultimately realized by recipients of these grants. The Company recognizes share-based compensation expense on a straight-line basis over the requisite service period for each award. The following table summarizes the assumptions the Company utilized to record compensation expense for stock options granted during the three months ended March 31, 2017 and 2016:
No options were granted during the three months ended March 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
Assumptions:
|
|
2017
|
|
|
2016
|
|
Expected term (years)
|
|
|
|
|
|
6.8
|
|
Expected volatility
|
|
|
|
%
|
|
|
66
|
%
|
Risk-free interest rate
|
|
|
|
%
|
|
|
0.1 2.07
|
%
|
Dividend yield
|
|
|
|
%
|
|
|
0
|
%
|
Expected forfeiture rate
|
|
|
|
%
|
|
|
0
|
%
|
The expected life is computed using the simplified method, which is the average of the vesting term and the contractual term. The expected volatility is based on an average of similar public companies historical volatility. The risk-free interest rate is based on the U.S. Treasury yields with terms equivalent to the expected term of the related option at the time of the grant. Dividend yield is based on historical trends. While the Company believes these estimates are reasonable, the compensation expense recorded would increase if the expected life was increased, a higher expected volatility was used, or if the expected dividend yield increased.
The Company recorded $38,259 and $17,573 stock option expense for the three months ended March 31, 2017 and 2016, respectively. The $38,259 non-cash stock option expense for the three months ended March 31, 2017 has been recognized as a component of general and administrative expenses in the accompanying unaudited condensed consolidated financial statements.
As of March 31, 2017 there were total unrecognized compensation costs related to non-vested share-based compensation arrangements of $180,733 to be recognized through August 2020.
20
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 11 SHAREHOLDERS EQUITY (continued).
A summary of the Company's stock option activity during the three months ended March 31, 2017 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Options
|
|
|
Weighted Average
Exercise
Price
|
|
|
Weighted Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance Outstanding, December 31, 2016
|
|
|
2,281,000
|
|
|
$
|
0.47
|
|
|
|
6.8
|
|
|
$
|
795,185
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Outstanding, March 31, 2017
|
|
|
2,281,000
|
|
|
$
|
0.47
|
|
|
|
6.6
|
|
|
$
|
775,585
|
|
Exercisable at March 31, 2017
|
|
|
1,508,000
|
|
|
$
|
0.32
|
|
|
|
5.3
|
|
|
$
|
719,373
|
|
Summarized information with respect to options outstanding under the two option plans at March 31, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range or
Exercise Price
|
|
Number
Outstanding
|
|
Remaining
Average
Contractual
Life (In Years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
0.14 - 0.24
|
|
720,000
|
|
1.2
|
|
$
|
0.14
|
|
720,000
|
|
$
|
0.14
|
0.25 - 0.49
|
|
351,000
|
|
.98
|
|
$
|
0.28
|
|
324,000
|
|
$
|
0.28
|
0.50 - 0.85
|
|
1,210,000
|
|
4.5
|
|
$
|
0.70
|
|
464,000
|
|
$
|
0.61
|
|
|
2,281,000
|
|
6.6
|
|
$
|
0.47
|
|
1,508,000
|
|
$
|
0.32
|
NOTE 12 CONCENTRATIONS.
The Company has historically purchases a substantial amount of its products from two vendors; Citizens Watch Company of America, Inc., and Bulova Corporation. During the three months ended March 31, 2017, purchases from Citizens accounted for 25% and purchases from Bulova accounted for 16%, of the total products purchased as compared to 33% and 23%, respectively, for the three months ended March 31, 2016. Although we continue to add additional product vendors and we continue to expand our product line and vendor relationships, due to continued high concentration and reliance on these two vendors, the loss of one of these two vendors could adversely affect the Company's operations.
The Company generates revenues from two segments: product sales and services. We sell many products through various distribution portals, which include Amazon and Paypal/eBay. During the three months ended March 31, 2017, these two portals accounted for 44% and 43%, respectively of our total product sales as compared to 70% and 4% in the three months ended March 31, 2016. The sharp increase in Paypal/eBay concentration is due to our acquisition of the Black Helmet Apparel business in December 2016. Due to high concentration and reliance on these portals, the loss of a working relationship with either of these two portals could adversely affect the Company's operations.
A substantial amount of payments for our products sold are processed through PayPal. A disruption in PayPal payment processing could have an adverse effect on the Company's operations and cash flow.
21
BRIGHT MOUNTAIN MEDIA, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(Unaudited)
NOTE 12 CONCENTRATIONS (continued).
Credit Risk
The Company minimizes the concentration of credit risk associated with its cash by maintaining its cash with high quality federally insured financial institutions. However, cash balances in excess of the FDIC insured limit of $250,000 are at risk. At March 31, 2017 and December 31, 2016, respectively, the Company had no cash balances in excess of the FDIC insured limit.
Concentration of Funding
During the three months ended March 31, 2017, the Company's funding was provided by the convertible notes to a related party officer and director. See Note 6.
NOTE 13 SUBSEQUENT EVENTS.
On April 1, 2017, the Company entered into the First Amendment to the Executive Employment Agreement with W. Kip Speyer, our Chairman and Chief Executive Officer. This amendment amends certain terms of the Executive Employment Agreement dated June 1, 2014 by and between the Company and Mr. Speyer. Under the terms of the amendment, the term of his employment was extended to April 1, 2020, which may be further extended for additional one year periods upon 180 days notice by us to him. Under the terms of the amendment, Mr. Speyer's base salary was increased to $165,000 annually and he is entitled to earn annual performance bonuses, beginning with the year ending December 31, 2017, ranging from 25% of his base salary to 80% of his base salary upon our achievement of certain annual revenue and EBITDA targets.
Between April 3 2017 and April 19, 2017 Mr. W. Kip Speyer, an executive officer and director, lent us an aggregate of $150,000 under the terms of a series of 12% convertible promissory notes. The notes are unsecured, mature five years from the date of issuance, and are convertible at any time at the option of the holder into shares of our common stock at a conversion price of $0.50 per share. We did not pay any commissions or finders fees and the proceeds were used by us for working capital.
Between May 1, 2017 and May 11, 2017 Mr. Speyer also lent us $175,000 under the terms of a series of 6% convertible promissory note. The notes are unsecured, mature five years from the date of issuance, and are convertible at any time at the option of the holder into shares of our common stock at a conversion price of $0.50 per share. We did not pay any commissions or finders fees and the proceeds were used by us for working capital.
The notes have a conversion price that creates a beneficial conversion. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock into which the note is convertible exceeds the face amount of the note. In accordance with the guidance, the intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the five-year life of the notes using the effective interest method.
On April 25, 2017 we issued an aggregate of 28,500 shares of our common stock valued at $22,800 to 19 of our employees, including our executive officers as additional compensation at the rate of 1,500 shares per employee. The recipients were accredited or otherwise sophisticated investors who had access to business and financial information on our company.
22
ITEM 2.